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Item 7. Management’s Discussion and Analysis

2026-01-29 compared with 2025-01-28 · 304 added, 406 removed, 378 unchanged (65% of the section changed)

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Business Overview

We are a global aerospace and defense company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

We also provide a broad range of management, engineering, technical, scientific, logistics, system integration and cybersecurity services.

Our main areas of focus are in defense, space, intelligence, homeland security and information technology, including cybersecurity.

We serve both U.S.

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

In 2024, 73% of our $71.0 billion in net sales were from the U.S.

Government, either as a prime contractor or as a subcontractor (including 65% from the Department of Defense (DoD)), 26% were from international customers (including foreign military sales (FMS) contracted through the U.S.

Government) and 1% were from U.S.

commercial and other customers.

We are a global aerospace and defense technology company that builds and sustains the solutions America and its allies need to deter conflict and advance national security and scientific exploration objectives.

Our four business areas – Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space – work as one company offering integrated solutions, at scale, across all warfighting domains.

Our defense, space, intelligence, homeland security, information technology, and cybersecurity capabilities serve U.S.

and international customers in defense, civil and commercial applications.

Our principal customers are agencies of the U.S.

Government and allies.

In 2025, 72% of our $75.0 billion in sales were from the U.S.

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

We operate in four business segments:

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

Our 21st Century Security ® vision is to accelerate the adoption of advanced networking and other leading-edge technologies into the American defense enterprise, while enhancing the performance and value of our platforms and products for our customers.

The aim of 21st Century Security is to integrate and continuously upgrade new and existing systems across all domains with advanced, open-architecture networking and operational technologies that make defense forces more agile, adaptive and unpredictable, enabling overmatch and strengthening deterrence today and into the future.

21st Century Security guides our strategy and investments.

As our growth pillars continue to evolve, we are focusing on advancing all-domain mission solutions through investments in digital technologies such as Artificial Intelligence (AI)/Machine Learning (ML), Autonomy and Crewed/Uncrewed Teaming, Generative Design and other technologies and capabilities enabling Combined Joint All-Domain Command and Control (CJADC2).

Innovations in these areas will expand capability, improve interoperability, increase demand for our multi-domain solutions and drive efficient conversion of backlog into growth across our portfolio.

We have well established programs across our business segments that continue to experience growth, including F-35 sustainment activity (Aeronautics);

increased Patriot Advanced Capability-3 (PAC-3) production rates and increased demand for High Mobility Artillery Rocket System (HIMARS ® ) and Guided Multiple Launch Rocket Systems (GMLRS) (Missiles and Fire Control);

radar surveillance systems and CH-53K King Stallion heavy lift helicopter (Rotary and Mission Systems);

and the modernization of and enhancements to the Trident II D5 Fleet Ballistic Missile (FBM) (Space).

Additionally, our teams continue to transform our products and rapidly innovate for the future, developing 6th generation air dominance technologies within Skunk Works ® , demonstrating autonomous capabilities with the X-62A (F-16) and optionally piloted BLACK HAWK ® , creating new Joint All-Domain Operating systems with Defense of Guam and AIR 6500 in Australia, establishing small-to-medium satellite capabilities to support proliferated space constellations and advancing hypersonic capabilities.

Finally, we are always in pursuit of new program awards to develop future platforms that enable us to continue to strengthen our national defense and advance deterrence and global security.

Keys to enabling success of our strategy include developing and investing in differentiating technologies, forging strategic partnerships, including with commercial companies, executing on our multi-year business transformation initiative to enhance our digital infrastructure and increase efficiencies and collaboration throughout our business and maintaining fiscal discipline.

Underpinning our ability to execute our strategy is our talent and culture.

We invest substantially in our people to ensure that our workforce has the technical skills necessary to succeed, and we expect to continue to invest internally in innovative technologies that address rapidly evolving mission requirements for our customers.

We also will continue to evaluate our portfolio and will make strategic acquisitions or divestitures, as appropriate, while deepening our connection to commercial industry through cooperative partnerships, joint ventures and equity investments.

Recent regional conflicts have demonstrated the integral role Lockheed Martin products play in protecting people, and we are rapidly transforming our business to meet increased demand.

We are expanding production capacity to continue delivering at scale, and we are harnessing leading-edge technologies like artificial intelligence and autonomy, open-architecture systems, and advanced networking to make defense forces more agile, adaptive and unpredictable.

Our goal is to deliver overwhelming capability and value – quickly, at the needed quantities and with the greatest effectiveness – to enable overmatch and strengthen deterrence today and into the future.

We achieve this by developing and investing in differentiating technologies, forging strategic partnerships, including with commercial companies, executing on our multi-year business transformation initiative, maintaining fiscal discipline, and continuing to cultivate the greatest aerospace and defense workforce talent and culture in the world.

We invest substantially in our people to ensure that our people have the technical skills necessary to succeed, and we expect to continue to invest internally in innovative technologies that address rapidly evolving mission requirements for our customers.

We also will continue to evaluate our organizational structure and portfolio and will make strategic changes, acquisitions or divestitures, as appropriate, while deepening our connection to commercial industry through cooperative partnerships, joint ventures and equity investments.

Portfolio Shaping Activities

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In pursuing our business strategy, we routinely conduct discussions, evaluate targets and enter into agreements regarding possible acquisitions, divestitures, joint ventures and equity investments.

On September 9, 2024, we completed the sale of our Commercial Engine Solutions (CES) business, which was part of our Aeronautics business segment.

We received $170 million in cash from the sale.

Gains recognized from the sale in 2024 were not significant.

The final gain is subject to certain post-closing adjustments, including final working capital, indemnification, and tax adjustments, which we expect to complete in 2025.

This sale did not represent a strategic shift and the impacts to our consolidated results of operation, financial position, and cash were not significant.

Accordingly, the operating results and cash flows for the CES business up to the divestiture date have not been reclassified to discontinued operations.

On October 30, 2024, we closed our acquisition of Terran Orbital Corporation (Terran Orbital) for a purchase consideration of $314 million, which will be included in our Space business segment.

Terran Orbital’s product and service offerings include satellite design, production, launch planning, mission operations, and on-orbit support for the aerospace and defense industries.

We believe this acquisition will enable us to broaden our capabilities and offerings, provide additional innovative solutions to meet our customers’ emerging requirements, and provide expanded opportunities for our combined employees.

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

See Note 1 to the consolidated financial statements for further information regarding the acquisition of Terran Orbital.

Budget Environment

With approximately three quarters of our sales from the U.S.

Government, U.S.

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

On March 22, 2024, the President signed into law the second Fiscal Year (FY) 2024 Consolidated Appropriations package, which includes the DoD funding.

This legislation reflects the Fiscal Responsibility Act of 2023 (FRA) spending limit of $886 billion for National Defense, of which $842 billion was for the DoD base budget.

The President’s FY 2025 budget request was submitted to Congress on March 11, 2024, initiating the FY 2025 defense authorization and appropriations legislative process.

The request included $895 billion for National Defense, of which $850 billion is for the DoD base budget, in keeping with the limit established by the FRA.

While compression on overall requirements driven by the FRA limit is evident, the Office of the Secretary of Defense has stated the FY 2025 budget proposal meets their objectives of keeping National Defense Strategy priorities on track.

On April 24, 2024, the President signed a bill providing a total of $95 billion in additional supplemental funding for Ukraine, Israel and Taiwan, including funding for the restock of U.S.

munitions capacity.

Supplemental funding legislation is not subject to the FRA limits.

The House and Senate continue the legislative process on the FY 2025 budget.

The National Defense Authorization Act for Fiscal Year 2025, signed by the President on December 24, 2024, is consistent with the FY 2025 President’s Budget Request (PBR) and Congressionally mandated budget caps established by the FRA with a topline of $849.8 billion.

The House Appropriations Committee also marked its bill at this same level.

The Senate Appropriations Committee, however, did not adhere to the FRA spending caps and marked budgets above the PBR, providing between a $21 billion and $25 billion increase over the PBR level.

Regardless of toplines, all four Committees support additional funding for several of our programs, spread across our four business areas.

Congress still needs to approve or revise the President’s FY 2025 budget proposal through enactment of appropriations bills and other policy legislation, which would then require final approval from the President in order for the FY 2025 budget process to conclude.

A second Continuing Resolution (CR) for FY 2025 passed the House and Senate on December 20, 2024, and was signed by the President on December 21, 2024.

The bill funds U.S.

Government operations through March 14, 2025.

In addition to the Continuing Resolution, the President also signed the Disaster Relief Supplemental Appropriations Act on December 21, 2024, which includes more than $100 billion in supplemental funding.

Of note, the final version of the bill did

not address the debt ceiling, which is set to expire mid-January 2025 and is expected to cause challenges at the start of the 119th Congressional negotiations.

Once the debt ceiling is reached, Treasury may have to use extraordinary measures to prevent default.

Treasury’s available cash and any extraordinary measures taken should delay the risk of default for at least several months after the end of the first quarter of 2025.

In the upcoming months, the new Congress will return to the task of funding the U.S.

Government for the balance of FY 2025.

Significant differences that must be resolved include the different allocations as noted above and policy matters that arose during consideration of the CR and the underlying bills.

We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, the new Administration and Congress, 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.

Geopolitical and Economic Environment

We operate in a complex and evolving global security environment and our business is affected by geopolitical and security issues.

Russia’s invasion of Ukraine, conflicts in the Middle East and heightened tension in the Pacific region have elevated global security concerns resulting in increased interest for our products and services as countries seek to improve their security posture.

In this context, the U.S.

Government, our largest customer, continues to align its budget with the defense priorities set forth in the 2022 National Defense Strategy.

In addition, security assistance provided by the U.S.

Government and its allies to Ukraine has increased U.S.

