What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-21 compared with 2025-07-22 · 244 added, 282 removed, 269 unchanged (66% of the section changed)

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and international customers with products and services that have defense, civil and commercial applications, with our principal customers being agencies of the U.S.

During the six months ended June 29, 2025, 73% of our $36.1 billion in sales were from the U.S.

Government, either as a prime contractor or as a subcontractor (including 63% from the Department of Defense (DoD)), 27% were from international customers (including foreign military sales (FMS) contracted through the U.S.

During the nine months ended September 28, 2025, 72% of our $54.7 billion in sales were from the U.S.

Government, either as a prime contractor or as a subcontractor (including 63% from U.S.

Department of War (DoW), also known as the Department of Defense under 10 U.S.C.

§ 111(a)), and 28% were from international customers (including foreign military sales (FMS) contracted through the U.S.

Global Security

We operate in a complex and evolving global security environment.

Conflicts or tensions in areas such as Europe, the Middle East, and the Pacific region have heightened tensions and highlighted security requirements globally, including these regions as well as the U.S.

Conflicts or tensions in areas such as Europe, the Middle East, and the Pacific region have heightened tensions and highlighted security requirements globally, including in these regions as well as the U.S.

Although these tensions and conflicts may drive interest in specific products or services as countries seek to improve their security posture, our business primarily operates on a long-cycle basis.

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Government, international partners, and our supply chain to increase capacity and enhance our ability to scale our operations to anticipate potential demand, deliver critical capabilities, and replenish depleted U.S.

and allied stockpiles of products that have been used over the past several years.

and allied stockpiles of products that have been consumed over the past several years.

Global Economic and Geopolitical Environment

Our business and financial performance are impacted by general economic conditions including inflationary pressures, delays and disruptions in supply chains, business slowdowns or shutdowns, workforce challenges and labor shortfalls, and market volatility.

These macroeconomic factors have contributed, and may continue to contribute, to increased costs, delays, disruptions and other performance challenges, as well as competing demands for limited resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers.

We continue to experience supply chain challenges, including supplier shortages and performance issues.

These issues have delayed certain customer deliveries, limited our ability to ramp up production in response to customer demand for certain products and have caused out-of-sequence manufacturing, which increases costs and decreases operational efficiency.

In addition, elevated levels of inflation and macroeconomic conditions present risks for us, our suppliers and the stability of the broader defense industrial base.

Certain costs, including rising labor rates and supplier costs, have increased as a result of inflation, and have adversely affected our margins on certain programs.

In addition, some suppliers are reducing the duration of pricing validity of their proposals to us or seeking to reopen pricing on existing agreements, which is operationally challenging and increases the risk of cost volatility.

Supply chain challenges, including both the availability and cost of goods, may be further impacted due to the imposition of tariffs and the availability of rare earth minerals, as discussed below under “Recent Developments in Trade and Regulatory Policies.” We continue to work to mitigate challenges caused by the supply chain or current macroeconomic environment on our business, including by supporting small business and at-risk suppliers, deploying resources to work with our supply chain, securing materials and support by executing long-term contracts, enforcing existing contract terms, identifying alternative sources, collaborating with our customers to address industry-wide challenges, and optimizing our supply chain organization through digital transformation and workforce development.

If we experience significant supply chain issues or high rates of inflation, and are unable to successfully mitigate the impact, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected.

Inflation and higher interest rates can also constrain the overall purchasing power of our customers for our products and services potentially impacting future orders, especially in a budget constrained environment.

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.

We have experienced, and continue to experience, supply chain challenges, including supplier shortages and performance issues.

While on-time deliveries are improving, pressures remain in certain areas, and we are proactively working with our suppliers to meet our contract commitments.

In addition, macroeconomic conditions including elevated levels of inflation present risks for us, our suppliers and the stability of the broader defense industrial base.

Supply chain challenges, including both the availability and cost of goods, may be further impacted due to the imposition of tariffs and the availability of raw materials including rare earth minerals, as discussed below under “Recent Developments in Trade and Regulatory Policies.” If we experience significant supply chain issues or high rates of inflation, and are unable to successfully mitigate the impact, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected.

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.

For additional risks to the company related to the supply chain and availability of materials, see Part I, Item 1A, “Risk Factors” of our 2024 Form 10-K.

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and are subject to tariffs, sanctions, embargoes, export and import controls, and other trade restrictions.

Government under the Trump Administration has increased tariffs, imposed additional tariffs, and expanded tariffs on goods imported from various countries.

We also export certain products to other countries, and several countries have increased tariffs or imposed additional tariffs in response to U.S.

The tariff environment has been dynamic over the last several months, with changes occurring on an ongoing basis, and it is likely that additional developments will occur over the next several months, particularly as the U.S.

negotiates with trade partners.

The tariffs that have been enacted or expanded by the U.S.

or other countries did not materially impact our business or financial results for the six months ended June 29, 2025.

We are currently evaluating the potential future impacts of the imposition of the announced tariffs to our business and financial condition.

At this time, we do not believe that the tariffs announced by the U.S.

or actions taken in response to these tariffs by other countries will have a material adverse effect upon our results of operations, financial condition, or cash flows.

However, the actual impact of the new tariffs is subject to a number of factors including the effective date and duration of such tariffs, changes in the amount, scope and nature of the tariffs in the future, any countermeasures that the target countries may take, how our Tier 1 and Tier 2 suppliers react, possible substitution effects, possible duty drawbacks, and any mitigating actions that may become available.

Government has increased, expanded, or imposed new tariffs on goods imported from various countries.

We also export certain products to other countries, and several countries have increased or imposed additional tariffs in response to U.S.

The tariff environment has been dynamic in 2025, with changes occurring on an ongoing basis, and it is possible that additional developments will occur in the future, including as a result of negotiations between the U.S.

and trade partners and legal challenges to the tariffs.

The actual impact of the tariffs is subject to a number of factors including the effective date and duration of such tariffs, changes in the amount, scope and nature of the tariffs, any countermeasures that the target countries may take, the result of negotiations between the U.S.

and trade partners, how our Tier 1 and Tier 2 suppliers react, possible substitution effects, possible duty-free entry entitlements, the outcome of any legal challenges, and any mitigating actions that may become available.

Tariffs that have been enacted or expanded by the U.S.

or other countries had an impact of approximately $350 million on our cash flows for the nine months ended September 28, 2025.

However, we expect a substantial portion of this impact to be recoverable over time.

We are closely monitoring the situation and evaluating the potential future impacts of the imposition of the announced tariffs to our business and financial condition.

At this time, excluding the near-term cash flow impact, we do not believe that the tariffs announced by the U.S.

or actions taken in response to these tariffs by other countries will have a material adverse effect upon our results of operation or financial condition over the long term.

Significant changes in tax, trade, or other policies either in the U.S.

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We are pursuing available options to fully or substantially mitigate the impact of the increased tariffs or any future tariffs, including seeking exclusions, through drawbacks, refunds, recovering the costs in the pricing of our products, securing alternative sources of materials or products, or, in certain cases, qualifying for duty-free treatment.

However, these actions may not be successful in fully or substantially mitigating the impact of tariffs, and, even if successful, there could be a near term impact on cash flows due to the timing of when tariffs are paid compared to when such costs may be refunded or recovered.

However, these actions may not be successful in fully or substantially mitigating the impact of tariffs, and, even if successful, there could continue to be a near-term volatility in cash flows due to the timing of when tariffs are paid compared to when such costs may be refunded or recovered.

