Lockheed Martin Corporation
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ITEM 1. Business
General
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.
Recent regional conflicts have demonstrated the integral role Lockheed Martin products play in protecting people, and we are rapidly transforming our business to meet increased demand. We are expanding production capacity to continue delivering at scale, and we are harnessing leading-edge technologies like artificial intelligence and autonomy, open-architecture systems, and advanced networking to make defense forces more agile, adaptive and unpredictable. Our goal is to deliver overwhelming capability and value – quickly, at the needed quantities and with the greatest effectiveness – to enable overmatch and strengthen deterrence today and into the future.
We achieve this by developing and investing in differentiating technologies, forging strategic partnerships, including with commercial companies, executing on our multi-year business transformation initiative, maintaining fiscal discipline, and continuing to cultivate the greatest aerospace and defense workforce talent and culture in the world. We invest substantially in our people to ensure that our people have the technical skills necessary to succeed, and we expect to continue to invest internally in innovative technologies that address rapidly evolving mission requirements for our customers. We also will continue to evaluate our organizational structure and portfolio and will make strategic changes, acquisitions or divestitures, as appropriate, while deepening our connection to commercial industry through cooperative partnerships, joint ventures and equity investments.
Business Segments
We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We organize our business segments based on the nature of the products and services offered.
Aeronautics
Aeronautics is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies. Aeronautics also has contracts with the U.S. Government for various classified programs. Aeronautics’ major programs include:
•F-35 Lightning II – international multi-role, multi-variant, fifth generation stealth fighter.
•C-130 Hercules – international tactical airlifter.
•F-16 Fighting Falcon – combat-proven, international multi-role fighter.
•F-22 Raptor – air dominance and multi-role fifth generation stealth fighter.
The F-35 program is our largest program, generating 27% of our total consolidated sales, as well as 67% of Aeronautics’ sales in 2025. The F-35 program consists of multiple development, production and sustainment contracts. Development is focused on modernizing F-35’s capability and addressing emerging threats. Sustainment provides logistics and training support for the aircraft delivered to F-35 customers. Aircraft production is expected to continue well into the future given the U.S. Government’s stated objective of procuring 2,456 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy. We also have commitments from seven international partner countries and 12 FMS customers, who collectively during the year indicated their intent to purchase 72 additional aircraft beyond their existing programs of record. The F-35 program is significant and complex, and we, our customers, and our and our customers’ suppliers continually review aircraft performance, schedule, cost and requirements. Our current areas of focus include technology modernization, life-cycle cost containment, delivery schedule optimization, and aircraft readiness enhancements. For additional information on the F-35 program, see Item 1A - Risk Factors for a discussion of risks related to the F-35 program.
In addition to the aircraft programs above, Aeronautics is involved in advanced development programs incorporating innovative design and rapid prototype applications. Our Advanced Development Programs (ADP) organization, also known as Skunk Works®, is focused on future systems, including unmanned and manned aerial systems and next generation capabilities
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for air dominance, hypersonics, intelligence, surveillance, reconnaissance, situational awareness and air mobility. We continue to explore technology advancement and insertion into our existing aircraft. We also are involved in numerous network-enabled activities that allow separate systems to work together to increase effectiveness and we continue to invest in new technologies to maintain and enhance competitiveness in military aircraft design, development and production.
Missiles and Fire Control
MFC provides air and missile defense systems; tactical missiles and precision strike weapon systems; logistics; fire control systems; and mission operations support, readiness, engineering support and integration services. MFC also has contracts with the U.S. Government for various classified programs. MFC’s major programs include:
•The Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) air and missile defense programs. PAC-3 is an advanced defensive missile for the U.S. Army and international customers designed to intercept and eliminate incoming airborne threats using kinetic energy. THAAD is a transportable defensive missile system for the U.S. Government and international customers designed to engage targets both within and outside of the Earth’s atmosphere.