Government and allied demand to replenish U.S.

stockpiles, resulting in additional and potential future orders, including for the ramp-up in production capacity for certain products.

We continue to expect additional orders over the next several years attributable to the global threat environment.

We operate primarily in a long-cycle business and the U.S.

Government has been focused on increasing industry capacity to meet demand.

As previously disclosed, during the second quarter of 2025, we paid $360 million, in cash, for the 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.

Rapid Solutions operates within our Space business segment and the financial results have been included within our

operating results in the period post-acquisition.

See “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for further information regarding the acquisition of Rapid Solutions.

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 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.

As a result, the U.S.

Government has been broadly focused on increasing industry capacity to meet long-term demand.

We continue to work with the U.S.

Government and our supply chain to evaluate increases in capacity at our operations to anticipate potential demand and enable us to deliver critical capabilities.

Our business and financial performance is also affected by general economic conditions.

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

These issues have delayed certain customer deliveries, have been a limiting factor on 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.

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.

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 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, impacts from technological change, 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 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.

Recent Developments in Trade and Regulatory Policies

Certain materials and component parts that go into making our products are imported into the U.S.

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

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.

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

or other countries had an impact of approximately $485 million on our cash flows during the year ended December 31, 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.

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, or securing alternative sources of materials or products.

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.

Additionally, a substantial amount of our imports qualify for duty-free entry.

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 operations or financial condition over the long term.

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

or other countries, as well as any fluctuation in foreign exchange rates as a result of such activity, could materially increase our tax burden, the price we pay for materials and component parts, the price our customers pay, and result in delays in products received or non-delivery from our vendors as well as impact the availability of materials (including rare earth minerals), which could materially impact our business and financial results.

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

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.

See Item 1A - Risk Factors for additional risks to the company related to the geopolitical and economic environment.

Government Budget Environment

Our primary customer is the U.S.

Government, from which we derived 72% of our sales in 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 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.

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 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 National Defense Authorization Act (NDAA) for FY2026 was signed into law on December 18, 2025.

This legislation authorizes $901 billion for Defense which includes an $8 billion increase over the President’s DoW Budget Request.

On November 12, 2025, the President signed into law a Continuing Resolution funding the DoW through January 30, 2026.

On January 20, 2026, Congress unveiled its final Appropriations package, which includes the Defense Appropriations Act conference report.

This legislation provides $839.2 billion in funding for the DoW representing an $8.4 billion increase over the topline in the President’s DoW Budget Request.

Congress is working to pass this bill prior to the expiration of the Continuing Resolution on January 30, 2026, but it is possible a short continuing resolution may be needed before final passage.

Despite the Administration indicating their desire for a significant increase in defense spending in FY2027, 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 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.

Additionally, the Administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance, and other factors and then potentially taking action based on those assessments.

Those actions remain uncertain and could result in impacts to both our current and future business prospects and financial performance.

International Business

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Our international business is conducted either by FMS contracted through the U.S.

Government or by direct commercial sales (DCS) to international customers.

Government or by direct commercial sales (DCS) to international government customers.

In 2025, approximately 77% of our sales to international customers were FMS and about 23% were DCS.

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See Item 1A - Risk Factors for a discussion of risks related to international sales.

In 2024, international customers accounted for 32% of Aeronautics’ net sales.

In 2025, international customers accounted for 36% of Aeronautics’ sales.

There continues to be strong international interest in the F-35 program, which includes commitments from the U.S.

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Government and the partner countries continue to work together on the design, testing, production and sustainment of the F-35 program.

Other areas of

international expansion at our Aeronautics business segment include the F-16 and C-130J programs, which continue to draw interest from international customers for new aircraft.

In 2024, international customers accounted for 29% of MFC’s net sales.

Other areas of international expansion at our Aeronautics business segment include the F-16 and C-130J programs, which continue to draw interest from international customers for new aircraft.

In 2025, international customers accounted for 29% of MFC’s sales.

Our MFC business segment continues to generate significant international interest, most notably in the air and missile defense product line, which produces the PAC-3 and Terminal High Altitude Area Defense (THAAD) systems.

Seventeen nations have chosen PAC-3 Cost Reduction Initiative (CRI) and PAC-3 Missile Segment Enhancement (MSE) to provide missile defense capabilities.

Additionally, we continue to see international demand for our tactical and strike missile products, where we received orders from Poland for precision fire systems and for Joint Air-to-Surface Standoff Missile (JASSM).

In 2024, international customers accounted for 32% of RMS’ net sales.

Additionally, we continue to see international demand for our tactical and strike missile products and fire control systems, where we received orders for

precision fire systems, Hellfire, and for Joint Air-to-Surface Standoff Missile (JASSM) from multiple nations, and for our Apache fire control system from Poland.

In 2025, international customers accounted for 34% of RMS’ sales.

Our RMS business segment continues to experience international interest in the Aegis Ballistic Missile Defense System (Aegis) for which we perform activities in the development, production, modernization, ship integration, test and lifetime support for ships of international customers such as Japan, Spain, the Republic of Korea and Australia.

We have ongoing combat systems programs associated with different classes of surface combatant ships for customers in Canada, Chile and New Zealand.

We have combat systems programs associated with different classes of surface combatant ships from customers in Canada and Germany.

Our Multi-Mission Surface Combatant (MMSC) program will provide surface combatant ships for international customers, such as the Kingdom of Saudi Arabia, designed to operate in shallow waters and the open ocean.

In our training and logistics solutions portfolio, we have active programs and pursuits in the United Kingdom, the Kingdom of Saudi Arabia, Canada, Singapore, Australia, Germany and France.

We have active development, production and sustainment support of the S-70 Black Hawk and MH-60 Seahawk helicopters to international customers, including India, Philippines, Australia, the Republic of Korea, Thailand, the Kingdom of Saudi Arabia and Greece.

In our training, logistics and simulation portfolio, we have active programs and pursuits in the United Kingdom, Singapore, Australia, Germany, Japan, New Zealand, Republic of Korea and France.

We continue to draw interest from international customers for radar systems, where we have received recent orders from Denmark, Sweden and Singapore.

Commercial aircraft are sold to international customers to support search and rescue missions as well as VIP and offshore oil and gas transportation.

Status of the F-35 Program

The F-35 program primarily consists of production contracts, sustainment activities, and new development efforts.

Production of the aircraft is expected to continue for many years given the U.S.

Government’s objective of procuring 2,456 aircraft for the U.S.

Air Force, U.S.

Marine Corps, and U.S.

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

We continue to see strong international demand for the F-35, with the Czech Republic signing an LOA in January 2024 to procure 24 F-35s, Singapore announcing in February 2024 its intent to purchase eight additional F-35s, and Greece signing an LOA in July 2024 to procure 20 F-35s.

In November 2024, Romania signed an LOA to procure 32 aircraft, becoming the 20th nation to join the F-35 program.

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

From program inception through December 31, 2024, we have delivered 1,102 production F-35 aircraft, including 797 F-35A variants, 203 F-35B variants and 102 F-35C variants, and our backlog as of that date was 408 aircraft, demonstrating the F-35 program’s continued progress and longevity.

We resumed F-35 deliveries in the third quarter of 2024, after delivering none in the first half of the year, and delivered 106 Technology Refresh 3 (TR-3) configured aircraft and four TR-2 configured aircraft in 2024.

We continue to advance TR-3 and Block 4 capabilities to support our customers’ mission requirements.

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.

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.

While we continue to engage with the U.S.

Government to definitize the contract, this agreement allowed us to recognize approximately $700 million of sales and associated operating profit deferred from the third quarter of 2024 into the fourth quarter of 2024.

We were also able to invoice and collect cash of approximately $1.3 billion in the fourth quarter for costs incurred.

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.

Areas of particular focus currently include Lockheed Martin’s and our suppliers’ performance, software maturation related to TR-3 capability and software development more generally, 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.

At December 31, 2024, our backlog was $176.0 billion compared with $160.6 billion at December 31, 2023.

At December 31, 2025, our backlog was $193.6 billion compared to $176.0 billion at December 31, 2024.

Backlog is converted into sales in future periods as work is performed or deliveries are made.

We expect to recognize approximately 35%

of our backlog over the next 12 months and approximately 60% over the next 24 months as revenue, with the remainder recognized thereafter.

We expect to recognize approximately 37% of our backlog over the next 12 months and a total of approximately 60% over the next 24 months as revenue, with the remainder recognized thereafter.

Our backlog includes both funded (firm orders for our products and services for which funding has been both authorized and appropriated by the customer) and unfunded (firm orders for which funding has not been appropriated) amounts.

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2025 2024 2023

Net sales $ 71,043 $ 67,571 $ 65,984

Cost of sales (64,113) (59,092) (57,697)

Sales $ 75,048 $ 71,043 $ 67,571

Operating costs and expenses (67,429) (64,113) (59,092)

Gross profit 7,619 6,930 8,479

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Interest expense (1,118) (1,036) (916)

Non-service FAS pension income (expense) 62 443 (971)

Other non-operating income (expense), net 181 64 (74)

Non-service FAS pension (expense) income (874) 62 443

Other non-operating income, net 183 181 64

Earnings before income taxes 5,922 6,220 8,098

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

Our consolidated net sales were as follows (in millions):

Our consolidated sales were as follows (in millions):

2025 2024 2023

Products $ 62,654 $ 59,277 $ 56,265

% of total net sales 83.4 % 83.3 % 84.1 %

% of total sales 83.5 % 83.4 % 83.3 %

Services 12,394 11,766 11,306

% of total net sales 16.6 % 16.7 % 15.9 %

Total net sales $ 71,043 $ 67,571 $ 65,984

% of total sales 16.5 % 16.6 % 16.7 %

Total sales $ 75,048 $ 71,043 $ 67,571

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

Under the percentage-of-completion cost-to-cost method, we record net sales on contracts over time based upon our progress towards completion on a particular contract, as well as our estimate of the profit to be earned at completion.

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

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.

Product Sales

Product sales increased $3.4 billion, or 6%, in 2025 as compared to 2024.

The increase was primarily attributable to higher product sales of approximately $1.4 billion at MFC, $1.1 billion at RMS and $840 million at Aeronautics.

Higher product sales at MFC were due to production ramp up on GMLRS, HIMARS, JASSM and LRASM programs.

Higher product sales at RMS were primarily due to higher volume on radar programs, new program ramp up within the laser systems portfolio and higher production volume on CH-53K program, partially offset by lower volume on the VH-92A program.

Higher product sales at Aeronautics were due to higher volume on F-35 production contracts.

The increase was primarily attributable to higher product sales of approximately $1.7 billion at MFC, $1.0 billion at Aeronautics, and $475 million at Space.

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

Higher product sales at Space were due to higher volume on Fleet Ballistic Missile (FBM), Next Generation Interceptor (NGI) and Orion programs, partially offset by the impact of program lifecycle in the OPIR mission.

Service Sales

Service sales increased $628 million, or 5%, in 2025 as compared to 2024.

The increase in service sales was primarily due to higher sales of approximately $305 million at Aeronautics and $150 million at Space.

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

Higher service sales at Space were due to higher volume on national security space services.

Cost of Sales

Cost of sales, for both products and services, consist of materials, labor, subcontracting costs and an allocation of indirect costs (overhead and general and administrative), as well as the costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers.

The increase in service sales was primarily due to higher sales of approximately $620 million at Aeronautics as a result of higher volume on F-35 sustainment contracts.

Operating Costs and Expenses

Operating costs and expenses, for both products and services, consist of materials, labor, subcontracting costs and an allocation of indirect costs (overhead and general and administrative), as well as the costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers.

For each of our contracts, we monitor the nature and amount of costs at the contract level, which form the basis for estimating our total costs to complete the contract.

Our consolidated cost of sales was as follows (in millions):

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

2025 2024 2023

Cost of sales – products $ (54,852) $ (50,206) $ (49,357)

Operating costs and expenses – products

$ (57,020) $ (54,852) $ (50,206)

% of product sales 91.0 % 92.5 % 89.2 %

Cost of sales – services (10,217) (10,027) (9,252)

Operating costs and expenses – services

(11,339) (10,217) (10,027)

% of service sales 91.5 % 86.8 % 88.7 %

Severance and other charges (87) (92) (100)

Impairment and other charges (66) (87) (92)

Other unallocated, net 996 1,043 1,233

Total cost of sales $ (64,113) $ (59,092) $ (57,697)

The following discussion of material changes in our consolidated cost of sales for products and services should be read in tandem with the preceding discussion of changes in our consolidated net sales and our business segment results of operations.

Except for potential impacts to our programs resulting from supply chain disruptions and inflation, we have not identified any additional developing trends in cost of sales for products and services that would have a material impact on our future operations.

Total operating costs and expenses $ (67,429) $ (64,113) $ (59,092)

The following discussion of material changes in our consolidated operating costs and expenses for products and services should be read in tandem with the preceding discussion of changes in our consolidated sales and our business segment results of operations.

Except for potential impacts to our programs resulting from supply chain disruptions, inflation, and tariffs, we have not identified any additional developing trends in operating costs and expenses for products and services that could have a material impact on our future operations.

Product Costs

Product costs increased approximately $4.6 billion, or 9%, in 2024 as compared to 2023.

The increase was primarily attributable to higher product costs of $2.5 billion at MFC, $1.2 billion at Aeronautics and $1.1 billion at RMS.

Higher product costs at MFC were due to $1.4 billion in reach-forward losses on a classified program and production ramp up as described above in “Product Sales”.

Higher product costs at Aeronautics were due to higher volume and production ramp up as described above in “Product Sales” and $555 million of losses recognized on a classified contract.

See “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for further details about classified program losses incurred at MFC and Aeronautics.

Higher product costs at RMS were due to higher volume and production ramp up as described above in “Product Sales”.

Product costs increased $2.2 billion, or 4%, in 2025 as compared to 2024.

The increase was primarily attributable to higher product costs of approximately $1.5 billion at Aeronautics, $285 million at Space and $225 million at RMS.

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

Higher product costs at Space were due to higher volume, partially offset by the impact of program lifecycle previously described in “Product Sales”.

Higher product costs at RMS were due to higher production volume on Black Hawk programs and the impact of recognizing reach-forward losses on TUHP in the second quarter of 2025, partially offset by lower production volume on Seahawk programs.

Service Costs

Service costs increased approximately $190 million, or 2%, in 2024 as compared to 2023.

The increase was primarily attributable to higher service costs of approximately $235 million at Aeronautics due to higher volume as described above in “Service Sales”.

Impairment and Severance Charges

Service costs increased approximately $1.1 billion, or 11%, in 2025 as compared to 2024.

The increase was primarily attributable to higher service costs of approximately $540 million at Aeronautics and $425 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 reach-forward loss on Canadian Maritime Helicopter Program (CMHP) as previously described.

Impairment and Other Charges

We recorded charges totaling $66 million ($52 million, or $0.22 per share, after-tax) in 2025 and $87 million ($69 million, or $0.29 per share, after-tax) in 2024.

See “Note 16 – Impairment and Severance Charges” included in our Notes to Consolidated Financial Statements for additional information.

See “Note 16 – Impairment and Other Charges” included in our Notes to Consolidated Financial Statements for additional information.

Other Unallocated, Net

Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of Financial Accounting Standards (FAS) pension income (expense)), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, intangible asset amortization expense and other corporate costs.

These items are not allocated to the business segments and, therefore, are not allocated to cost of sales for products or services.

Other unallocated, net reduced cost of sales by $1.0 billion in 2024, compared to $1.2 billion in 2023.

The decrease in other unallocated, net was primarily due to lower gains from the changes in the fair value of assets and liabilities related to deferred compensation plans in 2024 compared to in 2023 and fluctuations in costs associated with various corporate items, none of which were individually significant.

Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of FAS pension (expense) income), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, intangible asset amortization expense and other corporate costs.

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 $996 million and $1.0 billion in 2025 and 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

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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 in 2024 resulted primarily from the favorable settlement of an intellectual property related matter and higher earnings generated by equity method investees.

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

Interest Expense

Interest expense in 2024 was $1.0 billion, compared to $916 million in 2023.

The increase in interest expense in 2024 resulted primarily from the issuance of senior unsecured notes in December 2024, January 2024 and May 2023.

Interest expense in 2025 was $1.1 billion, compared to $1.0 billion in 2024.

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

See “Capital Structure, Resources and Other” included within the “Liquidity and Cash Flows” discussion below and “Note 10 – Debt” included in our Notes to Consolidated Financial Statements for a discussion of our debt.

Non-Service FAS Pension Income

Non-service FAS pension income in 2024 was $62 million, compared to $443 million in 2023.

The decrease was primarily due to a lower prior service credit amortization and a reduced asset base as detailed in “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.

Non-Service FAS Pension (Expense) Income

Non-service FAS pension expense in 2025 was $874 million, compared to non-service FAS pension income of $62 million in 2024.

Non-service FAS pension expense in 2025 includes a noncash, non-operating pension settlement charge of $479 million ($377 million, or $1.63 per share, after-tax) in connection with the transfer of $943 million of our gross defined benefit pension obligations and related plan assets to insurance companies in December 2025.

Additionally, the increase in expense was primarily due to higher prior service cost amortization and a reduced asset base.

See “Note 11 – Retirement Benefits” for more information.

Other Non-operating Income (Expense), Net

Other non-operating income (expense), net primarily includes gains or losses related to changes in the fair value of early-stage company investments or gains or losses upon the sale of these investments.

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 in 2025 was $183 million, compared to $181 million in 2024.

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Our effective income tax rate was 15.3% for 2025 and 14.2% for 2024.

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.

The higher effective income tax rate in 2025 was 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.

On July 4, 2025, the President signed into law the Tax Act.

Key provisions include the permanent reinstatement of immediate expensing for domestic research expenditures, the restoration of full expensing for qualified machinery, equipment and other short-lived assets, and several modifications to existing international tax provisions.

Changes in U.S.

(federal or state) or foreign tax laws and regulations, or their interpretation and application (including those with retroactive effect), such as the amortization for research and development expenditures, could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’ equity.

In addition to future changes in tax laws, the amount of net deferred tax assets will change periodically based on several factors, including the measurement of our postretirement benefit plan obligations, actual cash contributions to our postretirement benefit plans and the change in the amount or reevaluation of uncertain tax positions.

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

In 2024, research and development capitalization resulted in a cash tax liability of approximately $370 million and our net deferred tax assets increased by a similar amount.

While the largest impact of this provision was to the 2022 cash tax liability, the impact will continue over the five-year amortization period, but will decrease over the period and be immaterial by 2027.

We are regularly under audit or examination by tax authorities, including foreign tax authorities (Australia, Canada, India, Italy, Japan, Poland, the United Kingdom, and other countries).

(federal or state) or foreign tax laws and regulations, or their interpretation and application (including those with retroactive effect), could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’ equity.

In addition to future changes in tax laws, the amount of net deferred tax assets will change periodically based on several factors, including the measurement of our retirement benefit obligations, actual cash contributions to our retirement benefit plans and the change in the amount or reevaluation of uncertain tax positions.

During the second quarter of 2025, the IRS issued a Notice of Proposed Adjustment (NOPA) for 2018‑2020.

The proposed adjustments stemmed from a tax‑accounting method change that was adopted in 2018 in connection with our ASC 606 implementation and the 2017 Tax Cuts and Jobs Act.

This matter was resolved in the fourth quarter of 2025, and the corresponding uncertain tax position, along with any accrued interest and penalties, recorded in the second and third quarters of 2025 was removed from our December 31, 2025 balance.

Also, during the fourth quarter of 2025, we entered into an agreed Revenue Agent Report (RAR) for the 2018-2022 federal income tax returns, resolving the remaining open federal income tax audit issues for those years.

We are regularly under audit or examination by tax authorities, including U.S.

and foreign tax authorities (Australia, Canada, India, Italy, Japan, Poland, the United Kingdom, and other countries).

The final resolution of tax audits and any related administrative reviews or litigation could result in unanticipated increases in our tax expense and changes to the timing of required tax payments, which could affect profitability and cash flows for any particular reporting period.

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

The Organisation for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% applied on a country-by-country basis for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025.

While the United States has not enacted legislation to adopt Pillar 2 and it is uncertain if it will do so in the future, certain countries in which we operate have enacted such legislation, and other countries are in the process of doing so.

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

The Organisation for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenue and profits above certain thresholds (referred to as Pillar 2).

Although the U.S.

has not enacted legislation to implement Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2.

The OECD issued new administrative guidance on January 5, 2026, with respect to Pillar 2 which modifies key aspects of the framework for countries to enact in their own laws.

This new guidance reaffirms we do not expect Pillar 2 to have a material impact on our effective tax rate or our results of operation and financial position.

We reported net earnings of $5.0 billion ($21.49 per share) in 2025 and $5.3 billion ($22.31 per share) in 2024.

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

Net sales and operating profit of our business segments exclude intersegment sales, cost of sales and profit as these activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each segment.

Sales and operating profit of our business segments exclude intersegment sales, operating costs and expenses and profit as these activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each segment.

Business segment operating profit includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments.

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 (see “Note 3 – Information on Business Segments”), a portion of corporate costs not considered allowable or allocable to contracts with the U.S.

Government under the applicable U.S.

Government Cost Accounting Standards (CAS) or portions of the Federal Acquisition Regulation (FAR), and other items not considered part of management’s evaluation of segment operating performance.

See “Note 1 – Organization and Significant Accounting Policies” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

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

See “Note 1 – Organization and Significant Accounting Policies” for a discussion related to certain factors that may impact the comparability of sales and operating profit of our business segments.

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

2025 2024 2023

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Space 13,029 12,479 12,605

Total net sales $ 71,043 $ 67,571 $ 65,984

Cost of sales

Aeronautics $ 26,093 $ 24,649 $ 24,110

Missiles and Fire Control 12,277 9,712 9,676

Rotary and Mission Systems 15,391 14,399 14,258

Space 11,308 11,473 10,565

Total cost of sales $ 65,069 $ 60,233 $ 58,609

Total sales $ 75,048 $ 71,043 $ 67,571

Operating profit

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Intangible asset amortization expense (254) (247) (247)

Impairment and severance charges (a)

(87) (92) (100)

Impairment and other charges (66) (87) (92)

Other, net (210) (360) (203)

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Total consolidated operating profit $ 7,731 $ 7,013 $ 8,507

(a) See “Consolidated Results of Operations – Severance and Other Charges” discussion above for information on charges related to certain severance and other actions across our organization.

Our business segments’ results of operations include pension expense only 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 of our business segments’ net sales and cost of sales.

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

The operating portion of the total FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension income (expense) and total CAS pension cost.

The non-service FAS pension income components are included in non-service FAS pension income in our consolidated statements of earnings.

As a result, to the extent that CAS pension cost exceeds the service cost component of FAS pension income (expense), we have a favorable FAS/CAS pension operating adjustment.

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

2024 2023 2022

Total FAS income (expense) and CAS cost

FAS pension income (expense) $ 2 $ 378 $ (1,058)

CAS pension cost 1,684 1,725 1,796

Total FAS/CAS pension adjustment $ 1,686 $ 2,103 $ 738

Service and non-service cost reconciliation

FAS pension service cost $ (60) $ (65) $ (87)

CAS pension cost 1,684 1,725 1,796

Total FAS/CAS pension operating adjustment 1,624 1,660 1,709

Non-service FAS pension income (expense) 62 443 (971)

Total FAS/CAS pension adjustment $ 1,686 $ 2,103 $ 738

The total FAS/CAS pension adjustment in 2022 reflects a noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion, or $4.33 per share, after-tax) recognized in connection with the transfer of $4.3 billion of our gross defined benefit pension obligations and related plan assets to an insurance company in the second quarter of 2022.

See “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.

The following segment discussions include information relating to backlog for each segment.

Also see “Backlog” discussion above.

Management evaluates performance on our contracts by focusing on net sales and operating profit and not by type or amount of operating expense.

Consequently, our discussion of business segment performance focuses on net sales and operating profit, consistent with our approach for managing the business.

This approach is consistent throughout the life cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors performance on our contracts in a similar manner through their completion.

Management evaluates performance on our contracts by focusing on sales and operating profit and not by type or amount of operating expense.

Consequently, our discussion of business segment performance focuses on sales and operating profit, consistent with our approach for managing the business.

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

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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 net sales are primarily derived from long-term contracts for products and services provided to the U.S.

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.

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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 and assess the effects of those risks on our estimates of sales and total costs to complete the contract, as well as our ability to earn variable consideration.

cooperation agreements, sometimes referred to as offset or localization agreements, required under certain contracts with international customers).

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.

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For further discussion on fixed-price contracts, see “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements.

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

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).

Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts.

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Unfavorable items include the adverse resolution of contractual matters, supply chain disruptions, restructuring charges (except for significant severance actions, which are excluded from segment operating results), reserves for disputes, certain asset impairments, and losses on sales of certain assets.

Our consolidated net profit booking rate adjustments decreased segment operating profit by approximately $180 million in 2024 and increased segment operating profit by $1.6 billion in 2023.

The impact in 2024 includes losses of $555 million recognized on a classified program at our Aeronautics business segment, reach-forward losses of $1.4 billion recognized on a classified program at our MFC business segment and $155 million of favorable profit rate adjustments following the resolution of a long-standing claim associated with a completed C-5 Galaxy aircraft contract.

The impact in 2023 included an unfavorable profit adjustment of $100 million on the Canadian Maritime Helicopte r Program (CMHP) and a $65 million favorable profit adjustment as a result of a positive resolution of a contractual matter on an international surveillance and control program at our RMS business segment.

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

2025 2024 2023

Aeronautics $ (495) $ 90 $ 465

Missiles and Fire Control 500 (805) 375

Rotary and Mission Systems (300) 310 465

Space 370 225 280

Total net adjustments to segment operating profit $ 75 $ (180) $ 1,585

Our consolidated net profit booking rate adjustments increased segment operating profit by approximately $75 million in 2025 and decreased segment operating profit by $180 million in 2024.

The impact in 2025 includes reach-forward 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 $140 million of unfavorable profit adjustments on C-130 program 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 $90 million favorable adjustments upon completion of a classified program at Aeronautics.

The impact in 2024 includes reach-forward losses of $555 million on a classified program at our Aeronautics business segment, reach-forward losses of $1.4 billion recognized on a classified program at our MFC business segment and $155 million of favorable profit rate adjustments following the resolution of a long-standing claim associated with a completed C-5 Galaxy aircraft contract at our Aeronautics business segment.

See the discussions under “Revenue Recognition” in “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for more information.

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 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements.

Our Aeronautics business segment is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies.

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2025 2024 2023

Net sales $ 28,618 $ 27,474 $ 26,987

Sales $ 30,257 $ 28,618 $ 27,474

Operating profit 2,086 2,523 2,825

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Backlog at year-end $ 59,435 $ 62,763 $ 60,156

Aeronautics’ net sales in 2024 increased $1.1 billion, or 4%, compared to 2023.

The increase was primarily attributable to higher net sales of $1.0 billion on the F-35 program due to higher volume on sustainment, production and development contracts;

and $210 million on the F-16 program due to the ramp up on production;

partially offset by $200 million on

classified programs primarily driven by the sales impact of recognizing losses on one contract (s ee “Note 1 – Organization and Significant Accounting Policies”) , partially offset by higher volume across the classified programs portfolio.

Aeronautics’ sales in 2025 increased $1.6 billion, or 6%, compared to 2024.

The increase was primarily attributable to higher sales of approximately $1.9 billion for the F-35 program due to increased volume on production and sustainment contracts;

and about $150 million for the F-16 program due to increased production volume as this program continues to ramp.

These increases were partially offset by lower sales of approximately $215 million on classified programs due to lower volume;

and $155 million due to the favorable resolution of a long-standing claim associated with a completed C-5 Galaxy aircraft contract recognized in 2024.

Aeronautics’ operating profit in 2025 decreased $437 million, or 17%, compared to 2024.

The decrease in operating profit was attributable to $375 million of lower profit booking rate adjustments, partially offset by $120 million from higher volume and program ramp up described above.

The decrease in profit booking rate adjustments was primarily due to $555 million of losses recognized on a classified contract (s ee “Note 1 – Organization and Significant Accounting Policies”) ;

partially offset by $155 million of favorable profit rate adjustments following the resolution of a long-standing claim associated with a completed C-5 Galaxy aircraft contract.

Backlog increased in 2024 compared to 2023 primarily due to higher orders on the F-35 program.

The decrease was primarily attributable to higher reach-forward losses of $395 million recognized on a classified program ($950 million recognized in the second quarter of 2025 compared to $555 million recognized in 2024);

about $180 million for the C-130 program due to higher unfavorable profit adjustments and production volume;

and $155 million due to the favorable resolution of the claim on the C-5

Galaxy aircraft contract recognized in 2024.

These decreases were partially offset by increased profit of approximately $270 million on the F-35 program due to higher volume and favorable profit adjustments on production and sustainment contracts.

See “Note 1 – Organization and Significant Accounting Policies” for more details on program losses.

Backlog decreased in 2025 compared to 2024 primarily due to orders timing on the C-130 program.

From inception of the F-35 program through December 31, 2025, we have delivered 1,293 production F-35 aircraft, including 927 F-35A variants, 238 F-35B variants and 128 F-35C variants, and our backlog as of that date was 368 aircraft.

In addition, during the third quarter of 2025, 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, 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 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.

Missiles and Fire Control

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fire control systems;

mission operations support, readiness, engineering support and integration services;

manned and unmanned ground vehicles;

and energy management solutions.

MFC’s major programs include PAC‑3, Terminal High Altitude Area Defense (THAAD), Multiple Launch Rocket System (MLRS), Precision Strike Missile (PrSM), Joint Air-to-Surface Standoff Missile (JASSM), Long-Range Anti-Ship Missile (LRASM), Hellfire, Apache fire control system, Sniper Advanced Targeting Pod (SNIPER ® ), Infrared Search and Track (IRST21 ® ), Special Operations Forces Global Logistics Support Services (SOF GLSS), hypersonics programs and Javelin.

and mission operations support, readiness, engineering support and integration services.

MFC’s major programs include Patriot Advanced Capability-3 (PAC-3), Terminal High Altitude Area Defense (THAAD), Multiple Launch Rocket System (MLRS), Precision Strike Missile (PrSM), Joint Air-to-Surface Standoff Missile (JASSM), Long-Range Anti-Ship Missile (LRASM), Hellfire, Joint Air-to-Ground Missile (JAGM), Javelin, Apache fire control system, Sniper Advanced Targeting Pod (SNIPER ® ), Infrared Search and Track (IRST21 ® ), Special Operations Forces Global Logistics Support Services (SOF GLSS), and hypersonics programs.

MFC’s operating results included the following (in millions):

2025 2024 2023

Net sales $ 12,682 $ 11,253 $ 11,317

Sales $ 14,450 $ 12,682 $ 11,253

Operating profit 1,989 413 1,541

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Backlog at year-end $ 46,650 $ 38,783 $ 32,229

MFC’s net sales in 2024 increased $1.4 billion, or 13%, compared to 2023.

The increase was primarily attributable to higher net sales of $1.2 billion for tactical and strike missile programs due to production ramp up on GMLRS, LRASM and JASSM;

and $145 million for integrated air and missile defense programs due to production ramp up on PAC-3.

MFC’s operating profit in 2024 decreased $1.1 billion, or 73%, compared to 2023.

The decrease in operating profit was attributable to $1.2 billion of lower profit booking rate adjustments, which includes $1.4 billion in losses on a classified program (s ee “Note 1 – Organization and Significant Accounting Policies”) , partially offset by the production ramp up described above.

Backlog increased in 2024 compared to 2023 primarily due to higher orders on PAC-3, JASSM and GMLRS programs.

MFC’s sales in 2025 increased $1.8 billion, or 14%, compared to 2024.

The increase was primarily attributable to higher sales of approximately $1.4 billion for tactical and strike missile programs due to increased volume (primarily JASSM, LRASM, Guided Multiple Launch Rocket System (GMLRS) and PrSM);

and about $450 million for integrated air and missile defense programs due to increased volume (primarily existing PAC-3 contracts).

MFC’s operating profit in 2025 increased $1.6 billion compared to 2024.

The increase was primarily due to reach-forward losses of approximately $1.4 billion recognized on a classified program in 2024;

and about $240 million for tactical and strike missile programs due to increased volume (primarily JASSM, LRASM, GMLRS and PrSM).

Backlog increased in 2025 compared to 2024 primarily due to higher orders on JASSM, LRASM, PAC-3 and Apache programs.

Rotary and Mission Systems

RMS designs, manufactures, services and supports various military and commercial helicopters, surface ships, sea and land-based missile defense systems, radar systems, laser systems, sea and air-based mission and combat systems, command and control mission solutions, cyber solutions, and simulation and training solutions.

RMS’ major programs include Aegis Combat System, Littoral Combat Ship (LCS), Multi-Mission Surface Combatant (MMSC), Canadian Surface Combatant (CSC), Black Hawk and Seahawk helicopters, CH-53K King Stallion heavy lift helicopter, Combat Rescue Helicopter (CRH), VH-92A helicopter, and the C2BMC program.

RMS’ major programs include Aegis Combat System, Littoral Combat Ship (LCS), Multi-Mission Surface Combatant (MMSC), River-Class Destroyer (RCD) (formerly known as Canadian Surface Combatant), Black Hawk and Seahawk helicopters, CH-53K King Stallion heavy lift helicopter,

Combat Rescue Helicopter (CRH), VH-92A helicopter, and the C2BMC program.

RMS’ operating results included the following (in millions):

2025 2024 2023

Net sales $ 17,264 $ 16,239 $ 16,148

Sales $ 17,312 $ 17,264 $ 16,239

Operating profit 1,323 1,921 1,865

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Backlog at year-end $ 47,715 $ 38,117 $ 37,726

RMS’ net sales in 2024 increased $1.0 billion, or 6%, compared to the same period in 2023.

The increase was primarily attributable to higher net sales of $750 million on IWSS programs due to higher volume on radar programs, the CSC program and new program ramp up within the laser systems portfolio;

$175 million for various C6ISR programs due to higher volume;

and $140 million for Sikorsky helicopter programs due to higher production volume on the CH-53K program, partially offset by lower volume on the VH-92A program.

RMS’ operating profit in 2024 increased $56 million, or 3%, compared to the same period in 2023.

The increase in operating profit was attributable to $115 million from higher volume described above and $85 million from favorable contract mix and cost recoveries, partially offset by $155 million of lower profit booking rate adjustments.

The decrease in profit booking rate adjustments was due to unfavorable profit rate adjustments on the Seahawk production program, partially offset by the net impact in 2023 of both a $100 million unfavorable profit rate adjustment on CMHP and a $65 million favorable profit rate adjustment on an international surveillance and control program that did not recur in 2024.

Backlog increased in 2024 compared to 2023 primarily due to higher orders on IWSS and C6ISR programs.

RMS’ sales in 2025 increased $48 million compared to 2024.

The increase was primarily attributable to higher sales of approximately $95 million for Sikorsky helicopter programs due to higher volume on production contracts (primarily Black Hawk);

about $75 million for increased volume on integrated warfare systems and sensors (IWSS) programs (various radar programs and the RCD program);

and approximately $45 million for C6ISR programs due to higher volume.

These increases were partially offset by lower sales of $165 million for various training, logistics and simulation (TLS) programs due to lower volume.

RMS’ operating profit in 2025 decreased $598 million, or 31%, compared to 2024.

The decrease was primarily due to the reach-forward losses of approximately $570 million on the CMHP program and $95 million on the TUHP program recognized in the second quarter of 2025;

and about $60 million on C6ISR programs due to unfavorable profit adjustments.

These decreases were partially offset by increased profit of approximately $90 million for IWSS programs (various radar programs and the RCD program) primarily due to favorable profit adjustments.

Backlog increased in 2025 compared to 2024 primarily due to higher orders on Sikorsky programs.

Our Space business segment is engaged in the research and design, development, engineering and production of satellites, space transportation systems, and strategic, advanced strike and defensive systems.

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Space is also responsible for various classified systems and services in support of vital national security systems.

Space’s major programs include the Trident II D5 Fleet Ballistic Missile (FBM), Orion Multi-Purpose Crew Vehicle (Orion), Next Generation Overhead Persistent Infrared (Next Gen OPIR) system, Global Positioning System (GPS) III, hypersonics and transport layer programs and Next Generation Interceptor (NGI).

Space’s major programs include the Trident II D5 Fleet Ballistic Missile (FBM), Orion Multi-Purpose Crew Vehicle (Orion), Next Generation Overhead Persistent Infrared (Next Gen OPIR) system, Global Positioning System (GPS) III, hypersonics and Transport and Tracking Layer programs and Next Generation Interceptor (NGI).

Operating profit for our Space business segment includes our share of earnings for our investment in United Launch Alliance (ULA), which provides expendable launch services to the U.S.

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2025 2024 2023

Net sales $ 12,479 $ 12,605 $ 11,532

Sales $ 13,029 $ 12,479 $ 12,605

Operating profit 1,345 1,226 1,158

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Backlog at year-end $ 39,822 $ 36,377 $ 30,456

Space’s net sales in 2024 decreased $126 million, or 1%, compared to the same period in 2023.

The decrease was primarily attributable to lower net sales of $320 million for national security space programs due to lower volume on classified programs and $145 million for commercial civil space due to lower volume on the Orion program, partially offset by higher volume on other space exploration programs.

These decreases were partially offset by higher net sales of $255 million for strategic and missile defense programs due to higher volume on FBM and reentry programs.

Space’s operating profit in 2024 increased $68 million, or 6%, compared to the same period in 2023.

The increase was primarily attributable to $100 million related to favorable contract mix and cost recoveries across the portfolio, partially offset by $55 million of lower profit booking rate adjustments due to lower net favorable profit rate adjustments on the Orion program and $25 million of higher equity earnings driven by higher launch volume from our investment in ULA.

Space’s sales in 2025 increased $550 million, or 4%, compared to 2024.

The increase was primarily attributable to higher sales of approximately $380 million for strategic and missile defense programs due to the ramp on the NGI program and higher volume on FBM program;

and about $255 million for commercial and civil space programs due to higher volume (primarily Orion).