In addition, recent government actions relating to rare earth minerals that are used in certain of our products, including U.S.

Government sourcing prohibitions on the import of such minerals and the imposition of export controls on such minerals by China, had raised concerns about supply availability earlier this year.

Although rare earth shipments have resumed under a new U.S.-China framework agreement, exports remain subject to selective licensing and review by Chinese authorities, and the rare earth supply chain continues to be vulnerable to further disruption due to increasing scarcity and constrained capacity.

Government sourcing prohibitions on the import of such minerals and the imposition of export controls on such minerals by China, have raised concerns about supply availability.

We are monitoring the rare earth minerals supply chain and maintaining active engagement with our suppliers as the regulatory landscape evolves.

The rare earth supply chain continues to be vulnerable to disruption due to increasing scarcity and constrained capacity, and we are developing and executing mitigation plans designed to safeguard supply and meet future delivery commitments.

We believe we will continue to meet our 2025 production and delivery commitments.

However, if we are unable to successfully mitigate disruptions to the availability of rare earth minerals, our future profits, margins and cash flows may be adversely affected.

Lastly, the President has issued multiple Executive Orders, including two that are intended to (i) simplify and accelerate the procurement process through an overhaul of the Federal Acquisition Regulation (FAR), and its supplements and (ii) modernize the defense acquisition process by promoting commercial solutions, use of innovative acquisition authorities, and other existing streamlined processes.

Among the actions directed by the President is a review of major defense acquisition programs that are more than 15% behind schedule or over budget, or not aligned with the Administration’s priorities, including identifying any programs for potential cancellation.

While the impact of these reforms on our business is uncertain, they could potentially lead to changes in the way we interact with the U.S.

Government, and we will continue to monitor and assess their effects on our business and financial results.

Should the U.S.

Government review one or more major defense programs in which we provide products and/or services, and this review leads to a full or partial cancellation of one of these programs, this could have an adverse effect on our business, financial condition, results of operations and cash flows.

As the modernization of the FAR progresses, we continue to monitor any changes to the Defense Acquisition Regulation Supplement.

While the full impact of these reforms on our business is uncertain, we are adapting to meet the changes in the Government buying behaviors.

We continue to monitor and assess their effects on our business and financial results.

Government continues to review defense programs in which we provide products and/or services, and if this review leads to a full or partial cancellation of one or more of these programs, this could have an adverse effect on our business, financial condition, results of operations and cash flows.

For additional risks to the company related to the geopolitical and economic environment, see Part I, Item 1A, “Risk Factors” of our 2024 Form 10-K.

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Our primary customer is the U.S.

Government, from which we derived 73% of our sales during the six months ended June 29, 2025, including 63% from the U.S.

Government, from which we derived 72% of our sales during the nine months ended September 28, 2025, including 63% from the DoW.

Funding for U.S.

Government programs is subject to a variety of factors

that can affect our business, including the administration’s budget requests and procurement priorities and policies, annual congressional budget authorization and appropriation processes, and other U.S.

Government programs is subject to a variety

of factors that can affect our business, including the administration’s budget requests and procurement priorities and policies, annual congressional budget authorization and appropriation processes, and other U.S.

Government domestic and international priorities.

Government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term.

On March 15, 2025, the President signed into law the Full-Year Continuing Appropriations and Extensions Act, 2025 (the Act), which funds the U.S.

Government under a continuing resolution through September 30, 2025, its fiscal year (FY) end.

In total, the FY 2025 continuing resolution funding is roughly equivalent to the U.S.

Government’s FY 2024 funding with a few anomalies and other smaller shifts in funding between appropriations titles.

The Act increases the DoD FY 2025 base budget by $6 billion to a total of $831.5 billion, while reducing nondefense spending.

Unlike other continuing resolution funding measures, the Act provides the DoD conditional authority to permit new program starts as long as they were included in the FY 2025 House or FY 2025 Senate appropriation bills and $8 billion in flexible funding, furthering the flexibility of DoD operating under a continuing resolution.

The Administration published its FY 2026 budget request in June 2025.

The Administration published its Fiscal Year (FY) 2026 budget request in June 2025.

The budget request includes $848.3 billion in the base budget (discretionary) funding, and $113.3 billion in reconciliation (mandatory) funding.

The One Big Beautiful Bill Act passed the Senate and House, and was signed by the President on July 4, 2025.

The bill provides more than $150 billion in mandatory funding (inclusive of the $113.3 billion) for DoD available until September 30, 2029.

The legislative process has been delayed due to the late release of the FY 2026 budget request.

The House Appropriations Subcommittee on Defense (HAC-D) released its FY 2026 congressional marks using the FY 2025 enacted amounts as its baseline on June 12, 2025.

The bill recommends $831.5 billion in discretionary funding for the DoD.

The One Big Beautiful Bill Act was signed by the President on July 4, 2025.

The bill provides more than $150 billion in mandatory funding (inclusive of the $113.3 billion reconciliation funding) for the DoW available until September 30, 2029.

The start of the new fiscal year began October 1, 2025, without the passage of Appropriation Acts or a Continuing Resolution (CR) and the Government began its shutdown procedures, to include furloughing government civilian employees.

It is unclear at this time when either a CR or Appropriations Act will be enacted.

Federal agencies, including DoW, have published guidance for identifying those missions and functions that may continue to be carried out in the absence of available appropriations.

The DoW published “Contingency Plan Guidance for Continuation of Operations in the Absence of Available Appropriations” stated the Department’s priorities include:

Operations to secure the U.S.

Southern Border, Middle East Operations, Golden Dome for America, Depot Maintenance, Shipbuilding, and Critical Munitions.

We are closely monitoring the known and potential impact and if the shutdown extends for a prolonged period of time, we expect our cash flows to be negatively impacted.

With respect to the Appropriations Acts, the House Appropriations Subcommittee on Defense (HAC-D) released its FY 2026 congressional marks using the FY 2025 enacted amounts as its baseline on June 12, 2025.

The bill recommends $831.5 billion in discretionary funding for the DoW.

The Senate Armed Services Committee marked up its version of the FY 2026 National Defense Authorization Act (FY 2026 NDAA) on July 10, 2025 and included a topline increase of $32.1 billion.

The House Armed Services Committee (HASC) also completed their markup of the FY 2026 NDAA on July 15, 2025 and held at the topline of the FY 2026 President’s budget request.

We anticipate the federal budget, debt ceiling, additional potential tax law changes and regulatory environment will continue to be subject to debate and compromise shaped by, among other things, the new Administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions.

We anticipate the federal budget, additional potential tax law changes, and regulatory environment will continue to be subject to debate and compromise shaped by, among other things, the new Administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions.

The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs.

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Government funding risks, in Part I, Item 1A, “Risk Factors” of our 2024 Form 10-K.

Portfolio Shaping Activities

On June 26, 2025, we paid $360 million, in cash, to close our acquisition of Amentum’s Rapid Solutions business (Rapid Solutions).

This acquisition integrates Rapid Solutions’ advanced space and airborne mission capabilities, including intelligence, surveillance and reconnaissance technologies, into Lockheed Martin’s portfolio.

The financial results of Rapid Solutions have been included within our operating results in the period post-acquisition.

See “Note 1 – Basis of Presentation” included in our Notes to Consolidated Financial Statements for further information regarding the acquisition of Rapid Solutions.