•The Multiple Launch Rocket System (MLRS), Precision Strike Missile (PrSM), Joint Air-to-Surface Standoff Missile (JASSM), Long Range Anti-Ship Missile (LRASM), Hellfire and Joint Air-to-Ground Missile (JAGM) tactical and strike missile programs. MLRS is a highly mobile, automatic system that fires surface-to-surface rockets and missiles from the M270 and High Mobility Artillery Rocket System (HIMARS) platforms produced for the U.S. Army and international customers and PrSM is the next generation of precision strike surface-to-surface weapon systems that is compatible with the MLRS family of launchers in support of the U.S. Army. JASSM is an air-to-ground missile launched from fixed-wing aircraft, which is produced for the U.S. Air Force and international customers. LRASM is a precision guided anti-ship missile derived from JASSM and designed to interdict a variety of surface threats at very long range and produced for the U.S. Air Force, U.S. Navy, and international customers. Hellfire and JAGM are air-to-ground missile used on rotary and fixed-wing aircraft, which is produced for the U.S. Army, Navy, Marine Corps and international customers.
•The Javelin program, which is a one-person portable and platform-employable anti-tank and multi-target precision weapon system. Javelin was developed and is currently produced for the U.S. Army and U.S. Marine Corps by a joint venture between Lockheed Martin and RTX Corporation.
•The Apache fire control system, Sniper Advanced Targeting Pod (SNIPER®) and Infrared Search and Track (IRST21®) sensors and global sustainment programs. The Apache fire control system provides weapons-targeting capability for the Apache helicopter for the U.S. Army and international customers. SNIPER is a targeting system for several fixed-wing aircraft and is produced for the U.S. Air Force and international customers. IRST21 provides long-range infrared detection and tracking of airborne threats and is used on several fixed-wing aircraft. IRST21 is produced for the U.S. Air Force, the U.S. Navy, the National Guard and international customers.
•The Special Operations Forces Global Logistics Support Services (SOF GLSS) program, which provides logistics support services to the special operations forces of the U.S. military.
•Hypersonics programs, which include several programs with the U.S. Air Force and U.S. Army to design, develop and build hypersonic strike weapons.
Rotary and Mission Systems
RMS 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. RMS also has contracts with the U.S. Government for various classified programs. RMS’ major lines of business include:
•Sikorsky helicopter programs such as those related to the Black Hawk, Seahawk® and CH-53K King Stallion heavy lift helicopters, which are in service with U.S. and foreign governments, and the Combat Rescue Helicopter (CRH) utilized by the U.S. Air Force.
•Integrated warfare systems and sensors (IWSS) programs such as Aegis Combat System (Aegis) programs that serve as an air and missile defense system for the U.S. Navy and international customers and are also a sea and land-based element of the U.S. missile defense system, and the Littoral Combat Ship (LCS), Multi-Mission Surface Combatant (MMSC), and River-Class Destroyer (RCD) (formerly known as Canadian Surface Combatant) programs to provide surface combatant ships for the U.S. Navy and international customers that are designed to operate in shallow waters and the open ocean.
•Command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance (C6ISR) programs such as the Command, Control, Battle Management and Communications (C2BMC) program to provide an air operations center for the Ballistic Missile Defense System for the U.S. Government, undersea combat systems programs largely serving the U.S. Navy, and Australia's Joint Air Battle Management System (AIR 6500).
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•Training, logistics and simulation (TLS) programs such as those providing sustainment services and programs that provide simulators and associated training to U.S. military and foreign government customers.
Effective January 2026, the IWSS and C6ISR lines of business within RMS were restructured and renamed Sensors, Effectors & Mission Systems (SEMS) and Mission Integrated Command and Control (MIC2). This includes realignment of various programs, such as Aegis and RCD moving from what was historically IWSS to MIC2, which more closely aligns with C6ISR. SEMS and MIC2 will therefore incorporate an updated mix of existing program portfolios designed to accelerate mission‑focused solutions and enhance our customers’ experience.
Space
Space is engaged in the research and design, development, engineering and production of satellites, space transportation systems, and strategic, advanced strike, and defensive systems. Space provides network-enabled situational awareness and integrates complex space and ground global systems to help our customers gather, analyze and securely distribute critical intelligence data. Space is also responsible for various classified systems and services in support of vital national security systems. Space’s major programs include:
•The Trident II D5 Fleet Ballistic Missile (FBM), a program with the U.S. Navy for the only submarine-launched intercontinental ballistic missile currently in production in the U.S.
•The Next Generation Overhead Persistent Infrared (Next Gen OPIR) system, which provides the U.S. Space Force with enhanced worldwide missile warning capabilities.
•Next Generation Interceptor (NGI), a program with the Missile Defense Agency (MDA) utilizing next generation propulsion and sensors to provide homeland missile defense.
•The Orion Multi-Purpose Crew Vehicle (Orion), NASA’s next generation exploration-class crewed vehicle for human exploration to the Moon and throughout the solar system.
•Global Positioning System (GPS) III, a program to modernize the GPS satellite system for the U.S. Space Force.
•Hypersonics programs, which include several programs with the U.S. Army and U.S. Navy to design, develop and build hypersonic strike weapons.
•The Transport and Tracking Layer programs, multiple tranches of small satellites to support the proliferated space architecture, with constellations of missile warning and communications satellites for the Space Development Agency.
Intellectual Property
We routinely apply for and own a substantial number of U.S. and foreign patents and trademarks related to the products and services we provide. We also develop and own other intellectual property, including copyrights, trade secrets and research, development and engineering know-how, that contributes significantly to our business. In addition, we license intellectual property to and from third parties. The Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) provide the U.S. Government 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 authorize others, including competitors, to use such intellectual property. See the discussion of matters related to our intellectual property in Item 1A - Risk Factors. Non-U.S. governments also may have certain rights in patents and other intellectual property developed in performance of our contracts for them. Although our intellectual property rights in the aggregate are important to the operation of our business, we do not believe that any existing patent, license or other intellectual property right is of such importance that its loss or termination would have a material adverse effect on our business taken as a whole.
Research and Development
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes to consolidated financial statements herein and with our Annual Report on Form 10-K for the year ended December 31, 2025 (2025 Form 10-K).
BUSINESS OVERVIEW
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 nine months ended September 27, 2026, 70% of our $58.8 billion in sales were from the U.S. Government, either as a prime contractor or as a subcontractor (including 61% from U.S. Department of War (DoW), also known as the Department of Defense under 10 U.S.C. § 111(a)), and 30% were from international customers (including foreign military sales (FMS) contracted through the U.S. Government).
Global Security
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 are working with the U.S. Government, international partners, and our supply chain with the objective of increasing capacity and enhancing our ability to scale operations to contracted or anticipated demand. In 2026, we have entered into multi-year contracts with the DoW intended to increase production quantities and accelerate delivery schedules for the Patriot Advanced Capability-3 Missile Segment Enhancement (PAC-3 MSE) and Terminal High Altitude Area Defense (THAAD) programs. We have also entered into munitions framework agreements to rapidly accelerate production and delivery of the Precision Strike Missile (PrSM) and the Joint Advanced Tactical Missile (JATM), and a framework agreement for multi-year production and sustainment of the F-35 Lightning II.
For additional risks to the company related to global security, see Part I, Item 1A, “Risk Factors” of our 2025 Form 10-K.
Global Economic and Geopolitical Environment
Our business and financial performance are impacted by a combination of macroeconomic factors, such as inflationary pressures, impacts from technological change, and market volatility, as well as operational challenges, including supply chain delays and disruptions, and workforce challenges and labor shortfalls. These factors have contributed, and may continue to contribute, to increased costs, delays, disruptions and other performance challenges, as well as competing demands for limited resources to address such increased costs and other challenges, for our company, our suppliers and partners, and our customers.
We have experienced, and continue to experience, supply chain challenges, including supplier shortages and performance issues. Although on‑time deliveries have 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
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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 nine months ended September 27, 2026, we have received approximately $225 million in refunds related to prior tariff assessments.
Significant changes in tax, trade, or other policies either in the U.S. or other countries, as well as any fluctuation in foreign exchange rates as a result of such activity, could materially increase our tax burden, the price we pay for materials and component parts, the price our customers pay, and result in delays in products received or non-delivery from our suppliers as well as impact the availability of materials (including rare earth minerals), which could materially impact our business and financial results.
In addition, recent government actions relating to rare earth minerals that are used in certain of our products have raised concerns about supply availability. We are monitoring the rare earth minerals supply chain and maintaining active engagement with our suppliers as the regulatory landscape evolves, and taking steps to mitigate potential disruptions, including identifying and qualifying alternative sources, securing supply through long-term agreements, and collaborating with our customers on industry-wide solutions. If we are unable to successfully mitigate disruptions to the availability of rare earth minerals, our future profits, margins and cash flows may be adversely affected.
For additional risks to the company related to the geopolitical and economic environment, see Part I, Item 1A, “Risk Factors” of our 2025 Form 10-K.
U.S. Government Budget Environment
Our primary customer is the U.S. Government, from which we derived 70% of our sales during the nine months ended September 27, 2026, including 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 national defense. On February 3, 2026, the President signed the Consolidated Appropriations Act, 2026, which provided $839.2 billion of discretionary funding for national defense through September 30, 2026, an increase of $8.4 billion over the President’s FY2026 Budget Request. Separately, the One Big Beautiful Bill Act (the Tax Act), signed into law on July 4, 2025, provides more than $150 billion of additional mandatory funding for Defense that is available through 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, and an increase in F‑35 purchases, among other items. On September 2, 2026, the President signed a continuing resolution that generally maintains FY 2026 funding levels through December 11, 2026. Congress has not completed action on full-year FY 2027 appropriations, and the timing and ultimate level of FY 2027 defense funding remain uncertain.
Despite the Administration indicating their desire for a significant increase in defense spending in FY 2027, we anticipate the federal budget, additional potential tax law changes, and regulatory environment will continue to be subject to debate and compromise shaped by, among other things, the Administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs. Additionally, the Administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance, and other factors and then
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potentially taking action based on those assessments. Those actions remain uncertain and could result in impacts to both our current and future business prospects and financial performance.
See also the discussion of U.S. Government funding risks, in Part I, Item 1A, “Risk Factors” of our 2025 Form 10-K.
CONSOLIDATED RESULTS OF OPERATIONS
Our operating cycle is primarily long-term and involves many types of contracts for the design, development, manufacture, integration, and sustainment of products and related activities with varying delivery schedules. Additionally, we close our books and records on the last Sunday of each month, except for the month of December, as our fiscal year ends on December 31, to align our financial closing with our business processes. Because of this, the number of weeks in a reporting quarter may vary slightly during the year and for comparable prior year periods. Consequently, the results of operations of a particular year, or year-to-year comparisons of sales and profits, may not be indicative of future operating results. The following discussions of comparative results should be reviewed in this context. All per share amounts cited in these discussions are presented on a “per diluted share” basis, unless otherwise noted.
Our consolidated results of operations were as follows (in millions, except per share data):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 27, 2026 | September 28, 2025 | September 27, 2026 | September 28, 2025 | |||||||||||||||||||||||||||||||||
| Sales | $ | 20,711 | $ | 18,609 | $ | 58,795 | $ | 54,727 | ||||||||||||||||||||||||||||
| Operating costs and expenses | (18,275) | (16,369) | (51,835) | (49,430) | ||||||||||||||||||||||||||||||||
| Gross profit | 2,436 | 2,240 | 6,960 | 5,297 | ||||||||||||||||||||||||||||||||
| Other income, net | 7 | 40 | 25 | 103 | ||||||||||||||||||||||||||||||||
| Operating profit | 2,443 | 2,280 | 6,985 | 5,400 | ||||||||||||||||||||||||||||||||
| Interest expense | (264) | (286) | (799) | (828) | ||||||||||||||||||||||||||||||||
Non-service FAS pension expense | (81) | (99) | (241) | (296) | ||||||||||||||||||||||||||||||||
| Other non-operating income, net | 74 | 43 | 179 | 115 | ||||||||||||||||||||||||||||||||
| Earnings before income taxes | 2,172 | 1,938 | 6,124 | 4,391 | ||||||||||||||||||||||||||||||||
| Income tax expense | (327) | (319) | (955) | (718) | ||||||||||||||||||||||||||||||||
| Net earnings | $ | 1,845 | $ | 1,619 | $ | 5,169 | $ | 3,673 | ||||||||||||||||||||||||||||
| Diluted earnings per common share | $ | 7.97 | $ | 6.95 | $ | 22.36 | $ | 15.69 | ||||||||||||||||||||||||||||
Certain amounts reported in other income, net, including our share of earnings or losses from equity method investees, are included in the operating profit of our business segments. Accordingly, such amounts are included in the discussion of our business segment results of operations.
Sales and Operating Costs and Expenses
We generate sales from the delivery of products and services to our customers. Substantially all of our contracts are accounted for using the percentage-of-completion cost-to-cost method. Under the percentage-of-completion cost-to-cost method, we record sales on contracts over time based upon our progress towards completion on a particular contract, generally using a cost-to-cost measure, as well as our estimate of the profit to be earned at completion.
Operating costs and expenses, for both products and services, consist of materials, labor, subcontracting costs and an allocation of indirect costs (overhead and general and administrative), as well as the costs to fulfill our industrial cooperation agreements, sometimes referred to as offset agreements, required under certain contracts with international customers. For each of our contracts, we monitor the nature and amount of costs at the contract level, which form the basis for estimating our total costs to complete the contract.
Except for potential impacts to our programs resulting from supply chain disruptions, inflation, and tariffs, we have not identified any additional developing trends in operating costs and expenses for products and services that could have a material impact on our future operations.
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Our consolidated sales and operating costs and expenses were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 27, 2026 | September 28, 2025 | September 27, 2026 | September 28, 2025 | |||||||||||||||||||||||
| Sales | ||||||||||||||||||||||||||
| Products | $ | 17,429 | $ | 15,311 | $ | 49,043 | $ | 45,396 | ||||||||||||||||||
| % of total sales | 84.2 | % | 82.3 | % | 83.4 | % | 82.9 | % | ||||||||||||||||||
| Services | 3,282 | 3,298 | 9,752 | 9,331 | ||||||||||||||||||||||
| % of total sales | 15.8 | % | 17.7 | % | 16.6 | % | 17.1 | % | ||||||||||||||||||
| Total sales | $ | 20,711 | $ | 18,609 | $ | 58,795 | $ | 54,727 | ||||||||||||||||||
| Operating costs and expenses | ||||||||||||||||||||||||||
| Products | $ | (15,609) | $ | (13,708) | $ | (44,070) | $ | (41,461) | ||||||||||||||||||
| % of product sales | 89.6 | % | 89.5 | % | 89.9 | % | 91.3 | % | ||||||||||||||||||
| Services | (2,882) | (2,871) | (8,528) | (8,641) | ||||||||||||||||||||||
| % of service sales | 87.8 | % | 87.1 | % | 87.4 | % | 92.6 | % | ||||||||||||||||||
| Impairment and other charges | — | — | — | (66) | ||||||||||||||||||||||
| Other unallocated, net | 216 | 210 | 763 | 738 | ||||||||||||||||||||||
| Total operating costs and expenses | $ | (18,275) | $ | (16,369) | $ | (51,835) | $ | (49,430) | ||||||||||||||||||
Product Sales and Costs
Product sales increased $2.1 billion, or 14%, during the quarter ended September 27, 2026, compared to the same period in 2025. This increase was due to higher product sales of approximately $865 million at MFC (production ramp-up on Patriot Advanced Capability-3 (PAC-3), Terminal High Altitude Area Defense (THAAD), Guided Multiple Launch Rocket Systems (GMLRS) and Precision Strike Missile (PrSM) programs); $845 million at Aeronautics (higher volume on F-35 and C-130 production contracts); $225 million at Space (higher volume on Fleet Ballistic Missile (FBM) and Next Generation Interceptor (NGI), partially offset by program lifecycle on the OPIR mission) and $185 million at RMS (higher volume on radar programs).
Product costs increased $1.9 billion, or 14%, during the quarter ended September 27, 2026, compared to the same period in 2025. This increase was due to higher product costs of approximately $805 million at Aeronautics, $750 million at MFC, $200 million at Space and $145 million at RMS. Product costs for all four business segments reflect the production ramp-up and higher volume as described above in “Product Sales”.
Product sales during the nine months ended September 27, 2026 increased $3.6 billion, or 8%, compared to the same period in 2025. This increase was due to higher product sales of approximately $1.8 billion at MFC (production ramp-up on PAC-3, THAAD, GMLRS and PrSM programs); $1.3 billion at Aeronautics (higher volume on F-35 production contracts); and $545 million at Space (higher volume on FBM and NGI programs).
Product costs during the nine months ended September 27, 2026 increased $2.6 billion, or 6%, compared to the same period in 2025. This increase was due to higher product costs of approximately of $1.5 billion at MFC and $600 million at Space and $425 million at Aeronautics. Higher product costs reflect the production ramp-up and higher volume as described above in “Product Sales”, partially offset by the sales impact of the 2025 reach-forward loss on a classified program.
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Service Sales and Costs
Service sales and service costs during the quarter ended September 27, 2026 were comparable to the same period in 2025.
Service sales during the nine months ended September 27, 2026 increased $421 million, or 5%, compared to the same period in 2025. The increase was primarily attributable to higher service sales of approximately $295 million at Aeronautics (higher volume on the F-35 sustainment contracts) and $115 million at RMS (sales impact of the 2025 reach-forward loss on CMHP).
Service costs during the nine months ended September 27, 2026 decreased $113 million, or 1%, compared to the same period in 2025. The decrease was primarily attributable to lower service costs of $485 million at RMS, partially offset by higher service costs of approximately $305 million at Aeronautics as described above in “Service Sales”.
Impairment and Other Charges
During the nine months ended September 28, 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.
Other Unallocated, Net
Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of FAS pension expense), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, intangible asset amortization expense, and other miscellaneous corporate activities. Other unallocated, net reduced operating expenses were $216 million and $763 million during the quarter and nine months ended September 27, 2026, compared to $210 million and $738 million during the quarter and nine months ended September 28, 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 Income, Net
Other income, net was $7 million and $25 million during the quarter and nine months ended September 27, 2026, compared to $40 million and $103 million during the quarter and nine months ended September 28, 2025. 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 for the nine months ended September 27, 2026. Other income, net for the nine months ended September 28, 2025 included an intellectual property license arrangement and the Commercial Engine Solutions divestiture net working capital true-up.
Non-service FAS Pension Expense
Non-service FAS pension expense was $81 million and $241 million during the quarter and nine months ended September 27, 2026, compared to $99 million and $296 million during the quarter and nine months ended September 28, 2025. See “Note 9 - Retirement Benefits” included in our Notes to Consolidated Financial Statements for additional information.
Other Non-operating Income, net
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 $74 million and $179 million during the quarter and nine months ended September 27, 2026, compared to $43 million and $115 million during the quarter and nine months ended September 28, 2025. See “Note 12 - Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional information.
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Income Tax Expense
Our effective income tax rates were 15.1% and 15.6% for the quarter and nine months ended September 27, 2026 and 16.5% and 16.4% for the quarter and nine months ended September 28, 2025. The decreases were primarily attributable to increased tax deductions for foreign derived deduction eligible income (FDDEI), partially offset by the absence of the favorable resolution of certain federal income tax audit items as compared to the prior year. In addition, 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 and employee equity awards.
Changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application (including those with retroactive effect), could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’ equity. In addition to future changes in tax laws, the amount of net deferred tax assets will change periodically based on several factors, including the measurement of our retirement benefit obligations, actual cash contributions to our retirement benefit plans and the change in the amount or reevaluation of uncertain tax positions.
On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (the Tax 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. As a result of the Tax Act and the Notice, we are no longer subject to CAMT this year and expect to make reduced federal income tax payments for 2026.
We are regularly under audit or examination by tax authorities, including U.S. and foreign tax authorities (Australia, Canada, India, Italy, Japan, Poland, the United Kingdom, and other countries). The final resolution of tax audits and any related administrative reviews or litigation could result in unanticipated increases in our tax expense and changes to the timing of 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.
Net Earnings
We reported net earnings of $1.8 billion ($7.97 per share) and $5.2 billion ($22.36 per share) during the quarter and nine months ended September 27, 2026 and $1.6 billion ($6.95 per share) and $3.7 billion ($15.69 per share) during the quarter and nine months ended September 28, 2025. Net earnings and earnings per share for the quarter and nine months ended September 27, 2026 were affected by the factors mentioned above. Earnings per share also benefited from a net decrease of approximately 1.3 million and 2.9 million weighted average common shares outstanding during the quarter and nine months ended September 27, 2026, compared to the same periods 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 nine months ended September 27, 2026, partially offset by share issuances under our stock-based awards and certain defined contribution plans.
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BUSINESS SEGMENT RESULTS OF OPERATIONS
Our operations are organized into four business segments, which also comprise our reportable segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We generally organize our business segments based on the nature of products and services offered.
Business segment operating profit excludes the FAS/CAS pension operating adjustment, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government Cost Accounting Standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance. See “Note 4 - Information on Business Segments – Unallocated Items” included in our Notes to Consolidated Financial Statements for additional information.
Sales and operating profit for each of our business segments were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 27, 2026 | September 28, 2025 | September 27, 2026 | September 28, 2025 | |||||||||||||||||||||||||||||||||
| Sales | ||||||||||||||||||||||||||||||||||||
| Aeronautics | $ | 8,214 | $ | 7,256 | $ | 23,279 | $ | 21,733 | ||||||||||||||||||||||||||||
| Missiles and Fire Control | 4,501 | 3,624 | 12,251 | 10,430 | ||||||||||||||||||||||||||||||||
| Rotary and Mission Systems | 4,511 | 4,373 | 12,856 | 12,696 | ||||||||||||||||||||||||||||||||
| Space | 3,485 | 3,356 | 10,409 | 9,868 | ||||||||||||||||||||||||||||||||
| Total sales | $ | 20,711 | $ | 18,609 | $ | 58,795 | $ | 54,727 | ||||||||||||||||||||||||||||
| Operating profit | ||||||||||||||||||||||||||||||||||||
| Aeronautics | $ | 743 | $ | 682 | $ | 2,122 | $ | 1,304 | ||||||||||||||||||||||||||||
| Missiles and Fire Control | 631 | 510 | 1,725 | 1,454 | ||||||||||||||||||||||||||||||||
| Rotary and Mission Systems | 524 | 506 | 1,384 | 855 | ||||||||||||||||||||||||||||||||
| Space | 331 | 331 | 983 | 1,072 | ||||||||||||||||||||||||||||||||
| Total business segment operating profit | $ | 2,229 | $ | 2,029 | $ | 6,214 | $ | 4,685 | ||||||||||||||||||||||||||||
| Unallocated items | ||||||||||||||||||||||||||||||||||||
| FAS/CAS pension operating adjustment | $ | 421 | $ | 380 | $ | 1,264 | $ | 1,138 | ||||||||||||||||||||||||||||
| Impairment and other charges | — | — | — | (66) | ||||||||||||||||||||||||||||||||
| Intangible asset amortization expense | (49) | (70) | (149) | (197) | ||||||||||||||||||||||||||||||||
| Other, net | (158) | (59) | (344) | (160) | ||||||||||||||||||||||||||||||||
| Total unallocated items | 214 | 251 | 771 | 715 | ||||||||||||||||||||||||||||||||
| Total consolidated operating profit | $ | 2,443 | $ | 2,280 | $ | 6,985 | $ | 5,400 | ||||||||||||||||||||||||||||
Management evaluates performance on our contracts by focusing on sales and operating profit and not by type or amount of operating expense. Consequently, our discussion of business segment performance focuses on sales and operating profit, consistent with our approach for managing the business. This approach is consistent throughout the life cycle of our contracts, as management assesses the bidding of each contract by focusing on sales and operating profit and monitors performance on our contracts in a similar manner through their completion. This method and assumptions used to evaluate contracts and recognize revenue, including the use of percentage-of-completion accounting for contracts with continuous transfer of control to the customer, are consistent with those described in our 2025 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Additionally, for updates related to fixed-price contracts, see “Note 2 - Significant Accounting Policies” included in our Notes to Consolidated Financial Statements.
Changes in sales and operating profit generally are expressed in terms of volume, contract mix, and/or performance (referred to as profit booking rate adjustments). Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. Contract mix primarily refers to changes in the ratio of contract type or life cycle (e.g., cost-type, fixed-price, development, production and/or sustainment) and other cost recoveries.
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Comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on our contracts, see “Note 2 - Significant Accounting Policies” included in our Notes to Consolidated Financial Statements.
The following table presents the effect of our consolidated net profit booking rate adjustments on segment operating profit (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 27, 2026 | September 28, 2025 | September 27, 2026 | September 28, 2025 | |||||||||||||||||||||||||||||||||
| Aeronautics | $ | 35 | $ | 60 | $ | 110 | $ | (560) | ||||||||||||||||||||||||||||
| Missiles and Fire Control | 145 | 130 | 470 | 390 | ||||||||||||||||||||||||||||||||
| Rotary and Mission Systems | 110 | 105 | 170 | (360) | ||||||||||||||||||||||||||||||||
| Space | 85 | 70 | 215 | 330 | ||||||||||||||||||||||||||||||||
| Total net adjustments to segment operating profit | $ | 375 | $ | 365 | $ | 965 | $ | (200) | ||||||||||||||||||||||||||||
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-10-23 | St John Frank A | Chief Operating Officer | Sell | -3,899 ×3 | $0.00 | $0 |
| 2026-08-13 | Donovan John | Director | Sell | -3,378 ×6 | $0.00 | $0 |
| 2026-08-12 | Lightfoot Robert M JR | President Space | Sell | -196 | $600.12 | -$117,623 |
| 2026-08-11 | Lightfoot Robert M JR | President Space | Sell | -2,410 ×2 | $0.00 | $0 |
Source: SEC Form 4 filings.
Next expected filings
- ~2027-01-28 10-K expected by 2027-03-01 (in 91 days)
- ~2027-04-24 10-Q expected by 2027-05-11 (in 177 days)
- ~2027-07-24 10-Q expected by 2027-08-10 (in 268 days)
- ~2027-10-23 10-Q expected by 2027-11-09 (in 359 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-10-22 8-K Earnings Release; Financial Statements and Exhibits
- 2026-10-22 10-Q Quarterly Report
- 2026-08-28 8-K Material Agreement Entered; Financial Statements and Exhibits
- 2026-07-23 8-K Earnings Release; Financial Statements and Exhibits
- 2026-07-23 10-Q Quarterly Report
- 2026-04-23 8-K Earnings Release; Financial Statements and Exhibits
- 2026-04-23 10-Q Quarterly Report
- 2026-04-23 S-3ASR S-3ASR
- 2026-01-29 10-K Annual Report
- 2026-01-29 8-K Earnings Release; Financial Statements and Exhibits
- 2025-12-18 8-K Other Events
- 2025-12-09 8-K Material Agreement Entered; Financial Statements and Exhibits
- 2025-10-21 10-Q Quarterly Report
- 2025-10-21 8-K Earnings Release; Financial Statements and Exhibits
- 2025-08-29 8-K Material Agreement Entered; Financial Statements and Exhibits