Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes to consolidated financial statements.

BUSINESS OVERVIEW

We are a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. We also provide a broad range of management, engineering, technical, scientific, logistics, system integration and cybersecurity services. 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. During the six months ended June 26, 2022, 73% of our $30.4 billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including 64% from the Department of Defense (DoD)), 26% were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1% were from U.S. commercial and other customers. Our main areas of focus are in defense, space, intelligence, homeland security and information technology, including cybersecurity.

The following discussion is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and notes thereto and with our Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K).

COVID-19

The coronavirus disease 2019 (COVID-19) pandemic continued to cause business impacts in the first six months of 2022 primarily driven by the emergence of the Omicron variant in late 2021 with a resulting increase in COVID cases in early 2022. During the first six months of 2022, our performance was adversely affected by supply chain disruptions and delays, as well as labor challenges associated with employee absences, travel restrictions, site access, quarantine restrictions, remote work, and adjusted work schedules. Attendance for employees required to be onsite has fluctuated based on pandemic developments. We are actively engaging with our customers and are continuing to take measures to protect the health and safety of our employees. In our on-going effort to mitigate supply chain risks, we accelerated payments of $1.0 billion to our suppliers as of June 26, 2022, that are due according to contractual terms in future periods, while consistently prioritizing small businesses, which make up over half of our active supply base, as well as at-risk businesses.

The ultimate impact of COVID-19 on our operations and financial performance in future periods, including our ability to execute our programs in the expected timeframe, remains uncertain and will depend on future pandemic-related developments, including the duration of the pandemic, potential subsequent waves of COVID-19 infection or potential new variants, the effectiveness and adoption of COVID-19 vaccines and therapeutics, supplier impacts and related government actions to prevent and manage disease spread, including the implementation of any federal, state, local or foreign vaccine mandates, all of which are uncertain and cannot be predicted. The long-term impacts of COVID-19 on government budgets and other funding priorities, including international priorities, that impact demand for our products and services are also difficult to predict, but could negatively affect our future results and performance.

For additional risks to the corporation related to the COVID-19 pandemic, see Item 1A, Risk Factors of our 2021 Form 10-K.

Inflation

Heightened levels of inflation continue to present risk for Lockheed Martin and the broader industrial base. We have experienced impacts to our labor rates and suppliers have signaled inflation related cost pressures, which will flow through to our costs and pricing. Although we have not seen a significant impact from inflation to our financial results in the first half of 2022, if inflation remains at current levels for an extended period, or increases, and we are unable to successfully mitigate the impact, our costs could increase, resulting in pressure on our profits and margins, particularly for existing fixed-price contracts. For new contract proposals, we are factoring into our pricing heightened levels of inflation based on accepted DoD escalation indices and other assumptions, and in some cases seeking the inclusion of economic price adjustment (EPA) clauses, which would permit, subject to the particular contractual terms, cost adjustments in fixed price

contracts for unexpected inflation. Overall, inflation and the potential worsening of macro-economic conditions are a risk to our operations, suppliers and the stability of the defense industrial base. In addition, inflation and the increases in the cost of borrowing from rising interest rates could constrain the overall purchasing power of our customers for our products and services. Rising interest rates also will increase our borrowing costs on new debt and could affect the fair value of our investments. We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases from inflation.

Conflict in Ukraine

Russia’s invasion of Ukraine has elevated global geopolitical tensions and security concerns. As a result, we have received increased interest for our products and services as countries seek to improve their security posture, particularly in Europe. We expect this interest will result in new contracts, however, given the long-cycle nature of our business, it is hard to predict when any resulting sales would occur from potential new contracts and we do not expect a significant increase in 2022 sales from new contracts in response to the conflict. We are evaluating capacity at our operations and the supply chain to anticipate potential demand and enable us to deliver critical capabilities. In addition, the U.S. 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. We have not, however, experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise. The conflict also has increased the threat of malicious cyber activity from nation states and other actors. We have taken steps designed to enhance our defensive posture against tactics and techniques associated with this increased threat.

INDUSTRY CONSIDERATIONS

U.S. Government Funding

On March 15, 2022, the President signed the Consolidated Appropriations Act, 2022, providing annual funding for the Department of Defense (DoD) and other government departments and agencies. The appropriation provided $781 billion for national defense, which includes the DoD, Department of Energy (DoE) nuclear weapons-related activities, and the national security activities of the Coast Guard, Federal Bureau of Investigation, and others. The DoD portion was $742.3 billion, $25 billion more than the President’s Fiscal Year (FY) 2022 request. Additionally, the legislation included $13.6 billion in supplemental funding to support Ukraine, including $3.5 billion for defense articles and $650 million in Foreign Military Financing (FMF) for Ukraine and other Eastern European allies. Our programs continued to be well supported and funded through the FY 2022 budget process. On May 21, 2022, the President signed the Additional Ukraine Supplemental Appropriations Act, 2022, providing an additional $40 billion to support Ukraine. This included $6 billion in security assistance, $9 billion to replenish U.S. stocks, and $4 billion for Foreign Military Financing (FMF).

On March 28, 2022, the Administration submitted to Congress the President’s FY 2023 budget request, which proposes $813 billion for national defense. The DoD portion of this request is $773 billion, a 4% increase above the FY 2022 enacted amount. In June 2022, the Senate Armed Services Committee (SASC) and House Armed Services Committee (HASC) reported their versions of the FY 2023 National Defense Authorizations Act (NDAA), and the House Appropriations Committee (HAC) reported their version of the FY 2023 Defense Appropriations Act. As anticipated, the SASC and the HASC provided additional funds for DoD, $45 billion and $37 billion, respectively. The HAC marked to the President’s budget request. On July 14, 2022, the full House passed the FY 2023 NDAA, maintaining the additional $37 billion provided by the HASC. The Senate Appropriations Committee (SAC) has not yet announced when it will consider its version of the FY 2023 Defense Appropriations Act. The continued expectation is that final FY 2023 DoD funding will be higher than requested. Final legislation is not expected to be enacted until late in calendar year 2022 or, possibly, in early calendar year 2023.

See also the discussion of U.S. Government funding risks within “Item 1A, Risk Factors” included in our 2021 Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

Our operating cycle is primarily long-term and involves many types of contracts for the design, development and manufacture of products and related activities with varying delivery schedules. Consequently, the results of operations of a particular period, or period-to-period comparisons of sales and profits, may not be indicative of future operating results. The following discussions of comparative results among periods should be reviewed in this context. All per share amounts cited in these discussions are presented on a “per diluted share” basis, unless otherwise noted. Our consolidated results of operations were as follows (in millions, except per share data):

						Quarters Ended																		Six Months Ended
						June 26, 2022									June 27, 2021									June 26, 2022									June 27, 2021
Net sales						$	15,446								$	17,029								$	30,410								$	33,287
Cost of sales						(13,490)									(14,878)									(26,545)									(28,950)
Gross profit						1,956									2,151									3,865									4,337
Other income, net						7									41									31									37
Operating profit						1,963									2,192									3,896									4,374
Interest expense						(141)									(142)									(276)									(282)
Non-service FAS pension (expense) income						(1,331)									94									(1,191)									187
Other non-operating (expense) income, net						(161)									26									(38)									102
Earnings before income taxes						330									2,170									2,391									4,381
Income tax expense						(21)									(355)									(349)									(729)
Net earnings						$	309								$	1,815								$	2,042								$	3,652
Diluted earnings per common share						$	1.16								$	6.52								$	7.62								$	13.08

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

Net Sales

We generate sales from the delivery of products and services to our customers. Our consolidated net sales were as follows (in millions):

						Quarters Ended												Six Months Ended
						June 26, 2022						June 27, 2021						June 26, 2022						June 27, 2021
Products						$	12,761					$	14,258					$	25,255					$	28,011
% of total net sales						82.6		%				83.7		%				83.0		%				84.1		%
Services						2,685						2,771						5,155						5,276
% of total net sales						17.4		%				16.3		%				17.0		%				15.9		%
Total net sales						$	15,446					$	17,029					$	30,410					$	33,287

Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method. Under the percentage-of-completion cost-to-cost method, we record net sales on contracts over time based upon our progress towards completion on a particular contract, as well as our estimate of the profit to be earned at completion. The following discussion of material changes in our consolidated net sales should be read in tandem with the subsequent discussion of changes in our consolidated cost of sales and our business segment results of operations because changes in our sales are typically accompanied by a corresponding change in our cost of sales due to the nature of the percentage-of-completion cost-to-cost method. Overall, our sales were negatively affected in the first six months of 2022 because of supply chain impacts.

Product Sales

Product sales decreased $1.5 billion, or 10%, during the quarter ended June 26, 2022 compared to the same period in 2021. The decrease is primarily attributable to lower product sales of approximately $780 million at Aeronautics mostly due to lower volume on F-35 contracts; about $370 million at Space primarily due to the previously announced renationalization of the Atomic Weapons Establishment (AWE) program on June 30, 2021, which was no longer included in our financial results beginning in the third quarter of 2021; approximately $220 million at RMS mostly due to lower production volume on Black Hawk; and about $130 million at MFC primarily due to lower volume on air dominance weapon systems and close out activities in the second quarter of 2021 related to the Warrior Capability Sustainment Program (Warrior).

Product sales decreased $2.8 billion, or 10%, during the six months ended June 26, 2022 compared to the same period in 2021. The decrease is primarily attributable to lower product sales of approximately $840 million at Aeronautics mostly due to lower volume on F-35 contracts; about $820 million at Space primarily due to the renationalization of AWE; approximately $730 million at RMS mostly due to lower net sales for training and logistics solutions (TLS) programs due to the delivery of an international pilot training system in the first quarter of 2021 and lower production volume on Black Hawk; and about $365 million at MFC primarily due to lower volume on Terminal High Altitude Area Defense (THAAD) and air dominance weapon systems.

Service Sales

Service sales decreased $86 million, or 3%, during the quarter ended June 26, 2022 compared to the same period in 2021. The decrease in service sales was primarily attributable to lower sales of approximately $70 million at MFC primarily due to lower volume on Special Operations Forces Global Logistics Support Services (SOF GLSS).

Service sales decreased $121 million, or 2%, during the six months ended June 26, 2022 compared to the same period in 2021. The decrease in service sales was primarily due to lower sales of approximately $130 million at MFC primarily due to lower volume on SOF GLSS.

Cost of Sales

Cost of sales, for both products and services, consist of materials, labor, subcontracting costs and an allocation of indirect costs (overhead and general and administrative), as well as the costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers. For each of our contracts, we monitor the nature and amount of costs at the contract level, which form the basis for estimating our total costs to complete the contract. Our consolidated cost of sales were as follows (in millions):

						Quarters Ended																		Six Months Ended
						June 26, 2022									June 27, 2021									June 26, 2022									June 27, 2021
Cost of sales – products						$	(11,395)								$	(12,866)								$	(22,556)								$	(25,147)
% of product sales						89.3		%							90.2		%							89.3		%							89.8		%
Cost of sales – services						(2,362)									(2,438)									(4,537)									(4,668)
% of service sales						88.0		%							88.0		%							88.0		%							88.5		%
Severance and restructuring charges						—									—									—									(36)
Other unallocated, net						267									426									548									901
Total cost of sales						$	(13,490)								$	(14,878)								$	(26,545)								$	(28,950)

The following discussion of material changes in our consolidated cost of sales for products and services should be read in tandem with the preceding discussion of changes in our consolidated net sales and our business segment results of operations. Except for potential impacts to our programs resulting from COVID-19, supply chain disruptions and inflation, we have not identified any additional developing trends in cost of sales for products and services that would have a material impact on our future operations.

Product Costs

Product costs decreased $1.5 billion, or 11%, during the quarter ended June 26, 2022 compared to the same period in 2021. The decrease was primarily attributable to lower product costs of approximately $835 million at Aeronautics primarily due to lower volume on F-35 contracts; about $330 million at Space mostly due to the renationalization of AWE; approximately $175 million at RMS primarily due to lower production volume on Black Hawk; and about $130 million at MFC mostly due to lower volume on air dominance weapon systems and close out of the Warrior program in 2021.

Product costs decreased $2.6 billion, or 10%, during the six months ended June 26, 2022 compared to the same period in 2021. The decrease was primarily attributable to lower product costs of approximately $860 million at Aeronautics mostly due to lower volume on F-35 contracts; about $750 million at Space primarily due to the renationalization of AWE; approximately $625 million at RMS mostly due to the delivery of an international pilot training system in the first quarter of 2021 and lower production volume on Black Hawk; and about $355 million at MFC primarily due to lower volume on THAAD and air dominance weapon systems.

Service Costs

Service costs decreased $76 million, or 3%, during the quarter ended June 26, 2022 compared to the same period in 2021. The decrease was primarily attributable to lower service costs of approximately $65 million at MFC primarily due to lower volume on SOF GLSS.

Service costs decreased $131 million, or 3%, during the six months ended June 26, 2022 compared to the same period in 2021. The decrease was primarily attributable to lower service costs of approximately $125 million at MFC primarily due to lower volume on SOF GLSS.

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 segment’s results of operations and the service cost component of FAS pension (expense) income), stock-based compensation expense, changes in the fair value of investments held in a trust for deferred compensation plans and other corporate costs. These items are not allocated to the business segments and, therefore, are not allocated to cost of sales for products or services. Other unallocated, net reduced cost of sales by $267 million and $548 million during the quarter and six months ended June 26, 2022, compared to $426 million and $901 million during the quarter and six months ended June 27, 2021. Other unallocated, net during the quarter and six months ended June 26, 2022 was lower primarily due to declines in the fair value of investments held in a trust for deferred compensation plans during the quarter and six months ended June 26, 2022 compared to the same periods in 2021, a decrease in our FAS/CAS pension operating adjustment due to lower CAS cost from the American Rescue Plan Act of 2021 (ARPA) legislation, and fluctuations in costs associated with various corporate items, none of which were individually significant.