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.

Our operating cycle is primarily long-term and involves many types of contracts for the design, development and manufacture, integration, and sustainment of products and related activities with varying delivery schedules.

Additionally, we close our books and records on the last Sunday of each month, except for the month of December, as our fiscal year ends on December 31, to align our financial closing with our business processes.

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Our consolidated results of operations were as follows (in millions, except per share data):

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Sales $ 18,609 $ 17,104 $ 54,727 $ 52,421

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Accordingly, such amounts are included in the discussion of our business segment results of operations.

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 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 sales should be read in tandem with the subsequent discussion of changes in our consolidated operating costs and expenses and our business segment results of operations because changes in our sales are typically accompanied by a corresponding change in our operating costs and expenses due to the nature of the percentage-of-completion cost-to-cost method.

We generate sales from the delivery of products and services to our customers.

Our consolidated sales were as follows (in millions):

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Products $ 15,311 $ 14,472 $ 45,396 $ 43,777

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Total sales $ 18,609 $ 17,104 $ 54,727 $ 52,421

Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method.

changes in our sales are typically accompanied by a corresponding change in our operating costs and expenses due to the nature of the percentage-of-completion cost-to-cost method.

Product Sales

Product sales during the quarter ended June 29, 2025 were comparable to the same period in 2024.

Higher product sales of approximately $325 million at MFC and $100 million at Space were offset by lower product sales of $375 million at RMS.

Higher product sales at MFC were due to production ramp-up on Joint Air-to-Surface Standoff Missile (JASSM), Long Range Anti-Ship Missile (LRASM), and precision fires programs.

Higher product sales at Space were due to higher volume on Orion and Next Generation Interceptor (NGI) programs partially offset by lower product sales due to program lifecycle on the Next Generation Overhead Persistent Infrared (Next Gen OPIR) system.

Lower product sales at RMS were due to lower volume on radar and the Canadian Surface Combatant (CSC) programs, and the unfavorable cumulative adjustments to sales driven by recognizing a loss on Türkish Utility Helicopter Program (TUHP) as previously described.

Product sales for Aeronautics were comparable as higher volume on F-35 production contracts was mostly offset by the unfavorable cumulative adjustment to sales driven by recognizing a loss on a classified contract in the second quarter of 2025.

See “Note 10 – Other” included in our Notes to Consolidated Financial Statements for further details about program losses incurred at Aeronautics and RMS.

Product sales increased $780 million, or 3%, during the six months ended June 29, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher product sales of approximately $675 million at MFC, $145 million at Aeronautics and $80 million at Space offset by lower product sales of $120 million at RMS.

Higher product sales at MFC were due to production ramp-up on JASSM, LRASM, and precision fires programs.

Higher product sales at Aeronautics were due to higher volume on F-35 production contracts, partially offset by the unfavorable cumulative adjustment to sales driven by recognizing a loss on a classified contract in the second quarter of 2025.

Higher product sales at Space were due to higher volume on NGI and Orion programs partially offset by lower product sales due to program lifecycle on the Next Gen OPIR system.

Lower product sales at RMS were due to the unfavorable cumulative adjustment to sales driven by recognizing a loss on TUHP as previously described and lower production volume on Seahawk programs.

Product sales increased $839 million, or 6%, during the quarter ended September 28, 2025, compared to the same period in 2024.

Higher product sales of approximately $445 million at MFC, $255 million at Aeronautics and $180 million at Space.

Higher product sales at MFC were due to production ramp-up on PAC-3, Joint Air-to-Surface Standoff Missile (JASSM) and Long Range Anti-Ship Missile (LRASM) programs.

Higher product sales at Aeronautics were due to higher volume on F-35 production contracts and the delays in receiving additional contractual authorization and funding under the Lots 18-19 contract in the third quarter of 2024, partially offset by lower volume on classified contracts.

Higher product sales at Space were due to higher volume on Fleet Ballistic Missile (FBM), Orion and Next Generation Interceptor (NGI) programs.

Product sales increased $1.6 billion, or 4%, during the nine months ended September 28, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher product sales of approximately $1.1 billion at MFC and $400 million at Aeronautics.

Higher product sales at MFC were due to production ramp-up on JASSM, LRASM, precision fires and PAC-3 programs.

Higher product sales at Aeronautics were due to higher volume on F-35 production contracts and the delays in the third quarter of 2024 as described above, partially offset by the unfavorable cumulative adjustment to sales driven by recognizing a loss on a classified contract in the second quarter of 2025.

Service Sales

Service sales during the quarter ended June 29, 2025 were comparable to the same period in 2024.

Lower service sales of approximately $180 million at RMS were offset by higher service sales of approximately $155 million at Aeronautics.

Lower service sales at RMS were due to the unfavorable cumulative adjustment to sales driven by recognizing a loss on Canadian Maritime Helicopter Program (CMHP) as previously described.

Higher service sales at Aeronautics were due to higher volume on F-35 sustainment contracts.

Service sales during the six months ended June 29, 2025 were comparable to the same period in 2024.

Higher service sales of approximately $210 million at Aeronautics were offset by lower service sales of approximately $195 million at RMS.

Higher service sales at Aeronautics were due to higher volume on F-35 sustainment contracts.

Lower service sales at RMS were due to the unfavorable cumulative adjustment to sales driven by recognizing a loss on CMHP as previously described.

Service sales increased $666 million, or 25%, during the quarter ended September 28, 2025, compared to the same period in 2024 due to higher service sales of approximately $510 million at Aeronautics as a result of higher volume on F-35 sustainment contracts.

Service sales increased $687 million, or 8%, during the nine months ended September 28, 2025, compared to the same period in 2024 due to higher service sales of approximately $725 million at Aeronautics as a result of higher volume on F-35 sustainment contracts.

Operating Costs and Expenses

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Our consolidated operating costs and expenses were as follows (in millions):

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Operating costs and expenses – products $ (13,708) $ (12,964) $ (41,461) $ (39,368)

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Product Costs

Product costs increased $949 million, or 7%, during the quarter ended June 29, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher product costs of approximately $880 million at Aeronautics and $285 million at MFC, partially offset by lower product costs of approximately $290 million at RMS.

Higher product costs at Aeronautics were due to the impact of recognizing a loss on a classified contract in the second quarter of 2025 and higher volume as described above in “Product Sales”.

Higher product costs at MFC were due to production ramp up as described above in “Product Sales”.

Lower product costs at RMS were due to lower volume as described above in “Product Sales”.

Product costs increased $1.3 billion, or 5%, during the six months ended June 29, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher product costs of approximately $995 million at Aeronautics and $485 million at MFC, partially offset by lower product costs of approximately $95 million at RMS.

Higher product costs at Aeronautics were due to the impact of recognizing a loss on a classified contract as described above and higher volume as described above in “Product Sales”.

Product costs increased $744 million, or 6%, during the quarter ended September 28, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher product costs of approximately $395 million at MFC, $260 million at Aeronautics and $130 million at Space.

Higher product costs at MFC, Aeronautics and Space were due to production ramp-up and higher volume as described above in “Product Sales”.

Product costs increased $2.1 billion, or 5%, during the nine months ended September 28, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher product costs of approximately $1.3 billion at Aeronautics and $880 million at MFC.

Higher product costs at Aeronautics were due to higher volume and the impact of recognizing a loss on a classified contract as described above in “Product Sales”.

Higher product costs at MFC were due to production ramp-up as described above in “Product Sales”.

Lower product costs at RMS were due to lower production volume as described above in “Product Sales”.

Service Costs

Service costs increased $548 million, or 21%, during the quarter ended June 29, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher service costs of approximately $400 million at RMS and $110 million at Aeronautics.

Higher service costs at RMS were due to the impact of recognizing losses on CMHP as previously described.

Higher service costs at Aeronautics were due to higher volume as described above in “Service Sales”.

Service costs increased $585 million, or 11%, during the six months ended June 29, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher service costs of approximately $400 million at RMS and $165 million at Aeronautics.

Higher service costs at RMS were due to the impact of recognizing losses on CMHP as previously described.

Service costs increased $599 million, or 26%, during the quarter ended September 28, 2025, compared to the same period in 2024 primarily attributable to higher service costs of approximately $475 million at Aeronautics driven by higher volume as described above in “Service Sales”.

Service costs increased $1.2 billion, or 16%, during the nine months ended September 28, 2025, compared to the same period in 2024.

The increase was primarily attributable to higher service costs of approximately $640 million at Aeronautics and $430 million at RMS.

Higher service costs at Aeronautics were due to higher volume as described above in “Service Sales”.

Higher service costs at RMS were due to the impact of recognizing a loss on CMHP as previously described.

Impairment and Other Charges

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These items are not allocated to the business segments and, therefore, are not allocated to operating costs and expenses for products or services.

Other unallocated, net reduced operating expenses by $244 million and $528 million during the quarter and six months ended June 29, 2025, compared to $197 million and $482 million during the quarter and six months ended June 30, 2024.

The increase in other unallocated, net was primarily due to higher gains from the changes in the fair value of assets and liabilities related to deferred compensation plans during the quarter and six months ended June 29, 2025 compared to the same periods in 2024 and fluctuations in costs associated with various corporate items, none of which were individually significant.

Other unallocated, net reduced operating expenses by $210 million and $738 million during the quarter and nine months ended September 28, 2025, compared to $249 million and $731 million during the quarter and nine months ended September 29, 2024.

The fluctuations in other unallocated, net for all periods were due to costs associated with various corporate items, none of which were individually significant.

Other Income, Net

Other income, net during the quarter ended June 29, 2025 was comparable to the same period in 2024.

Other income, net was $63 million and $54 million during the six months ended June 29, 2025 and June 30, 2024.

Other income, net was $40 million and $103 million during the quarter and nine months ended September 28, 2025.

Other income, net was $23 million and $77 million during the quarter and nine months ended September 29, 2024.

Other income, net, primarily includes earnings generated by equity method investees, as well as gains or losses for acquisitions, divestitures, and other items, none of which are individually significant.

The increase in other income, net during the six months ended June 29, 2025 resulted primarily from an intellectual property license arrangement.

The increase in other income, net during the quarter and nine months ended September 28, 2025 resulted primarily from an intellectual property license arrangement and the Commercial Engine Solutions divestiture net working capital true-up.

Interest Expense

Interest expense was $274 million and $542 million during the quarter and six months ended June 29, 2025, compared to $261 million and $516 million during the quarter and six months ended June 30, 2024.

The increase in interest expense in 2025 resulted primarily from the issuance of commercial paper and senior unsecured notes in December 2024.

Interest expense was $286 million and $828 million during the quarter and nine months ended September 28, 2025, compared to $256 million and $772 million during the quarter and nine months ended September 29, 2024.

The increase in interest expense in 2025 resulted primarily from a higher intra-period outstanding balance of commercial paper and issuance of senior unsecured notes in July 2025 and December 2024.

Non-service FAS Pension (Expense) Income

Non-service FAS pension expense was $99 million and $197 million during the quarter and six months ended June 29, 2025, compared to non-service FAS pension income of $15 million and $31 million during the quarter and six months ended June 30, 2024.

Non-service FAS pension expense was $99 million and $296 million during the quarter and nine months ended September 28, 2025, compared to non-service FAS pension income of $16 million and $47 million during the quarter and nine months ended September 29, 2024.

The increase in expense was primarily due to higher prior service cost amortization and a reduced asset base as detailed in “Note 6 - Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.

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Other non-operating income, net primarily includes gains or losses related to adjustments in valuation of early-stage company investments or gains or losses upon the sale of these investments and interest income earned on cash and cash equivalents.

Other non-operating income, net was $42 million and $72 million during the quarter and six months ended June 29, 2025, compared to $46 million and $91 million during the quarter and six months ended June 30, 2024.

Other non-operating income, net was $43 million and $115 million during the quarter and nine months ended September 28, 2025, compared to $18 million and $109 million during the quarter and nine months ended September 29, 2024.

See “Note 8 - Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional information.

Income Tax Expense

Our effective income tax rates were 18.0% and 16.3% for the quarter and six months ended June 29, 2025 and 15.8% for both the quarter and six months ended June 30, 2024.

The higher effective income tax rates for the quarter and six months ended June 29, 2025 were primarily attributable to increased interest expense on our uncertain tax position partially offset by changes in pre-tax earnings due to program losses previously described.

The rates for all periods benefited from tax deductions for foreign derived intangible income, research and development tax credits, dividends paid to our defined contribution plans with an employee stock ownership plan feature and employee equity awards.

Our effective income tax rates were 16.5% and 16.4% for the quarter and nine months ended September 28, 2025 and 15.4% and 15.6% for the quarter and nine months ended September 29, 2024.

The higher effective income tax rates for the quarter and nine months ended September 28, 2025 were attributable to the One Big Beautiful Bill Act (the Tax Act) primarily driven by lower tax deductions for foreign derived intangible income partially offset by the favorable resolution of certain federal income tax audit items with the Internal Revenue Service (IRS).

The rates for all periods benefited from

research and development tax credits, dividends paid to our defined contribution plans with an employee stock ownership plan feature, tax deductions for foreign derived intangible income and employee equity awards.

Changes in U.S.

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As a result of an IRS tax audit related to our adoption of Accounting Standards Codification (ASC) 606 for certain manufacturing contracts and the associated changes to the income recognition rules enacted in the 2017 Tax Cuts and Jobs Act, the IRS has proposed adjustments that could result in significant additional federal income tax.

We are pursuing administrative and potentially judicial remedies to resolve this matter.

We believe our reserves for tax contingencies are adequate;

however, the outcome of this matter is uncertain, and if this matter is resolved unfavorably, there could be a material impact on our profitability and future cash flows.

We are in ongoing discussions with the IRS in an effort to resolve the matter.

See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

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These increases or changes could have a material impact on financial condition and results of operations in such period.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development (R&D) expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes.

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (the Tax Act).

The Tax Act, among other things, reinstates full deduction of R&D expenditures starting in 2025.

We are in the process of evaluating the impact of the Tax Act on our consolidated financial statements.

However, we expect the Tax Act to decrease our cash tax liability for 2025.

The Organisation for Economic Co-operation and Development (OECD) has established a framework for a global minimum corporate tax of 15%, known as Pillar 2, which will be applied on a country-by-country basis to companies with global revenues and profits above certain thresholds.

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We do not expect Pillar 2 to have a material impact on our effective tax rate or our financial condition and results of operations.

We reported net earnings of $342 million ($1.46 per share) and $2.1 billion ($8.75 per share) during the quarter and six months ended June 29, 2025 and $1.6 billion ($6.85 per share) and $3.2 billion ($13.24 per share) during the quarter and six months ended June 30, 2024.

