LMTLockheed Martin

We also As previously disclosed, we have a number of contracts with Türkish industry for the Türkish Utility Helicopter Program (TUHP), which anticipates co-production with Türkish industry for production of T70 helicopters for use in Türkiye, as well as the related provision of Türkish goods and services under buy-back or offset obligations, to include the future sales of helicopters built obligations. Sanctions imposed in Türkiye for sale globally. In 2020, 2020 by the U.S. Government imposed on Turkey’s defense procurement agency (SSB) and certain sanctions on Türkish entities and persons that have affected our ability to perform under the TUHP contracts, and contracts. During the second quarter of 2025, we have provided force majeure notices under the affected contracts. We partially stopped work on TUHP effective October 5, 2024. We are currently in discussions with our customer regarding the path forward for the program recognized a loss of $95 million in light of the continued impact status of restructuring discussions with our prime customer and the status of the sanctions on our ability to perform under the TUHP contracts and our decision to partially stop work. TUHP. As of December 31, 2024, 2025, cumulative losses related recognized to development work for date on the program remained insignificant at approximately $130 million and the program remains in a contract liability position on the balance sheet. The In the fourth quarter of 2025, we finalized an agreement with our prime contract customer to terminate the existing TUHP contracts may be negotiated and establish new contracts for a reduced scope of work, which became effective in January 2026. Our performance under the new contracts is subject to be restructured or terminated, either in whole or in part, and as a result, we could be at risk the receipt of recording significant reach-forward losses in U.S. export authorizations. However, if our future periods. Additionally, our customer and subcontractor have asserted that we do not have the contractual right to stop work. If we licensing applications are unable to reach an agreement in the near term, we or denied, our customer could elect to pursue other relief or remedies, drawdown on letters of credit, which could result in a further reduction in sales, the imposition negatively affect our cash flows and our ability to recover our costs, and we could incur additional losses of penalties or assessment of damages, and increased unrecoverable costs, which could be material up to our financial results. approximately $115 million.

Our business We have experienced, and financial performance is also affected by general economic conditions. We continue to experience experience, supply chain challenges, including supplier shortages and performance issues. These issues have delayed While on-time deliveries are improving, pressures remain in certain customer deliveries, have been a limiting factor on areas, and we are proactively working with our ability suppliers to ramp up production in response to customer demand for certain products and have caused out-of-sequence manufacturing, which increases costs and decreases operational efficiency. meet our contract commitments. In addition, macroeconomic conditions including elevated levels of inflation and macroeconomic conditions present risks for us, our suppliers and the stability of the broader defense industrial base. Certain costs, Supply chain challenges, including rising labor rates both the availability and supplier costs, have increased cost of goods, may be further impacted due to the imposition of tariffs and the availability of raw materials including rare earth minerals, as a result of inflation, discussed below under “Recent Developments in Trade and have adversely affected our margins on certain programs. In addition, some suppliers are reducing the duration of pricing validity of their proposals to us or seeking to reopen pricing on existing agreements, which is operationally challenging and increases the risk of cost volatility. We continue to work to mitigate challenges caused by the supply chain or current macroeconomic environment on our business, including by supporting small business and at-risk suppliers, deploying resources to work with our supply chain, securing materials and support by executing long-term contracts, enforcing existing contract terms, identifying alternative sources, collaborating with our customers to address industry-wide challenges, and optimizing our supply chain organization through digital transformation and workforce development. Regulatory Policies.” If we experience significant supply chain issues or high rates of inflation, and are unable to successfully mitigate the impact, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected. Inflation and higher interest rates can also constrain the overall purchasing power of our customers for our products and services potentially impacting future orders, especially in a budget constrained environment. We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases from inflation.

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

For information regarding the matters discussed above, including current estimates of the amounts that we believe are required for remediation or clean-up to the extent estimable, see “Critical Accounting Policies - Environmental Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 14 – Legal Proceedings, Commitments and Contingencies” included in our Notes to Consolidated Financial Statements, which are incorporated herein by reference.