Severance and Restructuring Charges

During the first quarter of 2021, we recorded severance and restructuring charges of $36 million ($28 million, or $0.10 per share, after-tax) associated with plans to close and consolidate certain facilities and reduce total workforce within our RMS business segment. See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

Other Income, Net

Other income, net primarily includes earnings generated by equity method investees. Other income, net was $7 million and $31 million during the quarter and six months ended June 26, 2022, compared to $41 million and $37 million during the quarter and six months ended June 27, 2021. Other income, net during the quarter

ended June 26, 2022 included lower earnings generated by our equity method investment in ULA due to lower launch volume and launch vehicle mix.

Interest Expense

Interest expense during the quarter and six months ended June 26, 2022 was $141 million and $276 million, compared to $142 million and $282 million during the quarter and six months ended June 27, 2021. See “Capital

Resources” included within “Liquidity and Cash Flows” discussion below and “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

Non-Service FAS Pension (Expense) Income

Non-service FAS pension expense was $1.3 billion and $1.2 billion for the quarter and six months ended June 26, 2022, compared to FAS pension income of $94 million and $187 million during the quarter and six months ended June 27, 2021. Non-service FAS pension expense for the quarter and six months ended June 26, 2022 includes a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax), related to the transfer of $4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company. See “Note 6 - 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 strategic investments in companies made by our Lockheed Martin Ventures Fund. During the quarter ended June 26, 2022, other non-operating expense, net was $161 million compared to other non-operating income, net of $26 million during the quarter ended June 27, 2021. During the six months ended June 26, 2022, other non-operating expense, net was $38 million compared to other non-operating income, net of $102 million during the six months ended June 27, 2021. The decrease during the quarter and six months ended June 26, 2022 was primarily due to decreases in the fair value of investments held in this fund and losses related to early extinguishments of debt. See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

Income Tax Expense

Our effective income tax rates were 6.4% and 14.6% for the quarter and six months ended June 26, 2022 and 16.4% and 16.6% for the quarter and six months ended June 27, 2021. The rate for the second quarter of 2022 is lower than the second quarter of 2021 primarily due to lower earnings before income taxes resulting from a noncash, non-operating pension settlement charge of $1.5 billion, which reduced the tax expense by approximately $314 million. The rates for all periods benefited from the research and development tax credit, tax deductions for foreign derived intangible income and dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature.

Changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application, including those with retroactive effect, including the amortization for research or experimental expenditures, could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’ equity. Proposals to increase the U.S. corporate income tax rate would require us to increase our net deferred tax assets upon enactment of new tax legislation, with a corresponding material, one-time, noncash decrease in income tax expense, but our income tax expense and payments would likely be materially increased in subsequent years. Our net deferred tax assets were $2.7 billion and $2.3 billion at June 26, 2022 and December 31, 2021, based on a 21% federal statutory income tax rate, and primarily relate to our postretirement benefit plans. In addition to future changes in tax laws, the amount of net deferred tax assets will change periodically based on several factors, including the measurement of our postretirement benefit plan obligations, actual cash contributions to our postretirement benefit plans and the reevaluation of uncertain tax positions.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, and we continue to have ongoing discussions with members of Congress, both on our own and with other industries through coalitions, we have no assurance that this provision will be deferred, modified, or repealed. Furthermore, in anticipation of the new provision taking effect, we analyzed the provision and worked with our advisors to evaluate its application to our business. We anticipate our cash from operations in 2022 will be negatively impacted by approximately $500 million and our net deferred tax assets will increase by a similar amount provided this provision is not deferred, modified, or repealed. The actual impact on 2022 cash from operations will depend on the amount of research and development expenses paid or incurred in 2022 among other factors. While the largest impact of this provision will be to 2022 cash from operations, the impact would continue over the five-year amortization period, but would decrease over the period and be immaterial in year six.

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

any related litigation could similarly result in unanticipated increases in our tax expense and affect profitability and cash flows.

Net Earnings

We reported net earnings of $309 million ($1.16 per share) and $2.0 billion ($7.62 per share) during the quarter and six months ended June 26, 2022, compared to $1.8 billion ($6.52 per share) and $3.7 billion ($13.08 per share) during the quarter and six months ended June 27, 2021. Net earnings and earnings per share for both the quarter and six months ended June 26, 2022 were affected by factors mentioned above, including the noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax) related to the transfer of $4.3 billion of gross defined benefit pension obligations and related plan assets to an insurance company. Earnings per share also benefited from a net decrease of approximately 11.7 million and 11.2 million weighted average common shares outstanding during the quarter and six months ended June 26, 2022, compared to the same periods in 2021. The reduction in weighted average common shares was a result of share repurchases, partially offset by share issuance under our stock-based awards and certain defined contribution plans.

BUSINESS SEGMENT RESULTS OF OPERATIONS

We operate in four business segments: Aeronautics, MFC, RMS and Space. We organize our business segments based on the nature of products and services offered.

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

Business segment operating profit excludes the FAS/CAS pension operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, changes in the fair value of strategic investments in companies made by our Lockheed Martin Ventures Fund, stock-based compensation expense, changes in the fair value of investments held in a trust for deferred compensation plans, retiree benefits, significant severance actions, significant asset impairments, gains or losses from divestitures, and other miscellaneous corporate activities. Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit.

Summary operating results for each of our business segments were as follows (in millions):

						Quarters Ended																		Six Months Ended
						June 26, 2022									June 27, 2021									June 26, 2022									June 27, 2021
Net sales
Aeronautics						$	5,862								$	6,666								$	12,263								$	13,053
Missiles and Fire Control						2,747									2,944									5,199									5,693
Rotary and Mission Systems						4,012									4,242									7,564									8,349
Space						2,825									3,177									5,384									6,192
Total net sales						$	15,446								$	17,029								$	30,410								$	33,287
Operating profit
Aeronautics						$	612								$	572								$	1,291								$	1,265
Missiles and Fire Control						418									401									802									797
Rotary and Mission Systems						403									458									751									891
Space						268									335									513									562
Total business segment operating profit						1,701									1,766									3,357									3,515
Unallocated items
FAS/CAS pension operating adjustment						425									489									851									978
Severance and restructuring charges						—									—									—									(36)
Other, net						(163)									(63)									(312)									(83)
Total unallocated items						262									426									539									859
Total consolidated operating profit						$	1,963								$	2,192								$	3,896								$	4,374

Our business segments’ results of operations include pension expense only as calculated under U.S. Government Cost Accounting Standards (CAS), which we refer to as CAS pension cost. We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on U.S. Government contracts and, therefore, recognize CAS pension cost in each of our business segment’s net sales and cost of sales. Our consolidated financial statements must present pension and other postretirement benefit plan income calculated in accordance with FAS requirements under U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension (expense) income and total CAS pension cost. The non-service FAS pension (expense) income components are included in non-service FAS pension (expense) income in our consolidated statements of earnings. As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension (expense) income, we have a favorable FAS/CAS pension operating adjustment.