Net earnings and earnings per share for the quarter and six months ended June 29, 2025 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 5.3 million and 5.8 million weighted average common shares outstanding during the quarter and six months ended June 29, 2025, compared to the same periods in 2024.

We reported net earnings of $1.6 billion ($6.95 per share) and $3.7 billion ($15.69 per share) during the quarter and nine months ended September 28, 2025 and $1.6 billion ($6.80 per share) and $4.8 billion ($20.05 per share) during the quarter and nine months ended September 29, 2024.

Net earnings and earnings per share for the quarter and nine months ended September 28, 2025 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 5.8 million weighted average common shares outstanding during both the quarter and nine months ended September 28, 2025, compared to the same periods in 2024.

The reduction in weighted average common shares was a result of share repurchases, partially offset by share issuances under our stock-based awards and certain defined contribution plans.

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We generally organize our business segments based on the nature of products and services offered.

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.

Business segment operating profit excludes the FAS/CAS pension operating adjustment detailed below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S.

Government under the applicable U.S.

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Sales and operating profit for each of our business segments were as follows (in millions):

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Aeronautics $ 7,256 $ 6,487 $ 21,733 $ 20,609

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Total sales $ 18,609 $ 17,104 $ 54,727 $ 52,421

Operating profit (loss)

Operating profit

Aeronautics $ 682 $ 659 $ 1,304 $ 2,089

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(a) See “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information.

Segment results exclude intersegment transactions as these activities are eliminated in consolidation and are not considered in assessing the 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.

Our business segment results of operations include pension expense as calculated under 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 business segments’ sales and operating costs and expenses.

Our consolidated financial statements must present pension and other postretirement benefit plan (expense) income calculated in accordance with Financial Accounting Standards (FAS) requirements under U.S.

The FAS/CAS pension operating adjustment represents the difference between CAS pension cost included in segment operating income and the service cost component of FAS pension (expense) income included in consolidated operating profit.

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 non-service FAS pension (expense) income components are included in non-service FAS pension (expense) income on our consolidated statements of earnings.

The total FAS/CAS pension adjustments, including the service and non-service cost components of FAS pension (expense) income for our qualified defined benefit pension plans, were as follows (in millions):

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Total FAS (expense) income and CAS cost

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This approach is consistent throughout the life cycle of our contracts, as management assesses the bidding of each contract by focusing on 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.

We have a number of programs that are designated as classified by the U.S.

Government, and that cannot be specifically described.

The operating results of these classified programs are included in our consolidated and business segment results and are subject to the same oversight and internal controls as our other programs.

Our 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.

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.

Many of our contracts span several years and include highly complex technical requirements.

At the outset of a contract accounted for under the percentage-of-completion cost-to-cost method, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract, as well as our ability to earn variable consideration, and assess the effects of those risks on our estimates of sales and total costs to complete the contract.

The estimates consider the technical requirements (e.g., a newly developed product versus a mature product), the schedule and associated tasks (e.g., the number and type of milestone events) and costs (e.g., material, labor, subcontractor, overhead and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset or localization agreements, required under certain contracts with international customers).

The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the

initial estimated total costs to complete the contract and variable considerations.

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 or may increase the variable consideration we expect to receive on the contract.

Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase or our estimates of variable consideration we expect to receive decrease.

The profit booking rate may also be adjusted if the total estimated value of the contract changes or there is a contract modification.

All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate.

For further discussion on fixed-price contracts, see “ Note 10 - Other ” included in our Notes to Consolidated Financial Statements.

This method and assumptions used to evaluate contracts and recognize revenue, including the use of percentage-of-completion accounting for contracts with continuous transfer of control to the customer, are consistent with those described in our 2024 Form 10-K under

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Additionally, for updates related to fixed-price contracts, see “Note 10 - Other” included in our Notes to Consolidated Financial Statements.

Changes in sales and operating profit generally are expressed in terms of volume, contract mix, and/or performance (referred to as profit booking rate adjustments).

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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.

The following table presents the effect of our consolidated net profit booking rate adjustments on segment operating profit (in millions):

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

The following table presents the effect of our consolidated net profit booking rate adjustments on segment operating profit (loss) (in millions):

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Aeronautics $ 60 $ 105 $ (560) $ 315

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Space 70 25 330 180

Total business segment operating profit $ (1,045) $ 420 $ (565) $ 615

During the quarter ended June 29, 2025, we recorded losses of $950 million on an ongoing classified program at our Aeronautics business segment, and $570 million on CMHP and $95 million on TUHP at our RMS business segment.

During the six months ended June 29, 2025, in addition to the losses above, we recorded $125 million of adjustments resulting from favorable performance upon completion on certain commercial civil space programs at Space and an $80 million favorable adjustment upon completion of a classified program at Aeronautics.

During the six months ended June 30, 2024 we recognized a reach-forward loss of $100 million on a classified program at our MFC business segment.

Total net adjustments to segment operating

profit $ 365 $ 375 $ (200) $ 990

During the nine months ended September 28, 2025, we recorded losses of $950 million on an ongoing classified program at our Aeronautics business segment, $570 million on Canadian Maritime Helicopter Program (CMHP) and $95 million on Türkish Utility Helicopter Program (TUHP) at our RMS business segment, and $105 million of unfavorable profit adjustments on C-130 programs at our Aeronautics business segment.

In addition to these losses and unfavorable profit adjustments, we also recorded $130 million of favorable adjustments upon completion on certain commercial civil space programs at Space, and $80 million favorable adjustments upon completion of a classified program at Aeronautics.

During the nine months ended September 29, 2024, we recognized reach-forward losses of $145 million on the same ongoing classified program at our Aeronautics business segment ($80 million was recognized during the quarter ended September 29, 2024) and of $100 million on a classified program at our MFC business segment.

With respect to the classified program at our Aeronautics business segment, we continue to monitor this program, and we may need to record additional losses in future periods if we experience further performance issues, increases in scope, or increases in costs from prior estimates.

Our estimates may change, in particular, as we conduct further development and testing on the program, which may lead to new findings or cause us to modify our expectations or understanding of the risks inherent in the program.

Similarly, we may need to record additional losses in future periods for the programs at our MFC and RMS business segments referenced above.

Any such losses could be material to our financial results in any period that they are recognized.

For further discussion regarding the losses recognized on these programs, see ““Note 10 - Other” included in our Notes to Consolidated Financial Statements.

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

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Sales $ 7,256 $ 6,487 $ 21,733 $ 20,609

Operating (loss) profit (98) 751 622 1,430

Operating profit 682 659 1,304 2,089

Operating margin 9.4 % 10.2 % 6.0 % 10.1 %

Aeronautics’ sales during the quarter ended June 29, 2025 increased $143 million , or 2% , compared to the same period in 2024 .

This increase was primarily attributable to higher sales of $470 million on the F-35 program due to higher volume on production contracts.

This increase was partially offset by a $360 million unfavorable cumulative adjustment to sales driven by the loss on a classified contract as previously described.

Aeronautics’ operating profit during the quarter ended June 29, 2025 decreased $849 million , or 113% , compared to the same period in 2024.

The decrease was attributable to the previously described $950 million reach forward loss recognized on a classified contract, which was partially offset by a $90 million increase on the F-35 program due to higher profit booking rate adjustments and volume as described above.

Aeronautics’ sales during the six months ended June 29, 2025 increased $355 million , or 3% , compared to the same period in 2024 .