These increases were partially offset by lower net sales of $135 million on national security space programs due to changes in the program lifecycle on the OPIR mission.

Space’s operating profit in 2025 increased $119 million, or 10%, compared to 2024.

The increase was primarily attributable to approximately $175 million for commercial civil space programs government satellite programs, reflecting favorable performance at completion on certain commercial civil space programs recognized in the first and second quarters of 2025.

This increase was partially offset by $40 million of lower equity earnings from our investment in ULA.

Equity earnings

Total equity earnings (attributable to our investment in ULA) represented approximately $45 million and $20 million, or 4% and 2%, of Space’s operating profit during 2024 and 2023.

Backlog increased in 2024 compared to 2023 primarily due to higher orders for National Security Space for classified programs, Commercial Civil Space for GeoXO program, and Strategic and Missiles Defense for FBM Mk7 program.

Total equity earnings (attributable to our investment in ULA) were not significant in 2025, compared to $45 million, or 4%, of Space’s operating profit in 2024.

Backlog increased in 2025 compared to 2024 primarily due to higher orders for strategic and missile defense programs including NGI, strategic re-entry programs, and hypersonics.

Liquidity and Cash Flows

As of December 31, 2025, we had cash and cash equivalents of $4.1 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.

However, we also have access to credit markets, if needed, for liquidity or general corporate purposes.

This access includes our $3.0 billion revolving credit facility or the ability to issue commercial paper (see “Note 10 – Debt” included in our Notes to Consolidated Financial Statements for additional information).

There were no borrowings outstanding under the revolving credit facility or commercial paper at year end for either 2024 or 2023.

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

Access to credit markets includes our revolving credit facilities, including the ability to issue commercial paper (see “Note 10 – Debt” included in our Notes to Consolidated Financial Statements for additional information).

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 facilities or the commercial paper program at year end for either 2025 or 2024.

We may, as conditions warrant, continue to issue commercial paper backed by our revolving credit facilities 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.

In addition, when estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident, which we refer to as a reach-forward loss.

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.

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.

See “Recent Developments in Trade and Regulatory Policies” included within the “Business Overview” discussion above.

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 40% of the sales we recorded in 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.

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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Government from time to time withholds payments on certain of our billings based on contract terms or regulatory provisions.

Ultimately, the impact of policy changes or withholding payments may delay the receipt of cash, but the cumulative amount of cash collected during the life of the contract should not vary.

Additionally, during the COVID-19 pandemic, we accelerated payments to the supply chain with a focus on small and at-risk businesses.

We will continue to evaluate the use of accelerated payments on an as needed basis.

Ultimately, the impact of policy changes or withholding payments may delay the receipt of cash, but the cumulative amount of cash collected during the life of the contract should not vary due to these items.

We seek to maintain a disciplined and dynamic cash deployment strategy to invest in our business and key technologies to provide our customers with enhanced capabilities, enhance stockholder value, and position ourselves to take advantage of new business opportunities when they arise.

Consistent with that strategy, we have continued to invest in our business and technologies through capital expenditures, independent research and development, and selective business acquisitions and investments.

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

In October 2024, the Board of Directors authorized a fourth quarter dividend payment of $3.30 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 $3.0 billion to our share repurchase program in October 2024.

The remaining authorization under our program was $9.3 billion as of December 31, 2024.

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

The amount of shares ultimately purchased and the timing of purchases are at the discretion of management and subject to compliance with applicable law and regulation.

As we implement our digital and business transformation, which includes new financial accounting systems, the timing of certain of our cash flows may be temporarily impacted within a calendar year.

We continue to actively manage our debt levels, including maturities and interest rates.

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We review changes in financial market and economic conditions to manage the types, amounts and maturities of our indebtedness.

We may at times refinance existing indebtedness, vary our mix of variable-rate and fixed-rate debt or seek alternative financing sources for our cash and operational needs.

We also actively manage our pension obligations and expect to continue to opportunistically manage our pension liabilities through the purchase of group annuity contracts or other actions for portions of our outstanding defined benefit pension obligations using assets from the pension trust.

See “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements for additional information.

Future pension risk transfer transactions could be significant and result in us making additional contributions to the pension trust.

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

We could be required to make pension contributions earlier than and/or in excess of what was planned if our return on pension assets is less than our assumptions, which would reduce our free cash flow.

We may also make additional contributions at our discretion.

We may at times

refinance existing indebtedness, vary our mix of variable-rate and fixed-rate debt or seek alternative financing sources or arrangements for our cash and operational needs.

We also actively manage our pension obligations and expect to continue to opportunistically manage our pension liabilities through additional contributions at our discretion, the purchase of group annuity contracts or other actions for portions of our outstanding defined benefit pension obligations using assets from the pension trust.

See “Note 11 – Retirement Benefits” included in our Notes to Consolidated Financial Statements for additional information.

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

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Operating Activities

Net cash provided by operating activities decreased $948 million in 2024 compared to 2023.

The decrease was primarily due to a pension contribution of $990 million.

Our federal and foreign income tax payments, net of refunds, were $1.3 billion in 2024, compared to $1.8 billion in 2023.

Net cash provided by operating activities increased $1.6 billion in 2025 compared to 2024.

The increase was primarily due to various changes in working capital (primarily timing of cash payments for accounts payable and contract liabilities at RMS) and lower tax payments, reflecting the impact of the One Big Beautiful Bill Act (the Tax Act).

Non-GAAP Financial Measure - Free Cash Flow

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Free cash flow $ 6,908 $ 5,287 $ 6,229

Free cash flow decreased $942 million compared to 2023 primarily due to the decrease in cash provided by operating activities described above, partially offset by lower capital expenditures.

Free cash flow increased $1.6 billion in 2025 compared to 2024, primarily due to the increase in cash provided by operating activities described above.

Investing Activities

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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.

incur capital expenditures for information technology to support programs and general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use software.

Net cash used for investing activities increased $98 million in 2024 compared to 2023, primarily due to a $231 million cash payment for the acquisition of Terran Orbital, partially offset by proceeds of $170 million from the sale of our Commercial Engine Solutions (CES) business.

We also incur capital expenditures for information technology to support programs and general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use software.

Net cash used for investing activities increased $185 million in 2025 compared to 2024, primarily due to a $360 million cash payment for the acquisition of Rapid Solutions.

Financing Activities

Net cash used for financing activities decreased $3.2 billion in 2024 compared to 2023.

We paid dividends totaling $3.1 billion ($12.75 per share) in 2024 and $3.1 billion ($12.15 per share) in 2023.

We paid quarterly dividends of $3.15 per share during each of the first three quarters of 2024 and $3.30 per share during the fourth quarter of 2024;

$3.00 per share during each of the first three quarters of 2023 and $3.15 per share during the fourth quarter of 2023.

During 2024, we paid $3.7 billion to repurchase 7.5 million shares of our common stock.

See “Note 12 – Stockholders’ Equity” included in our Notes to Consolidated Financial Statements for additional information.

During 2023, we paid $6.0 billion to repurchase 13.4 million shares of our common stock.

During 2024, we received net proceeds of $3.0 billion from issuance of senior unsecured notes.

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

Additionally, we repaid $168 million of long-term notes with a fixed interest rate of 8.375% according to their scheduled maturities.

During 2023, we received net proceeds of $2.0 billion from issuance of senior unsecured notes and repaid $115 million of long-term notes with a fixed interest rate of 7.00% according to their scheduled maturities.

Net cash used for financing activities increased $803 million in 2025 compared to 2024.

During 2025, we received net proceeds of $2.0 billion, compared to $3.0 billion in 2024, from issuance of senior unsecured notes.

Additionally, we repaid $642 million in 2025, compared to $168 million in 2024, of long-term notes with fixed interest rates according to their scheduled maturities.

During 2025, we paid $3.0 billion to repurchase 6.6 million shares of our common stock, compared to $3.7 billion to repurchase 7.5 million shares of our common stock in 2024.

See “Note 12 – Stockholders’ Equity” and “Note 10 – Debt” included in our Notes to Consolidated Financial Statements for additional information regarding dividend payments, share repurchases and debt issuanc es.

Capital Structure, Resources and Other

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See “ Note 10 – Debt ” included in our Notes to Consolidated Financial Statements for more information on our long-term debt and revolving credit facilities.

We actively seek to finance our business in a manner that preserves financial flexibility while minimizing borrowing costs to the extent practicable.

We review changes in financial market and economic conditions to manage the types, amounts and maturities of our indebtedness.

We may at times refinance existing indebtedness, vary our mix of variable-rate and fixed-rate debt or seek alternative financing sources for our cash and operational needs.

Contractual Commitments

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The table above includes debt presented gross of any unamortized discounts and issuance costs, but excludes the net unfunded obligation and estimated minimum funding requirements related to our qualified defined benefit pension plans.

For additional information about obligations and our future minimum contribution requirements for these plans, see “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements.

For additional information about obligations and our future minimum contribution requirements for these plans, see “Note 11 – Retirement Benefits” included in our Notes to Consolidated Financial Statements.

Amounts related to other liabilities represent the contractual obligations for certain long-term liabilities recorded as of December 31, 2025.

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Such agreements and contracts may, for example, be related to direct materials, obligations to subcontractors and outsourcing arrangements.

Total purchase obligations for operating activities in the preceding table include approximately $64.3 billion related to contractual commitments entered into as a result of contracts we have with our U.S.

Total purchase obligations for operating activities in the preceding table include approximately $75.5 billion

related to contractual commitments entered into as a result of contracts we have with our U.S.

Government customers.

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The termination for convenience language also may be included in contracts with foreign, state and local governments.

We also have contracts with customers that do not include termination for convenience provisions, including contracts with commercial customers.