The total FAS/CAS pension adjustment for the quarters and six months ended June 26, 2022 and June 27, 2021, 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):

						Quarters Ended																		Six Months Ended
						June 26, 2022									June 27, 2021									June 26, 2022									June 27, 2021
Total FAS (expense) income and CAS cost
Total FAS pension (expense) income						$	(1,355)								$	67								$	(1,239)								$	133
Less: CAS pension cost						449									516									899									1,032
Total FAS/CAS pension adjustment						$	(906)								$	583								$	(340)								$	1,165
Service and non-service cost reconciliation
FAS pension service cost						$	(24)								$	(27)								$	(48)								$	(54)
Less: CAS pension cost						449									516									899									1,032
Total FAS/CAS pension operating adjustment						425									489									851									978
Non-service FAS pension (expense) income						(1,331)									94									(1,191)									187
Total FAS/CAS pension adjustment						$	(906)								$	583								$	(340)								$	1,165

The decrease in the net FAS/CAS pension adjustment during the quarter and six months ended June 26, 2022 as compared to 2021 was principally driven by 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 on June 24, 2022. See “Note 6 - Postretirement Benefit Plans”.

Management evaluates performance on our contracts by focusing on net sales and operating profit and not by type or amount of operating expense. Consequently, our discussion of business segment performance focuses on net sales and operating profit, consistent with our approach for managing the business. This approach is consistent throughout the life cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors performance on our contracts in a similar manner through their completion.

We regularly provide customers with reports of our costs as the contract progresses. The cost information in the reports is accumulated in a manner specified by the requirements of each contract. For example, cost data provided to a customer for a product would typically align to the subcomponents of that product (such as a wing-box on an aircraft) and for services would align to the type of work being performed (such as aircraft sustainment). Our contracts generally allow for the recovery of costs in the pricing of our products and services. Most of our contracts are bid and negotiated with our customers under circumstances in which we are required to disclose our estimated total costs to provide the product or service. This approach for negotiating contracts with our U.S. Government customers generally allows for recovery of our actual costs plus a reasonable profit margin. We also may enter into long-term supply contracts for certain materials or components to coincide with the production schedule of certain products and to ensure their availability at known unit prices.

Many of our contracts span several years and include highly complex technical requirements. At the outset of a contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract and assess the effects of those risks on our estimates of total costs to complete the contract. The estimates consider the

technical requirements (e.g., a newly-developed product versus a mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material, labor, subcontractor, overhead and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers). The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the contract if we successfully retire risks related to the technical, schedule and cost aspects of the contract, which decreases the estimated total costs to complete the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate.

We have a number of programs that are designated as classified by the U.S. Government which cannot be specifically described. The operating results of these classified programs are included in our consolidated and business segment results and are subjected to the same oversight and internal controls as our other programs.

Our net sales are primarily derived from long-term contracts for products and services provided to the U.S. Government as well as FMS contracted through the U.S. Government. We recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services. For performance obligations to deliver products with continuous transfer of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the percentage-of-completion cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as we incur costs on our contracts. For performance obligations in which control does not continuously transfer to the customer, we recognize revenue at the point in time in which each performance obligation is fully satisfied.

Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.

In addition, comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on our contracts for which we recognize revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in the profit booking rates, typically referred to as favorable profit adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, for example COVID-19 impacts or supply chain disruptions, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit adjustments. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions, which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.

Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, increased segment operating profit by approximately $455 million and $860 million during the quarter and six months ended June 26, 2022 and $385 million and $880 million during the quarter and six months ended June 27, 2021.

We periodically experience performance issues and record losses for certain programs. For further discussion on the programs at Aeronautics and RMS, see “Note 10 - Other” included in our Notes to Consolidated Financial Statements.

Aeronautics

Summary operating results for our Aeronautics business segment were as follows (in millions):

						Quarters Ended																		Six Months Ended
						June 26, 2022									June 27, 2021									June 26, 2022									June 27, 2021
Net sales						$	5,862								$	6,666								$	12,263								$	13,053
Operating profit						612									572									1,291									1,265
Operating margin						10.4		%							8.6		%							10.5		%							9.7		%

Aeronautics’ net sales during the quarter ended June 26, 2022 decreased $804 million, or 12%, compared to the same period in 2021. Net sales decreased by approximately $945 million for the F-35 program due to lower volume on production contracts as a result of supply chain performance delays and delays in receiving additional contractual authorization and funding under the Lots 15-17 contract, and about $50 million on the F-16 program due to lower volume on sustainment contracts and an unfavorable profit adjustment on a production contract in the second quarter of 2022 as a result of manufacturing line ramp up delays, partially offset by higher volume on production contracts. These decreases were partially offset by an increase of approximately $210 million on classified contracts primarily due to higher volume.

Aeronautics’ operating profit during the quarter ended June 26, 2022 increased $40 million, or 7% compared to the same period in 2021. Operating profit increased approximately $220 million on classified contracts due to a $225 million loss in the second quarter of 2021 on a classified program; and approximately $40 million for the F-22 program due to higher net favorable profit adjustments. These increases were partially offset by lower operating profit of approximately $145 million for the F-35 program due to lower volume on production contracts as described above; and about $55 million for the F-16 program due to an unfavorable profit adjustment on a production contract in the second quarter of 2022 as described above. Adjustments not related to volume, including net profit booking rate adjustments, were $120 million higher in the second quarter of 2022 compared to the same period in 2021.

Aeronautics’ net sales during the six months ended June 26, 2022 decreased $790 million, or 6%, compared to the same period in 2021. Net sales decreased by approximately $1.0 billion for the F-35 program due to lower volume as described above and lower net favorable profit adjustments on production contracts. This decrease was partially offset by increases of approximately $220 million on classified contracts primarily due to higher volume; and about $30 million for the F-16 program due to higher volume on production contracts that was partially offset by unfavorable profit adjustments on a production contract and a modernization contract.

Aeronautics’ operating profit during the six months ended June 26, 2022 increased $26 million, or 2%, compared to the same period in 2021. Operating profit increased approximately $240 million on classified contracts due to a $225 million loss in the second quarter of 2021 for a classified program for performance issues; and about $70 million for the F-22 program due to higher net favorable profit adjustments. These increases were partially offset by lower operating profit of approximately $195 million for the F-35 program due to lower volume as described above and lower net favorable profit adjustments on production contracts; and about $80 million for the F-16 program due to unfavorable profit adjustments on a production contract and modernization contracts. Adjustments not related to volume, including net profit booking rate adjustments, were $95 million higher in the six months ended June 26, 2022 compared to the same period in 2021.

Missiles and Fire Control

Summary operating results for our MFC business segment were as follows (in millions):

						Quarters Ended																		Six Months Ended
						June 26, 2022									June 27, 2021									June 26, 2022									June 27, 2021
Net sales						$	2,747								$	2,944								$	5,199								$	5,693
Operating profit						418									401									802									797
Operating margin						15.2		%							13.6		%							15.4		%							14.0		%

MFC’s net sales during the quarter ended June 26, 2022 decreased $197 million, or 7%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $155 million for sensors and global sustainment programs primarily due to lower volume on SOF GLSS as a result of troop withdrawals from Afghanistan and lower net favorable profit adjustments due to close out activities in the second quarter of 2021 related to the Warrior; and about $45 million for tactical and strike missile programs due to lower volume (air dominance weapon systems).

MFC’s operating profit during the quarter ended June 26, 2022 increased $17 million, or 4%, compared to the same period in 2021.The increase was primarily attributable to higher operating profit of approximately $40 million for tactical and strike missile programs due to higher net favorable profit adjustments (Joint Air-to-Surface Standoff Missile (JASSM), High Mobility Artillery Rocket System (HIMARS), and Hellfire); and about $10 million for integrated air and missile defense programs due to higher net favorable profit adjustments (Patriot Advanced Capability-3 (PAC-3)). These increases were partially offset by a decrease of about $40 million for sensors and global sustainment programs primarily due to lower net favorable profit adjustments as a result of the closeout of the Warrior program in 2021. In addition, operating margin was positively impacted when compared to the second quarter of 2021 due to contract mix (lower SOF GLSS volume and lower development volume for tactical and strike missiles). Adjustments not related to volume, including net profit booking rate adjustments in the second quarter of 2022 were comparable to the same period in 2021.

MFC’s net sales during the six months ended June 26, 2022 decreased $494 million, or 9%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $230 million for sensors and global sustainment programs due to lower volume on SOF GLSS as described above and lower volume and net favorable profit adjustments on Sniper Advanced Targeting Pod (SNIPER®), partially offset by the net effect of favorable profit adjustments on an international program as a result of a requirements modification in the first quarter of 2022 and the termination of the Warrior program in 2021; about $125 million for tactical and strike missile programs due to lower volume (air dominance weapon systems and hypersonics); and approximately $105 million for integrated air and missile defense programs due to lower volume (THAAD) and lower net favorable profit adjustments (PAC-3).

MFC’s operating profit during the six months ended June 26, 2022 was comparable to the same period in 2021. Operating profit increased by approximately $30 million for tactical and strike missile programs due to higher net favorable profit adjustments (HIMARS, GMLRS and JASSM); and about $10 million for sensors and global sustainment programs primarily due to the net effect of favorable profit adjustments on an international program in the first quarter of 2022 and the termination of the Warrior program in 2021, partially offset by lower net favorable profit adjustments (SNIPER). These increases were offset by approximately $35 million for integrated air and missile defense programs due to volume (THAAD) and lower net favorable profit adjustments (PAC-3). In addition, operating margin was positively impacted when compared to the six months ended June 27, 2021 due to contract mix (lower SOF GLSS volume and lower development volume at tactical and strike missiles). Adjustments not related to volume, including net profit booking rate adjustments, were $20 million higher in the six months ended June 26, 2022 compared to the same period in 2021.

Rotary and Mission Systems

Summary operating results for our RMS business segment were as follows (in millions):

						Quarters Ended																		Six Months Ended
						June 26, 2022									June 27, 2021									June 26, 2022									June 27, 2021
Net sales						$	4,012								$	4,242								$	7,564								$	8,349
Operating profit						403									458									751									891
Operating margin						10.0		%							10.8		%							9.9		%							10.7		%

RMS’ net sales during the quarter ended June 26, 2022 decreased $230 million, or 5%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $100 million for Sikorsky helicopter programs due to lower production volume (Black Hawk); about $80 million for integrated warfare systems and sensors (IWSS) programs due to lower volume (Littoral Combat Ship (LCS) and Advanced Hawkeye); and approximately $55 million for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower volume.

RMS’ operating profit during the quarter ended June 26, 2022 decreased $55 million, or 12%, compared to the same period in 2021. The decrease was primarily attributable to approximately $20 million for IWSS programs due to lower net favorable profit adjustments (Aegis and ground-based radar), about $10 million for various C6ISR programs due to lower volume; and approximately $10 million for Sikorsky helicopter programs due to lower production volume (Black Hawk). Adjustments not related to volume, including net profit booking rate adjustments, were $25 million lower in the second quarter of 2022 compared to the same period in 2021.

RMS’ net sales during the six months ended June 26, 2022 decreased $785 million, or 9%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $310 million for TLS programs primarily due to the delivery of an international pilot training system in the first quarter of 2021 that did not recur in 2022; about $230 million for IWSS programs due to lower volume (LCS, TPQ-53 and Advanced Hawkeye); approximately $140 million for Sikorsky helicopter programs due to lower production volume (Black Hawk); and about $105 million for various C6ISR programs due to lower volume.

RMS’ operating profit during the six months ended June 26, 2022 decreased $140 million, or 16%, compared to the same period in 2021. The decrease was primarily attributable to approximately $50 million for IWSS programs due to lower net favorable profit adjustments (Aegis and ground-based radar); $45 million for various C6ISR programs due to lower net favorable profit adjustments and volume, and approximately $25 million for Sikorsky helicopter programs due to lower production volume and net favorable profit adjustments (Black Hawk), partially offset by higher net favorable profit adjustments and volume (CRH). Operating profit for TLS programs was comparable due to the delivery of an international pilot training system in the first quarter of 2021 that did not recur in 2022, offset by higher net favorable profit adjustments on various other programs. Adjustments not related to volume, including net profit booking rate adjustments, were $80 million lower in the six months ended June 26, 2022 compared to the same period in 2021.

Space

Summary operating results for our Space business segment were as follows (in millions):

						Quarters Ended																		Six Months Ended
						June 26, 2022									June 27, 2021									June 26, 2022									June 27, 2021
Net sales						$	2,825								$	3,177								$	5,384								$	6,192
Operating profit						268									335									513									562
Operating margin						9.5		%							10.5		%							9.5		%							9.1		%

Space’s net sales during the quarter ended June 26, 2022 decreased $352 million, or 11%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $425 million due to the previously announced renationalization of the AWE program on June 30, 2021, which was no longer included in our financial results beginning in the third quarter of 2021; and about $55 million for commercial civil space programs due to

lower volume (Orion). These decreases were partially offset by higher net sales of about $130 million for strategic and missile defense programs due to higher development volume (Next Generation Interceptor (NGI)).

Space’s operating profit during the quarter ended June 26, 2022 decreased $67 million, or 20%, compared to the same period in 2021. The decrease was primarily attributable to approximately $55 million for national security space programs primarily due to lower net favorable profit adjustments (primarily Space-Based Infrared System (SBIRS) and classified programs); and about $40 million of lower equity earnings from our investment in United Launch Alliance (ULA). These decreases were partially offset by an increase of approximately $30 million for strategic and missile defense programs due to higher net favorable profit adjustments (primarily Fleet Ballistic Missile (FBM) programs). Operating profit for the AWE program was comparable as its operating profit in the second quarter of 2021 was mostly offset by accelerated amortization expense for intangible assets as a result of the renationalization. Adjustments not related to volume, including net profit booking rate adjustments, were $30 million lower in the second quarter of 2022 compared to the same period in 2021.

Space’s net sales during the six months ended June 26, 2022 decreased $808 million, or 13%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $865 million due to the renationalization of the AWE program on June 30, 2021, which was no longer included in our financial results beginning in the third quarter of 2021; and about $150 million for commercial civil space programs due to lower volume (Orion and Human Lander System (HLS) programs). These decreases were partially offset by higher net sales of about $230 million for strategic and missile defense programs due to higher development volume (NGI).

Space’s operating profit during the six months ended June 26, 2022 decreased $49 million, or 9%, compared to the same period in 2021. The decrease was primarily attributable to approximately $45 million for national security space programs primarily due to lower net favorable profit adjustments (primarily SBIRS and classified programs); and about $35 million for commercial civil space programs due to lower net favorable profit adjustments and lower volume (the Orion and HLS programs). These decreases were partially offset by an increase of approximately $30 million for strategic and missile defense programs due to higher net favorable profit adjustments (primarily FBM programs). Operating profit for the AWE program was comparable as its operating profit in the first six months of 2021 was mostly offset by accelerated amortization expense for intangible assets as a result of the renationalization. Adjustments not related to volume, including net profit booking rate adjustments, were $55 million lower in the six months ended June 26, 2022 compared to the same period in 2021.

Total equity earnings (primarily ULA) represented approximately $5 million, or 2%, and $35 million, or 7%, of Space's operating profit during the quarter and six months ended June 26, 2022, compared to approximately $45 million, or 13%, and $40 million, or 7% during the quarter and six months ended June 27, 2021.

FINANCIAL CONDITION

Liquidity and Cash Flows

At June 26, 2022, we had cash and cash equivalents of $1.8 billion. Our principal source of liquidity is our cash from operations. However, we also have access to credit markets, if needed, for liquidity or general corporate purposes, including our revolving credit facility or the ability to issue commercial paper, and letters of credit to support customer advance payments and for other trade finance purposes such as guaranteeing our performance on particular contracts. We believe our cash and cash equivalents, our expected cash flow generated from operations and our access to credit markets will be sufficient to meet our cash requirements and cash deployment plans over the next twelve months and beyond based on our current business plans.

Cash received from customers, either from the payment of invoices for work performed or for advances from non-U.S. Government customers in excess of costs incurred, is our primary source of cash from operations. We generally do not begin work on contracts until funding is appropriated by the customer. However, from time to time, we fund customer programs ourselves pending government appropriations. If we incur costs in excess of funds obligated on the contract or in advance of a contract award, this negatively affects our cash flows and we may be at risk for reimbursement of the excess costs. For example, due to the prolonged negotiation of the F-35 Low Rate Initial Production (LRIP) Lots 15-17 production contract, beginning in the second quarter our costs to continue production to meet our customer’s desired aircraft delivery dates began to exceed the contract value and available funding which prevented us from invoicing and

receiving cash of approximately $465 million for costs incurred in the second quarter of 2022. See “Other Matters” below and Item 1A, Risk Factors, for additional information.

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 39% of the sales we recorded during the six months ended June 26, 2022, as we are authorized to bill as the costs are incurred. A number of our fixed-price contracts may provide for performance-based payments, which allow us to bill and collect cash as we perform on the contract. The amount of performance-based payments and the related milestones are encompassed in the negotiation of each contract. The timing of such payments may differ from the timing of the costs incurred related to our contract performance, thereby affecting our cash flows.

The U.S. Government has indicated that it would consider progress payments as the baseline for negotiating payment terms on fixed-price contracts, rather than performance-based payments. In contrast to negotiated performance-based payment terms, progress payment provisions correspond to a percentage of the amount of costs incurred during the performance of the contract and are invoiced regularly as costs are incurred. Our cash flows may be affected if the U.S. Government changes its payment policies or decides to withhold payments on our billings. While the impact of policy changes or withholding payments may delay the receipt of cash, the cumulative amount of cash collected during the life of the contract should not vary.

To date, the effects of COVID-19 have resulted in some negative impacts on our cash flows, partially due to supplier delays. The U.S. Government has taken certain actions and enacted legislation to mitigate the impacts of COVID-19 on public health, the economy, state and local governments, individuals, and businesses. Since the pandemic began, Lockheed Martin has remained committed to accelerating payments to the supply chain with a focus on small and at risk businesses. As of June 26, 2022, we have accelerated $1.0 billion of payments to our suppliers that are due by their terms in future periods. We will continue to monitor risk driven by the pandemic and, based on our current assessment, we will continue to accelerate payments to our suppliers based on risk assessed need through the end of 2022.

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 opportunities when they arise. Consistent with that strategy, we have continued to invest in our business and technologies through capital expenditures, independent research and development, and selective business acquisitions and investments. We have returned cash to stockholders through dividends and share repurchases. Our total remaining authorization for future common share repurchases under our program was $1.6 billion at June 26, 2022.

We also continue to actively manage our debt levels, including maturities and interest rates, as evidenced by the debt transaction in the second quarter of 2022 and our pension obligations. We expect to continue to opportunistically manage our pension liabilities through the purchase of group annuity contracts for portions of our outstanding defined benefit pension obligations using assets from the pension trust as we did on June 24, 2022. See “Note 6 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements for additional information. Future pension risk transfer transactions could also be significant and result in us making additional contributions to the pension trust and/or require us to recognize noncash, non-operating pension settlement charges in earnings in the applicable reporting period.

There were no material changes during the quarter or six months ended June 26, 2022 to our contractual commitments as presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K that were outside the ordinary course of our business.

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

						Six Months Ended
						June 26, 2022									June 27, 2021
Cash and cash equivalents at beginning of year						$	3,604								$	3,160
Operating activities
Net earnings						2,042									3,652
Noncash adjustments						1,104									857
Changes in working capital						(1,570)									(1,510)
Other, net						1,165									17
Net cash provided by operating activities						2,741									3,016
Net cash used for investing activities						(583)									(389)
Net cash used for financing activities						(3,987)									(3,042)
Net change in cash and cash equivalents						(1,829)									(415)
Cash and cash equivalents at end of period						$	1,775								$	2,745

Operating Activities

Net cash provided by operating activities during the six months ended June 26, 2022 decreased $275 million compared to the same period in 2021. The decrease was primarily due to cash impacts for the lack of additional contractual authorization and funding from the U.S. Government prior to the end of the second quarter of 2022 on the Lots 15-17 contract of the F-35 program.

Non-GAAP Financial Measure - Free Cash Flow

Free cash flow is a non-GAAP financial measure that we define as cash from operations less capital expenditures. Our capital expenditures are comprised of equipment and facilities infrastructure and information technology (inclusive of costs for the development or purchase of internal-use software that are capitalized). We use free cash flow to evaluate our business performance and overall liquidity, as well as a performance goal in our annual and long-term incentive plans. We believe free cash flow is a useful measure for investors because it represents the amount of cash generated from operations after reinvesting in the business and that may be available to return to stockholders and creditors (through dividends, stock repurchase and debt repayments) or available to fund acquisitions. 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. While management believes that free cash flow as a non-GAAP financial measure may be useful in evaluating our financial performance, it should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.

The following table reconciles net cash provided by operating activities to free cash flow (in millions):

						Six Months Ended
						June 26, 2022									June 27, 2021
Cash from operations						$	2,741								$	3,016
Capital expenditures						(572)									(599)
Free cash flow						$	2,169								$	2,417

Investing Activities

Net cash used for investing activities during the six months ended June 26, 2022 increased $194 million compared to the same period in 2021. The increase in cash used for investing activities is due to the receipt of $231 million in the first six months of 2021 from the sale of our ownership interest in the Advanced Military Maintenance, Repair and Overhaul Center (AMMROC) joint venture. Capital expenditures totaled $572 million and $599 million during the six months ended June 26, 2022 and June 27, 2021. The majority of our capital expenditures were 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.

Financing Activities

Net cash used for financing activities was $4.0 billion during the six months ended June 26, 2022, compared to $3.0 billion during the same period in 2021.

During the six months ended June 26, 2022 and June 27, 2021, we paid dividends totaling $1.5 billion ($5.60 per share) and $1.5 billion ($5.20 per share).

During the six months ended June 26, 2022, we paid $2.4 billion to repurchase 7.7 million shares of our common stock, some of which were settled subsequent to the end of the second quarter. See “Note 9 - Stockholders’ Equity” included in our Notes to Consolidated Financial Statements for additional information. During the six months ended June 27, 2021, we paid $1.5 billion to repurchase 4.2 million shares of our common stock.

During the quarter ended June 26, 2022, we received net proceeds of $2.3 billion from issuance of senior unsecured notes and used the net proceeds from the offering to redeem all of the outstanding $500 million Notes due 2023, $750 million Notes due 2025 and used the remaining balance of the net proceeds to redeem $1.0 billion of our outstanding $2.0 billion Notes due 2026. See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

Capital Resources

At June 26, 2022, we held cash and cash equivalents of $1.8 billion that was generally available to fund ordinary business operations without significant legal, regulatory, or other restrictions.

At June 26, 2022, we had a $3.0 billion revolving credit facility (the Revolving Credit Facility) with various banks with an expiration date of August 24, 2026 that is available for general corporate purposes including supporting commercial paper borrowings. We may request and the banks may grant, at their discretion, an increase in the borrowing capacity under the Revolving Credit Facility of up to an additional $500 million. There were no borrowings outstanding under the Revolving Credit Facility at June 26, 2022.

We have agreements in place with financial institutions to provide for the issuance of commercial paper. The outstanding balance of commercial paper can fluctuate daily and the amount outstanding during the period may be greater than or less than the amount reported at the end of the period. There were no commercial paper borrowings outstanding as of June 26, 2022 and December 31, 2021. We may, as conditions warrant, from time to time issue commercial paper backed by our Revolving Credit Facility to manage the timing of cash flows. However, depending on market conditions, commercial paper may not be available on favorable terms or at all.

Our outstanding debt, net of unamortized discounts and issuance costs was $11.6 billion as of June 26, 2022 and is in the form of publicly-issued notes that bear interest at fixed rates. The outstanding debt at June 26, 2022 is inclusive of the second quarter 2022 issuance of $2.3 billion in aggregate principal amount of senior unsecured notes and redemption of outstanding $500 million in aggregate principal amount of our 3.10% Notes due 2023, $750 million in aggregate principal amount of our 2.90% Notes due 2025, and $1.0 billion of our outstanding $2.0 billion in aggregate principal amount of our 3.55% Notes due 2026 at their redemption price.

For further discussion on the outstanding debt at June 26, 2022, see “Note 10 - Other” included in our Notes to Consolidated Financial Statements. As of June 26, 2022, we were in compliance with all covenants contained in our debt and credit agreements.

OTHER MATTERS

Status of the F-35 Program

The F-35 program primarily consists of production contracts, sustainment activities, and new development efforts. Production of the aircraft is expected to continue for many years given the U.S. Government’s current inventory objective of 2,456 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy; commitments from our seven international partner countries and seven Foreign Military Sales (FMS) customers; as well as interest from other countries. During the first quarter of 2022, Finland became the seventh FMS customer to join the program, and Germany announced its intention to purchase 35 F-35 aircraft. On March 28, 2022, the Government of Canada selected the F-35 as the preferred bidder to move into the Finalization Phase of the competitive process to replace their fighter fleet. In the Finalization Phase, they will collaborate with the F-35 team to deliver unique requirements and a delivery profile before moving forward with contracting with the U.S. Government for the procurement of 88 aircraft.

We recently reached an agreement in principle with the U.S. Government on the F-35 Low Rate Initial Production (LRIP) Lots 15-17 production contract and we continue to engage with the U.S. Government to definitize the contract. We have been performing work on the Lots 15-17 production under customer authorization and initial funding to begin work under an advance acquisition contract received in December 2019. Our costs began to exceed the contract value and available funding on the Lots 15-17 advance acquisition contract in the second quarter of 2022. As a result, this prevented the recognition of approximately $325 million of sales and associated operating profit in the second quarter. Additionally, it prevented us from invoicing and receiving cash of approximately $465 million for costs incurred in the second quarter of 2022. At the end of the second quarter of 2022, we also had approximately $1 billion in potential termination liability exposure to third parties related to LRIP Lots 15-17. We expect to recover the unrecognized sales and resume invoicing costs incurred upon receiving contractual authorization and funding on the production contract with the U.S. Government, which we expect to occur in the third quarter of 2022. However, until a final agreement is reached or the U.S. Government otherwise provides additional contractual authorization and funding, our results of operations, cash flows, and financial condition will continue to be negatively impacted and the impacts could be material.

During the second quarter of 2022, we encountered supplier delays due to COVID-19 that negatively impacted F-35 net sales and operating profit in the second quarter due to lower volume and we expect the timing of F-35 net sales and operating profit will continue to be impacted in future periods. We are working closely with our supply base to develop plans that minimize the impacts to the F-35 partners and FMS customers, however, as a result we now expect a flat delivery profile in 2023. Additionally, as part of the Lots 15-17 production contract, the U.S. Government reduced the acquisition quantities based on budget availability. While we expect the LRIP Lots 15-17 contract to support our long-term objective to produce 156 aircraft a year, COVID-19 and other impacts experienced by the F-35 enterprise have required us to modify our near-term production plan. Deliveries are expected to remain in the range of 147-153 aircraft per year in 2023 and 2024, before we achieve our 156 aircraft delivery target in 2025. We continue to anticipate annual deliveries of 156 aircraft beyond 2025 for the foreseeable future.

During the second quarter of 2022, we delivered 35 production aircraft to our U.S. and international partner countries, and FMS customers, resulting in total deliveries of 814 production aircraft. We have 169 production aircraft in backlog, including orders from our international partner customers and countries.

We successfully negotiated a new four-year contract with the International Association of Machinists and Aerospace Workers covering approximately 5,000 represented employees that primarily work on F-35 production in Fort Worth, Texas in the second quarter of 2022.

Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program schedule, delivery schedule, cost, and requirements as part of the DoD, Congressional, and international countries’ oversight, and budgeting processes. In addition to the contract negotiation and funding challenges described above, current program challenges include supplier, Lockheed Martin and partner 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 continue to reduce the unit production costs and improve affordability.

Contingencies

See “Note 7 - Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements for information regarding our contingent obligations, including off-balance sheet arrangements.

Critical Accounting Policies

There have been no significant changes to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K, except for, as set forth below, updated defined benefit pension plan disclosures to reflect the impact of the purchase of group annuity contracts on June 24, 2022.

Postretirement Benefit Plans

Overview

On June 24, 2022, we purchased group annuity contracts to transfer $4.3 billion of gross defined benefit pension obligations and related plan assets to an insurance company for approximately 13,600 U.S. retirees and beneficiaries. The group annuity contracts were purchased using assets from Lockheed Martin’s master retirement trust and no additional funding contribution was required. In connection with this transaction, we recognized a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax) for the affected defined benefit pension plans (the Affected Plans) in the quarter ended June 26, 2022, which represents the accelerated recognition of actuarial losses that were included in the accumulated other comprehensive loss account within stockholders’ equity.

As a result of this transaction, we were required to remeasure the benefit obligations and assets related to the Affected Plans as of the June 24, 2022 close date (the Remeasurement Date). The remeasurement reflects the use of an updated discount rate and actual return on plan assets described in further detail below. For more information on the transaction and remeasurement, see “Note 6 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.

Actuarial Assumptions

The benefit obligations and assets of our postretirement benefit plans are measured at the end of each year, or more frequently, upon the occurrence of certain events such as a significant plan amendment, settlement or curtailment. The amounts we record are measured using actuarial valuations, which are dependent upon key assumptions such as discount rates, the expected long-term rate of return on plan assets, participant longevity, and employee turnover. The assumptions we make affect both the calculation of the benefit obligations as of the measurement date and the calculation of FAS pension (expense) income in subsequent periods.

As described above, we remeasured the benefit obligations and assets related to the Affected Plans as of the June 24, 2022 close date. When calculating the benefit obligations related to the Affected Plans, we utilized a discount rate of 4.75% as of the Remeasurement Date, compared to 2.875% as of December 31, 2021. The increase in the discount rate resulted in a decrease of approximately $7.9 billion in the projected benefit obligations. The discount rate we select is based on our best estimates and judgment. A change of plus or minus 25 basis points in the 4.75% discount rate assumption used in the remeasurement for the Affected Plans would have decreased or increased the amount of the benefit obligation we recorded by approximately $0.8 billion, with an after-tax increase or decrease in stockholders’ equity of approximately $0.6 billion.

The actual return on plan assets for the period January 1, 2022 through the June 24, 2022 remeasurement date for the Affected Plans was approximately (16)%, or $(4.7) billion, which was approximately $5.7 billion lower (the incremental loss) than our expected return on plan assets of approximately 3.25% for the period, or $1.0 billion (the proportional effect, or approximately half of our expected 6.50% annual long-term rate of return on plan assets assumption), for the period. The incremental loss of $5.7 billion on plan assets was recognized in the remeasurement of the assets related to the Affected Plans.

The plan remeasurements resulted in a decrease of $2.2 billion to our net unfunded pension obligations (which includes the change in benefit obligation primarily related to the higher discount rate utilized in the remeasurement of $7.9 billion and the incremental loss on plan assets recognized in remeasurement of $5.7 billion) with a corresponding increase of $1.7 billion after taxes in stockholders’ equity. The change in stockholders’ equity reflects the decrease in deferred

actuarial losses, which will be recognized as an increase in net FAS pension income (or a decrease in net FAS pension expense) over the estimated remaining life expectancy of the covered employees beginning in the third quarter of 2022. However, deferred net actuarial gains or losses in stockholders’ equity are adjusted annually when the funded status of our postretirement benefit plans are measured, which will result in additional changes to our FAS pension income or expense in future periods.

Funding Considerations

The required funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, along with consideration of CAS and Internal Revenue Code rules.

Contributions to our defined benefit pension plans are recovered over time through the pricing of our products and services on U.S. Government contracts, including FMS, and are recognized in our cost of sales and net sales. CAS govern the extent to which our pension costs are allocable to and recoverable under contracts with the U.S. Government, including FMS. Pension cost recoveries under CAS occur in different periods from when pension contributions are made in accordance with ERISA.

We made no contributions to our qualified defined benefit pension plans during the quarters and six months ended June 26, 2022.

Trends

We now expect FAS pension expense of approximately $1.1 billion in 2022, inclusive of the noncash, non-operating pension settlement charge of $1.5 billion (pretax) described above. Excluding the noncash, non-operating pension settlement charge, our expected FAS pension income will be approximately $410 million in 2022, which is $50 million lower than our prior 2022 FAS pension income estimate of $460 million.

Our 2022 CAS cost was not impacted by the purchase of the group annuity contracts or the remeasurement of the benefit pension obligations and related assets related to the Affected Plans described above. Therefore, we continue to expect our CAS pension cost will be approximately $1.8 billion in 2022, which is consistent with our prior 2022 CAS pension cost estimate.

We now expect a total FAS/CAS pension adjustment of approximately $740 million in 2022, inclusive of the noncash, non-operating pension settlement charge of $1.5 billion (pretax) described above, compared to our prior estimate of $2.3 billion in 2022. Excluding the noncash, non-operating pension settlement charge, our expected total FAS/CAS pension adjustment will be approximately $2.2 billion in 2022, which is $50 million lower than our prior 2022 estimate.

We do not plan to make contributions to our qualified defined benefit pension plans in 2022.

Goodwill and Intangible Assets

The carrying value of our goodwill balance was $10.8 billion at June 26, 2022, including $2.7 billion of goodwill at our Sikorsky reporting unit. The carrying value of our Sikorsky reporting unit also included an indefinite-lived trademark intangible asset of $887 million as of June 26, 2022. In the fourth quarter of 2021, we performed our annual impairment test for goodwill and indefinite-lived trademark intangible asset, and the results of that test indicated no impairment existed. As of the date of our 2021 annual impairment test, we estimated that the fair value of our Sikorsky reporting unit exceeded its carrying value for goodwill by a margin of approximately 30% and the fair value of the intangible asset exceeded its carrying value by a margin of approximately 15%. We will perform our next annual goodwill and intangible asset impairment test during the fourth quarter of 2022 and will perform a quantitative assessment of the fair value of our Sikorsky reporting unit.

The fair values of our goodwill and indefinite-lived trademark intangible asset at our Sikorsky reporting unit can be significantly impacted by its performance, the amount and timing of expected future cash flows, contract terminations, changes in expected future orders, general market pressures, including U.S. Government budgetary constraints, discount rates, long term growth rates, and changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application, including those with retroactive effect, along with other significant judgments. Based on our assessment of these circumstances, we have determined that goodwill and indefinite-lived trademark intangible asset at

our Sikorsky reporting unit are at risk for impairment should there be a deterioration of projected cash flows of the reporting unit.

We do not currently anticipate any material impairments on our assets as a result of COVID-19 or inflation. See Item 1A, Risk Factors of our 2021 Form 10-K for a discussion of the potential impacts of COVID-19 on the fair value of our assets.

Recent Accounting Pronouncements

See “Note 11 - Recent Accounting Pronouncements” included in our Notes to Consolidated Financial Statements for information related to new accounting standards.