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Item 8. Financial Statements and Supplementary Data

2026-01-29 compared with 2025-01-28 · 377 added, 363 removed, 1109 unchanged (40% of the section changed)

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Report of Independent Registered Public Accounting Firm

on the Audited Consolidated Financial Statements

Board of Directors and Stockholders

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue recognition based on the percentage of completion method

Description of the Matter For the year ended December 31, 2024, the Corporation recorded net sales of $71.0 billion.

As more fully described in Note 1 to the consolidated financial statements, the Corporation generates the majority of its net sales from long-term contracts with its customers whereby substantially all of the Corporation’s revenue is recognized over time using the percentage-of-completion cost-to-cost measure of progress.

Under the percentage-of-completion cost-to-cost measure of progress, the Corporation measures progress towards completion based on the ratio of costs incurred to date to the estimated total costs to complete the performance obligation(s) (referred to as the estimate-at-completion analysis).

The Corporation estimates profit on these contracts as the difference between total estimated revenues and total estimated cost at completion.

The percentage-of-completion cost-to-cost method requires management to make significant estimates and assumptions to estimate contract sales and costs associated with its contracts with customers.

At the outset of a long-term contract, the Corporation identifies risks to the achievement of the technical, schedule and cost aspects of the contract.

Throughout the contract life cycle, the Corporation monitors and assesses the effects of those risks on its estimates of sales and total costs to complete the contract.

Profit booking rates may increase during the performance of the contract if the Corporation successfully retires risks surrounding the technical, schedule and cost aspects of the contract, which would decrease the estimated total costs to complete the contract.

Conversely, the profit booking rates may decrease if the estimated total costs to complete the contract increase.

Changes to the profit booking rates resulting from changes in estimates could have a material effect on the Corporation’s results of operations.

Auditing the Corporation’s estimate-at-completion analyses used in its revenue recognition process was complex due to the judgment involved in evaluating the significant estimates and assumptions made by management in the initial development and subsequent updates to the Corporation’s estimate-at-completion analyses.

The estimate-at-completion analyses of each contract consider risks surrounding the Corporation’s ability to achieve the technical, schedule and cost aspects of the contract.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Cost Estimates for Select Fixed Price Contracts

Description of the Matter As more fully described in Note 1 to the consolidated financial statements, the Corporation generates the majority of its sales from long-term customer contracts whereby substantially all of the Corporation’s revenue is recognized over time using the percentage-of-completion cost-to-cost measure of progress.

The percentage-of-completion cost-to-cost method requires management to make significant estimates and assumptions at the outset and throughout the contract to estimate total costs at completion.

There are risks to the achievement of the technical, schedule and cost aspects of the Corporation’s contracts, and the assessment of the effects of those risks on the estimates of total costs to complete for select fixed price contracts is highly subjective.

Auditing the Corporation's measurement of the estimated costs to complete on certain contracts involved especially challenging judgment due to the complexity of the technical, schedule and cost aspects of the program and the classified nature of the contracts.

These assumptions require a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over the Corporation’s revenue recognition process.

For example, we tested internal controls over management’s review of the estimate-at-completion analyses and the significant assumptions underlying the estimated contract value and estimated total costs to complete.

We also tested internal controls that management executes which are designed to validate the data used in the estimate-at-completion analyses was complete and accurate.

To test the accuracy of the Corporation’s estimate-at-completion analyses, our audit procedures included, among others, comparing estimates of labor costs, subcontractor costs, and materials to historical results of similar contracts, and agreeing the key terms to contract documentation and management’s estimates.

We also performed sensitivity analyses over the significant assumptions to evaluate the change in the profit booking rates resulting from changes in the assumptions.

Defined Benefit Pension Plan Obligation

Description of the Matter At December 31, 2024, the Corporation’s aggregate obligation for its qualified defined benefit pension plans was $27.2 billion and exceeded the gross fair value of the related plan assets of $22.4 billion, resulting in a net unfunded qualified defined benefit pension obligation of $4.8 billion.

As explained in Note 11 of the consolidated financial statements, the Corporation remeasures the qualified defined benefit pension assets and obligations at the end of each year or more frequently upon the occurrence of certain events.

The amounts are measured using actuarial valuations, which depend on key assumptions such as the discount rate.

Auditing the defined benefit pension obligation was complex and required the involvement of specialists as a result of the judgmental nature of the actuarial assumptions such as the discount rate used in the measurement process.

The discount rate assumption has a significant effect on the measurement of the projected benefit obligation.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over management’s measurement and valuation of the defined benefit pension obligation calculations.

For example, we tested the internal controls over management’s review of the defined benefit pension obligation calculations, the significant actuarial assumptions and the data inputs provided to the actuaries.

To test the defined benefit pension obligation, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions described above and the underlying data used by the Corporation.

We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from prior year due to the change in service cost, interest cost, benefit payments, settlements, actuarial gains and losses, longevity assumptions and plan amendments.

In addition, we involved our actuarial specialists to assist in evaluating management’s methodology for determining the discount rate that considers the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation.

As part of this assessment, we compared the projected cash flows to the prior year and compared the current year benefits paid to the prior year projected cash flows.

Lastly, we also tested the completeness and accuracy of the underlying data, including the participant data provided to the Corporation’s actuarial specialists.

For example, we tested internal controls over management’s review of the estimates used to recognize revenue and determine the loss position on certain contracts as well as the significant assumptions underlying the estimated total costs to complete.

We also tested internal controls that management executes which are designed to validate the data in the estimates used to recognize revenue was complete and accurate.

To test the accuracy of the Corporation’s estimates to recognize revenue and determine the loss position for certain contracts, our audit procedures included, among others, evaluating the appropriateness and consistency of management’s methods used in developing its cost estimates, and inspecting and evaluating customer correspondence for consistency with management’s estimates.

We assessed the timeline of key events and knowledge points that led to changes in these cost estimates and observed the project work site to evaluate tangible or physical progress of the project against assumptions used by management in developing its cost and schedule estimates.

Additionally, we inquired of those directly involved with the program to evaluate project status and challenges which may affect total estimated costs.

Further, we performed sensitivity analyses over these significant assumptions to evaluate the change in total cost estimates resulting from changes in the assumptions.

/s/ Ernst & Young LLP

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Services 12,394 11,766 11,306

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

Cost of sales

Total sales 75,048 71,043 67,571

Operating costs and expenses

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

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

Impairment and severance 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 )

Total 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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Other comprehensive income, net of tax

Postretirement benefit plans

Retirement benefits

Net actuarial gain (loss) recognized due to plan remeasurements, net of tax of $ 28 million in 2025, $ 96 million in 2024 and $ 181 million in 2023

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Pension settlement charge, net of tax of $ 102 million

Other, net, net of tax of $ 4 million in 2024, $ 6 million in 2023 and $ 2 million in 2022

Other, net of tax of $ 18 million in 2025, $ 4 million in 2024 and $ 6 million in 2023

177 ( 65 ) 58

Other comprehensive income, net of tax 351 ( 780 ) 2,983

Other comprehensive income (loss), net of tax 910 351 ( 780 )

Comprehensive income $ 5,927 $ 5,687 $ 6,140

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Deferred income taxes 2,975 3,557

Capitalized software 2,417 1,866

Other noncurrent assets 7,010 6,537

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Pension settlement charge 479 — —

Impairment and severance charges 87 92 100

Classified programs losses 1,965 45 —

Impairment and other charges 66 87 92

Reach-forward losses on select programs 1,615 1,965 45

Receivables, net ( 1,550 ) ( 219 ) 373

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Note 1 – Organization and Significant Accounting Policies

Organization – 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.

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.

As described in “Note 3 – Information on Business Segments”, we operate in four business segments:

Aeronautics, MFC, RMS and Space.

Organization – 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 (MFC), Rotary and Mission Systems (RMS), 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.

See “Note 3 – Information on Business Segments” for more details on discussions of our business areas.

Basis of presentation – These consolidated financial statements include the accounts of subsidiaries we control and variable interest entities if we are the primary beneficiary.

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These reclassifications were not material and had no impact on total net cash provided by operating activities as previously reported.

On October 30, 2024, we closed our acquisition of Terran Orbital Corporation (Terran Orbital) for a purchase consideration of $ 314 million.

We accounted for this acquisition as a “step acquisition” (as defined in U.S.

GAAP) and accordingly, $ 83 million of our previously held investments in Terran Orbital were included as part of the purchase consideration.

The remaining purchase price of $ 231 million was paid with cash on hand (net of cash acquired).

Terran Orbital became a wholly-owned subsidiary and operates within our Space business segment.

The purchase consideration of $ 314 million was allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.

During the second quarter of 2025, we paid $ 360 million, in cash, for the acquisition of Amentum’s Rapid Solutions business (Rapid Solutions).

The acquisition of Rapid Solutions is expected to enhance our Space business segment′s capabilities, particularly in radar and payload technology, and support our customers′ evolving needs for domain awareness and real- time missions.

The purchase price was allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.

As a result, we recorded goodwill of $ 195 million at our Space business segment.

The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the respective acquisition date.

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

The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the acquisition date.

Rapid Solutions operates within our Space business segment and the financial results of Rapid Solutions had been included within our operating results in the period post-acquisition.

Use of estimates – We prepare our consolidated financial statements in conformity with U.S.

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Our actual results may differ materially from these estimates.

Significant estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, accounting for sales and cost recognition;

postretirement benefit plans;

Estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, accounting for sales and cost recognition;

retirement benefits;

environmental liabilities and assets for the portion of environmental costs that are probable of future recovery;

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and contingencies.

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

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

Government and international customers (including foreign military sales (FMS) contracted through the U.S.

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In limited cases, our contracts have more than one distinct performance obligation, which occurs when we perform activities that are not highly complex or interrelated or involve different product lifecycles.

Significant judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period.

We classify net sales as products or services on our consolidated statements of earnings based on the predominant attributes of the performance obligations.

Judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period.

We classify sales as products or services on our consolidated statements of earnings based on the predominant attributes of the performance obligations.

We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract.

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As of December 31, 2025, our ending backlog was $ 193.6 billion.

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.

For arrangements with 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 estimate profit as the difference between estimated sales and total estimated costs to complete the contract.

At the outset of a long-term contract, 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, general and administrative 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 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, general and administrative expenses 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.

Profit booking rates may increase during the performance of the contract if we successfully retire risks related to technical, schedule and cost aspects of the contract, which decreases the

estimated total costs to complete the contract or may increase the variable consideration we expect to receive on the contract.

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

Profit booking rates may increase during the performance of the contract if we successfully retire risks related to earning variable consideration and/or the technical,

schedule and cost aspects of the contract, which decreases the estimated total costs to complete the contract or may increase the variable consideration we expect to receive on the contract.

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

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

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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 increased net sales by $ 1.2 billion in 2024, $ 1.6 billion in 2023, and $ 2.0 billion in 2022.

These adjustments decreased segment operating profit by approximately $ 180 million ($ 142 million, or $ 0.59 per share, after-tax) in 2024 and increased segment operating profit by approximately $ 1.6 billion ($ 1.3 billion, or $ 4.98 per share, after-tax) in 2023 and $ 1.8 billion ($ 1.4 billion, or $ 5.40 per share, after-tax) in 2022.

Consolidated net profit booking rate adjustments during the year ended December 31, 2024 include 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 described below 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.

Consolidated net profit booking rate adjustments during the year ended December 31, 2023 include a favorable profit adjustment of $ 65 million on an international surveillance and control program due to the positive resolution of a contractual matter at our RMS business segment, and a reach-forward loss of $ 100 million on the Canadian Maritime Helicopter Program (CMHP) as a result of increased costs and lower than planned revenues at our RMS business segment described below.

The following table presents the effect of profit booking rate adjustments on our financial results (in millions, except per share data):

2025 2024 2023

Sales $ 954 $ 1,173 $ 1,559

Segment operating profit (loss) 75 ( 180 ) 1,585

% of segment operating profit (loss) 1 % ( 3 ) % 21 %

Net earnings (loss) 59 ( 142 ) 1,252

Diluted earnings (loss) per share 0.25 ( 0.59 ) 4.98

During the year ended December 31, 2025, we recorded 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 (see discussions that follows within this footnote), 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.

During the year ended December 31, 2024, we recorded 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.

During the year ended December 31, 2023, we recorded a reach-forward loss of $ 100 million on CMHP as a result of increased costs and lower than planned revenues and a favorable profit adjustment of $ 65 million on an international surveillance and control program due to the positive resolution of a contractual matter at our RMS business segment.

We have various development programs for new and upgraded products, services, and related technologies which have complex design and technical challenges.

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However, some of our existing development programs are contracted on a fixed-price basis or include cost-type contracting for the development phase with fixed-price production options and our customers continue to implement procurement strategies such as these that shift risk to contractors.

Competitively bid programs with fixed-price development work or fixed-price production options increase the risk of a reach-forward loss upon contract award and during the period of contract performance.

Competitively bid programs with fixed-price development work or fixed-price production options increase the risk of a reach-forward loss upon contract award and during the period of

contract performance.

Due to the complex and often experimental nature of development programs, we may experience (and have experienced in the past) technical and quality issues during the development of new products or technologies for a variety of reasons.

Our development programs are ongoing, and while we believe the cost and fee estimates incorporated in the financial statements are appropriate, the technical complexity of these programs and fixed-price contract structure creates financial risk as estimated completion costs may exceed the current contract value, which could trigger earnings charges, termination provisions, or other financially significant exposures.

These programs have risk for reach-forward losses if our estimated costs exceed our estimated contract revenues, and such losses could be significant to our financial condition and operating results in any period that they are recognized.

These programs have risk for reach-forward losses if our estimated costs exceed our estimated contract revenues, and such losses could be significant to our financial results in any period that they are recognized.

Any such losses are recognized in the period in which the loss is evident.

We have experienced performance issues on an existing classified program at our Aeronautics business segment.

The initial phase is on a fixed-price incentive fee contract with options for additional phases.

Phases within the program involve highly complex design and systems integration and we have periodically recognized reach-forward losses.

During 2024, we recognized $ 555 million of losses on this program, including $ 410 million recognized in the fourth quarter of 2024.

During the fourth quarter of 2024, we again performed a comprehensive review of the program requirements, technical complexities, schedule, risks, and risk mitigation actions as a result of performance trends experienced in 2024 and in contemplation of near-

term program milestones.

Based on that review, we identified higher projected costs in engineering and integration activities that are necessary to achieve those forthcoming milestones.

As of December 31, 2024, cumulative losses recognized to date on this program were approximately $ 825 million.

We will continue to proactively manage the technical requirements and our performance, the remaining work and any future changes in scope or schedule, and estimated costs to complete the program, including future phases, and we may have to record additional losses that become evident in future periods if we experience further performance issues, increases in scope, or cost growth, which could be material to our financial results.

We and our industry team will continue to incur advanced procurement costs (also referred to as pre-contract costs) to enhance our ability to achieve the schedule and certain milestones.

Aeronautics Classified Program

We have experienced significant performance issues on an existing classified program at our Aeronautics business segment.

The initial phase is on a fixed-price incentive fee contract with fixed-price incentive fee options for additional phases.

Phases within the program involve highly complex design and systems integration.

Challenges and performance issues continued into 2025 and had a greater impact on schedule and costs than previously estimated.

There were also new, unanticipated events that occurred in 2025 that impacted the program’s performance, as described below.

As a result of performance issues with the program, Aeronautics performed a comprehensive review of its design, integration, test, and other processes to achieve the technical requirements of the program, which was completed in the second quarter of 2025.

The events that occurred in 2025, and the comprehensive review completed in the second quarter of 2025, resulted in significant changes in the program’s processes and testing approach and led to an extension of the program’s schedule, which drove a substantial increase in cost estimates.

As a result, during the second quarter of 2025, we recognized additional reach-forward losses of $ 950 million across both phases of the program.

The primary drivers of the additional reach-forward losses recognized in the second quarter of 2025 included:

(1) software development performance degradation and integration findings observed over a continued period;

(2) learnings in recent software and build experience on another program specifically relevant to the program;

(3) significant changes in test plan resulting from customer discussions and changes in test execution strategy;

(4) safety-critical and other necessary design and engineering changes in response to certain observed performance degradation and a discrete event;

and (5) complete schedule realignment, including as a result of items (1) through (4).

As of December 31, 2025, cumulative losses recognized to date on this program remained at approximately $ 1.8 billion across both phases.

As of December 31, 2025, $ 495 million of the losses remained accrued in other current liabilities in our consolidated balance sheet.

We continue to proactively manage the technical requirements and our performance, the remaining work and any future changes in scope or schedule, and estimated costs to complete the program, including future phases.

Due to the nature of the highly complex design and systems integration on this program, we may need to record additional losses in future periods if performance issues, increases in scope, or increases in cost from prior estimates indicate that further losses are evident.

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 understandings of the risks inherent in the program.

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

We and our industry team will continue to incur advanced procurement costs (also referred to as pre-contract costs) to enhance our ability to achieve the schedule and certain milestones which could be significant.

We will monitor the recoverability of pre-contract costs, which could be impacted by our assessment of the customer’s decision regarding the funding of future phases of the program.

We have contracted with the Canadian government for the CMHP at our RMS business segment that provides for design, development, and production of CH-148 aircraft (the Original Equipment contract), which is a military variant of the S-92 helicopter, and for logistical support to the fleet (the In Service Support contract) over an extended time period.

The last of the 28 CH-148 aircraft is scheduled to be delivered in 2025.

The program has experienced performance issues, including delays in the final aircraft deliveries from the original contract requirement, and the Royal Canadian Air Force’s flight hours have been significantly less than originally anticipated, which has impacted program revenues and the recovery of our costs under this program.

We have incurred significant costs and recognized the related sales, of which about $ 955 million are currently included in contract assets on the balance sheet which could become at risk for future recovery.

Such assets are recovered based on future flight hours, which are not entirely within our control and are dependent upon aircraft availability and performance and the availability of Canadian government resources.

During 2024, we entered into a modification to the In Service Support contract to better align contract scope with the Canadian government’s needs.

This modification mitigates but does not eliminate the risk related to future sales and recovery of our costs.

We continue to engage in discussions with the Canadian government to potentially restructure certain contractual terms and conditions that may be beneficial to both parties.

However, any restructuring discussions may be prolonged or unsuccessful and are dependent upon Canadian government resources and priorities and other factors outside of our control.

Under the contract terms as modified, future sales and recovery of costs are dependent upon the Royal Canadian Air Force’s flight hours and program costs and performance.

As of December 31, 2024, cumulative losses remained at approximately $ 100 million.

Future performance issues or changes in our estimates may affect our ability to recover our costs, including recovery of the contract assets recognized on the balance sheet and our assessment of the reach-forward loss, which could be material to our operating results.

We also have a number of contracts with Türkish industry for the Türkish Utility Helicopter Program (TUHP), which anticipates co-production with Türkish industry for production of T70 helicopters for use in Türkiye, as well as the related provision of Türkish goods and services under buy-back or offset obligations, to include the future sales of helicopters built in Türkiye for sale globally.

In 2020, the U.S.

Government imposed certain sanctions on Türkish entities and persons that have affected our ability to perform under the TUHP contracts, and we have provided force majeure notices under the affected contracts.

We partially stopped work on TUHP effective October 5, 2024.

We are currently in discussions with our customer regarding the path forward for the program in light of the continued impact of the sanctions on our ability to perform under the TUHP contracts and our decision to partially stop work.

As of December 31, 2024, cumulative losses related to development work for the program remained insignificant and the program remains in a contract liability position on the balance sheet.

The TUHP contracts may be negotiated to be restructured or terminated, either in whole or in part, and as a result, we could be at risk of recording significant reach-forward losses in future periods.

Additionally, our customer and subcontractor have asserted that we do not have the contractual right to stop work.

If we are unable to reach an agreement in the near term, we or our customer could elect to pursue other relief or remedies, which could result in a further reduction in sales, the imposition of penalties or assessment of damages, and increased unrecoverable costs, which could be material to our financial results.

MFC Classified Program

Our MFC business segment has been performing under a competitively bid classified contract, which includes a cost-reimbursable base contract for the initial phase of the program and multiple fixed-price options for additional phases.

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During the first quarter of 2024, we concluded it was probable that the first option would be exercised and recognized a reach-forward loss of approximately $ 100 million.

During the fourth quarter of 2024, we again assessed the likelihood that additional options may be exercised and now believe it is probable that all options will be exercised based on performance to date, future requirements of the program, discussions with the customer and suppliers, and anticipated customer funding, among other factors, resulting in the recognition of additional reach-forward losses of approximately $ 1.31 billion.

For the year ended December 31, 2024, MFC recognized losses of $ 1.41 billion for this program, bringing the cumulative losses recognized on the program to approximately $ 1.46 billion, including charges for pre-contract costs recognized in prior periods.

As of December 31, 2024, $ 1.36 billion of the losses were accrued in other current liabilities in our consolidated balance sheet.

(referred to as customer-funded R&D) to enhance existing products and services and to develop future technologies.

During the fourth quarter of 2024, we again assessed the likelihood that additional options may be exercised and concluded then that it is probable that all options will be exercised based on performance to date, future requirements of the program, discussions with the customer and suppliers, and anticipated customer funding, among other factors, resulting in the recognition of additional reach-forward losses of approximately $ 1.31 billion.

As of December 31, 2025, cumulative losses recognized on the program remained at approximately $ 1.46 billion in total, of which, $ 1.19 billion remained accrued in other current liabilities in our consolidated balance sheet.

Canadian Maritime Helicopter Program

Our RMS business segment has been performing the Canadian Maritime Helicopter Program (CMHP) under contracts with the Canadian government.

The program provides for design, development, and production of CH-148 aircraft (the Original Equipment contract), which is a military variant of the S-92 helicopter, and for logistical support to the fleet (the In Service Support contract) over an extended time period.

The program has experienced performance issues and we have been in

discussions with the Canadian government to potentially restructure certain contractual terms and conditions that may be beneficial to both parties.

We entered into a contract modification in 2024 to better align contract scope with the Canadian government’s need, which resulted in a reduction in our contract assets in the fourth quarter of 2024 and first quarter of 2025.

Communications with the customer during the second quarter of 2025 led to subsequent decisions made by us to focus on providing additional mission capabilities, enhanced logistical support, fleet life extension, and revised expectations regarding flight hours.

Based on these discussions with the customer and decisions made by management, we revised our cost and sales estimates for this program and recognized additional losses of $ 570 million on the program during the second quarter of 2025.

As of December 31, 2025, cumulative losses recognized on the program remained at approximately $ 670 million and approximately $ 625 million of contract assets remained on the balance sheet.

The final aircraft under the program was delivered to Canada during the third quarter of 2025 and has been subsequently accepted.

Any restructuring discussions may be prolonged or unsuccessful, and could result in a contract termination, and are dependent upon Canadian government resources and priorities and other factors outside of our control, such as trade relations with the United States.

These items in addition to future performance issues or changes in our estimates may affect our ability to recover our costs, including recovery of the contract assets recognized on the balance sheet and our assessment of the reach-forward loss, and potential damages, which could be material to our financial results in any period that they are recognized.

Türkish Utility Helicopter Program

As previously disclosed, we have a number of contracts with Türkish industry for the Türkish Utility Helicopter Program (TUHP), which anticipates co-production with Türkish industry for production of T70 helicopters for use in Türkiye, as well as the related provision of Türkish goods and services under buy-back or offset obligations.

Sanctions imposed in 2020 by the U.S.

Government on Turkey’s defense procurement agency (SSB) and certain persons have affected our ability to perform under the TUHP contracts.

During the second quarter of 2025, we recognized a loss of $ 95 million in light of the status of restructuring discussions with our prime customer and the status of the TUHP.

As of December 31, 2025, cumulative losses recognized to date on the program remained at approximately $ 130 million and the program remains in a contract liability position on the balance sheet.

In the fourth quarter of 2025, we finalized an agreement with our prime contract customer to terminate the existing TUHP contracts and establish new contracts for a reduced scope of work, which became effective in January 2026.

Our performance under the new contracts is subject to the receipt of U.S.

export authorizations.

However, if our future licensing applications are denied, our customer could drawdown on letters of credit, which could negatively affect our cash flows and our ability to recover our costs, and we could incur additional losses of up to approximately $ 115 million.

Research and development and similar costs – We conduct research and development (R&D) activities using our own funds (referred to as company-funded or independent R&D (IR&D)) and under contractual arrangements with our customers (referred to as customer-funded R&D) to enhance existing products and services and to develop future technologies.

R&D costs include basic research, applied research, concept formulation studies, design, development, and related test activities.

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Customer-funded R&D costs are charged directly to the related customer contracts.

Substantially all R&D costs are charged to cost of sales as incurred.

Company-funded R&D costs charged to cost of sales totaled $ 1.6 billion, $ 1.5 billion and $ 1.7 billion in 2024, 2023 and 2022.

Substantially all R&D costs are charged to operating costs as incurred.

Company-funded R&D costs charged to operating costs totaled $ 2.0 billion, $ 1.6 billion and $ 1.5 billion in 2025, 2024 and 2023.

Stock-based compensation – We issue stock-based compensation awards in the form of restricted stock units (RSUs) and performance stock units (PSUs) that generally vest three years from the grant date and are settled in shares.

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In addition, costs incurred to fulfill a contract in advance of the contract being awarded are recorded in inventories as work-in-process if we determine that those costs relate directly to a contract or to an anticipated contract that we can specifically identify and contract award is probable, the costs generate or enhance resources that will be used in satisfying performance obligations, and the costs are recoverable (referred to as pre-contract costs).

Pre-contract costs that are initially capitalized in inventory are generally recognized as cost of sales consistent with the transfer of products and services to the customer upon the receipt of the anticipated contract.

Pre-contract costs that are initially capitalized in inventory are generally recognized as operating cost consistent with the transfer of products and services to the customer upon the receipt of the anticipated contract.

All other pre-contract costs, including start-up costs, are expensed as incurred.

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Marketable securities accounted for as trading are recorded at fair value on a recurring basis and are included in other noncurrent asset s on our consolidated balance sheets.

Gains and losses on these investments are included in other unallocated, net within cost of sales on our consolidated statements of earnings.

Gains and losses on these investments are included in other unallocated, net within operating costs and expenses on our consolidated statements of earnings.

We make investments in companies that we believe are advancing or developing new technologies applicable to our business.

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Changes in fair value and/or sales of investments are reflected in the other non-operating income, net account on our consolidated statements of earnings.

We recorded net gains of $ 22 million ($ 17 million, or $ 0.07 per share, after-tax), net losses of $ 64 million ($ 48 million, or $ 0.19 per share, after-tax) and $ 114 million ($ 86 million, or $ 0.33 per share, after-tax) during 2024, 2023 and 2022.

We recorded net gains of $ 55 million ($ 41 million, or $ 0.18 per share, after tax) and $ 22 million ($ 17 million, or $ 0.07 per share, after-tax) during 2025 and 2024 and net losses of $ 64 million ($ 48 million, or $ 0.19 per share, after-tax) during 2023.

Equity method investments – Investments where we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in other noncurrent assets on our consolidated balance sheets.

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We include options to extend or terminate leases in the ROU operating lease asset and liability when it is reasonably certain we will exercise these options.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales on our consolidated statement of earnings.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in operating costs and expenses on our consolidated statements of earnings.

We have operating lease arrangements with lease and non-lease components.

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For all operating leases, we account for the lease and non-lease components as a single component.

Additionally, for certain equipment leases, we apply a portfolio approach to

recognize operating lease ROU assets and liabilities.

Additionally, for certain equipment leases, we apply a portfolio approach to recognize operating lease ROU assets and liabilities.

We evaluate ROU assets for impairment consistent with our property, plant and equipment policy.

Postretirement benefit plans – Many of our employees and retirees participate in defined benefit pension plans, retiree medical and life insurance plans, and other postemployment plans (collectively, postretirement benefit plans).

Obligation amounts we record related to our postretirement benefit plans are computed based on service to date, using actuarial valuations that are based in part on certain key economic assumptions we make, including the discount rate, the expected long-term rate of return on plan assets and other actuarial assumptions including participant longevity (also known as mortality) and health care cost trend rates, each as appropriate based on the nature of the plans.

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 asset gains or losses, along with those resulting from adjustments to our benefit obligation, will be amortized to expense using the corridor method, where gains and losses are recognized over a period of years to the extent they exceed 10% of the greater of plan assets or benefit obligations.

We recognize on a plan-by-plan basis the funded status of our postretirement benefit plans as either an asset recorded within other noncurrent assets or a liability recorded within noncurrent liabilities on our consolidated balance sheets.

Retirement benefits – Many of our employees and retirees participate in various retirement benefit plans including defined benefit pension, retiree medical and life insurance, disability insurance, and defined contribution savings plans.

Obligation amounts we record related to our defined benefit pension plans are computed based on service to date, using actuarial valuations that are based in part on certain key economic assumptions we make, including the discount rate, the expected long-term rate of return on plan assets and other actuarial assumptions including participant longevity (also known as mortality).

A market-related value of our plan assets, equal to the fair value adjusted for recognition of the difference between actual and expected asset returns over the prior three-year period, is used to develop the expected return on assets included in expense.

Net outstanding gains or losses are amortized to expense using the corridor method, where they are recognized over a period of years to the extent they exceed 10% of the greater of market-related value of plan assets or benefit obligations.

We recognize on a plan-by-plan basis the funded status of our defined benefit pension plans as either an asset recorded within other noncurrent assets or a liability recorded within noncurrent liabilities on our consolidated balance sheets.

The GAAP funded status is measured as the difference between the fair value of the plan’s assets and the benefit obligation of the plan.

The funded status under the Employee Retirement Income Security Act of 1974 (ERISA), as amended, is calculated on a different basis than under GAAP.

Postemployment plans – We record a liability for postemployment benefits, such as severance or job training, typically when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated.

Postemployment benefits – We record a liability for postemployment benefits, such as severance or job training, typically when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have accumulated.

Environmental matters – We record a liability for environmental matters when it is probable that a liability has been incurred and the amount can be reasonably estimated.

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Our environmental liabilities are recorded on our consolidated balance sheets within other liabilities, both current and noncurrent.

We expect to include a substantial portion of environmental costs in our net sales and cost of sales in future periods pursuant to U.S.

We expect to include a substantial portion of environmental costs in our sales and operating costs in future periods pursuant to U.S.

Government regulation.

At the time a liability is recorded for future environmental costs, we record assets for estimated future recovery considered probable through the pricing of products and services to agencies of the U.S.

At the time a liability is recorded for future environmental costs, we record assets for estimated future recovery considered probable through the pricing

of products and services to agencies of the U.S.

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

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government contracts, or determined not to be recoverable under U.S.

Government contracts, in our cost of sales at the time the liability is established or adjusted.

Government contracts, in our operating costs at the time the liability is established or adjusted.

Our assets for the portion of environmental costs that are probable of future recovery are recorded on our consolidated balance sheets within other assets, both current and noncurrent.

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Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No.

In December 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2025-10, Government Grants (Topic 832):

Accounting for Government Grants Received by Business Entities .

The ASU establishes guidance for the recognition, measurement, and presentation of government grants received by business entities.

Under the new standard, a government grant is recognized only when it is probable that (i) the entity will satisfy the grant’s conditions and (ii) the grant will be received.

If those conditions are met, the grant is classified either as a grant related to income or as a grant related to an asset, and the classification determines the appropriate accounting treatment.

2025-10 retains the existing disclosure requirements in FASB Accounting Standards Codification (ASC) Topic 832, Government Assistance .

For public business entities, the amendments are effective for annual reporting periods beginning after December 15, 2028, and for interim reporting periods within those annual reporting periods, with early adoption permitted.

Entities may adopt the amendments using a modified-prospective, modified-retrospective, or full-retrospective approach for all government grants.

We are currently evaluating the impact of the ASU on our disclosures and financial statements, including the approach and the timing of adoption.

In September 2025, the FASB issued ASU No.

2025-06, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software .

This guidance removes all references to project stages throughout ASC 350-40 and clarifies the threshold entities apply to begin capitalizing costs.

Under the new standard, cost capitalization should only commence when an entity has committed to funding a software project and it is probable the project will be completed and the software will be used for its intended function.

The amendments are effective for annual reporting periods beginning after December 15, 2027 and interim reporting periods within those annual reporting periods.

Entities may apply the guidance using a prospective, retrospective or modified transition approach.

Early adoption is permitted as of the beginning of an annual reporting period.

We are currently determining the preferred transition approach and assessing the impact of the ASU on our disclosures and financial statements, including the timing of its adoption.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

This ASU requires an entity to disclose the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization included in each relevant expense caption.

It also requires an entity to include certain amounts that are already required to be disclosed under current GAAP in the same disclosure.

Additionally, it requires an entity to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and to disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

An entity may apply the amendments prospectively for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements.

While this ASU will impact only our disclosures and not our financial condition and results of operations, we are currently evaluating when we will adopt the ASU.

In March 2024, the SEC issued a final rule under SEC Release Nos.

33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors, that would require us to provide climate-related disclosures in our annual reports and registration statements beginning with our annual report for the year ending December 31, 2025.

The rule would require disclosure of material climate-related risks, our governance and risk management of climate-related risks and any material climate-related targets or goals, greenhouse gas emissions as well as disclosure of the financial statement effects, such as costs and losses resulting from severe weather events and other natural conditions.

In April 2024, the SEC released an order staying this final rule pending judicial review of all the petitions challenging the rule.

We are in the process of analyzing the impact of the rule and related litigation on our disclosures.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (CODM).

The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments.

We adopted the new standard effective December 31, 2024.

As a result, we have enhanced our segment disclosures to include the presentation of cost of sales by segment and the disclosure of our CODMs.

The adoption of this ASU affects only our disclosures, with no impacts to our financial condition and results of operations.

The ASU requires entities to disclose certain expenses, including purchases of inventory, employee compensation, depreciation, and intangible asset amortization, by caption.

In addition, entities must provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.

The amendments are effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027, with early adoption permitted.

The ASU will affect only our disclosures and will not impact our results of operations or financial condition.

We are currently evaluating the timing of its adoption.

In December 2023, the FASB issued ASU No.

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Improvements to Income Tax Disclosures , which focuses on the rate reconciliation and income taxes paid.

2023-09 requires a public business entity (PBE) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold.

In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received.

For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all periods presented.

We will adopt this ASU prospectively for the period ending December 31, 2025, and it will impact only our disclosures with no impacts to our financial condition and results of operations.

2023-09 requires public business entities to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

In addition, ASU No.

2023-09 requires companies to disclose further information about income taxes paid.

The standard is effective for annual periods beginning after December 15, 2024, and may be applied prospectively or retrospectively.

We adopted the ASU prospectively for the period ending December 31, 2025, and it affects only our disclosures and does not impact our results of operations or financial condition.

Note 2 – Earnings Per Share

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fire control systems;

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

ground vehicles;

and energy management solutions.

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

• Rotary and Mission Systems – Designs, manufactures, services and supports various military and commercial helicopters, 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, simulation and training solutions, and services and supports surface ships.

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Government and commercial customers.

Our investment in ULA totaled $ 551 million and $ 567 million at December 31, 2024 and 2023.

Our investment in ULA totaled $ 551 million at both December 31, 2025 and 2024.

Selected Financial Data by Business Segment

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.

Our Chief Executive Officer (CEO) and Chief Operating Officer (COO) serve as our Chief Operating Decision Makers (CODMs) and are responsible for reviewing segment performance and making decisions regarding resource allocation.

Our CODMs evaluate each segment’s performance based on metrics such as net sales, operating profit, and other key financial indicators, guiding strategic decisions to align with company-wide goals.

Our CODMs evaluate each segment’s performance based on metrics such as sales, operating profit, and other key financial indicators, guiding strategic decisions to align with company-wide goals.

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.

Summary Operating Results

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

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

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

Operating costs and expenses

Aeronautics $ 28,168 $ 26,093 $ 24,649

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Space 11,689 11,308 11,473

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

Operating profit

Total operating costs and expenses $ 68,359 $ 65,069 $ 60,233

Operating profit (a)

Aeronautics $ 2,086 $ 2,523 $ 2,825

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

(a) Operating profit by segment includes certain immaterial items, such as other income (primarily equity earnings) that are not presented separately in the table.

Accordingly, the difference between sales less operating costs and expenses may not equal operating profit by segment.

Unallocated Items

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

Government under the applicable CAS or FAR, and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, retiree benefits, significant severance charges, significant asset impairments, gains or losses from divestitures, intangible asset amortization expense, and other miscellaneous corporate activities.

Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit.

See “Note 1 – Organization and Significant Accounting Policies” (under the

caption “Use of Estimates”) for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

Government under the applicable U.S.

Government Cost Accounting Standards (CAS) or Federal Acquisition Regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, retirement benefits, significant severance charges, significant asset impairments, gains or losses from divestitures, intangible asset amortization expense, and other miscellaneous corporate activities.

Collectively these items are included in “Unallocated items” to reconcile total segment operating profit to consolidated operating profit.

See “Note 1 –

Organization and Significant Accounting Policies” (under the caption “Use of Estimates”) for a discussion related to certain factors that may impact the comparability of sales and operating profit of our business segments.

FAS/CAS Pension Operating Adjustment

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.

We recover CAS pension 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’ sales and operating costs and expenses.

Our consolidated financial statements must present pension expense 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 (expense) income and total CAS pension cost.

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

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

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

2025 2024 2023

Total FAS (expense) income and CAS cost

FAS pension (expense) income $ ( 924 ) $ 2 $ 378

CAS pension cost 1,568 1,684 1,725

Total FAS/CAS pension adjustment $ 644 $ 1,686 $ 2,103

Service and non-service cost reconciliation

FAS pension service cost $ ( 50 ) $ ( 60 ) $ ( 65 )

CAS pension cost 1,568 1,684 1,725

Total FAS/CAS pension operating adjustment 1,518 1,624 1,660

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

Total FAS/CAS pension adjustment $ 644 $ 1,686 $ 2,103

The decrease in the FAS/CAS pension adjustment in 2025 was principally driven by 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.

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

Intersegment Sales

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Total intersegment sales $ 3,948 $ 3,893 $ 3,474

Disaggregation of Net Sales

Net sales by products and services, contract type, customer category and geographic region for each of our business segments were as follows (in millions):

Disaggregation of Sales

Sales by products and services, contract type, customer category and geographic region for each of our business segments were as follows (in millions):

Aeronautics MFC RMS Space Total

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Services 5,640 1,473 3,124 2,157 12,394

Total net sales $ 28,618 $ 12,682 $ 17,264 $ 12,479 $ 71,043

Net sales by contract type

Total sales $ 30,257 $ 14,450 $ 17,312 $ 13,029 $ 75,048

Sales by contract type

Fixed-price $ 20,393 $ 10,523 $ 10,766 $ 3,518 $ 45,200

Cost-reimbursable 9,864 3,927 6,546 9,511 29,848

Total net sales $ 28,618 $ 12,682 $ 17,264 $ 12,479 $ 71,043

Net sales by customer

Total sales $ 30,257 $ 14,450 $ 17,312 $ 13,029 $ 75,048

Sales by customer

Government $ 19,307 $ 10,194 $ 11,126 $ 12,785 $ 53,412

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commercial and other 34 11 219 29 293

Total net sales $ 28,618 $ 12,682 $ 17,264 $ 12,479 $ 71,043

Net sales by geographic region

Total sales $ 30,257 $ 14,450 $ 17,312 $ 13,029 $ 75,048

Sales by geographic region

United States $ 19,341 $ 10,205 $ 11,345 $ 12,814 $ 53,705

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Other 935 69 855 — 1,859

Total net sales $ 28,618 $ 12,682 $ 17,264 $ 12,479 $ 71,043

Total sales $ 30,257 $ 14,450 $ 17,312 $ 13,029 $ 75,048

Aeronautics MFC RMS Space Total

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Services 5,020 1,407 3,259 2,080 11,766

Total net sales $ 27,474 $ 11,253 $ 16,239 $ 12,605 $ 67,571

Net sales by contract type

Total sales $ 28,618 $ 12,682 $ 17,264 $ 12,479 $ 71,043

Sales by contract type

Fixed-price $ 19,603 $ 8,774 $ 10,870 $ 3,481 $ 42,728

Cost-reimbursable 9,015 3,908 6,394 8,998 28,315

Total net sales $ 27,474 $ 11,253 $ 16,239 $ 12,605 $ 67,571

Net sales by customer

Total sales $ 28,618 $ 12,682 $ 17,264 $ 12,479 $ 71,043

Sales by customer

Government $ 19,314 $ 9,043 $ 11,469 $ 12,218 $ 52,044

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commercial and other 122 10 332 20 484

Total net sales $ 27,474 $ 11,253 $ 16,239 $ 12,605 $ 67,571

Net sales by geographic region

Total sales $ 28,618 $ 12,682 $ 17,264 $ 12,479 $ 71,043

Sales by geographic region

United States $ 19,436 $ 9,053 $ 11,801 $ 12,238 $ 52,528

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Other 540 66 877 — 1,483

Total net sales $ 27,474 $ 11,253 $ 16,239 $ 12,605 $ 67,571

Total sales $ 28,618 $ 12,682 $ 17,264 $ 12,479 $ 71,043

Aeronautics MFC RMS Space Total

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Services 4,716 1,334 3,326 1,930 11,306

Total net sales $ 26,987 $ 11,317 $ 16,148 $ 11,532 $ 65,984

Net sales by contract type

Total sales $ 27,474 $ 11,253 $ 16,239 $ 12,605 $ 67,571

Sales by contract type

Fixed-price $ 18,664 $ 7,661 $ 10,403 $ 3,276 $ 40,004

Cost-reimbursable 8,810 3,592 5,836 9,329 27,567

Total net sales $ 26,987 $ 11,317 $ 16,148 $ 11,532 $ 65,984

Net sales by customer

Total sales $ 27,474 $ 11,253 $ 16,239 $ 12,605 $ 67,571

Sales by customer

Government $ 18,311 $ 7,769 $ 10,961 $ 12,382 $ 49,423

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commercial and other 129 11 295 69 504

Total net sales $ 26,987 $ 11,317 $ 16,148 $ 11,532 $ 65,984

Net sales by geographic region

Total sales $ 27,474 $ 11,253 $ 16,239 $ 12,605 $ 67,571

Sales by geographic region

United States $ 18,440 $ 7,780 $ 11,256 $ 12,451 $ 49,927

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Other 349 156 722 1 1,228

Total net sales $ 26,987 $ 11,317 $ 16,148 $ 11,532 $ 65,984

Total sales $ 27,474 $ 11,253 $ 16,239 $ 12,605 $ 67,571

(a) International sales include FMS contracted through the U.S.

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Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international multi-role, multi-variant, stealth fighter aircraft.

Net sales for the F-35 program represented approximately 26 % of our consolidated net sales during both 2024 and 2023 and 27 % during 2022.

Sales for the F-35 program represented approximately 27 % of our consolidated sales during 2025 and 26 % during both 2024 and 2023.

Capital Expenditures and PP&E Depreciation and Software Amortization

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Corporate assets (a)

14,532 12,029

Total assets $ 59,840 $ 55,617

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government customers totaling approximately $ 56.5 billion and $ 55.6 billion as of December 31, 2025 and 2024.

Contract assets decreased $ 226 million during 2024, primarily due to billings related to the satisfaction or partial satisfaction of performance obligations during 2024 exceeding the revenue recognized (primarily on the F-35 program at Aeronautics).

Contract assets increased $ 44 million during 2025.

There were no significant credit or impairment losses related to our contract assets during 2025 and 2024.

We expect to bill our customers for the majority of the December 31, 2025 contract assets during 2026.

Contract liabilities increased $ 605 million during 2024, primarily due to payments received in excess of revenue recognized on these performance obligations.

Contract liabilities increased $ 1.6 billion during 2025, primarily due to payments received in excess of revenue recognized on these performance obligations (primarily on the C-130 and F-35 programs at Aeronautics and Sikorsky at RMS).

During 2025, we recognized $ 6.3 billion of our contract liabilities at December 31, 2024 as revenue.

9 unchanged sentences

These advanced procurement costs are generally incurred in order to enhance our ability to achieve schedule and certain customer milestones.

Pre-contract costs that are initially capitalized in inventory are generally recognized as cost of sales consistent with the transfer of products and

Pre-contract costs that are initially capitalized in inventory are generally recognized as operating costs consistent with the transfer of products and

services to the customer upon the receipt of the anticipated contract.

All other pre-contract costs, including start-up costs, are expensed as incurred.

As of December 31, 2024 and 2023, $ 1.5 billion and $ 989 million of pre-contract costs were included in inventories.

The increase in pre-contract costs as of December 31, 2024 is primarily driven by the classified contracts at our Aeronautics business segment and Sikorsky helicopter programs at our RMS business segment.

As of both December 31, 2025 and 2024, $ 1.5 billion of pre-contract costs (primarily F-35 and classified contracts at our Aeronautics business segment and Sikorsky programs at our RMS business segment) were included in work-in-process inventories.

Note 6 – Property, Plant and Equipment, net

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Total property, plant and equipment, net $ 8,875 $ 8,726

Depreciation expense related to plant and equipment was $ 967 million in 2024, $ 920 million in 2023 and $ 903 million in 2022.

Depreciation expense related to plant and equipment was $ 1.0 billion in 2025, $ 967 million in 2024 and $ 920 million in 2023.

Note 7 – Goodwill and Acquired Intangibles

2 unchanged sentences

Balance at December 31, 2023 $ 196 $ 2,086 $ 6,741 $ 1,776 $ 10,799

Acquisitions — — — 298 298

Other — ( 1 ) ( 29 ) — ( 30 )

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Acquired finite-lived intangible assets are amortized to expense primarily on a straight-line basis over their estimated useful lives.

Amortization expense for acquired finite-lived intangible assets was $ 247 million for both 2024 and 2023 and $ 248 million in 2022.

Amortization expense for acquired finite-lived intangible assets was $ 254 million for 2025 and $ 247 million for both 2024 and 2023.

Estimated future amortization expense is as follows:

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We generally enter into operating lease agreements for facilities, land and equipment.

Our ROU operating lease assets were $ 1.0 billion at December 31, 2024.

Our ROU operating lease assets were $ 976 million at December 31, 2025.

Operating lease liabilities were $ 1.1 billion, of which $ 825 million were classified as noncurrent, at December 31, 2025.

2 unchanged sentences

We recognized operating lease expense of $ 258 million, $ 260 million and $ 273 million in 2025, 2024 and 2023.

In addition, we made cash payments of $ 258 million, $ 267 million and $ 269 million for operating leases in 2024, 2023 and 2022, which are included in cash flows from operating activities in our consolidated statement of cash flows.

In addition, we made cash payments of $ 256 million, $ 258 million and $ 267 million for operating leases in 2025, 2024 and 2023, which are included in cash flows from operating activities in our consolidated statements of cash flows.

Future minimum lease commitments at December 31, 2025 were as follows (in millions):

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Note 9 – Income Taxes

Income before Income Tax Expense

and foreign income before income tax expense are as follows (in millions):

Income before income tax expense:

Total income before income tax expense $ 5,922

Income Tax Provisions

Federal and foreign income tax expense for continuing operations consisted of the following (in millions):

Federal and foreign income tax expense consisted of the following (in millions):

2025 2024 2023

3 unchanged sentences

Total federal income tax expense 785 748 1,071

Foreign income tax expense:

Foreign income tax expense (benefit):

Current 122 120 102

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State income taxes are allowable costs in establishing prices for the products and services we sell to the U.S.

Therefore, state income tax expenses are included in our cost of sales, as general and administrative costs.

Therefore, state income tax expenses are included in operating costs and expenses.

As a result, the impact of certain transactions on our operating profit and of other matters presented in these consolidated financial statements is disclosed net of state income taxes.

A reconciliation of the U.S.

federal statutory income tax expense to actual income tax expense for continuing operations is as follows (in millions):

2024 2023 2022

Amount Rate Amount Rate Amount Rate

federal statutory income tax expense to actual income tax expense is as follows (in millions):

Income tax expense at the U.S.

federal statutory tax rate $ 1,244 21.0 %

Research and development tax credit ( 187 ) ( 3.2 )

Effects of cross-border tax laws ( 97 ) ( 1.6 )

Changes in unrecognized tax benefits

Research and development tax credit ( 142 ) ( 2.4 )

Settlement with tax authorities 110 1.9

Other ( 48 ) ( 0.7 )

Foreign tax effects 72 1.2

Tax deductible dividends ( 68 ) ( 1.1 )

Other adjustments 21 0.2

Income tax expense $ 905 15.3 %

A reconciliation of the U.S.

federal statutory income tax expense to actual income tax expense is as follows (in millions):

Amount Rate Amount Rate

Income tax expense at the U.S.

federal statutory tax rate

$ 1,306 21.0 % $ 1,701 21.0 %

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(a) Other, net includes foreign income tax expenses for all years.

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.

Income Tax Payments

The income taxes paid by jurisdiction consisted of the following (in millions):

Federal $ 644

Total income taxes paid $ 788

Our federal and foreign income tax payments, net of refunds, were $ 788 million in 2025, $ 1.3 billion in 2024 and $ 1.8 billion in 2023.

Uncertain Tax Positions

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As of December 31, 2025, our liabilities associated with uncertain tax positions were $ 52 million compared to $ 229 million as of December 31, 2024.

The increase in uncertain tax positions did not have a material impact to our effective tax rate and if these uncertain tax positions were to be recognized in future periods, the impact will not be material.

As of December 31, 2022, our liabilities associated with uncertain tax positions were $ 1.6 billion.

The decrease from 2022 to 2023 with a corresponding decrease to net deferred tax assets primarily resulted from our analysis of IRS Notice 2023-63 released on September 8, 2023 confirming that certain expenditures incurred in the performance of cost-type contracts are not subject to research and development capitalization.

The reduction in uncertain tax positions did not have a material impact to our effective tax rate.

The decrease was primarily attributable to the favorable resolution of certain federal income tax audit items with the IRS as discussed below.

This uncertain tax position, if recognized, would have an immaterial impact to our effective tax rate.

During the second quarter of 2025, the IRS issued a Notice of Proposed Adjustment (NOPA) dated May 20, 2025 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.

Additionally, we recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax expense.

7 unchanged sentences

Research and development expenditures 1,200 1,643

Domestic company operating losses (a)

Foreign company operating losses and credits 6 19

Domestic company operating losses and credits (a)

Valuation allowance ( 60 ) ( 41 )

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Net deferred tax assets $ 2,957 $ 3,533

(a) Federal net operating losses obtained in the Terran Orbital transaction described above which do not expire.

(b) Includes deferred tax assets and liabilities related to lease liability and ROU asset.

(a) Federal net operating losses do not expire.

Includes foreign tax credit carryforward for 2025.

(b) Includes deferred tax assets and liabilities related to lease liabilities and ROU assets.

We and our subsidiaries file federal income tax returns in the U.S.

and income tax returns in various foreign jurisdictions.

With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examination for the years before 2016 with respect to various foreign jurisdictions and before 2018 for federal income taxes in the U.S.

We withdrew from the IRS Compliance Assurance Process (CAP) program in 2022 starting with our 2021 tax return.

Examinations of the years 2018 to 2021 remain under IRS review.

With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examination for the years

before 2018 with respect to various foreign jurisdictions and federal income taxes in the U.S.

We are also subject to taxation in various states and foreign jurisdictions including Australia, Canada, India, Italy, Japan, Poland, and the United Kingdom.

We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities.

Our federal and foreign income tax payments, net of refunds, were $ 1.3 billion in 2024, $ 1.8 billion in 2023 and $ 1.6 billion in 2022.

Note 10 – Debt

3 unchanged sentences

5.10 % due 2027

4.45 % due 2028

4.50 % due 2029

4.45 % and 4.15 % due 2028

4.50 % due 2029

1.85 % and 4.40 % due 2030

4.70 % due 2031

2 unchanged sentences

4.75 % and 4.80 % due 2034

3.60 % due 2035

3.60 % and 5.00 % due 2035

4.50 % and 6.15 % due 2036

4.07 % due 2042

15 unchanged sentences

Long-term debt, net $ 20,532 $ 19,627

Revolving Credit Facility

On August 24, 2022, we entered into a new Revolving Credit Agreement (the Revolving Credit Agreement) with various banks.

The Revolving Credit Agreement consists of a $ 3.0 billion five-year unsecured revolving credit facility, with the option to increase the credit facility by an additional amount of up to $ 500 million (for an aggregate amount of up to $ 3.5 billion), subject to the existing lender approval per the terms and conditions of the agreement.

Effective August 23, 2024, we amended the Revolving Credit Agreement to extend the expiration date of the Revolving Credit Agreement from August 24, 2028 to August 24, 2029 and removed the existing financial maintenance covenant.

Revolving Credit Facilities

On December 5, 2025, we entered into a new unsecured 364 -Day Revolving Credit Agreement (the 364 -Day Revolving Credit Agreement), which provides for a revolving credit facility of $ 3.0 billion.

The 364 -Day Revolving Credit Agreement matures on December 4, 2026, however, we may elect to convert the entire outstanding balance into a term loan for an additional one-year , payable on December 4, 2027.

The 364 -Day Revolving Credit Agreement is available for any of our lawful corporate purposes, including the support of commercial paper borrowings.

There were no borrowings under the 364 -Day Revolving Credit Agreement at December 31, 2025.

On August 24, 2022, we entered into a Revolving Credit Agreement (the Revolving Credit Agreement) with various banks which provides for a $ 3.0 billion five-year unsecured revolving credit facility.

Effective August 28, 2025, we amended the Revolving Credit Agreement to extend the expiration date of the Revolving Credit Agreement from August 24, 2029 to

August 24, 2030.

The Revolving Credit Agreement is available for any of our lawful corporate purposes, including supporting commercial paper borrowings.

Borrowings under the Revolving Credit Agreement are unsecured and bear interest at rates set forth in the Revolving Credit Agreement.

The Revolving Credit Agreement contains customary representations, warranties and covenants, including covenants restricting ours and certain of our subsidiaries’ ability to encumber assets and our ability to merge or consolidate with another entity.

There were no borrowings under the Revolving Credit Agreement at December 31, 2025 and 2024.

As of December 31, 2024 and 2023, we were in compliance with all covenants contained in the Revolving Credit Agreement as well as in our debt agreements.

Commercial Paper

2 unchanged sentences

There were no commercial paper borrowings outstanding as of December 31, 2025.

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

All of our commercial paper borrowings had maturities less than three months from the date of issuance.

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

Long Term Debt

On December 11, 2024, we issued a total of $ 1.0 billion of senior unsecured notes, consisting of $ 600 million aggregate principal amount of 4.70 % Notes due December 15, 2031 (the 2031 Notes) and $ 400 million aggregate principal amount of 5.20 % Notes due February 15, 2055 (the 2055 Notes together with 2031 Notes, the Notes).

On July 23, 2025, we issued a total of $ 2.0 billion of senior unsecured notes, consisting of $ 500 million aggregate principal amount of 4.15 % Notes due 2028 (2028 Notes), $ 750 million aggregate principal amount of 4.40 % Notes due 2030 (2030 Notes) and $ 750 million aggregate principal amount of 5.00 % Notes due 2035 (2028 Notes and, together with the 2030 Notes and 2035 Notes, the Notes).

Net proceeds of $ 1,985 million were received from the offering after deducting pricing discounts and debt issuance costs, which are being amortized and recorded as interest expense over the term of the Notes.

We will pay interest on the Notes semi-annually in arrears on February 15 and August 15 of each year with the first payment to be made on February 15, 2026.

We may, at our option, redeem the Notes of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100 % of the principal amount of the Notes to be redeemed or an applicable make-whole amount, plus accrued and unpaid interest to the date of redemption.

The Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

The 2055 Notes were issued as additional notes under the indenture pursuant to the initial 2055 Notes and have the same terms as the initial 2055 Notes other than the date of issuance and the issue price.

1 unchanged sentence

Net proceeds of $ 990 million were received from the offering after deducting pricing discounts and debt issuance costs, excluding accrued interest on the 2055 Notes.

The pricing discounts and debt issuance costs are being amortized and recorded as interest expense over the term of the Notes.

We will pay interest on the 2031 Notes semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2025.

We will pay interest on the 2055 notes semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2025.

The Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

The pricing discounts and debt issuance costs are being amortized and recorded as interest expense over the term of the More Recent Notes.

We will pay interest on the 2031 Notes semi-annually in arrears on June 15 and December 15 of each year, with the first payment made on June 15, 2025.

We will pay interest on the 2055 notes semi-annually in arrears on February 15 and August 15 of each year, with the first payment made on February 15, 2025.

We may, at our option, redeem the More Recent Notes of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100 % of the principal amount of the More Recent Notes to be redeemed or an applicable make-whole amount, plus accrued and unpaid interest to the date of redemption.

The More Recent Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

On January 29, 2024, we issued a total of $ 2.0 billion of senior unsecured notes, consisting of $ 650 million aggregate principal amount of 4.50 % Notes due 2029 (the 2029 Notes), $ 600 million aggregate principal amount of 4.80 % Notes due 2034 (the 2034 Notes) and $ 750 million aggregate principal amount of 5.20 % Notes due 2064 (the 2064 Notes and, together with the 2029 Notes and 2034 Notes, the Recent Notes).

Net proceeds of $ 1.98 billion were received from the offering after deducting pricing discounts and debt issuance costs, which are being amortized and recorded as interest expense over the term of the Recent Notes.

We pay interest on the Notes semi-annually in arrears on February 15 and August 15 of each year with the first payment made on August 15, 2024.

We pay interest on the Recent Notes semi-annually in arrears on February 15 and August 15 of each year with the first payment made on August 15, 2024.

We may, at our option, redeem the Recent Notes of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100 % of the principal amount of the Recent Notes to be redeemed or an applicable make-whole amount, plus accrued and unpaid interest to the date of redemption.

The Recent Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

On May 25, 2023, we issued a total of $ 2.0 billion of senior unsecured notes, consisting of $ 500 million aggregate principal amount of 4.45 % Notes due May 15, 2028 (the 2028 Notes), $ 850 million aggregate principal amount of 4.75 % Notes due February 15, 2034 (the 2034 Notes) and $ 650 million aggregate principal amount of 5.20 % Notes due February 15, 2055 (the initial 2055 Notes and, together with the 2028 Notes and 2034 Notes, the Earlier Notes) in a registered public offering.

Net proceeds of $ 1,975 million were received from the offering after deducting pricing discounts and debt issuance costs, which are being amortized and recorded as interest expense over the term of the Earlier Notes.

We paid interest on the 2028 Notes semi-annually in arrears on May 15 and November 15 with the first payment made on November 15, 2023.

Additionally, we pay interest on the 2034 Notes and the initial 2055 Notes on February 15 and August 15 of each year with the first payment made on August 15, 2023.

We may, at our option, redeem the Earlier Notes of any series in whole or in part at any time and from time to time at a redemption price equal to the greater of 100 % of the principal amount of the Earlier Notes to be redeemed or an applicable make-whole amount, plus accrued and unpaid interest to the date of redemption.

The Earlier Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

We made interest payments of approximately $ 950 million, $ 832 million and $ 573 million during the years ended December 31, 2024, 2023 and 2022.

Note 11 – Postretirement Benefit Plans

We made interest payments of approximately $ 1.0 billion, $ 950 million and $ 832 million during the years ended December 31, 2025, 2024 and 2023.

Note 11 – Retirement Benefits

Plan Descriptions

Many of our employees and retirees participate in various postretirement benefit plans including defined benefit pension, retiree medical and life insurance, defined contribution retirement savings, and other postemployment plans.

Substantially all of our postretirement benefit obligations relate to U.S.

Many of our employees and retirees participate in various retirement benefit plans including defined benefit pension, retiree medical and life insurance, disability insurance, and defined contribution retirement savings plans.

Substantially all of our retirement benefit obligations relate to U.S.

based defined benefit pension plans and retiree medical and life insurance plans.

6 unchanged sentences

Over the last few years, we have negotiated similar changes with various labor organizations such that new union represented employees do not participate in our defined benefit pension plans.

Our defined benefit pension plans for salaried employees were fully frozen effective January 1, 2020, at which time such employees no longer earn additional benefits under the defined benefit pension plans and were transitioned to a defined contribution retirement savings plan.

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.

Qualified Defined Benefit Pension Plans and Retiree Medical and Life Insurance Plans

FAS Income (Expense)

The pretax FAS income (expense) related to our qualified defined benefit pension plans and retiree medical and life insurance plans included the following (in millions):

FAS (Expense) Income

The pretax FAS (expense) income related to our qualified defined benefit pension plans and retiree medical and life insurance plans included the following (in millions):

Qualified Defined

6 unchanged sentences

Expected return on plan assets 1,439 1,572 1,722 105 107 103

Amortization of net actuarial (losses) gains ( 259 ) ( 168 ) ( 425 ) 35 31 46

Amortization of prior service credits (costs) 147 348 359 ( 4 ) ( 10 ) ( 27 )

Settlement charge (a)

— — ( 1,470 ) — — —

Non-service FAS income (expense) 62 443 ( 971 ) 75 56 106

Total FAS income (expense) $ 2 $ 378 $ ( 1,058 ) $ 70 $ 51 $ 97

(a) During 2022, we recognized a settlement charge of $ 1.5 billion related to the accelerated recognition of actuarial losses for certain defined benefit pension plans that purchased group annuity contracts from an insurance company.

We record the service cost component of FAS income (expense) for our qualified defined benefit pension plans and retiree medical and life insurance plans in the cost of sales accounts;

the non-service components of our FAS income (expense) for our qualified defined benefit pension plans in the non-service FAS pension income (expense) account;

Amortization of actuarial (losses) gains ( 313 ) ( 259 ) ( 168 ) 49 35 31

Amortization of prior service (costs) credits ( 49 ) 147 348 — ( 4 ) ( 10 )

Settlement charge ( 479 ) — — — — —

Non-service FAS (expense) income ( 874 ) 62 443 96 75 56

Total FAS (expense) income $ ( 924 ) $ 2 $ 378 $ 93 $ 70 $ 51

We record the service cost component of FAS (expense) income for our qualified defined benefit pension plans and retiree medical and life insurance plans in consolidated operating profit;

the non-service components of our FAS (expense) income for our qualified defined benefit pension plans in the non-service FAS pension (expense) income account;

and the non-service components of our FAS income (expense) for our retiree medical and life insurance plans as part of the other non-operating income (expense), net account on our consolidated statements of earnings.

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(a) Benefit obligation balances represent the projected benefit obligation for our qualified defined benefit pension plans, which is approximately equal to accumulated benefit obligation, and accumulated benefit obligation for our retiree medical and life insurance plans.

(b) Actuarial gains for our qualified defined benefit pension plans in 2024 primarily reflect an increase in the discount rate from 5.00 % at December 31, 2023 to 5.625 % at December 31, 2024, which decreased benefit obligations by approximately $ 1.8 billion offset by net losses of approximately $ 250 million due to changes in demographic data and assumptions.

(b) Actuarial losses for our qualified defined benefit pension plans in 2025 primarily reflect a decrease in the discount rate from 5.625 % at December 31, 2024 to 5.375 % at December 31, 2025, which increased benefit obligations by approximately $ 700 million.

Actuarial losses for our retiree medical and life insurance plans in 2025 primarily reflect a decrease in the discount rate from 5.50 % at December 31, 2024 to 5.25 % at December 31, 2025.

Actuarial gains for our qualified defined benefit pension plans in 2024 primarily reflect an increase in the discount rate from 5.00 % at December 31, 2023 to 5.625 % at December 31, 2024, which decreased benefit obligations by approximately $ 1.8 billion offset by net losses of approximately $ 250 million due to changes in demographic data and assumptions.

Actuarial gains for our retiree medical and life insurance plans in 2024 primarily reflect an increase in the discount rate from 5.00 % at December 31, 2023 to 5.50 % at December 31, 2024 and gains due to changes in demographic data and assumptions.

Actuarial losses for our qualified defined benefit pension plans in 2023 primarily reflect a decrease in the discount rate from 5.25 % at December 31, 2022 to 5.00 % at December 31, 2023, which increased benefit obligations by approximately $ 765 million.

Actuarial losses for our retiree medical and life insurance plans in 2023 reflect a decrease in the discount rate from 5.25 % at December 31, 2022 to 5.00 % at December 31, 2023.

(c) Qualified defined benefit pension plans settlements in 2023 include $ 414 million in the form of lump-sum settlement payments to former employees who had not commenced receiving their vested benefit payments.

The settlement payments had no impact on year 2023 FAS pension income.

(c) Qualified defined benefit pension plan settlements in 2025 represent the transfer of gross defined benefit pension obligations and related plan assets to insurance companies as described above.

(d) Actual return on plan assets for our qualified defined benefit pension plans was approximately 10.5 % in 2025 and 1 % in 2024 versus the 6.50 % long-term rate of return assumption.

We are required to recognize the net funded status of each postretirement benefit plan on a standalone basis as either an asset or a liability on our consolidated balance sheet.

We are required to recognize the net funded status of each retirement plan on a standalone basis as either an asset or a liability on our consolidated balance sheet.

The funded status is measured as the difference between the fair value of each plan’s assets and the benefit obligation.

Each year we measure the fair value of each plan’s assets and benefit obligation on December 31, consistent with our fiscal year end.

The fair value of each plan’s benefit obligation reflects assumptions in effect as of the measurement date as described below.

Each plan’s benefit obligation reflects assumptions in effect as of the measurement date as described below.

For certain of our qualified defined benefit pension plans and retiree medical and life insurance plans the plan assets may exceed the benefit obligation, for which we recognize the net amount as an asset on our consolidated balance sheet.

8 unchanged sentences

Net (unfunded) funded status of the plans $ ( 3,885 ) $ ( 4,785 ) $ 666 $ 564

Differences between the actual return and expected return on plan assets during the year, and changes in the benefit obligation for our qualified defined benefit pension plans and retiree medical and life insurance plans due to changes in the annual valuation assumptions, generate actuarial gains or losses.

Additionally, the benefit obligation for our qualified defined benefit pension plans and retiree medical and life insurance plans may increase or decrease as a result of plan amendments that affect the benefits to plan participants related to service for periods prior to the effective date of the amendment, which generates prior service costs or credits.

Actuarial gains or losses, and prior service costs or credits, are initially deferred in accumulated other comprehensive loss and subsequently amortized for each plan into income or (expense) on a straight-line basis either over the average remaining life expectancy of plan participants or over the average remaining service period of plan participants, subject to certain thresholds.

The following table provides the amount of actuarial gains or losses, and prior service costs or credits, recognized in accumulated other comprehensive loss related to qualified defined benefit pension plans and retiree medical and life insurance plans at December 31 (in millions):

Actuarial losses or gains, and prior service costs or credits, are initially deferred in accumulated other comprehensive loss and subsequently amortized for each plan into (expense) or income on a straight-line basis either over the average remaining life expectancy or over the average remaining service period of plan participants, subject to certain thresholds.

The following table provides the amount of actuarial losses or gains, and prior service costs or credits, recognized in accumulated other comprehensive loss related to qualified defined benefit pension plans and retiree medical and life insurance plans at December 31 (in millions):

Qualified Defined

3 unchanged sentences

Accumulated other comprehensive (loss) pre-tax related to:

Net actuarial (losses) gains $ ( 10,469 ) $ ( 10,999 ) $ 518 $ 416

Actuarial (losses) gains $ ( 9,549 ) $ ( 10,469 ) $ 526 $ 518

Prior service (costs) credits ( 120 ) ( 164 ) 2 2

2 unchanged sentences

Net amount recognized in accumulated other comprehensive (loss) $ ( 7,621 ) $ ( 8,378 ) $ 416 $ 410

The following table provides the changes recognized in accumulated other comprehensive loss, net of tax, for actuarial gains or losses and prior service costs or credits due to differences between the actual return and expected return on plan assets and changes in the fair value of the benefit obligation recognized in connection with our annual remeasurement and the amortization during the year for our qualified defined benefit pension plans, retiree medical and life insurance plans, and certain other plans (in millions):

The following table provides the changes recognized in accumulated other comprehensive loss, net of tax, for actuarial losses or gains and prior service costs or credits due to differences between the actual return and expected return on plan assets and changes in the fair value of the benefit obligation recognized in connection with our annual remeasurement and the amortization during the year for our qualified defined benefit pension plans, retiree medical and life insurance plans, and certain other plans (in millions):

Incurred but Not Yet

3 unchanged sentences

2025 2024 2023 2025 2024 2023

Actuarial gains and (losses)

Actuarial (losses) and gains

Qualified defined benefit pension plans $ 99 $ 211 $ ( 698 ) $ ( 623 ) $ ( 204 ) $ ( 133 )

2 unchanged sentences

103 342 ( 684 ) ( 595 ) ( 188 ) ( 116 )

Net prior service credit and (cost)

Prior service (costs) and credits

Qualified defined benefit pension plans ( 4 ) ( 2 ) ( 5 ) ( 39 ) 116 274

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

Our wholly owned subsidiary, Lockheed Martin Investment Management Company (LMIMCo), has the fiduciary responsibility for making investment decisions related to the assets of our postretirement benefit plans.

The actual investment return for our qualified defined benefit pension plans during 2025 was approximately 10.5 %.

LMIMCo’s investment objectives for the assets of these plans are (1) to minimize the net present value of expected funding contributions;

6 unchanged sentences

and the maintenance of sufficient liquidity to meet benefit obligations as they come due.

LMIMCo’s investment policies require that asset allocations of postretirement benefit plans be maintained within the following approximate ranges:

LMIMCo’s investment policies require that asset allocations be maintained within the following approximate ranges:

Asset Class Asset Allocation

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Most derivative transactions are settled on a daily basis.

(b) Fixed income securities include (i) derivative exposure for the liability hedge, which constitutes most of the value in interest rate swaps, and (ii) other derivative exposure with fair values that were not material as of December 31, 2024 and 2023.

(c) Level 3 investments include 1.0 billion at December 31, 2024 and $ 1.1 billion at December 31, 2023 related to buy-in contracts.

(b) Fixed income securities include (i) derivative exposure for the liability hedge, which constitutes the value in interest rate swaps, and (ii) other derivative exposure with fair values that were not material as of December 31, 2025 and 2024.

Interest rate swaps were refreshed to market levels and cumulative loss was realized.

In 2025, $ 1.9 billion of cash was used to settle market-to-market loss.

(c) Level 3 investments include $ 0 at December 31, 2025 and $ 1.0 billion at December 31, 2024 related to buy-in contracts.

The decrease in fair value of plan assets categorized as Level 3 in 2025 compared to 2024 was primarily due to the conversion of buy-in contracts to buy-out.

(d) The Lockheed Martin Corporation Master Retirement Trust (MRT) obtained a loan from a third-party financial institution, collateralized by private equity investments, to invest in fixed income securities.

Changes in the fair value of plan assets categorized as Level 3 during 2024 and 2023 were not significant.

Cash equivalents are mostly comprised of short-term money-market instruments or short-term investment funds and are valued at cost, which approximates fair value.

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We sponsor nonqualified defined benefit pension plans to provide benefits in excess of qualified plan limits imposed by federal tax law.

The gross benefit obligation for these plans was $ 905 million and $ 1.0 billion as of December 31, 2024 and 2023, most of which was recorded in the other noncurrent liabilities account on our consolidated balance sheet.

The gross benefit obligation for these plans was $ 903 million and $ 905 million as of December 31, 2025 and 2024, most of which was recorded in the other noncurrent liabilities account on our consolidated balance sheet.

We have set aside certain assets totaling $ 739 million and $ 658 million as of December 31, 2025 and 2024 in a separate trust that we expect to use to pay the benefit obligations under our nonqualified defined benefit pension plans, most of which were recorded in the other noncurrent assets account on our consolidated balance sheet.

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Defined Contribution Retirement Savings Plans

We maintain a number of defined contribution retirement savings plans, most with 401(k) features, that cover substantially all of our employees.

We maintain a number of defined contribution retirement savings plans, most with 401(k) features, that cover substantially all of our U.S.

Under the provisions of these plans, employees can make contributions on a before-tax and after-tax basis to investment funds to save for retirement.

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Plan participants can transfer from the ESOP fund into any investment option provided by the respective plan.

Our contributions to defined contribution retirement savings plans were $ 1.2 billion in both 2024 and 2023.

Our contributions to defined contribution retirement savings plans were $ 1.3 billion and $ 1.2 billion in 2025 and 2024.

Our defined contribution retirement savings plans held 23.5 million and 24.9 million shares of our common stock at December 31, 2025 and 2024.

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During 2025, we repurchased 6.6 million shares of our common stock in open market purchases for $ 3.0 billion.

During 2023, we repurchased 13.4 million shares of our common stock for $ 6.0 billion pursuant to accelerated share repurchase (ASR) agreements and open market purchases.

We also retired an additional 1.5 million shares received for no additional consideration in the first quarter of 2023 upon final settlement of an ASR agreement executed in the fourth quarter of 2022.

During 2024, we repurchased 7.5 million shares of our common stock for $ 3.7 billion in open market purchases.

The total remaining authorization for future common stock repurchases under our share repurchase program was $ 8.3 billion as of December 31, 2025, which includes the $ 2.0 billion increase to our share repurchase program authorized by our Board of Directors in October 2025 .

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Changes in the balance of AOCL, net of taxes, consisted of the following (in millions):

Postretirement

Benefit Plans (a)

Other, net AOCL

Balance at December 31, 2022 $ ( 7,866 ) $ ( 157 ) $ ( 8,023 )

Other comprehensive income (loss) before reclassifications 1,873 ( 159 ) 1,714

Other comprehensive (loss) income before reclassifications ( 689 ) 23 ( 666 )

Amounts reclassified from AOCL

Pension settlement charge (b)

1,156 — 1,156

Recognition of net actuarial losses 116 — 116

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Total reclassified from AOCL ( 149 ) 35 ( 114 )

Total other comprehensive income (loss) 3,098 ( 115 ) 2,983

Total other comprehensive (loss) income ( 838 ) 58 ( 780 )

Balance at December 31, 2023 ( 8,704 ) ( 99 ) ( 8,803 )

Other comprehensive (loss) income before reclassifications ( 689 ) 23 ( 666 )

Other comprehensive income (loss) before reclassifications 340 ( 104 ) 236

Amounts reclassified from AOCL

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Total reclassified from AOCL 76 39 115

Total other comprehensive (loss) income ( 838 ) 58 ( 780 )

Total other comprehensive income (loss) 416 ( 65 ) 351

Balance at December 31, 2024 ( 8,288 ) ( 164 ) ( 8,452 )

Other comprehensive income (loss) before reclassifications

340 ( 104 ) 236

Other comprehensive income before reclassifications

Amounts reclassified from AOCL

Pension settlement charge (b)

Recognition of net actuarial losses

Amortization of net prior service credits

( 112 ) — ( 112 )

Amortization of net prior service costs

Other — 50 50

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Balance at December 31, 2025 $ ( 7,555 ) $ 13 $ ( 7,542 )

(a) AOCL related to postretirement benefit plans is shown net of tax benefits of $ 2.2 billion at December 31, 2024, $ 2.3 billion at December 31, 2023 and $ 2.1 billion at December 31, 2022.

(a) AOCL related to retirement benefits is shown net of tax benefits of $ 2.0 billion at December 31, 2025, $ 2.2 billion at December 31, 2024 and $ 2.3 billion at December 31, 2023.

These tax benefits include amounts recognized on our income tax returns as current deductions and deferred income taxes, which will be recognized on our tax returns in future years.

See “Note 9 – Income Taxes” and “Note 11 – Postretirement Benefit Plans” for more information on our income taxes and postretirement benefit plans.

(b) During 2022, we recognized a noncash, non-operating pension settlement charge of $ 1.5 billion ($ 1.2 billion, or $ 4.33 per share, after-tax) related to the accelerated recognition of actuarial losses included in AOCL for certain defined benefit pension plans that purchased a group annuity contract from an insurance company (see “Note 11 – Postretirement Benefit Plans”).

See “Note 9 – Income Taxes” and “Note 11 – Retirement Benefits” for more information.

(b) During 2025, we recognized a noncash, non-operating pension settlement charge of $ 479 million ($ 377 million, or $ 1.63 per share, after-tax) related to buy-out conversions of group annuity contracts (see “Note 11 – Retirement Benefits”).

Note 13 – Stock-Based Compensation

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As of December 31, 2025, we had $ 349 million of unrecognized compensation cost related to nonvested awards, which is expected to be recognized over a weighted average period of 1.8 years.

We received zero cash from the exercise of stock options during both 2024 and 2023 and $ 8 million during and 2022.

We had no stock options outstanding or exercised during 2025, 2024, or 2023, and accordingly received zero cash from option exercises in those three years.

In addition, our income tax liabilities for 2025, 2024 and 2023 were reduced by $ 70 million, $ 67 million and $ 78 million due to recognized tax benefits on stock-based compensation arrangements.

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Our assessment of these factors may change over time as individual proceedings or claims progress.

Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable possibility that a loss may have been incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made.

Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable possibility that a loss may be incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made.

We follow a thorough process in which we seek to estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and disclose that an estimate cannot be made.

Accordingly, unless otherwise indicated below in our discussion of legal proceedings, a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.

Securities-Related Actions

On July 28, 2025, a putative class action was filed—and subsequently amended on January 12, 2026—in United States District Court for the Southern District of New York against us and certain current and former members of our senior management.

The shareholder plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (Exchange Act), on behalf of persons and entities that purchased or otherwise acquired our securities between January 23, 2024 and July 21, 2025.

Plaintiffs seek unspecified losses allegedly caused by alleged misstatements about certain classified programs in the Aeronautics and MFC business segments and F-35 program, which were allegedly revealed to be false when we announced estimated losses relating to certain of those programs.

In addition, based on allegations substantially similar to the above-described securities class action, on September 11, 2025, a shareholder derivative complaint was filed in the United States District Court for the District of Maryland against current and former members of our Board of Directors and senior management.

We are named as a nominal defendant.

The derivative complaint asserts claims under Sections 14(a), 20(a), and 10(b) of the Exchange Act, as well as claims for breach of fiduciary duty, abuse of control, gross mismanagement, corporate waste, unjust enrichment, and contribution.

Based on the information available to date, we do not believe that these matters will have a material adverse effect on our results of operations, financial condition, or liquidity.

Lockheed Martin v.

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Environmental Matters

We are involved in proceedings and potential proceedings relating to soil, sediment, surface water, and groundwater contamination, disposal of hazardous substances, and other environmental matters at several of our current or former facilities, facilities for which we may have contractual responsibility, and at third-party sites where we have been designated as a potentially responsible party (PRP).

A substantial portion of environmental costs will be included in our net sales and cost of sales in future periods pursuant to U.S.

Government regulations.

Government, 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, and our history of receiving reimbursement of such costs.

We include the portions of those environmental costs expected to be allocated to our non-U.S.

Government contracts, or determined not to be recoverable under U.S.

Government contracts, in our cost of sales at the time the liability is established or adjusted.

At December 31, 2024 and 2023, the aggregate amount of liabilities recorded relative to environmental matters was $ 677 million and $ 680 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets.

We have recorded assets for the portion of environmental costs that are probable of future recovery totaling $ 619 million and

$ 613 million at December 31, 2024 and 2023, most of which are recorded in other noncurrent assets on our consolidated balance sheets.

We are involved in proceedings and potential proceedings relating to soil, sediment, surface water, and groundwater contamination, disposal of hazardous substances, and other environmental matters at several of our current or former facilities, other facilities for which we may have contractual responsibility, and at third-party sites where we have been designated as a potentially responsible party (PRP).

These proceedings could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief.

At December 31, 2025 and 2024, the aggregate amount of liabilities recorded relative to environmental remediation matters was $ 659 million and $ 677 million, most of which are recorded in other noncurrent liabilities on our consolidated balance sheets.

We have recorded assets for the portion of environmental costs that are probable of future recovery totaling $ 605 million and $ 619 million at December 31, 2025 and 2024, most of which are recorded in other noncurrent assets on our consolidated balance sheets.

See “Note 1 – Organization and Significant Accounting Policies” for more information.

Environmental remediation activities usually span many years, which makes estimating liabilities a matter of judgment because of uncertainties with respect to assessing the extent of the contamination as well as such factors as changing remediation technologies and changing regulatory environmental standards.

We are monitoring or investigating a number of former and present operating facilities for potential future remediation.

We are monitoring or investigating a number of former and presently operating facilities for potential future remediation.

We perform quarterly reviews of the status of our environmental remediation sites and the related liabilities and receivables.

Additionally, in our quarterly reviews, we consider these and other factors in estimating the timing and amount of any future costs that may be required for remediation activities, and we record a liability when it is probable that a loss has occurred or will occur for a particular site and the loss can be reasonably estimated.

The amount of liability recorded is based on our estimate of the costs to be incurred for remediation for that 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.

We cannot reasonably determine the extent of our financial exposure in all cases as, although a loss may be probable or reasonably possible, in some cases it is not possible at this time to estimate the reasonably possible loss or range of loss.

Additionally, in our quarterly reviews, we consider various factors in estimating the timing and amount of any future costs that may be required for remediation activities, as we cannot reasonably determine the extent of our financial exposure in all cases.

We project costs and recovery of costs over approximately 20 years.

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In addition to the proceedings and potential proceedings discussed above, potential new regulations concerning perchlorate and hexavalent chromium at the federal and state level could increase our cleanup costs.

If substantially lower cleanup standards are adopted for perchlorate or hexavalent chromium, we expect a material increase in both our estimates for environmental liabilities and the related assets for the portion of costs that are probable of future recovery.

The amount that would be allocable to our non-U.S.

Government contracts or that is determined not to be recoverable under U.S.

Government contracts would be expensed, which may have a material effect on our earnings in any particular interim reporting period.

We also are evaluating the potential impact of new, existing, and contemplated requirements addressing a class of chemicals known generally as per- and polyfluoroalkyl substances (PFAS).

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Regulations requiring very low PFAS contaminant levels in drinking water could eventually lead to increased cleanup costs at a number of our environmental remediation sites.

Letters of Credit, Surety Bonds and Third-Party Guarantees

If regulations require substantially more stringent clean-up levels of perchlorate or hexavalent chromium or increased cleanup costs at our sites associated with PFAS, we expect a corresponding increase in both our estimates for environmental liabilities and the related assets for the portion of costs that are probable of future recovery.

The portion of those costs that is not expected to be recoverable under U.S.

Government contracts would be expensed in the quarter in which the liability becomes probable.

Letters of Credit and Surety Bonds

We have entered into standby letters of credit and surety bonds issued on our behalf by financial institutions, and we have directly issued guarantees to third parties primarily relating to advances received from customers and the guarantee of future performance on certain contracts.

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We had total outstanding letters of credit and surety bonds aggregating $ 3.5 billion and $ 2.7 billion at December 31, 2025 and December 31, 2024.

Third-party guarantees do not include guarantees issued on behalf of subsidiaries and other consolidated entities.

Additionally, we may guarantee the contractual performance of third parties such as joint venture partners.

At December 31, 2024 and 2023, third-party guarantees totaled $ 351 million and $ 1.0 billion, of which approximately 30 % and 75 % related to guarantees of contractual performance of joint ventures to which we currently are or previously were a party.

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

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.

Third-party guarantees do not include guarantees issued on behalf of subsidiaries and other consolidated entities.

In determining our exposures, we evaluate the reputation, performance on contractual obligations, technical capabilities and credit quality of our current and former joint venture partners and the transferee under novation agreements all of which include a guarantee as required by the FAR.

At December 31, 2024 and 2023, there were no material amounts recorded in our financial statements related to third-party guarantees or novation agreements.

Other Contingencies

On April 22, 2024, the Armed Services Board of Contract Appeals (ASBCA) sustained our claim associated with a contract to modernize and install new engines in C-5 Galaxy aircraft.

The ASBCA ruled that we are entitled to $ 132 million for impacts due to excessive “over and above” work performed under the contract plus interest on the amount since the date of our claim in October 2018.

During the third quarter of 2024, the Department of Justice filed a notice of appeal of the ASBCA’s decision with the U.S.

Court of Appeals for the Federal Circuit and, on the anticipated basis of the Government’s appeal, we recognized approximately $ 85 million of sales and operating profit.

Subsequently, on December 18, 2024, the Government voluntarily dismissed its appeal of the ASBCA’s decision in the U.S.

Court of Appeals for the Federal Circuit.

Following the dismissal, in the fourth quarter of 2024, we recognized the remaining approximately $ 70 million of sales and operating profit and received payment of the full award of approximately $ 155 million, which includes accrued interest, resolving this matter in our favor.

Independent of this matter and as a U.S.

Government contractor, we are subject to various audits and investigations by the U.S.

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Reductions of the value of contracts, contract modifications or terminations, forfeiture of profits, suspension of payments, repayments, fines and penalties could have a material impact on financial condition and results of operations in any particular reporting period, and suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S.

Government investigations often take years to complete and many result in no adverse action against us.

Government investigations often take years to complete and many result in no

adverse action against us.

We also provide products and services to customers outside of the United States, which are subject to U.S.

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Substantially all assets measured at fair value, other than derivatives, represent assets held in a trust to fund certain of our non-qualified deferred compensation plan and are recorded in other noncurrent assets on our consolidated balance sheets.

As of both December 31, 2024 and 2023, the fair value of our assets held in the trust totaled $ 1.8 billion.

As of December 31, 2025 and 2024, the fair value of our assets held in the trust totaled $ 2.0 billion and $ 1.8 billion.

Net gains on these securities were $ 253 million and $ 170 million in 2025 and 2024.

Gains and losses on these investments are included in other unallocated, net within cost of sales on our consolidated statements of earnings in order to align the classification of changes in the market value of investments held for the plan with changes in the value of the corresponding plan liabilities.

Gains and losses on these investments are included in other unallocated, net within operating costs and expenses on our consolidated statements of earnings in order to align the classification of changes in the market value of investments held for the plan with changes in the value of the corresponding plan liabilities.

The fair values of mutual funds and certain other securities are determined by reference to the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs.

The fair values of U.S.

Government and certain other securities are determined using pricing models that use observable inputs (e.g., interest rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers or quoted prices of securities with

similar characteristics.

The fair values of derivative instruments, which consist of foreign currency forward contracts, including embedded derivatives, and interest rate swap contracts, are primarily determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates, credit spreads and foreign currency exchange rates.

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The estimated fair value of our outstanding debt was $ 22.0 billion and $ 20.2 billion at December 31, 2025 and 2024.

The outstanding principal amount of debt, including short-term and long-term debt, was $ 21.6 billion and $ 18.7 billion at December 31, 2024 and 2023, excluding $ 1.3 billion of unamortized discounts and issuance costs at both December 31, 2024 and 2023.

The outstanding principal amount of debt, including short-term and long-term debt, was $ 22.9 billion and $ 21.6 billion at December 31, 2025 and 2024, excluding $ 1.2 billion and $ 1.3 billion of unamortized discounts and issuance costs at December 31, 2025 and 2024.

The estimated fair values of our outstanding debt were determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates and credit spreads (Level 2).

Note 16 – Impairment and Severance Charges

Note 16 – Impairment and Other Charges

During 2025, we recorded charges totaling $ 66 million ($ 52 million, or $ 0.22 per share, after-tax) primarily for the write-off of fixed assets resulting from the U.S.

Air Force’s Next Generation Air Dominance (NGAD) competition and down-select decision.

During 2024, we recorded charges totaling $ 87 million ($ 69 million, or $ 0.29 per share, after-tax) for trademark and fixed asset impairments as well as severance costs resulting from the strategic review of our Sikorsky business during the second quarter of 2024 due, in part, to the impacts of the U.S.

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This action resulted from a review of our business segments and corporate functions and is intended to improve the efficiency of our operations.

During 2022, we recorded severance and other charges totaling $ 100 million ($ 79 million, or $ 0.31 per share, after-tax) related to actions at our RMS business segment, which include severance costs for reduction of positions and asset impairment charges.

After a strategic review of RMS, these actions improved the efficiency of our operations and better aligned the organization and cost structure with changing economic conditions and changes in program lifecycles.

We generally can recover a portion of severance costs through the pricing of our products and services to the U.S.

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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 8. Financial Statements and Supplementary Data