Item 1A. Risk Factors

Except for the risk factors discussed below, we do not believe that there have been any material changes to the risk factors disclosed in “Item 1A, Risk Factors” of our 2021 Form 10-K. These risks and uncertainties described in our risk factors have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. These risks are not exclusive and additional risks to which we are subject include the factors mentioned under “Forward-Looking Statements” and the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.

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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.

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 both 2021 and the first nine months of 2022. A decision by the U.S. Government or other governments to cut or delay spending on this program or reduce or delay planned orders would have an adverse impact on our business and results of operations. Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program schedule, delivery schedule, cost, and requirements as part of the DoD, Congressional, and international countries’ oversight and budgeting processes. Current program challenges include supplier, Lockheed Martin and partner performance (including COVID-19 performance-related challenges), software development, definitizing and receiving funding for contracts on a timely basis (as described below), 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.

As described in “Status of the F-35 Program” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, delays in reaching an agreement with the U.S. Government on the F-35 Low Rate Initial Production (LRIP) Lots 15-17 production contract prevented us from recognizing approximately $325 million of sales and associated operating profit in the second quarter of 2022 and prevented us from invoicing and receiving cash of approximately $465 million in the second quarter of 2022 for costs incurred. In the third quarter of 2022, we received an undefinitized contract action (UCA) for Lot 15 aircraft and funding from the U.S. Government that allowed us to resume invoicing, collect the cash deferred from the second quarter, and recognize the sales and associated operating profit deferred from the second quarter. While we continue working to definitize the Lots 15-17 production contract, there can be no assurance that the existing agreement in principle and Lot 15 UCA will be converted to a definitive contract in a timely manner, on acceptable terms, or at all, any of which could adversely affect our results of operations, cash flows, and financial condition.

During the third quarter of 2022, F-35 deliveries were temporarily paused because specialty metals sourced from the People’s Republic of China were discovered in one component provided by a supplier. The material in question poses no performance, quality, safety, or security risks and the F-35 remains safe for flight. The U.S. Government has processed a National Security Waiver that permits the Department of Defense to accept delivery of aircraft that contain the component, and we are in discussions with the U.S. Government to incorporate the waiver into the underlying production contract, which will permit deliveries to resume. We currently expect deliveries to resume in the fourth quarter of 2022. If a contract modification is not made to incorporate the waiver into our underlying production contracts, further delivery delays and costs related to remediating the non-compliant part could be significant. In addition, ongoing investigations related to the issue could adversely affect our business. We remain heavily dependent on our supply chain for sourcing contractually compliant components, which is outside of our direct control and is multi-tiered. The future occurrence of non-compliant components in 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, cash flows and financial condition.

We also may not be successful in making hardware and software upgrades and other modernization capabilities in a timely manner, including as a result of dependencies on suppliers, which could increase costs and create schedule delays. Our ability to capture and retain future F-35 growth in development, production and sustainment is dependent on the success of our efforts to achieve F-35 sustainment performance, customer affordability, supply chain improvements, continued reliability improvements and other efficiencies, some of which are outside our control.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered equity securities during the quarter ended September 25, 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 September 25, 2022.

(a)We close our books and records on the last Sunday of each month to align our financial closing with our business processes, except for the month of December, as our fiscal year ends on December 31. As a result, our fiscal months often differ from the calendar months. For example, September 25, 2022 was the last day of our September 2022 fiscal month.

(b)In October 2010, our Board of Directors approved a share repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices. From time to time, our Board of Directors authorizes increases to our share repurchase program. The total remaining authorization for future common share repurchases under our share repurchase program was $117 million as of September 25, 2022. On October 17, 2022, the Board of Directors authorized an increase to the program by $14 billion. Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. This includes purchases pursuant to Rule 10b5-1 plans, including accelerated share repurchases. The program does not have an expiration date.

(c)During the quarter ended September 25, 2022, the total number of shares purchased included 7,144 shares that were transferred to us by employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units. These purchases were made pursuant to a separate authorization by our Board of Directors and are not included within the program.

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