We also have contracts with customers that do not include termination for convenience provisions, including contracts with DCS customers.

The majority of our capital expenditures for 2025 and those planned for 2026 are for equipment, facilities infrastructure and information technology.

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Satisfaction of our offset obligations are included in the estimates of our total costs to complete the contract and may impact our sales, profitability and cash flows.

Our ability to recover investments on our consolidated balance sheet that we make to satisfy offset obligations is generally dependent upon the successful operation of

ventures that we do not control and may involve products and services that are dissimilar to our business activities.

Our ability to recover investments on our consolidated balance sheet that we make to satisfy offset obligations is generally dependent upon the successful operation of ventures that we do not control and may involve products and services that are dissimilar to our business activities.

At December 31, 2025, the notional value of remaining obligations under our outstanding offset agreements totaled approximately $19.9 billion, which primarily relate to our Aeronautics, MFC and RMS business segments, most of which extend through 2044.

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Total commitments $ 3,687 $ 1,756

(a) Approximately $708 million of standby letters of credit in the “Less Than 1 Year” category are expected to renew for additional periods until completion of the contractual obligation.

(a) Approximately $1.0 billion of standby letters of credit in the “Less Than 1 Year” category are expected to renew for additional periods until completion of the contractual obligation.

At December 31, 2025, third-party guarantees totaled $150 million, of which approximately 87.9% related to guarantees of contractual performance of joint ventures to which we currently are or previously were a party.

These amounts represent our estimate of the maximum amounts we would expect to incur upon the contractual non-performance of the joint venture, joint venture partners or divested businesses.

These amounts represent our estimate of the maximum amounts we would expect to incur upon the contractual non-performance of the joint venture, joint

venture partners or divested businesses.

Generally, we also have cross-indemnities in place that may enable us to recover amounts that may be paid on behalf of a joint venture partner.

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Contract Accounting / Sales Recognition

The majority of our net sales are generated from long-term contracts with the U.S.

The majority of our sales are generated from long-term contracts with the U.S.

Government and international customers (including FMS contracted through the U.S.

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Significant estimates and assumptions are made in estimating contract sales, costs, and profit.

We estimate profit as the difference between estimated revenues and total estimated costs to complete the contract.

We also estimate variable

consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur.

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

We estimate profit as the difference between estimated sales and total estimated costs to complete the contract.

We also estimate variable consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur.

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

When estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident, which we refer to as a reach-forward loss.

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For example, costs such as those related to charitable contributions, interest expense and certain advertising and public relations activities are unallowable and, therefore, not recoverable through sales.

In addition, we may enter into advance agreements with the U.S.

In addition, we may enter into agreements with the U.S.

Government that address the subjects of allowability and allocability of costs to contracts for specific matters.

For example, most of the environmental costs we incur for environmental remediation related to sites operated in prior years are allocated to our current operations as general and administrative costs under FAR provisions and supporting advance agreements reached with the U.S.

For example, most of the environmental costs we incur for environmental remediation related to sites operated in prior years are allocated to our current operations as general and administrative costs under FAR provisions and a supporting settlement agreement reached with the U.S.

We closely monitor compliance with and the consistent application of our critical accounting policies related to contract accounting.

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Government regulations by our personnel and are subject to audit by the Defense Contract Audit Agency.

Postretirement Benefit Plans

Many of our employees and retirees participate in qualified and nonqualified defined benefit pension plans, retiree medical and life insurance plans and other postemployment plans (collectively, postretirement benefit plans - see “Note 11 – Postretirement Benefit Plans” included in our Notes to Consolidated Financial Statements).

The majority of our accrued benefit obligations relate to our qualified defined benefit pension and retiree medical and life insurance plans.

We recognize on a plan-by-plan basis the net funded status of these postretirement benefit plans under GAAP as either an asset or a liability on our consolidated balance sheets.

Qualified Defined Benefit Pension Plans

Many of our employees and retirees participate in qualified defined benefit pension plans (reference “Note 11 – Retirement Benefits” included in our Notes to Consolidated Financial Statements) representing the majority of our accrued retirement benefit obligations.

We recognize on a plan-by-plan basis the net funded status of these plans under GAAP as either an asset or a liability on our consolidated balance sheets.

The GAAP funded status represents the difference between the fair value of each plan’s assets and the benefit obligation of the plan.

The GAAP benefit obligation represents the present value of the estimated future benefits we currently expect to pay to plan participants based on past service.

The qualified defined benefit pension plans for salaried employees are fully frozen effective January 1, 2020 and our salaried employees participate in a defined contribution retirement savings plan.

We continue to take actions to reduce the size of our defined benefit pension plans.

From December 2018, through our master retirement trust, we have transferred outstanding defined benefit pension obligations to third party insurance companies;

reducing annually required Pension Benefit Guarantee Corporation (PBGC) premiums.

We expect to continue to look for opportunities to manage our pension liabilities through additional pension risk transfer transactions in future years.

The defined benefit pension plans for salaried employees are fully frozen effective January 1, 2020.

In December 2025, we executed buy-out conversions of group annuity contracts previously purchased using assets from certain of our qualified defined benefit pension plans transferring the related pension obligations of $943 million and requiring recognition of a noncash, non-operating pretax settlement charge in earnings of $479 million.

We continue to take actions to reduce the size of our defined benefit pension plans and expect to continue to look for opportunities to manage our pension liabilities through the purchase of group annuity contracts or other actions in future years.

Future transactions could result in a noncash settlement charge to earnings, which could be material to a reporting period.

Notwithstanding these actions, the impact of our postretirement benefit plans on our earnings may be volatile in that the amount of expense we record and the funded status for our postretirement benefit plans may materially change from year to year because the calculations are sensitive to changes in several key economic assumptions, including interest rates, actual rates of return on plan assets and other actuarial assumptions including participant longevity, as well as the timing of cash funding.

Notwithstanding these actions, the impact of these plans on our earnings may be volatile in that the amount of expense we record and the funded status may materially change from year to year because the calculations are sensitive to changes in several key economic assumptions, including interest rates, actual rates of return on plan assets and other actuarial assumptions including participant longevity, as well as the timing of cash funding.

Actuarial Assumptions

The benefit obligations and assets of our postretirement benefit plans are measured at the end of each year, or more frequently, upon the occurrence of certain events such as a significant plan amendment (including in connection with a pension risk transfer transaction), settlement, or curtailment.

The benefit obligations and assets are measured at the end of each year, or more frequently, upon the occurrence of certain events such as a significant plan amendment (including in connection with a pension transaction), settlement, or curtailment.

The amounts we record are measured using actuarial valuations, which are dependent upon key assumptions such as discount rates, the expected long-term rate of return on plan assets, and participant longevity.

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We also consider factors such as the timing and amounts of expected contributions to the plans and benefit payments to plan participants.

We continue to use a single weighted average discount rate approach when calculating our consolidated benefit obligations related to our defined benefit pension plans resulting in 5.625% at December 31, 2024, compared to 5.00% at December 31, 2023.

We utilized a single weighted average discount rate of 5.50% when calculating our benefit obligations related to our retiree medical and life insurance plans at December 31, 2024, compared to 5.00% at December 31, 2023.

We evaluate several data points in order to arrive at an appropriate single weighted average discount rate, including results from cash flow models, quoted rates from long-term bond indices and changes in long-term bond rates over the past year.

As part of our evaluation, we calculate the approximate average yields on corporate bonds rated AA or better selected to match our projected postretirement benefit plan cash flows.

The increase in the discount rate from December 31, 2023 to December 31, 2024 resulted in a decrease in the projected benefit obligations of our qualified defined benefit pension plans of approximately $1.8 billion at December 31, 2024.

We continue to use a single weighted average discount rate approach when calculating our consolidated pension benefit obligations resulting in 5.375% at December 31, 2025, compared to 5.625% at December 31, 2024.

We evaluate several data points in order to arrive at an appropriate discount rate assumption, including results from cash flow models, quoted rates from long-term bond indices and changes in long-term bond rates over the past year.

As part of our evaluation, we calculate the approximate average yields on corporate bonds rated AA or better selected to match our projected plan cash flows.

We utilized an expected long-term rate of return on plan assets of 6.50% at both December 31, 2025 and December 31, 2024.

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This assumption is based on several factors including historical market index returns, the anticipated long-term allocation of plan assets, the historical return data for the trust funds, plan expenses and the potential to outperform market index returns.

The difference between the expected and actual return affects both the funded status of our benefit plans and the calculation of FAS pension expense in subsequent periods.

The difference between the expected and actual return affects both the funded status and the calculation of subsequent period FAS pension expense, where a market-related value of plan assets is determined using asset gains or losses over the prior three-year period.

Although the actual return in any specific year likely will differ from the assumption, the average expected return over a long-term future horizon should be approximately equal to the assumption.

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As a result, changes in this assumption are less frequent than changes in the discount rate.

The actual investment return for our qualified defined benefit plans during 2024 was approximately 1%.

This resulted in an actual investment return on the plan assets during year 2024 of $288 million, versus the expected $1.6 billion based on our 6.50% long-term rate of return assumption.

Our stockholders’ equity has been reduced cumulatively by $8.3 billion from the annual year-end measurements of the funded status of postretirement benefit plans.

The cumulative noncash, after-tax reduction primarily represents net actuarial losses resulting from changes in discount rates, investment experience, and updated longevity.

A market-related value of our plan assets, determined using actual asset gains or losses over the prior three-year period, is used to calculate the amount of deferred asset gains or losses to be amortized.

These cumulative actuarial losses will be amortized to expense using the corridor method, where gains and losses are recognized to the extent they exceed 10% of the greater of plan assets or benefit obligations, over an average period of approximately twenty years as of December 31, 2024.

During 2024, $76 million of these amounts, inclusive of amortization of net prior service credit, were recognized as a component of postretirement benefit plan expense.

Cumulative net gains and losses are amortized to expense using the corridor method, where they are recognized to the extent they exceed 10% of the greater of market-related value of plan assets or projected benefit obligations, over an average period of approximately twenty years.

The discount rate and long-term rate of return on plan assets assumptions we select at the end of each year are based on our best estimates and judgment.

A change of plus or minus 25 basis points in the 5.625% discount rate assumption at December 31, 2024, with all other assumptions held constant, would have decreased or increased the amount of the qualified pension benefit obligation we recorded at the end of 2024 by approximately $725 million, which would result in an after-tax increase or decrease in stockholders’ equity at the end of the year of approximately $575 million.

If the 5.625% discount rate at December 31, 2024 that was used to compute the expected 2025 FAS pension expense for our qualified defined benefit pension plans had been 25 basis points higher or lower, with all other assumptions held constant, the amount of FAS pension expense projected for 2025 would be lower or higher by approximately $5 million.

If the 6.50% expected long-term rate of return on plan assets assumption at December 31, 2024 that was used to compute the expected 2025 FAS pension expense for our qualified defined benefit pension plans had been 25 basis points higher or lower, with all other assumptions held constant, the amount of FAS pension expense projected for 2025 would be lower or higher by approximately $55 million.

A change of plus or minus 25 basis points in the 5.375% discount rate assumption at December 31, 2025, with all other assumptions held constant, would have decreased or increased the amount of the benefit obligation we recorded at the end of 2025 by approximately $700 million, which would result in an after-tax increase or decrease in stockholders’ equity at the end of the year of approximately $550 million.

If the 5.375% discount rate at December 31, 2025 that was used to compute the expected 2026 FAS pension expense had been 25 basis points higher or lower, with all other assumptions held constant, the amount of FAS pension expense projected for 2026 would be lower or higher by approximately $10 million.

If the 6.50% expected long-term rate of return on plan assets assumption at December 31, 2025 that was used to compute the expected 2026 FAS pension expense had been 25 basis points higher or lower, with all other assumptions held constant, the amount of FAS pension expense projected for 2026 would be lower or higher by approximately $55 million.

Each year, differences between the actual and expected long-term rate of return on plan assets impacts the measurement of the following year’s FAS pension expense.

Every 100 basis points increase (decrease) in return during 2024 between our actual rate of return

of approximately 1% and our expected long-term rate of return decreased (increased) expected 2025 FAS pension expense by approximately $10 million.

Every 100 basis points increase (decrease) in return during 2025 between our actual rate of return of approximately 10.5% and our expected long-term rate of return decreased (increased) expected 2026 FAS pension expense by approximately $10 million.

Funding Considerations

We made cash contributions to our qualified defined benefit pension plans of $990 million in 2024, and no contributions in 2023.

Funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and in a manner consistent with CAS and Internal Revenue Code rules.

We made cash contributions to our qualified defined benefit pension plans of $860 million in 2025, and $990 million in 2024.

Funding of our plans is determined in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and in a manner consistent with CAS and Internal Revenue Code rules.

The funded status under ERISA is calculated on a different basis than under GAAP.

Our goal has been to fund each of our qualified defined benefit pension plans to a level of at least 80% as determined in accordance with ERISA;

Our goal has been to fund each of our plans to a level of at least 80% as determined in accordance with ERISA;

which may require the use of different assumptions, such as the discount rate and longevity, than used under GAAP.

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Contributions to our defined benefit pension plans are recovered over time through the pricing of our products and services on U.S.

Government contracts, including FMS, and are recognized in our cost of sales and net sales.

Government contracts, including FMS, and are recognized in our operating costs and expenses and sales.

CAS rules govern the extent to which our pension costs are allocable to and recoverable under contracts with the U.S.

Government, including FMS.

Pension cost recoveries under CAS occur in different periods from when pension contributions are made in accordance with ERISA.

We recovered $1.7 billion in both 2024 and 2023 as CAS pension costs.

Pension cost recoveries under CAS can occur in different periods from when pension contributions are made.

We recovered $1.6 billion in 2025 and $1.7 billion in 2024 as CAS pension costs.

Amounts contributed in excess of the CAS pension costs recovered under U.S.

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The prepayment credit balance will increase or decrease based on our actual investment return on plan assets.

Environmental Matters

We are a party to various agreements, proceedings and potential proceedings for environmental remediation issues, including matters at various sites where we have been designated a potentially responsible party (PRP).

We also are involved in environmental remediation activities at sites where formal agreements either do not exist or do not quantify the extent and timing of our obligations.

Environmental remediation activities usually span many years, which makes estimating the costs more judgmental due to, for example, changing remediation technologies.

To determine the costs related to clean up sites, we have to assess the extent of contamination, effects on natural resources, the appropriate technology to be used to accomplish the remediation and evolving environmental standards.

We perform quarterly reviews of environmental remediation sites and record liabilities and receivables in the period it becomes probable that the liabilities have been incurred and the amounts can be reasonably estimated (see the discussion under “Environmental Matters” in “Note 1 – Organization and Significant Accounting Policies” and “Note 14 – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements).

We consider the above factors in our quarterly estimates of the timing and amount of any future costs that may be required for environmental remediation activities, which result in the calculation of a range of estimates for each particular environmental remediation site.

We do not discount the recorded liabilities, as the amount and timing of future cash payments are not fixed or cannot be reliably determined.

Given the required level of judgment and estimation, it is likely that materially different amounts could be recorded if different assumptions were used or if circumstances were to change (e.g.

, a change in environmental standards or a change in our estimate of the extent of contamination).

Under agreements reached with the U.S.

Government, most of the amounts we spend for environmental remediation are allocated to our operations as general and administrative costs.

Under existing U.S.

Government regulations, these and other environmental expenditures relating to our U.S.

Government business, after deducting any recoveries received from insurance or other PRPs, are allowable in establishing prices of our products and services.

As a result, most of the expenditures we incur are included in our net sales and cost of sales according to U.S.

Government agreement or regulation, regardless of the contract form (e.g., cost-reimbursable, fixed-price).

We continually evaluate the recoverability of our assets for the portion of environmental costs that are probable of future recovery by assessing, among other factors, U.S.

Government regulations, our U.S.

Government business base and contract mix, our history of receiving reimbursement of such costs, and efforts by some U.S.

Government representatives to limit such reimbursement.

As disclosed above, we may record changes in the amount of environmental remediation liabilities as a result of our quarterly reviews of the status of our environmental remediation sites, which would result in a change to the corresponding amount that is probable of future recovery and a charge to earnings.

For example, if we were to determine that the liabilities should be increased by $100 million, the corresponding amount that is probable of future recovery would be increased by

approximately $89 million, with the remainder recorded as a charge to earnings.

This allocation is determined annually, based upon our existing and projected business activities with the U.S.

We cannot reasonably determine the extent of our financial exposure at all environmental remediation sites with which we are involved.

There are a number of former operating facilities we are monitoring or investigating for potential future environmental remediation.

In some cases, although a loss may be probable, it is not possible at this time to reasonably estimate the amount of any obligation for remediation activities because of uncertainties (e.g., assessing the extent of the contamination).

During any particular quarter, such uncertainties may be resolved, allowing us to estimate and recognize the initial liability to remediate a particular former operating site.

The amount of the liability could be material.

Upon recognition of the liability, a portion will be recognized as a receivable with the remainder charged to earnings, which may have a material effect in any particular interim reporting period.

If we are ultimately found to have liability at those sites where we have been designated a PRP, we expect that the actual costs of environmental remediation will be shared with other liable PRPs.

Generally, PRPs that are ultimately determined to be responsible parties are strictly liable for site remediation and usually agree among themselves to share, on an allocated basis, the costs and expenses for environmental investigation and remediation.

Under existing environmental laws, responsible parties are jointly and severally liable and, therefore, we are potentially liable for the full cost of funding such remediation.

In the unlikely event that we were required to fund the entire cost of such remediation, the statutory framework provides that we may pursue rights of cost recovery or contribution from the other PRPs.

The amounts we record do not reflect the fact that we may recover some of the environmental costs we have incurred through insurance or from other PRPs, which we are required to pursue by agreement and U.S.

Government regulation.

Goodwill and Intangible Assets

The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition.

Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses.

Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, technology and other intangible assets.

Customer programs includes values assigned to major programs of acquired businesses and represents the aggregate value associated with the customer relationships, contracts, technology and trademarks underlying the associated program.

Intangible assets are amortized over a period of expected cash flows used to measure fair value, which typically ranges from three to 20 years.

Our goodwill balance was $11.3 billion and $11.1 billion at December 31, 2025 and 2024.

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The cash flows employed in the DCF analysis are based on our best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, U.S.

Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in

working capital, long term business plans and recent operating performance.

Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in working capital, long term business plans and recent operating performance.

The discount rates utilized in the DCF analysis are based on the respective reporting unit’s weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the respective reporting unit.

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Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions could have a material effect on the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.

Additionally, acquired intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

This testing compares carrying value to fair value and, when appropriate, the carrying value of these assets is reduced to fair value.

In the fourth quarter of 2025, we performed our annual goodwill impairment test for each of our reporting units and the results of those tests indicated no impairment existed.

Finite-lived intangibles are amortized to expense over their applicable useful lives, ranging from three to 20 years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows.

We perform an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be impaired.

If events or changes in circumstances indicate the carrying value of a finite-lived intangible may be impaired, the sum of the undiscounted future cash flows expected to result from the use of the asset group would be compared to the asset group’s carrying value.

If the asset group’s carrying amount exceeded the sum of the undiscounted future cash flows, we would determine the fair value of the asset group and record an impairment loss in net earnings.

Recent Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis