LMT 10-K & 10-Q changes, risk factors and insider trading

An investment in our common stock or debt securities involves risks and uncertainties. While we seek to identify, manage and mitigate risks to our business, risk and uncertainty cannot be eliminated or necessarily predicted. The outcome of one or more of these risks could have a material effect on our operatingresults results,of operations or financial position, or cash flows.position. You should carefully consider the following factors, in addition to the other information contained in this Annual Report on Form 10-K, before deciding to trade in our common stock or debt securities.

We derived 73%72% of our total consolidated net sales from the U.S. Government in 2024,2025, including 65%63% from the Department of War (DoW), also known as the Department of Defense under 10 U.S.C. § 111(DoDa). We expect to continue to derive most of our sales from work performed under U.S. Government contracts. A reduction in overall U.S. defense spending, on an absolute or inflation-adjusted basis, because of shifting priorities, budget compromises or otherwise could adversely affect our business. Budget uncertainty, theextended potentialor forrepeated U.S. Government shutdowns, the use of continuing resolutions, and the federal debt ceiling can adversely affect our industry and both the quantum and timing of funding for our programs. IfWhen appropriations are delayed or a government shutdown were to occuroccurs and continuecontinues for an extended period, we couldmay be at risk of reduced orders, program cancellationscancellations, nonpayment or payment delays and other disruptions and nonpayment.disruptions. When the U.S. Government operates under a continuing resolution, new contract and program starts are restricted and funding for our programs may be unavailable, reduced or delayed.

Failure to fund or the termination of significant programs or contracts by the U.S. Government could adversely affect our business and financial performance. DoD’sDoW’s changes in funding priorities also could reduce opportunities in existing programs and in future programs or initiatives where we intend to compete and where we have made investments. While we wouldgenerally expect to compete and be well positioned as the incumbent on existing programs, we may not be successful and, even if we are successful, the replacement programs may be funded at lower levels or result in lower margins. In addition, our ability to grow in key areas such as hypersonics programs, classified programs and next-generation franchise programs will be affected by the overall budget environment and whether development programs transition to production and the timing of such transition, all of which are dependent on U.S. Government authorization and funding.

The F-35 program, which consists of multiple development, production and sustainment contracts, is our largest program and represented 26%27% of our total consolidated net sales in 2024.2025. A decision by the U.S. Government, international partners, or FMS customer countries to cut spending on this program or reduce or delay planned orders wouldmay have an adverse impact on our business and results of operations. Given the size and complexity of the F-35 program, we anticipate that there will be continual reviews related to aircraft performance, program and delivery schedule, cost, and requirements as part of the DoD,DoW, Congressional, and international countries’ oversight and budgeting processes. Challenges and risks associated with this program include supplier performance, software development, definitizing and receiving funding for contracts on a timely basis, execution of future flight tests and findings resulting from testing and operating the aircraft, the level of cost associated with life cycle operations, sustainment and potential contractual obligations, inflation-related cost pressures, the ability to improve affordability, and potential competition from next-generation or other platforms. SeeWe alsomay “Statusface ofsimilar therisks F-35for Program”other in Management’s Discussioncomplex and Analysistechnologically ofadvanced Financial Condition and Results of Operations for a discussion of the current program status and specific challenges and risks.programs.

We are subject to extensive procurement lawsand other laws, regulations, and regulations,contract terms, including those that enable the U.S. Government to terminate contracts for convenience. Our business and reputation could be adversely affected if we or those we do business with fail to comply with these lawslaws, andregulations, regulations.or terms.

We must comply with extensive laws and regulations relating to the award, administration and performance of U.S. Government contracts. Government contract laws and regulations affect how we do business with our customers and impose certain risks and costs on our business. A violation of these laws and regulations by us, our employees, others working on our behalf, a supplier or a joint venture partner could harm our reputation and result in the imposition of fines and penalties, the termination of our contracts, suspension or debarment from bidding on or being awarded contracts, loss of our ability to export products or perform services and civil or criminal investigations or proceedings. From time to time, the U.S. Government has proposed contract terms, imposed internal policies, or taken positions that represent fundamental changes from historical practices or that we believe are inconsistent with the FAR or other laws and regulations and that could adversely affect our business. In addition, costs to comply with new government regulations and changing policies and practices can increase our costs, reduce our margins and adversely affect our competitiveness. Also, a portion of our contracts are classified by the U.S. Government, which imposes security requirements that limit our ability to discuss our performance on these contracts, including any specific risks, disputes and claims.

Competition and changing customer procurement policies could adversely affect our business and financial results.

We operate in a highly competitive industry and our competitors may have more extensive or more specialized engineering, technical, marketing and servicing capabilities than we do in certain areas. Our competitors may develop new technologies, products or services that could replace our current offerings. Additionally, if competitors can offer lower cost services and products, or provide services or products more quickly, at equivalent or in some cases even reduced capabilities, we may lose new business opportunities or contract recompetes, which could adversely affect our future results. We are facing increased competition from new entrants, startups and non-traditional defense contractors, which may have a lower cost structure or be able to move more quickly in addition to being favored, in certain cases, by procurement policy.contractors. Furthermore, acquisitions in our industry, including vertical integration, also could result in increased competition or limit our access to certain suppliers without appropriate remedies to protect our interests.

A substantial portion of our business is awarded through competitive bidding. The U.S. Government increasingly has relied on competitive contract award types, including indefinite-delivery, indefinite-quantity and other multi-award contracts, which have the potential to create pricing pressure and to increase our costs by requiring us to submit multiple bids and proposals. Multi-award contracts require us to make sustained efforts to obtain task orders under the contract. Additionally, procurements that do not evaluate whether the cost assumptions in the bids are realistic can lead to bidders taking aggressive pricing positions, which could result in the winner realizing a loss upon contract award or an increased risk of lower margins or realizing a loss over the term of the contract. Competitors may be willing to accept more risk or lower profitability in competing for contracts than we are. The U.S. Government also may not award us large competitive contracts that we otherwise might have won in an effort to strengthen a broad industrial base.base or address other procurement policy preferences.

U.S. Government procurement policies and procedures and the application thereof are regularly changing, and such changes could adversely affect our profitability or the ability to win new business. For example, an increase in the use of contract structures that shift risk to the contractor, such as fixed-price development contracts and incentive-based fee arrangements, or the U.S Government using different award fee criteria than historically used (such as the evaluation of environmental factors) could adversely affect our profit rates or make it more difficult to win new contracts. The DoDDoW is increasingly pursuing rapid acquisition pathways and procedures for new technologies, including through so called “other transaction authority” agreements (OTAs). OTAs are exempt from many traditional procurement laws, including the FAR, and an OTA award may be subject, in certain cases, to the condition that a significant portion of the work under the OTA is performed by a non-traditional defense contractor or that a portion of the cost of the protype project is funded by non-governmental sources. Changes in regulations or interpretations of what are allowable costs under our government contracts could adversely impact our profitability and changes in contract financing policy for fixed-price contracts, such as changes in performance and progress payments policies, could significantly affect the timing of our cash flows. Additionally, the DoW has proposed broad-reaching acquisition reforms that, if enacted, could impact our business and results of operations.

Our profitability and cash flow may vary based on the mix of our contracts and programs, our performance, and our ability to estimate and control costs.

Under both fixed-price and cost-reimbursable contracts, if we are unable to control costs, our operating results could be adversely affected. Costs to complete a contract may increase for many reasons, including technical and manufacturing challenges, schedule delays, workforce-related issues, inaccurate initial contract cost estimates, the timeliness and availability of materials from suppliers, internal and subcontractor performance or product quality issues, inability to meet cost reduction initiatives or achieve efficiencies from digital transformation, changing laws or regulations, inflation and natural disasters. Certain contracts may impose other risks, such as temporary payment withholds, forfeiting fees, paying penalties, or providing replacement systems in the event of performance failure.

Contracts for development programs include complex design and technical requirements and are often contracted on a cost-reimbursable basis, however, some of our existing development programs are contracted on a fixed-price basis. In addition, we have certain contracts where we bid upfront on cost-reimbursable development work and the follow-on fixed-price production options in one submission. We expect we also will bid on similar programs in the future. Fixed-price development work or fixed-price production options, especially on competitively bid programs, is inherently riskier than cost-reimbursable work because the revenue is fixed, while the estimates of costs required to complete these contracts are subject to significant variability due to the nature of development programs. The technical complexity coupled with the fixed-price contract structure of certain of our ongoing development programs or new programs increases the risk that our costs will be greater than anticipated, resulting in reduced margins, operating profit, or reach-forward losses during the period of contract performance or upon contract award, all of which could be significant to our financial condition and operating results. Bidding upfront on fixed-price production options increases the risk that we may experience lower margins than expected, or a loss, on the production options because we must estimate the cost of producing a product before it has been developed. These risks may cause us not to bid on certain future programs, which could adversely affect our future growth prospects and financial performance. See “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for further details about losses incurred on certain programs, including fixed-price development programs.

We are the prime contractor on most of our contracts and rely on other companies to provide materials, major components and products, and to perform a portion of the services that are provided to our customers under the terms of most of our contracts.customers. These arrangements may involve subcontracts, teaming arrangements, joint ventures, or supply agreements with other companies on which we rely (contracting parties) and, in many cases, our contracting parties in turn rely on lower-tier subcontractors. We sometimes have disputes with our contracting parties, including disputes regarding the cost, quality and timeliness of work performed, workshares, customer concerns about the othercontracting party’s performance, issues related to lower-tier subcontractor performance, our failure to issue or extend task orders, or our hiring the personnel of a subcontractor, teammate or joint venture partner or vice versa. We also could be adversely affected by actions or issues experienced by our contracting parties that are outside of our control, such as misconduct and reputational issues involving our contracting parties, which could subject us to liability or adversely affect our ability to compete for contract awards. The financial stability and viability of our contracting parties or lower-tier subcontractors have and in the future could adversely affect their ability to meet their performance obligation.obligations and result in an impact on our business and results of operations.

A failure by one or more of our contracting parties to provide the agreed-upon materials, components or products, or perform the agreed-upon services, on a timely basis, according to specifications, including compliance with regulatory requirements we flow down from our prime contracts, or at all, has and may adversely affect our ability to perform our obligations and require that we transition theimpacted work to other companies. Contracting party performance deficiencies may result in additional costs or delays in product deliveries and affect our operating results and could result in a customer terminating our contract for default or convenience. A default termination could expose us to liability and affect our ability to compete for future contracts and orders. A failure by our contracting parties to meet affordability targets could negatively affect our profitability, result in contract losses and affect our ability to win new business.

Many of the products and services we provide are highly engineered and involve sophisticated technologies with related complex manufacturing and systems integration processes. Our customers’ requirements change and evolve regularly. Accordingly, our future performance depends, in part, on our ability to adapt to changing customer needs rapidly, identify emerging technological trends, develop and manufacture innovative products and services efficiently and bring those offerings to market quickly at cost-effective prices. This includes efforts to provide mission solutions that integrate capabilities and resources across all forces and domains, which we refer to as joint all domain operations, and to implement emerging digital and network technologies and capabilities. Artificial intelligence technologies have rapidly developed and our business may be adversely affected if we cannot successfully integrate the technology into our internal business processes and product and service offerings in a timely, cost-effective, compliant and responsible manner. To advance our innovation and position us to meet our customers’ requirements, we make investments in emerging technologies that we believe are needed to keep pace with rapid industry innovation and seek to collaborate with commercial entities that we believe have complementary technologies to ours. These commercial entities may not be accustomed to government contracting and may be unwilling to agree to the government’s customary terms, including with respect to intellectual property, liability and indemnification term,terms, which may prevent or lessen the benefit of collaboration. We may not be successful in identifying or developing emerging technologies and may spend significant resources on projects that ultimately are unsuccessful or yield a low return on the amount invested.

If we fail in our development projects orprojects, if our new products or technologies fail to achieve customer acceptanceacceptance, orif competitors develop more capable technologies or offerings or develop new technologies or offerings or deliver existing offerings faster, or if stakeholders perceive our company as being slow to adapt, lacking in innovation or inconsistently delivering results, we may be unsuccessful in obtaining new contracts or winning all or a portion of next generation programs, including in key areas such as hypersonics and classified work, and this could adversely affect our future performance and financial results.

Geopolitical. Changes in U.S. governmentGovernment and other nations’ administrationadministrations and their associated shifts in policy and priorities could also impact our operations and market conditions. Our business is highly sensitive to geopolitical and security issues, including foreign policy actions taken by governments such as tariffs, sanctions, embargoes, export and import controls, and other trade restrictions, which can affect the demand for, and our ability to sell, our products and services, cause disruptions to our supply chain, and, ultimately, could adversely affect our business.

Economic sanctions, export controls, and other trade restrictions, for instance those that the U.S. Government and other nations implemented against Russia in light of its invasion of Ukraine or those relating to the conflict in the Middle East, could directly and indirectly result in the disruption of our business and supply chain. Conflicts in Ukraine and elsewhere have increased the threat of malicious cyber activity from nation states and other actors. China has placed restrictions on and sanctioned our company and certain executives in connection with foreign military sales by the U.S. Government to Taiwan involving our products and services. We will continue to follow official U.S. Government guidance as it relates to sales to Taiwan and do not currently expect a material impact to our business from these actions. In 2023, China also implemented broad-based export restrictions on certain minerals used in the production of, among other things, semiconductors and missile systems; in 2024, China specifically banned export of certain minerals to the U.S. China may impose additional sanctions that could adversely affect Lockheed Martin, our suppliers, teammates and/or partners in the future.

Our international sales also could be adversely affected by actions taken by the U.S. Government, including the exercise of foreign policy, Congressional oversight or the financing of particular programs, that may alter the international demand for our products or that may prevent, restrict or otherwise impose conditions upon the sale and delivery of our products or the transfer of sensitive technology. For example, the U.S. Government has imposed certain sanctions on Türkish entities and persons, which has affected our ability to obtain certain U.S. export permits or authorizations necessary to perform under our existing contracts supporting the Türkish Utility Helicopter Program (TUHP), and could impact our work with Türkish industry and our opportunity for sales in Türkiye generally. See “Note 1 – Organization and Significant Accounting Policies” included in our Notes to Consolidated Financial Statements for more information on TUHP. Our inability to perform under, or compete for, contracts with international customers because of actions taken by the U.S. Government has resulted and may in the future result in our inability to recover our costs, incurrence of reach-forward losses, claims and contract terminations by these customers and suppliers, and limitations on our ability to pursue new business, which could have an adverse effect on our operating results.

Macroeconomic. Heightened levels of inflation and the potential worsening of macroeconomic conditions, including slower growth or recession, changes to fiscal and monetary policy, tighter credit, higher interest rates and currency fluctuations, present risks for us, our suppliers and the stability of the broader defense industrial base. If we are unable to successfully mitigate thethese impact,impacts, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected. Although we believe defense spending is more resilient to adverse macroeconomic conditions than many other industrial sectors, our suppliers and other partners, many of which are more exposed to commercial markets or have fewer resources, may be adversely impacted to a more significant degree than we are by an economic downturn. Such an impact could affect their performance and adversely impact our operations. In addition, macroeconomic conditions could cause budgetary pressures for our government customers resulting in reductions or delays in spending, which could adversely impact our business. Higher interest rates increase the borrowing costs on new debt and could affect the fair value of our investments. Interest rates also impact our pension. For example, higher interest rates generally reduce the measure of our gross pension obligations while lower interest rates increase it.