This increase was primarily attributable to higher sales of $685 million on the F-35 program due to higher volume on production contracts.

This increase was partially offset by a $360 million unfavorable cumulative adjustment to sales driven by the loss on a classified contract as previously described.

Aeronautics’ operating profit during the six months ended June 29, 2025 decreased $808 million , or 57% , compared to the same period in 2024 .

The decrease was attributable to the previously described $950 million reach forward loss recognized on a classified contract.

This decrease was partially offset by a $110 million increase on the F-35 program due to higher volume as described above and higher profit booking rate adjustments and an $80 million profit booking rate adjustment in the first quarter of 2025 resulting from favorable performance at completion on a classified program .

Aeronautics’ sales during the quarter ended September 28, 2025 increased $769 million , or 12% , compared to the same period in 2024 .

This increase was primarily attributable to higher sales of $965 million on the F-35 program due to

higher volume on production and sustainment contracts and the delays in receiving additional contractual authorization and funding under the Lots 18-19 contract in the third quarter of 2024.

This increase was partially offset by lower sales of $140 million on classified contracts due to lower volume.

Aeronautics’ operating profit during the quarter ended September 28, 2025 increased $23 million , or 3% , compared to the same period in 2024.

This increase was attributable to a $70 million increase from higher volume, as described above, partially offset by a $45 million decrease in profit booking rate adjustments.

The decrease in profit booking rate adjustments was primarily due to $40 million of unfavorable profit adjustments on C-130 programs.

In addition, profit booking rate adjustments from 2024 that did not recur include a favorable profit rate adjustments of $85 million for a claim associated with a C-5 Galaxy contract and an unfavorable profit rate adjustment of $80 million on a classified program.

Aeronautics’ sales during the nine months ended September 28, 2025 increased $1.1 billion, or 5%, compared to the same period in 2024.

This increase was primarily attributable to higher sales of $1.6 billion on the F-35 program due to higher volume on production and sustainment contracts and the delays in receiving additional contractual authorization and funding under the Lots 18-19 contract in the third quarter of 2024.

This increase was partially offset by a decrease of $515 million on classified programs due to an unfavorable cumulative adjustment to sales driven by the loss on a classified contract recorded in the second quarter of 2025 and lower volume.

Aeronautics’ operating profit during the nine months ended September 28, 2025 decreased $785 million, or 38%, compared to the same period in 2024.

The decrease was attributable to $875 million of lower profit rate adjustments partially offset by $175 million of higher volume as described above.

The lower profit rate adjustments were primarily driven by a net impact of $805 million of reach-forward losses recognized on a classified contract ($950 million recognized in 2025 and $145 million recognized in 2024), partially offset by $105 million of unfavorable profit adjustments on C-130 programs, in addition to the items mentioned above.

Missiles and Fire Control

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

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Sales $ 3,624 $ 3,175 $ 10,430 $ 9,270

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Operating margin 14.1 % 14.4 % 13.9 % 13.1 %

MFC’s sales during the quarter ended June 29, 2025 increased $331 million, or 11%, compared to the same period in 2024.

This increase was primarily attributable to higher sales of $330 million on tactical and strike missile programs due to production ramp-up on JASSM, LRASM and precision fires programs .

MFC’s operating profit during the quarter ended June 29, 2025 increased $29 million, or 6%, compared to the same period in 2024.

This increase was attributable to three primary factors:

a $35 million increase from production ramp up as described above, and a $25 million increase from favorable contract mix;

partially offset by a $25 million decrease in profit booking rate adjustments.

The decrease in profit booking rate adjustments was primarily due to lower favorable profit adjustments on Patriot Advanced Capability-3 (PAC-3).

MFC’s sales during the six months ended June 29, 2025 increased $711 million, or 12%, compared to the same period in 2024.

MFC’s sales during the quarter ended September 28, 2025 increased $449 million, or 14%, compared to the same period in 2024.

This increase was primarily attributable to higher sales of $280 million on tactical and

strike missile programs due to production ramp-up on JASSM, LRASM and precision fires programs;

and $235 million for integrated air and missile defense programs primarily due to production ramp-up on PAC-3.

MFC’s operating profit during the quarter ended September 28, 2025 increased $54 million, or 12%, compared to the same period in 2024.

This increase was primarily attributable to a $45 million increase from production ramp-up as described above.

MFC’s sales during the nine months ended September 28, 2025 increased $1.2 billion , or 13%, compared to the same period in 2024.

This increase was primarily attributable to higher sales of $980 million on tactical and strike missile programs due to production ramp-up on JASSM, LRASM and precision fires programs;

MFC’s operating profit during the six months ended June 29, 2025 increased $183 million, or 24%, compared to the same period in 2024.

and $270 million for integrated air and missile defense programs due to production ramp-up on PAC-3.

MFC’s operating profit during the nine months ended September 28, 2025 increased $237 million, or 19%, compared to the same period in 2024.

This increase was attributable to two primary factors:

a $105 million increase in profit booking rate adjustments and a $105 million volume increase driven by production ramp-up as described above.

The increase in profit booking rate adjustments was primarily due to a $100 million loss recognized on a classified program and an unfavorable profit adjustment on Hellfire in the first quarter of 2024 that did not recur, partially offset by lower favorable profit adjustments on PAC-3 in 2025.

The increase in profit booking rate adjustments was primarily due to a $100 million loss recognized on a classified program in 2024 that did not recur and an unfavorable profit adjustment on Hellfire in the first quarter of 2024 that did not recur, partially offset by lower favorable profit adjustments on PAC-3 in 2025.

Rotary and Mission Systems

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

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Sales $ 4,373 $ 4,367 $ 12,696 $ 13,003

Operating (loss) profit (172) 495 349 925

Operating profit 506 483 855 1,408

Operating margin 11.6 % 11.1 % 6.7 % 10.8 %

RMS’ sales during the quarter ended June 29, 2025 decreased $553 million, or 12% , compared to the same period in

The decrease was primarily attributable to lower net sales of $370 million on Sikorsky helicopter programs due to the unfavorable cumulative adjustments to sales driven by recognizing losses on CMHP and TUHP as previously described, and lower production volume on Seahawk programs;

and a $145 million decrease on integrated warfare systems and sensors (IWSS) programs due to lower volume on radar and the CSC programs.

RMS’ operating profit during the quarter ended June 29, 2025 decreased $667 million , or 135%, compared to the same period in 2024.

This decrease was attributable to a $610 million decrease in profit booking rate adjustments primarily due to a $570 million loss recognized on CMHP and a $95 million loss recognized on TUHP as previously described .

RMS’ sales during the six months ended June 29, 2025 decreased $313 million, or 4% , compared to the same period in 2024.

The decrease was primarily attributable to lower net sales of $245 million on Sikorsky helicopter programs due to the unfavorable cumulative adjustments to sales driven by recognizing losses on CMHP and TUHP as previously described.

RMS’ operating profit during the six months ended June 29, 2025 decreased $576 million , or 62%, compared to the same period in 2024.

This decrease was attributable to a $565 million decrease in profit booking rate adjustments primarily due to a $570 million loss recognized on CMHP and a $95 million loss recognized on TUHP as previously described, partially offset by unfavorable profit adjustments on Seahawk programs in the first quarter of 2024 that did not recur.

RMS’ sales during the quarter ended September 28, 2025 were comparable to the same period in 2024.

