Results
Lockheed Martin Corporation
10/22/2026 | Press release | Distributed by Public on 10/22/2026 15:14
Quarterly Report for Quarter Ending September 27, 2026 (Form 10-Q)
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
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
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.
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.
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.
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.
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.
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) | ||||||||||||||||||||||||||||||
During the nine months ended September 27, 2026, we recorded unfavorable profit adjustments of $170 million on the F-16 program at Aeronautics as a result of production performance and development delays, $175 million on the C-130 program at Aeronautics as a result of continued diminishing manufacturing source integration challenges and associated delivery delays, $125 million on the Heavy Lift program at RMS as a result of production performance, and $95 million on the Seahawk program at RMS as a result of production performance and schedule delays. During the nine months ended September 28, 2025, we recorded losses 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 and $105 million of unfavorable profit adjustments on the C-130 program at our Aeronautics business segment. In addition to the losses and unfavorable profit adjustments above, during the nine months ended September 28, 2025 we also recorded $130 million of favorable adjustments upon completion on certain commercial civil space programs at Space and $80 million favorable adjustments upon completion of a classified program at Aeronautics.
There are certain programs where there is a risk of additional losses, including Aeronautics, MFC and RMS business segments. For further discussion regarding the losses recognized on these programs, including factors that could contribute to potential future losses, see "Note 2 - Significant Accounting Policies" included in our Notes to Consolidated Financial Statements.
Aeronautics
Summary operating results for our Aeronautics business segment were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
|
September 27, 2026 |
September 28, 2025 |
September 27, 2026 |
September 28, 2025 |
|||||||||||||||||||||||||||||||||||
| Sales | $ | 8,214 | $ | 7,256 | $ | 23,279 | $ | 21,733 | ||||||||||||||||||||||||||||||
| Operating profit | 743 | 682 | 2,122 | 1,304 | ||||||||||||||||||||||||||||||||||
| Operating margin | 9.0 | % | 9.4 | % | 9.1 | % | 6.0 | % | ||||||||||||||||||||||||||||||
Aeronautics' sales during the quarter ended September 27, 2026 increased $958 million, or 13%, compared to the same period in 2025. The increase was primarily due to higher sales of $710 million on the F-35 program as a result of higher volume on production and sustainment contracts and $270 million on the C-130 program due to the liquidation of pre-contract costs incurred in anticipation of a contract award in the third quarter of 2026. These increases were partially offset by lower sales of $130 million on the F-16 program due to lower production volume and the sales impact of unfavorable profit adjustments recognized.
Aeronautics' operating profit during the quarter ended September 27, 2026 increased $61 million, or 9%, compared to the same period in 2025. The increase was primarily attributable to the higher sales volume previously described, partially offset by higher unfavorable profit adjustments of $40 million on the F-16 program and $40 million on the C-130 program.
Aeronautics' sales during the nine months ended September 27, 2026 increased $1.5 billion, or 7%, compared to the same period in 2025. The increase was primarily due to higher sales of $1.5 billion on the F-35 program as a result of higher volume on production and sustainment contracts and $200 million on the F-22 program due to higher volume. These increases were partially offset by lower sales of $360 million on the F-16 program due to the sales impact of $165 million of unfavorable profit adjustments recognized in 2026 and lower production volume. Sales for classified programs were comparable as the impact of lower volume during the nine months of 2026 was mostly offset by the reach-forward loss recognized on a classified contract in 2025.
Aeronautics' operating profit during the nine months ended September 27, 2026 increased $818 million, or 63%, compared to the same period in 2025. The increase was primarily attributable to the $950 million reach-forward loss recognized on a classified contract in 2025 and the higher sales volume previously described; partially offset by higher unfavorable profit adjustments of $165 million on the F-16 program and $70 million on the C-130 program.
Additionally, during the quarter ended September 27, 2026, we delivered 43 F-35 aircraft. Since the program inception through September 27, 2026, we delivered 1,387 production F-35 aircraft, including 989 F-35A variants, 255 F-35B variants and 143 F-35C variants, and our backlog as of that date was 274 aircraft. We remain in negotiations with the U.S. Government on the production contracts for F-35 lots 20 and higher. Our costs incurred began to exceed the current contractual authorization and funding on the Lot 20 advance acquisition contract during the third quarter of 2026. Without additional contractual authorization and funding from the U.S. Government, our results of operations, cash flows, and financial condition will be negatively impacted in future periods.
Missiles and Fire Control
Summary operating results for our MFC business segment were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
|
September 27, 2026 |
September 28, 2025 |
September 27, 2026 |
September 28, 2025 |
|||||||||||||||||||||||||||||||||||
| Sales | $ | 4,501 | $ | 3,624 | $ | 12,251 | $ | 10,430 | ||||||||||||||||||||||||||||||
| Operating profit | 631 | 510 | 1,725 | 1,454 | ||||||||||||||||||||||||||||||||||
| Operating margin | 14.0 | % | 14.1 | % | 14.1 | % | 13.9 | % | ||||||||||||||||||||||||||||||
MFC's sales during the quarter ended September 27, 2026 increased $877 million, or 24%, compared to the same period in 2025. The increase was primarily attributable to higher sales of $480 million on integrated air and missile defense programs due to production ramps (PAC-3 and THAAD), and $330 million on tactical and strike missile programs due to production ramps (GMLRS and PrSM).
MFC's operating profit during the quarter ended September 27, 2026 increased $121 million, or 24%, compared to the same period in 2025. The increase was primarily attributable to higher sales volume previously described.
MFC's sales during the nine months ended September 27, 2026 increased $1.8 billion, or 17%, compared to the same period in 2025. The increase was primarily attributable to higher sales of $1.2 billion on integrated air and missile defense programs due to production ramps (PAC-3 and THAAD), and $510 million on tactical and strike missile programs due to production ramps (GMLRS and PrSM).
MFC's operating profit during the nine months ended September 27, 2026 increased $271 million, or 19%, compared to the same period in 2025. The increase was primarily attributable to the higher sales volume previously described, and $75 million due to higher net favorable profit adjustments on integrated air and missile defense (PAC-3 and THAAD).
Rotary and Mission Systems
Summary operating results for our RMS business segment were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
|
September 27, 2026 |
September 28, 2025 |
September 27, 2026 |
September 28, 2025 |
|||||||||||||||||||||||||||||||||||
| Sales | $ | 4,511 | $ | 4,373 | $ | 12,856 | $ | 12,696 | ||||||||||||||||||||||||||||||
| Operating profit | 524 | 506 | 1,384 | 855 | ||||||||||||||||||||||||||||||||||
| Operating margin | 11.6 | % | 11.6 | % | 10.8 | % | 6.7 | % | ||||||||||||||||||||||||||||||
RMS' sales during the quarter ended September 27, 2026 increased $138 million, or 3%, compared to the same period in 2025. The increase was attributable to higher sales of $140 million on Sensors, Effectors & Mission Systems (SEMS) programs due to higher volume on radar programs.
RMS' operating profit during the quarter ended September 27, 2026 increased $18 million, or 4%, compared to the same period in 2025, primarily due to a $40 million favorable profit adjustment upon the resolution of a contracting matter, offset by unfavorable profit adjustments of $45 million on Heavy Lift and Seahawk programs in the third quarter of 2026.
RMS' sales during the nine months ended September 27, 2026 increased $160 million, or 1%, compared to the same period in 2025. The increase was primarily attributable to higher sales of $150 million on Mission Integrated Command & Control (MIC2) programs due to higher volume on undersea mission systems programs and the River Class Destroyer program, and $60 million on Sikorsky helicopter programs. Higher sales at Sikorsky were due to the sales impact of the reach-forward losses recognized on CMHP and TUHP in 2025, partially offset by the sales impact of unfavorable profit adjustments recognized on Heavy Lift and Seahawk programs in 2026.
RMS' operating profit during the nine months ended September 27, 2026 increased $529 million, or 62%, compared to the same period in 2025. The increase was attributable to the $570 million reach-forward loss recognized on CMHP and the $95 million reach-forward loss recognized on TUHP in 2025, partially offset by unfavorable profit adjustments of $125 million on Heavy Lift and $95 million on Seahawk programs in 2026.
Space
Summary operating results for our Space business segment were as follows (in millions):
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
|
September 27, 2026 |
September 28, 2025 |
September 27, 2026 |
September 28, 2025 |
|||||||||||||||||||||||||||||||||||
| Sales | $ | 3,485 | $ | 3,356 | $ | 10,409 | $ | 9,868 | ||||||||||||||||||||||||||||||
| Operating profit | 331 | 331 | 983 | 1,072 | ||||||||||||||||||||||||||||||||||
| Operating margin | 9.5 | % | 9.9 | % | 9.4 | % | 10.9 | % | ||||||||||||||||||||||||||||||
Space's sales during the quarter ended September 27, 2026 increased $129 million, or 4%, compared to the same period in 2025. The increase was primarily attributable to higher sales of $185 million on strategic and missile defense programs due to higher volume on the FBM and NGI programs, partially offset by lower sales of $115 million for national security space programs due to the program lifecycle on the OPIR mission.
Space's operating profit during the quarter ended September 27, 2026 was comparable to the same period in 2025.
Space's sales during the nine months ended September 27, 2026 increased $541 million, or 5%, compared to the same period in 2025. The increase was primarily attributable to higher sales of $620 million on strategic and missile defense programs due to increased volume (FBM and NGI).
Space's operating profit during the nine months ended September 27, 2026 decreased $89 million, or 8%, compared to the same period in 2025. The decrease was primarily due to favorable performance at completion on certain commercial civil space programs in 2025; partially offset by higher sales volume previously described.
FINANCIAL CONDITION
Liquidity and Capital Resources
At September 27, 2026, we had cash and cash equivalents of $6.0 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 $5.25 billion of unsecured revolving credit facilities and the ability to issue commercial paper. We may, as conditions warrant, issue commercial paper backed by our revolving credit facilities to manage the timing of cash flows. There were no borrowings outstanding under the revolving credit facilities or the commercial paper program at September 27, 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 6 - 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. Typically, these reach-forward losses do not have an immediate cash flow impact, but as future costs are incurred on these contracts, these losses will negatively impact cash flows over the remaining period of performance.
Increases in costs due to tariffs may impact our cash flows, as we may not be able to fully recover these costs, and even if recovery is possible, it may not occur in the same period as the incurred costs. See "Business Overview" discussion above.
Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. We generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately 40% of the sales we recorded during the nine months ended September 27, 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.
The U.S. Government has indicated that it would consider progress payments as the baseline for negotiating payment terms on fixed-price contracts, rather than performance-based payments. In contrast to negotiated performance-based payment terms, progress payment provisions correspond to a percentage of the amount of costs incurred during the performance of the contract and are invoiced regularly as costs are incurred. Our cash flows may be affected if the U.S. Government changes its payment policies. The U.S. Government from time to time withholds payments on certain of our billings based on contract terms or regulatory provisions. Ultimately, the impact of policy changes or withholding payments may delay the receipt of cash, but the cumulative amount of cash collected during the life of the contract should not vary due to these items.
We seek to maintain a disciplined and dynamic cash deployment strategy to invest in our business and key technologies to provide our customers with enhanced capabilities, enhance stockholder value, and position ourselves to take advantage of new business opportunities when they arise. Consistent with that strategy, we have continued to invest in our business and technologies through capital expenditures, independent research and development, and selective business acquisitions and investments. We expect to fund the pending $3.45 billion acquisition of Ultra Maritime with cash on hand. See "Note 13 - Other" for additional information. We have guaranteed $750 million of certain United Launch Alliance (ULA) borrowings and expect to provide additional financial support. See "Note 2 - Significant Accounting Policies" included in our Notes to Consolidated Financial Statements for additional information.
As we implement our digital and business transformation, which includes implementation of new systems, the timing of certain of our cash flows may be temporarily impacted within a calendar year.
We continue to actively manage our debt levels, including maturities and interest rates. We seek to finance our business in a manner that preserves financial flexibility while minimizing borrowing costs to the extent practicable. We review changes in financial market and economic conditions to manage the types, amounts and maturities of our indebtedness. We may at times refinance existing indebtedness, vary our mix of variable-rate and fixed-rate debt or seek alternative financing sources or arrangements for our cash and operational needs.
We actively manage our pension obligations and expect to continue doing so opportunistically through discretionary contributions, the purchase of group annuity contracts using assets from the pension trust, or other actions. See "Note 9 - Retirement Benefits" included in our Notes to Consolidated Financial Statements for additional information.
The following table provides a summary of our cash flow information followed by a discussion of the key elements (in millions):
| Nine Months Ended | ||||||||||||||||||||
|
September 27, 2026 |
September 28, 2025 |
|||||||||||||||||||
| Cash and cash equivalents at beginning of year | $ | 4,121 | $ | 2,483 | ||||||||||||||||
| Operating activities | ||||||||||||||||||||
| Net earnings | 5,169 | 3,673 | ||||||||||||||||||
| Noncash adjustments | 2,606 | 3,192 | ||||||||||||||||||
| Changes in working capital | (864) | (1,553) | ||||||||||||||||||
| Other, net | (18) | 26 | ||||||||||||||||||
| Net cash provided by operating activities | 6,893 | 5,338 | ||||||||||||||||||
| Net cash used for investing activities | (1,360) | (1,464) | ||||||||||||||||||
| Net cash used for financing activities | (3,694) | (2,887) | ||||||||||||||||||
| Net change in cash and cash equivalents | 1,839 | 987 | ||||||||||||||||||
| Cash and cash equivalents at end of period | $ | 5,960 | $ | 3,470 | ||||||||||||||||
Operating Activities
Net cash provided by operating activities during the nine months ended September 27, 2026 increased $1.6 billion compared to the same period in 2025. The increase in cash from operations was primarily due to higher customer receipts in 2026 and lower tax payments reflecting the impact of the Tax Act and the Notice.
Non-GAAP Financial Measure - Free Cash Flow
Free cash flow is a non-GAAP financial measure that we define as cash from operations less capital expenditures. Our capital expenditures are comprised of equipment and facilities infrastructure and information technology (inclusive of costs for the development or purchase of internal-use software that are capitalized). We use free cash flow to evaluate our business performance and overall liquidity. While management believes that free cash flow as a non-GAAP financial measure may be useful in evaluating our financial performance, it should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.
The following table reconciles net cash provided by operating activities to free cash flow (in millions):
| Nine Months Ended | ||||||||||||||||||||
|
September 27, 2026 |
September 28, 2025 |
|||||||||||||||||||
| Cash from operations | $ | 6,893 | $ | 5,338 | ||||||||||||||||
| Capital expenditures | (1,268) | (1,186) | ||||||||||||||||||
| Free cash flow | $ | 5,625 | $ | 4,152 | ||||||||||||||||
Free cash flow during the nine months ended September 27, 2026 increased $1.5 billion compared to the same period in 2025 primarily due to operating cash flow drivers described above.
Investing Activities
Net cash used for investing activities during the nine months ended September 27, 2026 decreased $104 million compared to the same period in 2025, primarily due to a $360 million cash payment for the acquisition of Rapid Solutions in 2025.
Capital expenditures totaled $1.3 billion and $1.2 billion during the nine months ended September 27, 2026 and September 28, 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.
Financing Activities
Net cash used for financing activities during the nine months ended September 27, 2026 increased $807 million compared to the same period in 2025. During the nine months ended September 27, 2026, we did not receive any net proceeds from long-term debt issuance, compared to $2.0 billion during the same period in 2025. Additionally, during the nine months ended September 27, 2026, we repaid $1.2 billion of long-term notes with fixed interest rates according to their scheduled maturities, compared to $142 million during the same period in 2025. We did not make any share repurchases during the nine months ended September 27, 2026, compared to paying $2.3 billion to repurchase 5.0 million shares during the same period in 2025.
OTHER MATTERS
Critical Accounting Policies
There have been no significant changes to the critical accounting policies disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2025 Form 10-K.
Lockheed Martin Corporation published this content on October 22, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 22, 2026 at 21:14 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]