International sales present risks that are different and potentially greater than those encountered in our U.S. business. In 2024,2025, 26%28% of our total net sales were associated with international customers. International sales are subject to numerous political and economic factors, including changes in foreign national priorities, foreign government budgets, global economic conditions, and fluctuations in foreign currency exchange rates, the possibility of trade sanctions and other government actions, regulatory requirements, and significant competition, taxation, and other risks associated with doing business outside the U.S. Sales of military products and services and any associated industrial development (offset) agreements are subject to U.S. export regulations and foreign policy, and there could be significant delays or other issues in reaching definitive agreements for announced programs. See the Risk Factor “Geopolitical, macroeconomic and public health events and conditions could adversely affect our business, financial condition and operating results.” Competition for international sales is intense, including from international manufacturers whose governments sometimes provide research and development assistance, marketing subsidies and other assistance for their products and services.

Our international business is conducted through FMS contracted through the U.S. Government and by direct commercial sales (DCS) to international customers. FMS contracts with the U.S. Government are subject to the FAR and the DFARS. Because the U.S. Government functions as an intermediary in FMS sales, we are reliant on, and could be adversely impacted by, relations between the U.S. Government and the international customers and the capacity and speed of the DoD’sDoW’s administration of requests from non-U.S. countries to convert requests to sales. In contrast, DCS transactions represent sales directly to international government customers and are subject to U.S. and foreign laws and regulations, including product testing, import-export control, technology transfer restrictions, investments, taxation, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act and other anti-corruption laws and regulations, and the anti-boycott provisions of the U.S. Export Control Reform Act of 2018. While we have extensive policies in place to comply with such laws and regulations, failure by us, our employees or others working on our behalf to comply with these laws and regulations could result in administrative, civil, or criminal liabilities, including suspension, debarment from bidding for or performing government contracts, or suspension of our export privileges, which could have a material adverse effect on us. We frequently team with international subcontractors and suppliers who also are exposed to similar risks.

We believe DCS transactions present a higher level of potential risks because they involve direct commercial relationships with governmental contracting parties with which we typically have less familiarity. Additionally, international procurement and local country rules and regulations, contract laws and judicial systems differ from those in the U.S. and, in some cases, may be less predictable than those in the U.S., which could impair our ability to enforce contracts and increase the risk of adverse or unpredictable outcomes, including the possibility that certain matters that would be considered civil matters in the U.S. are treated as criminal matters in other countries.

In conjunction with defense procurements, some international customers require contractors to comply with industrial cooperation regulations, including entering into industrial participation, industrial development or localization agreements, sometimes referred to as offset agreements (also known as offset contracts), as a condition to obtaining orders for our products and services. These offset agreements generally extend over several years and obligate the contractor to perform certain commitments, which may include in-country purchases, technology transfers, local manufacturing support, consulting support to in-country projects, investments in joint ventures and financial support projects, and preference for local suppliers or subcontractors. The customer’s expectations in respect of the scope of offset commitments can be substantial, including high-value content, and may exceed existing local technical capability. Failure to meet these commitments, which can be subjective and outside of our control, may result in significant penalties, and could lead to a reduction in sales to a country. Furthermore, some of our existing offset agreements are dependent upon the successful operation of joint ventures that we do not control and involve products and services that are outside of our core business, which may increase the risk of breaching our obligations, exposing us to compliance risks of the joint venture, and impairing our ability to recover our investment. For more information on our industrial development obligations, including the notional value of our remaining industrial development obligations and potential penalties for non-compliance, see “Contractual Commitments” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We own a substantial number of U.S. and foreign patents and trademarks related to the products and services we provide. In addition to owning a large portfolio of patents and trademarks, we develop and own other intellectual property, including copyrights, trade secrets and research, development and engineering know-how, which contribute significantly to our business. We also license intellectual property to and from third parties. The FAR and DFARS provide that the U.S. Government obtains certain rights in intellectual property, including patents, developed by us and our subcontractors and suppliers in performance of government contracts or with government funding. The U.S. Government may use, or may authorize others including competitors to use, such intellectual property. Non-U.S. governments also may have certain rights in patents and other intellectual property developed in performance of our contracts with these entities. The U.S. Government is pursuing aggressive positions on the acquisition of broad technical data and software packages as well as the scope and applicability of thesethe rights in such technical data and software once acquired. The DoDDoW is also implementing an overarching intellectual property acquisition policy that will require a greater focus and planning as to intellectual property rights for its programs, with the potential impacts of this policy or any associated regulatory changes on future acquisitions yet to be determined. The DoD’sDoW’s efforts could affect our ability to protect and exploit our intellectual property and to leverage supplier intellectual property, for example, if we are unable to obtain necessary licenses from our suppliers to meet government requirements. Additionally, third parties may assert that our products or services infringe their intellectual property rights, which could result in costly and time-consuming disputes, subject us to damages and injunctions and adversely affect our ability to compete and perform on certain contracts.

Our performance is dependent upon us identifying, attracting, developing, motivating and retaining a highly skilled workforce with the requisite skills in multiple areas including engineering, science, manufacturing, information technology, artificial intelligence, cybersecurity, business development and strategy and management. Due to the national security nature of our work, our performance is also dependent upon personnel who hold security clearances and receive substantial training to work on certain programs or tasks and can be difficult to replace on a timely basis if we experience unplanned attrition. The market for highly skilled workers and leaders in our industry as well as the market for individuals holding high-level security clearances is extremely competitive and not confined to our industry. For example, we compete with commercial technology companies outside of the aerospace and defense industry for qualified technical, cyber and scientific positions, which may not face the same type of cost pressures as a government contractor and which may be able to offer more flexible work arrangements given that certain of our employees must perform the majority of their work in a secure facility because of the need to access classified information. If we cannot adequately attract and retain personnel with the requisite skills or clearances in this competitive market, our performance and future prospects may be adversely affected.

Since the COVID-19 pandemic, weWe have implemented flexible work arrangements and a hybriddistributed workforce model, where portions of our workforce work remotely while others are required to be on-site in our facilities depending on, among other things, the nature of the job performed, business needs, and evolving circumstances. In conjunction with this, it is critical that we develop and train employees, hire new qualified personnel, and successfully manage the short and long-term development and transfer of critical knowledge and skills, including leadership development and succession planning throughout our business. While we have processes in place for management transition and the transfer of knowledge and skills, the loss of key personnel, coupled with an inability to adequately train other personnel, hire new personnel or transfer knowledge and skills, could significantly impact our ability to perform under our contracts andcontracts, execute on new or growing programs.programs and otherwise manage our business.

As an aerospace and defense company, we face a multitude of security threats, including cybersecurity threats ranging from attacks common to most industries, such as ransomware and denial-of-service, to attacks from more advanced and persistent, highly organized adversaries, including nation state actors, some of which target the U.S. defense industrial base and other critical infrastructure sectors. The sophistication of the threats continues to evolve and grow, including the risk associated with the use of emerging technologies, such as artificial intelligence and quantum computing, for nefarious purposes. In addition to cybersecurity threats, we face threats to the security of our facilities and employees from terrorist acts, sabotage and other disruptions, any of which could adversely affect our business. The improper conduct of our employees or others working on our behalf who have access to export controlled, classified or other sensitive information could also adversely affect our business and reputation.

If we are unable to protect sensitive information, including by complying with evolving information security, data protection and privacy regulations and related disclosure requirements, our customers or governmental authorities could investigate the adequacy of our threat mitigation and detection processes and procedures; and could bring actions against us for noncompliance with applicable laws and regulations. Moreover, depending on the severity of an incident, our customers’ data, our employees’ data, our intellectual property (including trade secrets and research, development and engineering know-how) and other third-party data (such as that of subcontractors, suppliers and vendors) could be compromised, which could adversely affect our business. Products and services we provide to customers also carry cybersecurity risks, including risks that they could be breached or fail to detect, prevent or combat attacks, which could result in losses to our customers and claims against us, and could harm our relationships with our customers and financial results.

Given the persistence, sophistication, volume and novelty of threats we face, we may not be successful in preventing or mitigating an attack that could have a material adverse effect on us and the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. The national security aspects of our business and much of the data we protect increase and create different risks relative to other industries. National security considerations may also preclude us fromfrom, or cause us to delay, publicly disclosing a cybersecurity incident.

Our customers (including sites that we operate and manage for our customers), suppliers, subcontractors, joint venture partners and acquired entities that we do not fully integrate face similar security threats and an incident at one of these entities could adversely impact our business. These entities are typically outside our control and may have access to our information with varying levels of security and cybersecurity resources, expertise, safeguards and capabilities. Their relationships with government contractors, including us, may increase the risk that they are targeted by the same threats we face, however, they may not be as prepared for such threats. Adversaries actively seek to exploit security and cybersecurity weaknesses in our supply chain. Breaches in our multi-tiered supply chain, which is comprised of thousands of direct and indirect suppliers, have and could in the future compromise our data and adversely affect customer deliverables. We also must rely on our supply chain for adequately detecting and reporting cyber incidents, which could affect our ability to report or respond to cybersecurity incidents effectively or in a timely manner.

In pursuing our business strategy, we routinely conduct discussions, evaluate companies, and enter into agreements regarding possible acquisitions, joint ventures, other investments and divestitures. We seek to identify acquisition or investment opportunities that will expand or complement our existing products and services or customer base, at reasonable valuations. To be successful, we must conduct due diligence to identify valuation issues and potential loss contingencies or underlying risks, some of which are difficult to discover or assess prior to consummation of an acquisition or investment; negotiate transaction terms; complete and close complex transactions; integrate acquired companies and employees; and realize anticipated operating and other synergies efficiently and effectively. U.S. regulatorsand haveinternational increased theirregulatory scrutiny of mergers and acquisitions inhas recent years, whichand could continue to limit our ability to execute certain transactions that we might otherwise pursue.

Pension funding requirements and costs are dependent on return on pension assets and other economic and actuarial assumptions whichwhich, if changedchanged, may cause our future earnings and cash flow to fluctuate significantly and affect the affordability of our products and services.

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).plans. The impact of these plans on our earnings may be volatile in that the amount of expense or income we record for our postretirement benefit plans may materially change from year to year because the calculations are sensitive to changes in several key economic assumptions, including interest rates and rates of return on plan assets, other actuarial assumptions,assumptions including participant longevity (also known as mortality), as well as the timing of cash funding. Changes in these factors, including actual returns on plan assets, may also affect our plan funding, cash flows and stockholders’ equity. We could be required to make pension contributions earlier than and/or in excess of what was planned if our return on pension assets is less than our assumptions, which would reduce our free cash flow.

We have made substantial cash contributions to our plans as required by the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and in accordance with U.S. Government Cost Accounting Standards (CAS), and expect to make future contributions as required or when deemed prudent. We generally can recover a significant portion of these contributions related to our plans as allowable costs on our U.S. Government contracts, including FMS. However, there can be differences between the time when we contribute cash to our plans under pension funding rules and when we recover pension costs under CAS, which can affect the timing of our cash flows. Our business segments’ results of operations include pension expense as calculated under CAS while our consolidated financial statements must present pension income or expense in accordance with U.S. GAAP Financial Accounting Standards (FAS); differences in these accounting rules may result in significant period adjustments referred to as our FAS/CAS pension adjustments. Additionally, because allowable pension costs are included in the price of our products and services, those costs can affect our affordability and competitiveness.

In recent years, we have taken actions intended to mitigatereduce the risksize related toof our defined benefit pension plans including pension risk transfer transactions whereby we purchase group annuity contracts (GACs) from insurance companies using assets from the pension trust.trust and transfer associated pension liabilities to the insurers. We expect to continue to evaluate such transactions in the future. Although under the majority of the GACs we have purchased, we are relieved of all responsibility for the associated pension obligations, we have purchased and may in the future purchase GACs whereby the insurance company reimburses the pension plans but we remain responsible for paying benefits under the plans to covered retirees and beneficiaries and are subject to the risk that the insurance company will default on its obligations to reimburse the pension trust. While we believe pension risk transfer transactions are beneficial, futureFuture transactions, depending on their size, could result in us making additional contributions to the pension trust and/or require us to recognize noncash settlement charges in earnings in the applicable reporting period.

For more information on how these factors could impact financial condition and results of operations, see “Critical Accounting Policies – PostretirementQualified Defined Benefit Pension Plans” in the MD&A and “Note 11 – PostretirementRetirement Benefit PlansBenefits” included in our Notes to Consolidated Financial Statements.

Changes in tax laws and regulations and interpretations or exposure to additional tax liabilities could adversely affect our financial results.

The amount of net deferred tax assets will change periodically based on several factors, including the measurement of our postretirementretirement benefit plan obligations, actual cash contributions to our postretirement benefitretirement plans, change in the amount or reevaluation of uncertain tax positions, and future changes in tax laws. In addition, we are regularly under audit or examination by tax authorities, including foreign tax authorities. The final resolution of tax audits and any related administrative reviews or litigation could result in unanticipated increases in our tax expense and changes to the timing of required tax payments, which could affect profitability and cash flows for any particular reporting period. These increases or changes could have a material impact on financial condition and results of operations in such period.

We are subject to federal, state, local and foreign requirements for the protection of the environment, including those for discharge of hazardous materials and remediation of contaminated sites. Due in part to the complexity and pervasiveness of these requirements, we are a party to or have property subject to various lawsuits, proceedings, and remediation obligations. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We have incurred and will continue to incur liabilities for environmental remediation at some of our current and former facilities and at third-party-owned sites where we have been designated a potentially responsible party as a result of our historical activities and those of our predecessor companies. Environmental remediation activities usually span many years, and the extent of financial exposure can be difficult to estimate. Among the variables management must assess in evaluating costs associated with these cases and remediation sites are the status of site assessment, extent of the contamination, impacts on natural resources, changing cost estimates, evolution of technologies used to remediate the site, continually evolving environmental standards, availability of insurance coverage and indemnification under existing agreements and cost allowability issues, including varying efforts by the U.S. Government to limit allowability of our costs in resolving liability at third-party-owned sites. Our environmental remediation related liabilities also could increase significantly because of acquisitions, stricter remediation standards for existing or newly regulated substances, changes in the interpretation or enforcement of existing laws and regulations, or the discovery of previously unknown or more extensive contamination. For information regarding these matters, including current estimates of the amounts that we believe are required for environmental remediation to the extent probable and estimable, see “Critical Accounting Policies – Environmental Matters” in the MD&A and “Note 14 – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.

The increasing global regulatory focus on greenhouse gas (GHG) emissions and their potential impacts relating to climate change could result in laws, regulations or policies that significantly increase our direct and indirect operational and compliance burdens, which could adversely affect our financial condition and results of operations. These laws, regulations or policies could take many forms, including carbon taxes, cap and trade regimes, increased efficiency standards, GHG reduction commitments, incentives or mandates for particular types of energy, disclosure requirements or changes in procurement laws. Changes in government procurement laws that mandate or take into account climate change considerations, such as the contractor’s GHG emissions, GHG emission reduction targets, lower emission products or other climate risks, in evaluating bids could result in costly changes to our operations or affect our competitiveness on future bids, or our ability to bid at all. In addition to incurring direct costs to implement any climate-change related laws, regulations or policies, we may see indirect costs rise, such as increased energy or material costs, as a result of policies affecting other sectors of the economy. Although most of these increased costs likely would be recoverable through pricing, to the extent that the increase in our costs as a result of these policies are greater than our competitors, we may be less competitive on future bids or the total increased cost in our industry’s products and services could result in lower demand from our customers. We monitor developments in climate change-related laws, regulations and policies for their potential effect on us, however, we currently are not able to accurately predict the materiality of any potential costs associated with such developments.us. In addition, climate change-related litigation and investigations have increased in recent years and any claims or investigations against us could be costly to defend and our business could be adversely affected by the outcome.

Our business may be adversely affected by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty. As required by U.S. GAAP, we estimate loss contingencies and establish reserves based on our assessment of contingencies where liability is deemed probable and reasonably estimable considering the facts and circumstances known to us at a particular point in time. Subsequent developments in legal proceedings may affect our assessment and estimates of the loss contingency recorded as a liability or as a reserve against assets in our financial statements. For a description of our current legal proceedings, see Item 3 – Legal Proceedings, “Critical Accounting Policies - Environmental Matters” in Management’s Discussion and Analysis of Financial Condition and Results of OperationsProceedings and “Note 14 – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements.

There can be no assurance that we will continue to pay or increase our dividend or to repurchase shares of our common stock.

Cash dividend payments and share repurchases are subject to limitations under applicable laws and the discretion of our Board of Directors and are determined after considering then-existing conditions, including earnings, other operating results and capital requirements and cash deployment alternatives. Dividend payments and share repurchases may also be impacted by the implementation of presidential executive orders. Our payment of dividends and execution of share repurchases could vary from historical practices or our stated expectations. Decreases in asset values or increases in liabilities, including liabilities associated with employee benefit plans and assets and liabilities associated with taxes, can reduce net earnings and stockholders’ equity. Under certain circumstances, a deficit in stockholders’ equity could limit our ability to pay dividends and make share repurchases under Maryland state law in the future. In addition, the timing and amount of share repurchases under Board of Directors approved share repurchase plans may differ from stated expectations and is within the discretion of management and will depend on many factors, including our ability to generate sufficient cash flows from operations in the future or to borrow money from available financing sources, our results of operations, capital requirementsrequirements, applicable law and applicablethe law.applicability of presidential executive orders.

We are a global aerospace and defense technology company principallythat engagedbuilds inand sustains the research,solutions design, development, manufacture, integrationAmerica and sustainmentits ofallies advancedneed technologyto systems,deter productsconflict and services.advance Wenational also provide a broad range of management, engineering, technical, scientific, logistics, system integrationsecurity and cybersecurityscientific services.exploration objectives. Our mainfour business areas of– focusAeronautics, areMissiles inand Fire Control, Rotary and Mission Systems, and Space – work as one company offering integrated solutions, at scale, across all warfighting domains. Our defense, space, intelligence, homeland security andsecurity, information technology, includingand cybersecurity.cybersecurity Wecapabilities serve both U.S. and international customers with products and services that havein defense, civil and commercial applications,applications. with ourOur principal customers beingare agencies of the U.S. Government.Government and allies. In 2024,2025, 73%72% of our $71.0$75.0 billion in net sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including 65%63% from the Department of DefenseWar (DoD)DoW), 26%also known as the Department of Defense under 10 U.S.C. § 111(a)) and 28% were from international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1% were from U.S. commercial and other customers..

KeysWe toachieve enablingthis success of our strategy includeby developing and investing in differentiating technologies, forging strategic partnerships, including with commercial companies, executing on our multi-year business transformation initiative to enhance our digital infrastructure and increase efficiencies and collaboration throughout our business andinitiative, maintaining fiscal discipline.discipline, Underpinningand our abilitycontinuing to executecultivate ourthe strategygreatest isaerospace ourand defense workforce talent and culture.culture in the world. We invest substantially in our people to ensure that our workforcepeople hashave the technical skills necessary to succeed, and we expect to continue to invest internally in innovative technologies that address rapidly evolving mission requirements for our customers. We also will continue to evaluate our organizational structure and portfolio and will make strategic changes, acquisitions or divestitures, as appropriate, while deepening our connection to commercial industry through cooperative partnerships, joint ventures and equity investments.

GeopoliticalGlobal Economic and EconomicGeopolitical Environment

OurWe businesshave experienced, and financial performance is also affected by general economic conditions. We continue to experienceexperience, supply chain challenges, including supplier shortages and performance issues. TheseWhile issueson-time havedeliveries delayedare improving, pressures remain in certain customerareas, deliveries,and havewe beenare aproactively limitingworking factor onwith our abilitysuppliers to rampmeet upour productioncontract in response to customer demand for certain products and have caused out-of-sequence manufacturing, which increases costs and decreases operational efficiency.commitments. In addition, macroeconomic conditions including elevated levels of inflation and macroeconomic conditions present risks for us, our suppliers and the stability of the broader defense industrial base. CertainSupply costs,chain challenges, including risingboth laborthe ratesavailability and suppliercost costs,of havegoods, increasedmay be further impacted due to the imposition of tariffs and the availability of raw materials including rare earth minerals, as adiscussed resultbelow ofunder inflation,“Recent Developments in Trade and haveRegulatory adversely affected our margins on certain programs. In addition, some suppliers are reducing the duration of pricing validity of their proposals to us or seeking to reopen pricing on existing agreements, which is operationally challenging and increases the risk of cost volatility. We continue to work to mitigate challenges caused by the supply chain or current macroeconomic environment on our business, including by supporting small business and at-risk suppliers, deploying resources to work with our supply chain, securing materials and support by executing long-term contracts, enforcing existing contract terms, identifying alternative sources, collaborating with our customers to address industry-wide challenges, and optimizing our supply chain organization through digital transformation and workforce development.Policies.” If we experience significant supply chain issues or high rates of inflation, and are unable to successfully mitigate the impact, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected. Inflation and higher interest rates can also constrain the overall purchasing power of our customers for our products and services potentially impacting future orders, especially in a budget constrained environment. We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases from inflation.

A key component of our strategic plan is to grow our international sales. To accomplish this growth, we continue to focus on strengthening our relationships internationally through partnerships and joint technology efforts. Our international business is conducted either by FMS contracted through the U.S. Government or by direct commercial sales (DCS) to international government customers. In 2024,2025, approximately 73%77% of our sales to international customers were FMS and about 27%23% were DCS. Additionally, in 2024,2025, substantially all of our sales from international customers were in our Aeronautics, MFC and RMS business segments. Space’s sales from international customers were not material in 2024.2025. See Item 1A - Risk Factors for a discussion of risks related to international sales.

In 2024,2025, international customers accounted for 32%36% of Aeronautics’ net sales. There continues to be strong international interest in the F-35 program, which includes commitments from the U.S. Government and seven international partner countries and twelve FMS customers, as well as expressions of interest from other countries. The U.S. Government and the partner countries continue to work together on the design, testing, production and sustainment of the F-35 program. Other areas of international expansion at our Aeronautics business segment include the F-16 and C-130J programs, which continue to draw interest from international customers for new aircraft.

In 2024,2025, international customers accounted for 29% of MFC’s net sales. Our MFC business segment continues to generate significant international interest, most notably in the air and missile defense product line, which produces the PAC-3 and Terminal High Altitude Area Defense (THAAD) systems. Seventeen nations have chosen PAC-3 Cost Reduction Initiative (CRI) and PAC-3 Missile Segment Enhancement (MSE) to provide missile defense capabilities. Additionally, we continue to see international demand for our tactical and strike missile products,products and fire control systems, where we received orders from Poland for precision fire systemssystems, Hellfire, and for Joint Air-to-Surface Standoff Missile (JASSM). from multiple nations, and for our Apache fire control system from Poland.

In 2024,2025, international customers accounted for 32%34% of RMS’ net sales. Our RMS business segment continues to experience international interest in the Aegis Ballistic Missile Defense System (Aegis) for which we perform activities in the development, production, modernization, ship integration, test and lifetime support for ships of international customers such as Japan, Spain, the Republic of Korea and Australia. We have ongoing combat systems programs associated with different classes of surface combatant ships forfrom customers in Canada, ChileCanada and New Zealand.Germany. Our Multi-Mission Surface Combatant (MMSC) program will provide surface combatant ships for international customers, such as the Kingdom of Saudi Arabia, designed to operate in shallow waters and the open ocean. In our trainingtraining, logistics and logistics solutionssimulation portfolio, we have active programs and pursuits in the United Kingdom, the Kingdom of Saudi Arabia, Canada, Singapore, Australia, GermanyGermany, Japan, New Zealand, Republic of Korea and France. We continue to draw interest from international customers for radar systems, where we have received recent orders from Denmark, Sweden and Singapore. We have active development, production and sustainment support of the S-70 Black Hawk and MH-60 Seahawk helicopters to international customers, including India, Philippines, Australia, the Republic of Korea, Thailand, the Kingdom of Saudi ArabiaArabia, Japan, and Greece. Commercial aircraft are sold to international customers to support search and rescue missions as well as VIP and offshore oil and gas transportation.

At December 31, 2024,2025, our backlog was $176.0$193.6 billion compared withto $160.6$176.0 billion at December 31, 2023.2024. Backlog is converted into sales in future periods as work is performed or deliveries are made. We expect to recognize approximately 35%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.

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

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

Service sales increased $460$628 million, or 4%,5%, in 20242025 as compared to 2023.2024. The increase in service sales was primarily due to higher sales of approximately $305$620 million at Aeronautics andas $150a millionresult at Space. Higher service sales at Aeronautics were due toof higher volume on F-35 sustainment contracts. Higher service sales at Space were due to higher volume on national security space services.

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

The following discussion of material changes in our consolidated costoperating ofcosts salesand expenses for products and services should be read in tandem with the preceding discussion of changes in our consolidated net sales and our business segment results of operations. Except for potential impacts to our programs resulting from supply chain disruptionsdisruptions, inflation, and inflation,tariffs, we have not identified any additional developing trends in costoperating ofcosts salesand expenses for products and services that wouldcould have a material impact on our future operations.

Product costs increased approximately $4.6$2.2 billion, or 9%,4%, in 20242025 as compared to 2023.2024. The increase was primarily attributable to higher product costs of $2.5approximately $1.5 billion at MFC,Aeronautics, $1.2$285 billionmillion at AeronauticsSpace and $1.1$225 billionmillion at RMS. Higher product costs at MFC were due to $1.4 billion in reach-forward losses on a classified program and production ramp up as described above in “Product Sales”. Higher product costs at Aeronautics were due to higher volume and productionthe rampimpact upof asrecognizing a reach-forward loss on a classified contract previously described above in “Product Sales”. andHigher $555product millioncosts at Space were due to higher volume, partially offset by the impact of lossesprogram recognizedlifecycle onpreviously a classified contract. See “Note 1 – Organization and Significant Accounting Policies” includeddescribed in our“Product Notes to Consolidated Financial Statements for further details about classified program losses incurred at MFC and Aeronautics.Sales”. Higher product costs at RMS were due to higher production volume on Black Hawk programs and productionthe rampimpact upof asrecognizing describedreach-forward abovelosses on TUHP in “Productthe Sales”.second quarter of 2025, partially offset by lower production volume on Seahawk programs.

Service costs increased approximately $190$1.1 million,billion, or 2%,11%, in 20242025 as compared to 2023.2024. The increase was primarily attributable to higher service costs of approximately $235$540 million at Aeronautics and $425 million at RMS. Higher service costs at Aeronautics were due to higher volume as described above in “Service Sales”. Higher service costs at RMS were due to the impact of recognizing a reach-forward loss on Canadian Maritime Helicopter Program (CMHP) as previously described.

Impairment and SeveranceOther Charges

We recorded charges totaling $66 million ($52 million, or $0.22 per share, after-tax) in 2025 and $87 million ($69 million, or $0.29 per share, after-tax) in 2024 and $92 million ($73 million, or $0.30 per share, after-tax) in 2023.2024. See “Note 16 – Impairment and SeveranceOther Charges” included in our Notes to Consolidated Financial Statements for additional information.

Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of Financial Accounting Standards (FAS) pension income (expense) income), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, intangible asset amortization expense and other corporate costs. These items are not allocated to the business segments and, therefore, are not allocated to costoperating ofcosts salesand expenses for products or services. Other unallocated, net reduced costoperating of salesexpenses by $996 million and $1.0 billion in 2024,2025 comparedand to $1.2 billion in 2023.2024. The decreasefluctuations in other unallocated, net wasfor primarilyall periods were due to lower gains from the changes in the fair value of assets and liabilities related to deferred compensation plans in 2024 compared to in 2023 and fluctuations in costs associated with various corporate items, none of which were individually significant.

Other income, net in 20242025 was $83$112 million, compared to $28$83 million in 2023.2024. Other income, net primarily includes earnings generated by equity method investees, as well as gains or losses for acquisitions, divestitures, and other items, none of which are individually significant. The increase in other income, net in 20242025 resulted primarily from the favorable settlement of an intellectual property relatedlicense matterarrangement and higherthe earningsCommercial generatedEngine bySolutions equitydivestiture methodnet investees.working capital true-up.

Interest expense in 20242025 was $1.0$1.1 billion, compared to $916$1.0 millionbillion in 2023.2024. The increase in interest expense in 20242025 resulted primarily from the issuance of senior unsecured notes in July 2025 and December 2024, January 2024 and Maya 2023.higher intra-period outstanding balance of commercial paper. See “Capital Structure, Resources and Other” included within the “Liquidity and Cash Flows” discussion below and “Note 10 – Debt” included in our Notes to Consolidated Financial Statements for a discussion of our debt.

Non-Service FAS Pension (Expense) Income

Except for the risk factor discussedupdate below,disclosed in Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 29, 2026, there have been no other material changes to theour risk factors disclosed in Part I, Item 1A, “Risk Factors” of our 2025 Form 10-K. These risks and uncertainties described in our risk factors have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. These risks are not exclusive and additional risks to which we are subject include the factors mentioned under “Forward-Looking Statements” and the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q.

We are a global aerospace and defense technology company that builds and sustains the solutions America and its allies need to deter conflict and advance national security and scientific exploration objectives. Our four business areas – Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space – work as one company offering integrated solutions, at scale, across all warfighting domains. Our defense, space, intelligence, homeland security, information technology, and cybersecurity capabilities serve U.S. and international customers in defense, civil and commercial applications. Our principal customers are agencies of the U.S. Government and allies. During the quartersix months ended MarchJune 29,28, 2026, 69%70% of our $18.0$38.1 billion in sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including 59%61% from U.S. Department of War (DoW), also known as the Department of Defense under 10 U.S.C. § 111(a)), and 31%30% were from international customers (including foreign military sales (FMS) contracted through the U.S. Government).

We operate in a complex and evolving global security environment. Conflicts or tensions in areas such as the Middle East, Europe, and the Pacific region have heightened tensions and highlighted security requirements globally, including in these regions as well as the U.S. Although these tensions and conflicts may drive interest in specific products or services as countries seek to improve their security posture, our business primarily operates on a long-cycle basis. As a result, the U.S. Government has been broadly focused on increasing industry capacity to meet long-term demand. We continueare to workworking with the U.S. Government, international partners, and our supply chain towith increasethe objective of increasing capacity and enhanceenhancing our ability to scale our operations to meetanticipated potentialdemand. demand,We expect these efforts will enable us to deliver critical capabilities,capabilities and replenish depleted U.S. and allied stockpilesstockpiles, ofalthough productsthere can be no assurance that haveproduction beencapacity consumedwill overincrease at the pastrate severalor years.to the extent we or our customers expect due to supply chain constraints, workforce limitations, government funding decisions, and other factors described in our risk factors.

We have experienced, and continue to experience, supply chain challenges, including supplier shortages and performance issues. WhileAlthough on-timeon‑time deliveries arehave stable,generally been steady, pressures remain in certain areas, and we are proactively working with our suppliers to meet our contract commitments. In addition, macroeconomic conditions including elevated levels of inflation present risks for us, our suppliers and the stability of the broader defense industrial base. Supply chain challenges, including both the availability and cost of goods, may be further impacted due to the imposition of tariffs and the availability of raw materials including rare earth minerals. We continue to work to mitigate challenges caused by the supply chain or current macroeconomic environment on our business, including by deploying resources to work with our supply chain, securing materials and support by executing long-term contracts, enforcing existing contract terms, identifying alternative sources, collaborating with our customers to address industry-wide challenges, and optimizing our supply chain organization through digital transformation and workforce development. If we experience significant supply chain issues or high rates of inflation, and are unable to successfully mitigate the impact, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected. We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases from inflation.

Certain materials and component parts that go into making our products are imported into the U.S. and are subject to tariffs, sanctions, embargoes, export and import controls, and other trade restrictions. Changes in trade policies, including tariffs and other restrictions, may affect the cost or availability of certain materials and components. While we continue to monitor these developments and pursue mitigation strategies where appropriate, excluding the near-term cash flow impact, we do not currently expect existing tariffs to have a material long-term impact on our results of operations. Through the six months ended June 28, 2026, we have received approximately $140 million in refunds related to prior tariff assessments.

Our primary customer is the U.S. Government, from which we derived 69%70% of our sales during the quartersix months ended MarchJune 29,28, 2026, including 59%61% from the DoW. Funding for U.S. Government programs is subject to a variety of factors that can affect our business, including the Administration’s budget requests and procurement priorities and policies, annual congressional budget authorization and appropriation processes, and other U.S. Government domestic and international priorities. U.S. Government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term.

The National Defense Authorization Act (NDAA) for FY 2026 was signed into law on December 18, 2025. This legislation authorizes $901 billion for Defense.national defense. On February 3, 2026, the President signed the Consolidated Appropriations Act, 20262026, which provided $839.2 billion of discretionary funding thefor DoWnational defense through the end of the fiscal year, September 30, 2026. This legislation provides $839.2 billion in funding for the DoW representing2026, an increase of $8.4 billion increase over the topline in the President’s DoWFY2026 Budget Request. TheSeparately, the One Big Beautiful Bill Act (the Tax Act) was, signed byinto the Presidentlaw on July 4, 2025. The bill2025, provides more than $150 billion inof additional mandatory funding for theDefense DoWthat is available untilthrough September 30, 2029.

On April 3, 2026, the Administration released the FY 2027 Defense topline request. The FY 2027 proposal seeks a historic $1.5 trillion defense budget, driven by a large discretionary base request and an additional $350 billion of mandatory funding through reconciliation. It emphasizes a $760  billion weapons‑procurement and modernization effort—highlighting commitment to munitions framework deals, Golden Dome missile defense, a major shipbuilding program, and an increase in F‑35 purchases. The approach is reliant upon Congress to pass a second reconciliation bill. We will continue to monitor the FY 2027 budget cycle as additional informationproposal is released.subject to Congressional appropriation, and there can be no assurance that it will be enacted at the levels proposed or that increases in authorized quantities will translate into increased orders for our programs within any particular timeframe.

Product costs increased $594 million, or 4%, during the quarter ended MarchJune 29,28, 2026 increased $114 million, or 1%,2026, compared to the same period in 2025. Higher product costs of approximately of $255$515 million at MFCMFC, and $245$165 million at SpaceRMS wereand $155 million at Space, partially offset by lower product costs of $245 million at RMS and $140$240 million at Aeronautics. TheseProduct changescosts reflectedfor all four business segments reflect the production ramp-up at MFC,and higher volume at Space and lower volumes at RMS and Aeronautics, as described above.above in “Product Sales”. Additionally, lower product costs at Aeronautics reflect the 2025 reach-forward loss on a classified program.

Service sales increased $274 million, or 9%, during the quarter ended MarchJune 29,28, 2026 increased $163 million, or 5%,2026, compared to the same period in 2025. The increase was primarily attributable to2025 due to higher service sales of approximately $135$175 million at RMS (sales impact of the 2025 reach-forward loss on Canadian Maritime Helicopter Program (CMHP)); and $45 million at Aeronautics as a result of (higher volume on the F-35 sustainment contracts.contracts, partially offset by lower volume on C-130 sustainment contracts).

Service costs decreased $268 million, or 9%, during the quarter ended MarchJune 29,28, 2026 increased $144 million, or 5%,2026, compared to the same period in 2025. The increase was2025 primarily attributable to lower service costs of approximately $410 million at RMS, partially offset by higher service costs of approximately $140$75 million at Aeronautics, which is consistent with the higher service salesAeronautics as described above.above in “Service Sales”.

Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of FAS pension expense), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, significant severance charges, significant asset impairments, intangible asset amortization expense, and other miscellaneous corporate activities. These items are not allocated to the business segments and, therefore, are not allocated to operating costs and expenses for products or services. Other unallocated, net reduced operating expenses bywere $239$308 million and $284$547 million during the quartersquarter and six months ended MarchJune 29,28, 20262026, compared to $244 million and March$528 30,million during the quarter and six months ended June 29, 2025. The fluctuations in other unallocated, net were primarily due to changes in fair value of net assets and liabilities for deferred compensation plans and costs associated with various corporate items, none of which were individually significant.

Other (Expense) Income, Net

Other expense,income, net was $15$33 million and $18 million during the quarter and six months ended MarchJune 29,28, 2026, compared to other$14 income,million netand of $49$63 million during the quarter and six months ended MarchJune 30,29, 2025. Other (expense) income, net, primarily includes earnings generated by equity method investees, as well as gains or losses for acquisitions, divestitures, and other items, none of which are individually significant. The decrease in other expense (income), net resulted primarily from an intellectual property license arrangement during the quarter ended March 30, 2025.

Non-service FAS pension expense was $80 million and $98$160 million during the quartersquarter and six months ended MarchJune 29,28, 20262026, compared to $99 million and March$197 30,million during the quarter and six months ended June 29, 2025. See “Note 6 - Retirement Benefits” included in our Notes to Consolidated Financial Statements for additional information.

Other non-operating income, net primarily includes gains or losses related to adjustments in valuation of early-stage company investments or gains or losses upon the sale of these investments and interest income earned on cash and cash equivalents. Other non-operating income, net was $60$45 million and $30$105 million during the quartersquarter and six months ended MarchJune 29,28, 20262026, compared to $42 million and March$72 30,million during the quarter and six months ended June 29, 2025. See “Note 8 - Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional information.

Our effective income tax rates were 16.1%15.7% and 15.9% for the quartersquarter and six months ended MarchJune 29,28, 2026 and March18.0% 30,and 16.3% for the quarter and six months ended June 29, 2025. The lower effective income tax rates for the quarter and six months ended June 28, 2026 were primarily attributable to lower interest expense on our uncertain tax position and the reach-forward losses recognized in 2025. The rates for all periods benefited from the tax deductions for foreign derived deduction eligible income (formerly known as foreign derived intangible income),income, research and development tax credits, dividends paid to our defined contribution plans with an employee stock ownership plan feature and employee equity awards.

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (the Tax Act.Act). Key provisions included the permanent reinstatement of immediate expensing for domestic research expenditures, the restoration of full expensing for qualified machinery, equipment and other short-lived assets, and several modifications to existing corporate alternative minimum tax (CAMT) and international tax provisions. On February 18, 2026, the U.S. Department of Treasury issued Notice 2026-7 (the Notice) providing additional interim guidance regarding the application of the CAMT. WeAs area continuing to evaluate the impactsresult of the Tax Act and the NoticeNotice, we are no longer subject to CAMT this year and there could be additional impactsexpect to ourmake financialreduced resultsfederal orincome cashtax flows.payments for 2026.

We reported net earnings of $1.5$1.8 billion ($6.44$7.94 per share) and and $1.7$3.3 billion ($7.28$14.38 per share) during the quartersquarter and six months ended MarchJune 29,28, 2026 and March$342 30,million ($1.46 per share) and $2.1 billion ($8.75 per share) during the quarter and six months ended June 29, 2025. Net earnings and earnings per share for the quarter and six months ended MarchJune 29,28, 2026 were affected by the factors mentioned above. Earnings per share also benefited from a net decrease of approximately 4.23.2 million and 3.7 million weighted average common shares outstanding during the the quarter and six months ended MarchJune 29,28, 2026, compared to the same periodperiods in 2025. The reduction in weighted average common shares was a result of share repurchases in the second half of 2025, but none during the quarter and six months ended MarchJune 29,28, 2026, partially offset by share issuances under our stock-based awards and certain defined contribution plans.

During the quartersix months ended MarchJune 29,28, 2026, we recorded unfavorable profit adjustments of $125 million on the F-16 program at Aeronautics as a result of production performance and development delays, $85$95 million on the C-130 program at Aeronautics as a result of continued diminishing manufacturing source integration challenges and associated delivery delays, and $130$95 million on Heavy Lift programs at RMS as a result of favorableproduction profitperformance, adjustmentand $80 million on theSeahawk F-35programs program.at RMS as a result of production performance and schedule delays. During the quarter ended MarchJune 30,29, 2025, we recorded $185losses of $950 million on an ongoing classified program at Aeronautics, and $570 million on Canadian Maritime Helicopter Program (CMHP) and $95 million on Türkish Utility Helicopter Program (TUHP) at RMS. During the six months ended June 29, 2025, in addition to the losses above, we recorded $125 million of adjustments resulting from favorable performance upon completion on certain commercial civil space programs at our Space businessand segmentan and$80 million favorable adjustment upon completion of a classified program at our Aeronautics business segment.Aeronautics.

Aeronautics’ sales during the quarter ended MarchJune 29,28, 2026 decreasedincreased $104$692 million, or 1%,9%, compared to the same period in 2025. The decreaseincrease was primarily attributabledue to lowerhigher sales of approximately $325 $475 million on classifiedthe programsF‑35 dueprogram toas lowera result of higher volume; on production contracts, and approximately $145$360 million for the F-16 program due to the sales impact of unfavorablethe profitreach-forward adjustmentsloss recognized on a classified contract in first quarter of 2026 and lower production volume.2025. These decreasesincreases were partially offset by higherlower sales of approximately $325$120 million foron theF-16 F-35and programC-130 programs due to higherlower volume on sustainment contracts.

Additionally, during the first quarter ofended June 28, 2026, we delivered 3219 F-35 aircraft. Since the program inception through MarchJune 29,28, 2026, we delivered 1,3251,344 production F-35 aircraft, including 948956 F-35A variants, 245250 F-35B variants and 132138 F-35C variants, and our backlog as of that date was 336317 aircraft.

MFC’s sales during the quarter ended MarchJune 29,28, 2026 increased $276$668 million, or 8%,19%, compared to the same period in 2025. ThisThe increase was primarily attributable to productionhigher ramp-upsales of $190$560 million aton integrated air and missile defense programs due to production ramps (existing contracts on PAC-3) and $75THAAD), and $100 million aton tactical and strike missile programs due to production ramps (JASSM,Precision LRASMStrike andMissile (PrSM)).

MFC’s operating profit during the quarter ended MarchJune 29,28, 2026 increased $35$115 million, or 8%,24%, compared to the same period in 2025. ThisThe increase was primarily attributable to higher sales volume previously described.described, and $60 million due to higher net favorable profit adjustments.

RMS’ sales during the quarter ended MarchJune 29,28, 2026 decreasedincreased $337$359 million, or 8%,9%, compared to the same period in 2025. The decreaseincrease was primarily attributable to lower nethigher sales of $170 million on SEMS programs due to lower volume on radar programs; and $110$255 million on Sikorsky helicopter programs (CH-53K, Seahawk and Black Hawk) primarily due to lower volume and the sales impact of unfavorablethe profitreach-forward adjustmentsloss recognized on CMHP and TUHP in 2025, and $115 million on Mission Integrated Command & Control (MIC2) programs due to higher volume on undersea combat systems programs and the quarterRiver endedClass MarchDestroyer 29, 2026.program.

RMS’ operating profit during the quartersix months ended MarchJune 29,28, 2026 decreasedincreased $98$511 million, or 19%,million compared to the same period in 2025. ThisThe increase was primarily attributable to athe $50$570 million decreasereach-forward loss recognized on the CMHP program and the $95 million reach-forward loss recognized on TUHP in profit2025, bookingpartially rate adjustments largely drivenoffset by unfavorable profit adjustments of $95 million on theHeavy CH-53KLift and $80 million on Seahawk programs; and the absence of a $50 million cost recovery related to an intellectual property license arrangement that occurred in the quarter ended March 30, 2025.2026.

Space’s sales during the quarter ended MarchJune 29,28, 2026 increased $223$189 million, or 7%,6%, compared to the same period in 2025. ThisThe increase was primarily attributable to higher sales volume of $245$190 million foron strategic and missile defense programs ondue theto increased volume (FBM and Next Generation Interceptor (NGI) programs..

Space’s operating profit during the quartersix months ended MarchJune 29,28, 2026 decreased $98$89 million, or 26%,12%, compared to the same period in 2025. ThisThe decrease was primarily attributabledue to a $125 million decrease in profit booking rate adjustments driven by favorable performance at completion on certain commercial civil space programs forin the quarter ended March 30, 2025;2025, partially offset by an increase from higher sales volume previously described.

At MarchJune 29,28, 2026, we had cash and cash equivalents of $1.9$3.8 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions. Our principal source of liquidity is our cash from operations and access to credit markets. Access to credit markets includes our revolving credit facilities, includingand the ability to issue commercial paper. We may, as conditions warrant, issue commercial paper backed by our revolving credit facility to manage the timing of cash flows. There were no borrowings outstanding under the revolving credit facilities or the commercial paper program at MarchJune 29,28, 2026 or December 31, 2025.

Cash received from customers is our primary source of cash from operations. However, from time to time, we fund customer programs ourselves pending government appropriations or prior to contract award. See “Note 5 - Inventories” included in our Notes to Consolidated Financial Statements for additional information. If we incur costs in excess of funds obligated on the contract or in advance of a contract award, this negatively affects our cash flows, and we may be at risk for reimbursement of the excess costs. In addition, when estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident, which we refer to as a reach-forward loss. TheseTypically, these reach-forward losses do not have an immediate cash flow impact, but as future costs are incurred on these contracts, these losses will negatively impact cash flows over the remaining period of performance.

Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. We generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately 42%41% of the sales we recorded during the quartersix months ended MarchJune 29,28, 2026, as we are authorized to bill as the costs are incurred. A number of our fixed-price contracts may provide for performance-based payments, which allow us to bill and collect cash as we perform on the contract as we achieve milestones. The amounts of performance-based payments and the related milestones are determined in the negotiation of each contract. The timing of such payments may differ from the timing of the costs incurred related to our contract performance, thereby affecting our cash flows.

Net cash provided by operating activities during the quartersix months ended MarchJune 29,28, 2026 decreasedincreased $1.2$1.8 billion compared to the same period in 2025. The decreaseincrease in cash from operations was primarily due to higher working capital largely as a result ofthe timing of billingcustomer activities.receipts, and lower tax payments reflecting the impact of the Tax Act and the Notice.

Free cash flow during the quartersix months ended MarchJune 29,28, 2026 decreasedincreased $1.2$1.8 billion compared to the same period in 2025 primarily due to operating cash flow drivers described above and higher software expenditures.above.

Net cash used for investing activities during the quartersix months ended MarchJune 29,28, 2026 increaseddecreased $111$255 million compared to the same period in 2025. Capital expenditures totaled $511$829 million and $454$805 million during the quartersix months ended MarchJune 29,28, 2026 and MarchJune 30,29, 2025. The majority of our capital expenditures are for equipment and facilities infrastructure that generally are incurred to support new and existing programs across all of our business segments. We also incur capital expenditures for information technology to support programs and general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use software.