Sales increased $190 million on Sikorsky helicopter programs due to higher production volume on Black Hawk programs and $40 million on various C6ISR programs due to higher volume.

These increases were offset by lower sales of $155 million on integrated warfare systems and sensors (IWSS) programs due to lower volume on the Aegis and CSC programs, and $75 million for various training, logistics and simulation (TLS) programs due to lower volume.

RMS’ operating profit during the quarter ended September 28, 2025 increased $23 million, or 5%, compared to the same period in 2024.

This increase was primarily attributable to favorable contract mix at Sikorsky.

RMS’ sales during the nine months ended September 28, 2025 decreased $307 million, or 2%, compared to the same period in 2024.

The decrease was primarily attributable to lower sales of $150 million on IWSS programs due to lower volume within the laser systems portfolio and Littoral Combat Ship (LCS);

$100 million for various TLS programs due to lower volume;

and $50 million on Sikorsky helicopter programs primarily due to the unfavorable cumulative adjustments to sales driven by recognizing losses on CMHP and TUHP in the second quarter of 2025, as previously disclosed, and lower production volume on Seahawk programs, partially offset by higher production volume on Black Hawk programs.

RMS’ operating profit during the nine months ended September 28, 2025 decreased $553 million, or 39%, compared to the same period in 2024.

This decrease was attributable to a $570 million decrease in profit booking rate adjustments primarily due to the losses recognized on CMHP and TUHP in the second quarter of 2025, as previously disclosed, partially offset by unfavorable profit adjustments on Seahawk programs in the first quarter of 2024 that did not recur.

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

Quarters Ended Six Months Ended

2025 June 30,

2024 June 29,

2025 June 30,

Quarters Ended Nine Months Ended

September 28,

2025 September 29,

2024 September 28,

2025 September 29,

Sales $ 3,356 $ 3,075 $ 9,868 $ 9,539

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Operating margin 9.9 % 8.8 % 10.9 % 9.9 %

Spac e’s sales during the quarter ended June 29, 2025 increased $112 million, or 4%, compared to the same period in 2024.

This increase was primarily attributable to higher sales of $115 million for commercial civil space programs primarily due to higher volume on the Orion program;

and $80 million for strategic and missile defense programs due to higher volume on NGI and Fleet Ballistic Missile (FBM) programs.

These increases were partially offset by a decrease of $95 million on national security space programs due to program lifecycle on Next Gen OPIR system.

Space’s operating profit during the quarter ended June 29, 2025 increased $16 million, or 5% , compared to the same period in 2024.

This increase was attributable to a $20 million increase in profit booking rate adjustments primarily due to favorable performance at completion on certain commercial civil space programs.

Space’s sales during the six months ended June 29, 2025 increased $48 million, or 1%, compared to the same period in 2024.

This increase was primarily attributable to higher sales of $190 million for commercial civil space programs primarily due to favorable performance at completion on certain commercial civil space programs and higher volume on the Orion program;

and $90 million for strategic and missile defense programs due to higher volume on the NGI program.

Space’s sales during the quarter ended September 28, 2025 increased $281 million, or 9%, compared to the same period in 2024.

This increase was primarily attributable to higher sales of $160 million for strategic and missile defense programs due to higher volume on the FBM and NGI programs;

and $70 million on national security space programs due to classified volume.

Space’s operating profit during the quarter ended September 28, 2025 increased $59 million, or 22%, compared to the same period in 2024.

This increase was attributable to two primary factors:

a $45 million increase in profit booking rate adjustments and a $20 million increase in volume, as described above.

The increase in profit booking rate adjustments was primarily due to higher net favorable profit adjustments on the FBM program.

Space’s sales during the nine months ended September 28, 2025 increased $329 million, or 3%, compared to the same period in 2024.

This increase was primarily attributable to higher sales of $250 million for strategic and missile defense programs due to higher volume on the NGI and FBM programs;

and $225 million for commercial civil space

programs primarily due to higher volume on the Orion program.

These increases were partially offset by a decrease of $180 million on national security space programs due to program lifecycle on Next Gen OPIR system.

Space’s operating profit during the six months ended June 29, 2025 increased $70 million, or 10%, compared to the same period in 2024.

Space’s operating profit during the nine months ended September 28, 2025 increased $129 million, or 14%, compared to the same period in 2024.

This increase was attributable to an $150 million increase in profit booking rate adjustments partially offset by $20 million of lower equity earnings driven by lower launch volume from our investment in United Launch Alliance (ULA).

The increase in profit booking rate adjustments was primarily due to favorable performance at completion on certain commercial civil space programs.

Total equity earnings (ULA) represented approximately $10 million, or 3%, and $5 million, or 1%, of Space's operating profit during the quarter and six months ended June 29, 2025, compared to approximately $10 million, or 3%, and $25 million, or 4% for the same periods in 2024.

Total equity earnings (ULA) represented approximately $5 million, or 2%, and $10 million, or 1%, of Space's operating profit during the quarter and nine months ended September 28, 2025, compared to approximately $5 million, or 2%, and $30 million, or 3% for the same periods in 2024.

FINANCIAL CONDITION

Liquidity and Capital Resources

At June 29, 2025, we had cash and cash equivalents of $1.3 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

At September 28, 2025, we had cash and cash equivalents of $3.5 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

Our principal source of liquidity is our cash from operations and access to credit markets.

Access to credit markets includes our $3.0 billion revolving credit facility, including the ability to issue commercial paper.

As of June 29, 2025, we had no borrowings outstanding under the revolving credit facility and $1.4 billion in commercial paper borrowings at a weighted average rate of 4.55%.

As of December 31, 2024, there were no borrowings outstanding under the revolving credit facility or the commercial paper program.

The outstanding balance of commercial paper can fluctuate daily and the amount outstanding during the period may be greater or less than the amount reported at the end of the period.

There were no borrowings outstanding under the revolving credit facility or the commercial paper program at both September 28, 2025 and December 31, 2024.

We may, as conditions warrant, continue to issue commercial paper backed by our revolving credit facility to manage the timing of cash flows.

Cash received from customers is our primary source of cash from operations.

However, from time to time, we fund customer programs ourselves pending government appropriations.

However, from time to time, we fund customer programs ourselves pending government appropriations or prior to contract award.

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.

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These reach-forward losses do not have an immediate cash flow impact, but as future costs are incurred on these contracts, these losses will negatively impact cash flows over the remaining period of performance.

We are closely monitoring the known and potential impact and if the shutdown extends for a prolonged period of time, we expect our cash flows to be negatively impacted.

Government Budget Environment” included within the “Business Overview” discussion above.

Additionally, increases in costs due to tariffs may impact our cash flows, as we may not be able to fully recover these costs, and even if recovery is possible, it may not occur in the same period as the incurred costs.

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Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type.

We generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately 41% of the sales we recorded during the six months ended June 29, 2025, 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.

We generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately 41% of the sales we recorded during the nine months ended September 28, 2025, 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 as we hit milestones.

The amounts of performance-based payments and the related milestones are determined in the negotiation of each contract.

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We continue to return cash to stockholders through dividends and share repurchases.

The remaining authorization under our share repurchase program was $8.1 billion as of June 29, 2025.

In October 2025, the Board of Directors authorized a fourth quarter dividend payment of $3.45 per share, representing an increase of $0.15 per share over the prior quarterly dividend payment.

The Board of Directors also authorized an increase of $2.0 billion to our share repurchase program in addition to the $7.1 billion remaining authorization under our share repurchase program as of September 28, 2025.

The share repurchase program does not have an expiration date and may be amended or terminated by the Board of Directors at any time.

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

Six Months Ended

2025 June 30,

Nine Months Ended

September 28,

2025 September 29,

Cash and cash equivalents at beginning of year $ 2,483 $ 1,442

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Operating Activities

Net cash provided by operating activities during the six months ended June 29, 2025 decreased $1.9 billion compared to the same period in 2024.

The decrease in cash from operations was primarily due to an increase in working capital, which is defined as receivables, contract assets, and inventories less accounts payable and contract liabilities.

This increase in working capital was driven by three main factors:

an increase in contract assets as a result of the timing of milestones, primarily related to the F-35 program at Aeronautics;

an increase in Sikorsky inventory at RMS;

and decreases in contract liabilities related to classified programs at Aeronautics and national security space programs at Space.

These increases were partially offset by favorable timing of cash payments related to accounts payable, primarily at Aeronautics.

Net cash provided by operating activities during the nine months ended September 28, 2025 decreased $611 million compared to the same period in 2024.

The decrease in cash from operations was primarily due to an increase in working capital, primarily production and billing cycles impacting receivables across all four business segments, partially offset by lower tax payments, reflecting the impact of the Tax Act.

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).

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, and is a performance goal in our annual and long-term incentive plans.

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The entire amount of free cash flow is not necessarily available for discretionary expenditures, however, because it does not account for certain mandatory expenditures, such as the repayment of maturing debt and future pension contributions.

While management believes that free cash flow as a non-GAAP financial measure may be useful in evaluating our financial

performance and liquidity, 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.

While management believes that free cash flow as a non-GAAP financial measure may be useful in evaluating our financial performance and liquidity, 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

2025 June 30,

Nine Months Ended

September 28,

2025 September 29,

Cash from operations $ 5,338 $ 5,949

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Free cash flow $ 4,152 $ 4,846

Free cash flow during the six months ended June 29, 2025 decreased $2.0 billion compared to the same period in 2024 primarily due to operating cash flow drivers described above and higher software expenditures.

Free cash flow d uring the nine months ended September 28, 2025 decreased $694 million compared to the same period in 2024 primarily due to operating cash flow drivers described above and higher software expenditures.

Investing Activities

Net cash used for investing activities during the six months ended June 29, 2025 increased $401 million compared to the same period in 2024, primarily due to a $360 million cash payment for the acquisition of Rapid Solutions.

Capital expenditures totaled $805 million and $748 million during the six months ended June 29, 2025 and June 30, 2024.

Net cash used for investing activities duri ng the nine months ended September 28, 2025 increased $510 million compared to the same period in 2024, primarily due to a $360 million cash payment for the acquisition of Rapid Solutions.

Capital expenditures totaled $1.2 billion and $1.1 billion during the nine months ended September 28, 2025 and September 29, 2024.

The majority of our capital expenditures are for equipment and facilities infrastructure that generally are incurred to support new and existing programs across all of our business segments.

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Financing Activities

Net cash used for financing activities during the six months ended June 29, 2025 decreased $31 million compared to the same period in 2024.

During the six months ended June 29, 2025 and June 30, 2024, we paid dividends totaling $1.6 billion ($6.60 per share) and $1.5 billion ($6.30 per share).

During the six months ended June 29, 2025, we paid $1.3 billion to repurchase 2.7 million shares of our common stock.

See “Note 9 - Stockholders’ Equity” included in our Notes to Consolidated Financial Statements for additional information.

During the six months ended June 30, 2024, we paid $1.9 billion to repurchase 4.2 million shares of our common stock.

During the six months ended June 29, 2025, we received net proceeds of $1.4 billion from the issuance of commercial paper.

During the six months ended June 29, 2025 and June 30, 2024, we repaid $142 million and $168 million of long-term notes with a fixed interest rate of 7.625% and 8.375% according to their scheduled maturities.

Net cash used for financing activities during t he nine months ended September 28, 2025 decreased $399 million compared to the same period in 2024, primarily attributable to paying $2.3 billion to repurchase 5.0 million shares in 2025 compared to $2.7 billion to repurchase 5.7 million shares in 2024.

See “Note 9 - Stockholders’ Equity” and “Note 10 - Other” included in our Notes to Consolidated Financial Statements for additional information regarding dividend payments, share repurchases and debt issuances.

OTHER MATTERS

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Marine Corps, and U.S.

We also have commitments from seven international partner countries and 12 FMS customers.

We also have commitments from seven international partner countries and 12 Foreign Military Sales (FMS) customers.

We continue to see strong international demand for the F-35.

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In June 2025, the United Kingdom announced its intent to purchase 12 F-35As adding to its existing fleet of F-35Bs.

Finally, in July 2025 Belgium announced their intention to procure an additional 11 F-35As bringing their total program of record to 45 aircraft.

We expect international interest to continue to expand in the coming years.

During the second quarter of 2025, we delivered 50 aircraft.

Since the program inception through June 29, 2025, we delivered 1,199 production F-35 aircraft, including 866 F-35A variants, 221 F-35B variants and 112 F-35C variants, and our backlog as of that date was 311 aircraft, demonstrating the F-35 program’s continued progress and longevity.

In December 2024, Lockheed Martin and the Joint Program Office (JPO) reached an agreement for an undefinitized contract action for Lot 18 F-35 Air Vehicle Production Contract for 145 aircraft.

During the third quarter of 2025, we delivered 46 aircraft.

Since the program inception through September 28, 2025, we delivered 1,245 production F-35 aircraft, including 893 F-35A variants, 230 F-35B variants and 122 F-35C variants, and our backlog as of that date was 265 aircraft.

In addition, during the third quarter, Lockheed Martin and the Joint Program Office (JPO) reached an agreement for Lot 18 and Lot 19 F-35 Air Vehicle Production Contract for 296 aircraft, resulting in the planned payments during the third quarter of 2025, followed by definitization on September 29, 2025.

The scope includes aircraft for the U.S.

Air Force, Navy, and Marines and the International Partners and Foreign Military Sales (FMS) customers, in addition to the required infrastructure for the international Final Assembly and Checkout Facilities (FACOs) and other equipment.

Lot 19 was negotiated concurrently with Lot 18, and both Lots are expected to be fully awarded in 2025.

The F-35 program is significant and complex, and we and our customers continually review aircraft performance, program and delivery schedule, cost and supply chain issues, and requirements as part of our internal program management efforts and the DoD, Congressional and international countries’ oversight and budgeting processes.

Air Force, Navy, and Marines and the International Partners and FMS customers, in addition to the required infrastructure for the international Final Assembly and Checkout Facilities (FACOs) and other equipment.

With this award, an additional 3 Lot 18 aircraft and 148 Lot 19 aircraft were added to the F-35 backlog, demonstrating the F-35 program’s continued progress and longevity.

The F-35 program is significant and complex, and we and our customers continually review aircraft performance, program and delivery schedule, cost and supply chain issues, and requirements as part of our internal program management efforts and the DoW, Congressional and international countries’ oversight and budgeting processes.

Areas of particular focus currently include Lockheed Martin’s and supplier performance, Block 4 modernization, flight test execution, cost of life cycle operations, sustainment, inflation-related cost and supply chain-related cost and schedule pressures, and efforts to increase affordability and readiness.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis