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Item 2. Management’s Discussion and Analysis

2025-10-30 compared with 2025-07-31 · 125 added, 129 removed, 376 unchanged (40% of the section changed)

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We conduct most of our business with the U.S.

Government, primarily the Department of Defense ("DoD").

Government, primarily the Department of War (the "Department").

As prime contractor, principal subcontractor, team member, or partner, we participate in many high-priority U.S.

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defensive and offensive cyber, electronic warfare & space;

uncrewed systems;

unmanned systems;

live, virtual, and constructive training solutions;

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Our customers and suppliers continue to face challenges, and we believe continued budget pressures could have serious implications for defense discretionary spending, the defense industrial base, including HII, and the customers, employees, suppliers, subcontractors, investors, and communities that rely on companies in the defense industrial base.

We cannot clearly predict how long these challenges will continue, whether these challenges will change over time, or whether our actions to address these challenges will be successful.

Defense Spending Environment – The federal government is operating under the Full-Year Continuing Appropriations and Extensions Act, 2025, signed into law March 15, 2025.

This marks the first time the DoD has operated under a Continuing Resolution ("CR") for a full fiscal year.

While unprecedented, exceptions were made to the Navy Shipbuilding and Conversion account in the full-year CR to provide the necessary authorities and funding for program execution.

The fiscal year 2026 budget process is unique.

As proposed, the first budget submission of Donald Trump’s second Administration requested two Congressional bills to be passed — a base annual appropriations bill and a budget reconciliation bill.

For fiscal year 2026, the Administration recommends a National Defense budget of $1.01 trillion, of which $961.6 billion is specific to the Pentagon and consists of $848.3 billion for the Pentagon’s annual discretionary budget and $113.3 billion for the Pentagon in mandatory funding via Congressional reconciliation.

On May 2, 2025, the Administration released the President's topline recommendations on discretionary funding levels for fiscal year 2026, followed by detailed budget justification documents in June.

The Department of the Navy requested $248.9 billion in the base budget and $43.3 billion in reconciliation funds.

Included in the Navy's proposed fiscal year 2026 budget is $47.4 billion for shipbuilding — $20.9 billion in the base budget request and $26.5 billion in reconciliation funding.

The proposed budget relies on reconciliation funding to fund 14 of 17 battle force ships requested.

Combined, the base budget and reconciliation budget reflect continued investment in shipbuilding.

The Navy’s fiscal year 2026 base discretionary budget request seeks one Columbia class (SSBN 826) ballistic missile submarine, one

Virginia class (SSN 774) fast attack submarine and one ocean surveillance ship.

The budget reconciliation bill, known as the One Big Beautiful Bill Act (the "Act"), was signed into law on July 4, 2025 and includes more than $29 billion for Shipbuilding and the Maritime Industrial Base.

The Act funds one Virginia class (SSN 774) fast attack submarine, two Arleigh Burke class (DDG 51) guided-missile destroyers, nine Landing Ship Mediums and two John Lewis class (T-AO 205) fleet oilers.

Funding is also provided for amphibious warfare ships and unmanned surface vessels.

Lawmakers proceeded with consideration of the fiscal year 2026 budget request for the Federal government, while simultaneously considering the reconciliation bill.

On July 18, 2025, the House approved its Fiscal Year 2026 Defense Appropriations Bill which was developed to complement the defense investments in the reconciliation bill.

For the shipbuilding account, the House appropriation bill provides $36.9 billion in base discretionary funding, including six battle force ships:

one Columbia class (SSBN 826) ballistic missile submarine, two Virginia class (SSN 774) fast attack submarines, two Arleigh Burke class (DDG 51) guided missile destroyers, and one T-AGOS SURTASS ship for antisubmarine warfare.

Additionally, the House appropriations bill includes $1.5 billion for the Maritime Industrial Base to invest in critical areas including supplier capacity and capability, strategic outsourcing, workforce training, and technology, and infrastructure;

$1.6 billion for productivity enhancements to improve shipbuilder capability, capacity, and efficiency at the private nuclear shipyards;

and $521 million for wage enhancements at the private nuclear shipyards.

The timing of Senate Appropriations Committee action remains uncertain.

Both the Senate Armed Services Committee ("SASC") and the House Armed Services Committee ("HASC") approved their respective versions of the fiscal year 2026 National Defense Authorization Act ("NDAA") legislation in July.

The SASC authorization bill supports a total of $925 billion in fiscal year 2026 funding for national defense, including $878.7 billion for the Defense Department, $35.2 billion for defense programs within the Department of Energy, and $11.1 billion for defense spending outside the jurisdiction of the NDAA.

Language is included in the bill that authorizes the procurement of up to five Columbia class (SSBN 826) ballistic missile submarines and supports amphibious warship production by reinforcing the statutory requirement for 31 amphibious ships.

Additional funding is authorized for Virginia class (SSN 774) submarines and Arleigh Burke class (DDG 51) destroyers.

In addition to the Virginia class (SSN 774) submarine and two Arleigh Burke class (DDG 51) destroyers provided for by reconciliation, the HASC bill authorizes the procurement of the third Columbia class (SSBN 826) submarine and additional funding for Virginia class (SSN 774) submarines.

Additionally, the HASC bill supports the authorization of advance procurement for future Columbia class (SSBN 826) submarines, additional funding for Virginia class (SSN 774) submarines, as well as completion of prior year ships including aircraft carriers and Virginia class (SSN 774) submarines.

We cannot predict the outcome of the fiscal year 2026 budget process or if short-term funding will be made available if annual appropriations measures are not finalized by the start of the new fiscal year on October 1, 2025.

We cannot clearly predict how long these challenges will

continue, whether these challenges will change over time, or whether our actions to address these challenges will be successful.

Defense Spending Environment – On May 2, 2025, the Trump Administration released the President's topline recommendations on discretionary funding levels for fiscal year 2026, followed by detailed budget justification documents in June.

Additionally, under the Public Law 119-21 (the "Act"), Congress provided mandatory funding for more than $29 billion for Shipbuilding and the Maritime Industrial Base.

This funding included one Virginia class (SSN 774) fast attack submarine and two Arleigh-Burke class (DDG 51) guided-missile destroyers, and provided additional funding for amphibious warfare ships and unmanned surface vessels.

Lawmakers continue to consider the annual budget request for the federal government.

House of Representatives approved a fiscal year 2026 defense appropriations measure in July, and the U.S.

Senate Committee on Appropriations advanced its defense appropriations measure out of committee in July.

The House and Senate Committees on Armed Services acted on their respective National Defense Authorization bills for fiscal year 2026, with the House approving the authorization bill in September and the Senate approving the authorization bill in October.

Fiscal year 2026 began on October 1, 2025 without annual appropriations legislation or a continuing resolution.

As a result, many parts of the U.S.

Government temporarily shut down.

This lapse in federal funding leaves the federal government sustaining only those activities that are determined to be excepted or funded through means other than fiscal year 2026 annual appropriations.

Prior to the lapse in appropriations, the Department identified those missions and functions of the Department deemed high priority, including shipbuilding, that may continue through the use of available funds in the absence of new annual appropriations.

Funds that remain available include those provided for certain shipbuilding programs under the Act.

According to Department guidance, “The expiration of an appropriation does not require the termination of contracts (or issuance of stop work orders) funded by that appropriation unless a new obligation of funds is required under the contract and the contract is not required to support an excepted activity." "The Department may continue to enter into new contracts, or place task orders under existing contracts, to obtain supplies and services necessary to carry out or support excepted activities even though there are no available appropriations.”

It remains uncertain at this point when funding will be enacted for fiscal year 2026 and whether it will be in the form of a continuing resolution or finalization of annual appropriations measures.

We cannot predict the outcome of the fiscal year 2026 budget process, including any impact on the Company's programs.

Global Geopolitical and Economic Environment – The global geopolitical and economic environment continues to be impacted by uncertainty, heightened geopolitical tensions, and instability.

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These global threats persist across all domains, from undersea to space to cyber, and the global market for defense products, services, and solutions is driven by these complex and evolving security challenges.

In addition, changes in the global economic environment, including changes in international trade policies, including those imposing tariffs, could further impact the global market for defense products.

Our current operating environment exists in the broader context of political and socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding geopolitical tensions, financial market volatility, inflation, trade policy, and a challenging labor market.

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• Workers' compensation.

As of June 30, 2025, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2024.

As of September 30, 2025, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2024.

Program Descriptions

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The following table presents selected financial highlights:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

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Volume changes will typically carry a corresponding income change based on the profit margin rate for a particular contract.

Sales and service revenues for the three months ended June 30, 2025, increased $105 million, or 4%, compared to the same period in 2024, primarily due to higher volumes at Newport News, Mission Technologies, and Ingalls.

Sales and service revenues for the six months ended June 30, 2025, increased $34 million, or 1%, compared to the same period in 2024, primarily due to higher volumes at Newport News and Mission Technologies, partially offset by lower volumes at Ingalls.

Sales and service revenues for the three and nine months ended September 30, 2025, increased $443 million, or 16%, and $477 million, or 6%, respectively compared to the same periods in 2024, primarily due to higher volumes at Newport News, Ingalls, and Mission Technologies.

Net Cumulative Catch-up Revenue Adjustments

For the three and six months ended June 30, 2025 and 2024, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Three Months Ended June 30 Six Months Ended June 30

For the three and nine months ended September 30, 2025 and 2024, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Three Months Ended September 30 Nine Months Ended September 30

($ in millions) 2025

2024 2025 2024

Gross favorable adjustments $ 37 $ 36 $ 255 $ 174

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These costs are allocated to contracts in progress on a systematic basis, and contract performance factors include this cost component as an element of cost.

General and administrative expenses for the three months ended June 30, 2025, decreased $14 million from the same period in 2024, primarily due to lower overhead costs.

General and administrative expenses for the six months ended June 30, 2025, remained consistent with the same period in 2024.

General and administrative expenses for each of the three and nine months ended September 30, 2025, decreased $7 million from the same periods in 2024, primarily due to lower overhead costs.

Operating Income

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The following table reconciles operating income to segment operating income:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

($ in millions) 2025 2024 Dollars Percent 2025 2024 Dollars Percent

($ in millions) 2025

2024 Dollars Percent 2025

2024 Dollars Percent

Operating income $ 161 $ 82 $ 79 96 % $ 485 $ 425 $ 60 14 %

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The components of the Operating FAS/CAS Adjustment were as follows:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

($ in millions) 2025 2024 Dollars Percent 2025 2024 Dollars Percent

($ in millions) 2025

2024 Dollars Percent 2025 2024 Dollars Percent

FAS benefit $ 25 $ 15 $ 10 67 % $ 75 $ 48 $ 27 56 %

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Operating FAS/CAS Adjustment expense $ (9) $ (16) $ 7 44 % $ (25) $ (48) $ 23 48 %

The Operating FAS/CAS Adjustment was a net expense of $6 million and $15 million for the three months ended June 30, 2025 and 2024, respectively.

The Operating FAS/CAS Adjustment was a net expense of $16 million and $32 million for the six months ended June 30, 2025 and 2024, respectively.

The Operating FAS/CAS Adjustment was a net expense of $9 million and $16 million for the three months ended September 30, 2025 and 2024, respectively.

The Operating FAS/CAS Adjustment was a net expense of $25 million and $48 million for the nine months ended September 30, 2025 and 2024, respectively.

The favorable change in the Operating FAS/CAS Adjustment for each period was primarily driven by higher interest rates under FAS.

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Current period state income taxes are charged to contract costs and included in cost of sales and service revenues in segment operating income.

Non-current state income tax expense was $3 million for the three months ended June 30, 2025, compared to a non-current state income tax benefit of $1 million for the three months ended June 30, 2024.

The unfavorable change in non-current state income taxes for the three months ended June 30, 2025 was driven by an increase in deferred state income tax expense, primarily attributable to the timing of depreciation deductions for income tax purposes.

Non-current state income tax expense was $3 million for the six months ended June 30, 2025, compared to a non-current state income tax benefit of $2 million for the six months ended June 30, 2024.

The unfavorable change in non-current state income taxes for the six months ended June 30, 2025 was driven by an increase in deferred state income tax expense, primarily attributable to the timing of depreciation deductions and the timing of long-term contract income for income tax purposes.

Non-current state income tax expense was $9 million for the three months ended September 30, 2025, compared to a non-current state income tax benefit of $1 million for the three months ended September 30, 2024.

Non-current state income tax expense was $12 million for the nine months ended September 30, 2025, compared to a non-current state income tax benefit of $3 million for the nine months ended September 30, 2024.

The unfavorable changes in non-current state income taxes for the three and nine months ended September 30, 2025 were driven by an increase in deferred state income tax expense, primarily attributable to a change in net capitalized research and development expenditures.

SEGMENT OPERATING RESULTS

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The following table presents segment operating results:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

($ in millions) 2025 2024 Dollars Percent 2025 2024 Dollars Percent

($ in millions) 2025

2024 Dollars Percent 2025 2024 Dollars Percent

Sales and Service Revenues

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Net Cumulative Catch-up Revenue Adjustments by Segment

For the three and six months ended June 30, 2025 and 2024, net cumulative catch-up revenue adjustments by segment were as follows:

Three Months Ended June 30 Six Months Ended June 30

For the three and nine months ended September 30, 2025 and 2024, net cumulative catch-up revenue adjustments by segment were as follows:

Three Months Ended September 30 Nine Months Ended September 30

($ in millions) 2025

2024 2025 2024

Ingalls $ 6 $ 1 $ 10 $ 20

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Revenue and "Consolidated Operating Results" in this section for additional information on our net cumulative catch-up revenue adjustments.

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

($ in millions) 2025 2024 Dollars Percent 2025 2024 Dollars Percent

($ in millions) 2025

2024 Dollars Percent 2025 2024 Dollars Percent

Sales and service revenues $ 828 $ 664 $ 164 25 % $ 2,189 $ 2,031 $ 158 8 %

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Sales and Service Revenues

Ingalls revenues, including intersegment sales, for the three months ended June 30, 2025, increased $12 million, or 2%, from the same period in 2024, primarily driven by higher volumes in surface combatants, partially offset by lower volumes in amphibious assault ships.

Ingalls revenues, including intersegment sales, for the six months ended June 30, 2025, decreased $6 million from the same period in 2024, primarily driven by lower volumes in amphibious assault ships, partially offset by higher volumes in surface combatants.

Ingalls revenues, including intersegment sales, for the three months ended September 30, 2025, increased $164 million, or 25%, from the same period in 2024, primarily driven by higher volumes in surface combatants.

Ingalls revenues, including intersegment sales, for the nine months ended September 30, 2025, increased $158 million, or 8%, from the same period in 2024, primarily driven by higher volumes in surface combatants, partially offset by lower volumes in amphibious assault ships.

Segment Operating Income

Ingalls segment operating income for the three months ended June 30, 2025, was $54 million, compared to segment operating income of $56 million for the same period in 2024.

The decrease was primarily driven by lower performance and lower contract incentives on amphibious assault ships, partially offset by contract adjustments in surface combatants.

Ingalls segment operating income for the six months ended June 30, 2025, was $100 million, compared to segment operating income of $116 million for the same period in 2024.

The decrease was primarily driven by lower performance and lower contract incentives on amphibious assault ships, partially offset by contract adjustments in surface combatants.

Three Months Ended June 30 Six Months Ended June 30

Ingalls segment operating income for the three months ended September 30, 2025, was $65 million, compared to segment operating income of $49 million for the same period in 2024.

The increase was primarily driven by the higher volumes described above.

Ingalls segment operating income for each of the nine months ended September 30, 2025 and 2024, was consistent at $165 million.

Higher volumes and contract adjustments in surface combatants were offset by lower volumes and lower performance in amphibious assault ships.

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

($ in millions) 2025 2024 Dollars Percent 2025 2024 Dollars Percent

($ in millions) 2025

2024 Dollars Percent 2025 2024 Dollars Percent

Sales and service revenues $ 1,617 $ 1,412 $ 205 15 % $ 4,616 $ 4,381 $ 235 5 %

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Sales and Service Revenues

Newport News revenues, including intersegment sales, for the three months ended June 30, 2025, increased $68 million, or 4%, from the same period in 2024, primarily driven by higher volumes in the Columbia class (SSBN 826) submarine program and the Virginia class (SSN 774) submarine program, partially offset by cumulative catch-up adjustments on aircraft carrier construction, and favorable contract adjustments and incentives in the second quarter of 2024 on the RCOH program.

Newport News revenues, including intersegment sales, for the six months ended June 30, 2025, increased $30 million, or 1%, from the same period in 2024, primarily driven by higher volumes in the Columbia class (SSBN 826) submarine program and the Virginia class (SSN 774) submarine program, partially offset by cumulative catch-up adjustments on aircraft carrier construction, and favorable contract adjustments and incentives in 2024 on the RCOH program.

Newport News revenues, including intersegment sales, for the three months ended September 30, 2025, increased $205 million, or 15%, from the same period in 2024, primarily driven by higher volumes in submarines and aircraft carriers.

Newport News revenues, including intersegment sales, for the nine months ended September 30, 2025, increased $235 million, or 5%, from the same period in 2024, primarily driven by higher volumes in submarines.

Segment Operating Income

Newport News segment operating income for the three months ended June 30, 2025, was $82 million, compared to segment operating income of $111 million for the same period in 2024.

The decrease was primarily driven by lower performance in the Virginia class (SSN 774) submarine program and aircraft carrier construction, as well as contract adjustments and incentives in the second quarter of 2024 on the RCOH program, partially offset by contract incentives on the Virginia class (SSN 774) submarine program and aircraft carrier construction, as well as higher risk retirement on the Columbia class (SSBN 826) submarine program.

Newport News segment operating income for the six months ended June 30, 2025, was $167 million, compared to segment operating income of $193 million for the same period in 2024.

The decrease was primarily driven by lower performance in the Virginia class (SSN 774) submarine program and aircraft carrier construction, as well as contract adjustments and incentives in 2024 on the RCOH program, partially offset by contract incentives on the Virginia class (SSN 774) submarine program and aircraft carrier construction, as well as higher risk retirement on the Columbia class (SSBN 826) submarine program.

Newport News segment operating income for the three months ended September 30, 2025, was $80 million, compared to segment operating income of $15 million for the same period in 2024.

The increase was primarily driven by unfavorable cumulative catch-up adjustments in the Virginia class (SSN 774) submarine program and aircraft carriers in 2024.

Newport News segment operating income for the nine months ended September 30, 2025, was $247 million, compared to segment operating income of $208 million for the same period in 2024.

The increase was primarily driven by risk retirement in the Columbia class (SSBN 826) submarine program and contract adjustments in the Virginia class (SSN 774) submarine program, partially offset by contract adjustments and incentives in 2024 in the RCOH program.

Mission Technologies

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

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Sales and Service Revenues

Mission Technologies revenues, including intersegment sales, for the three months ended June 30, 2025, increased $26 million, or 3%, from the same period in 2024, primarily due to higher volumes in C5ISR and live, virtual, and constructive training solutions.

Mission Technologies revenues, including intersegment sales, for the six months ended June 30, 2025, increased $11 million, or 1%, from the same period in 2024, primarily due to higher volumes in live, virtual, and constructive training solutions, cyber, electronic warfare & space, and uncrewed systems, partially offset by lower volumes in C5ISR and fleet sustainment.

Mission Technologies revenues, including intersegment sales, for the three months ended September 30, 2025, increased $78 million, or 11%, from the same period in 2024, primarily due to higher volumes in C5ISR;

cyber, electronic warfare & space;

and live, virtual, and constructive training solutions.

Mission Technologies revenues, including intersegment sales, for the nine months ended September 30, 2025, increased $89 million, or 4%, from the same period in 2024, primarily due to higher volumes in cyber, electronic warfare & space and live, virtual, and constructive training solutions, partially offset by lower volumes in fleet sustainment.

Segment Operating Income

Mission Technologies segment operating income for the three months ended June 30, 2025, was consistent with the same period in 2024, as changes in contract mix offset the higher volumes described above.

Mission Technologies segment operating income for the six months ended June 30, 2025, was $76 million, compared to segment operating income of $64 million for the same period in 2024.

The increase was primarily driven by the volumes mentioned above and lower purchased intangible amortization.

Mission Technologies segment operating income for the three months ended September 30, 2025, was consistent with the same period in 2024, as changes in contract mix offset the higher volumes described above.

Mission Technologies segment operating income for the nine months ended September 30, 2025, was $110 million, compared to segment operating income of $97 million for the same period in 2024.

The increase was primarily due to the higher volumes described above.

PRODUCT AND SERVICE REVENUES AND COST ANALYSIS

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Sales and Service Revenues Segment Cost of Product Sales and Service Revenues

($ in millions) Three Months Ended June 30 2025 vs.

2024 Three Months Ended June 30 2025 vs.

($ in millions) Three Months Ended September 30 2025 vs.

2024 Three Months Ended September 30 2025 vs.

Segment Information 2025 2024 Dollars Percent 2025 2024 Dollars Percent

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Service 287 249 38 15 % 244 208 36 17 %

Intersegment 1 1 — — % 1 1 — — %

Total Newport News 1,617 1,412 205 15 % 1,407 1,244 163 13 %

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Sales and Service Revenues Segment Cost of Product Sales and Service Revenues

($ in millions) Six Months Ended June 30 2025 vs.

2024 Six Months Ended June 30 2025 vs.

($ in millions) Nine Months Ended September 30 2025 vs.

2024 Nine Months Ended September 30 2025 vs.

Segment Information 2025 2024 Dollars Percent 2025 2024 Dollars Percent

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Product Sales and Segment Cost of Product Sales

Product sales for the three months ended June 30, 2025, increased $31 million, or 2%, from the same period in 2024, primarily due to higher volumes in the Columbia class (SSBN 826) submarine program and the Virginia class (SSN 774) submarine program at Newport News, and surface combatants at Ingalls, partially offset by cumulative catch-up adjustments on aircraft carrier construction and favorable contract adjustments and incentives in the second quarter of 2024 on the RCOH program at Newport News, as well as lower volumes in amphibious assault ships at Ingalls.

Segment cost of product sales for the three months ended June 30, 2025, increased $77 million, or 5%, compared with the same period in 2024, primarily due to the higher volumes described above.

Product sales for the six months ended June 30, 2025, decreased $43 million, or 1%, from the same period in 2024, primarily due to lower volumes in amphibious assault ships at Ingalls, as well as cumulative catch-up adjustments on aircraft carrier construction and favorable contract adjustments and incentives in 2024 on the RCOH program at Newport News, partially offset by higher volumes in the Columbia class (SSBN 826) submarine program and the Virginia class (SSN 774) submarine program at Newport News, and surface combatants at Ingalls.

Segment cost of product sales for the six months ended June 30, 2025, decreased $3 million compared with the same period in 2024, primarily due to the lower volumes described above.

Product sales for the three months ended September 30, 2025, increased $311 million, or 18%, from the same period in 2024, primarily due to higher volumes in submarines and aircraft carriers at Newport News, and surface combatants at Ingalls.

Segment cost of product sales for the three months ended September 30, 2025, increased $264 million, or 17%, compared with the same period in 2024, primarily due to the higher volumes described above.

Product sales for the nine months ended September 30, 2025, increased $268 million, or 5%, from the same period in 2024, primarily due to higher volumes in submarines at Newport News and surface combatants at Ingalls, partially offset by lower volumes in amphibious assault ships at Ingalls.

Segment cost of product sales for the nine months ended September 30, 2025, increased $261 million, or 6%, compared with the same period in 2024, primarily due to the changes in volume described above.

Service Revenues and Segment Cost of Service Revenues

Service revenues for the three months ended June 30, 2025, increased $74 million, or 7%, from the same period in 2024, primarily due to higher volumes in surface combatants at Ingalls, and live, virtual, and constructive training solutions and C5ISR at Mission Technologies.

Segment cost of service revenues for the three months ended June 30, 2025, increased $74 million, or 8%, compared with the same period in 2024, primarily due to the higher volumes described above.

Service revenues for the six months ended June 30, 2025, increased $77 million, or 4%, from the same period in 2024, primarily due to higher volumes in surface combatants at Ingalls, and live, virtual, and constructive training solutions and cyber, electronic warfare & space at Mission Technologies, partially offset by lower volumes in C5ISR and fleet sustainment at Mission Technologies.

Segment cost of service revenues for the six months ended June 30, 2025, increased $71 million, or 4%, compared with the same period in 2024, primarily due to the higher volumes described above.

Service revenues for the three months ended September 30, 2025, increased $132 million, or 13%, from the same period in 2024, primarily due to higher volumes in C5ISR and live, virtual, and constructive training solutions at Mission Technologies, higher volumes in naval nuclear support services and aircraft carriers at Newport News, and higher volumes in surface combatants at Ingalls.

Segment cost of service revenues for the three months ended September 30, 2025, increased $114 million, or 13%, compared with the same period in 2024, primarily due to the higher volumes described above.

Service revenues for the nine months ended September 30, 2025, increased $209 million, or 7%, from the same period in 2024, primarily due to higher volumes in surface combatants at Ingalls, live, virtual, and constructive

training solutions and cyber, electronic warfare & space at Mission Technologies, and naval nuclear support services at Newport News.

Segment cost of service revenues for the nine months ended September 30, 2025, increased $185 million, or 7%, compared with the same period in 2024, primarily due to the higher volumes described above.

OTHER FINANCIAL INFORMATION

Interest Expense

Interest expense for the three and six months ended June 30, 2025, was $28 million and $56 million, respectively, compared with $24 million and $45 million, respectively, for the same periods in 2024.

The increase in interest expense for both periods was driven by an increase in outstanding long-term debt compared to the prior year periods.

Interest expense for the three months ended September 30, 2025, was $23 million, which was consistent with the same period in 2024.

There were no individually significant drivers for interest expense during the period.

Interest expense for the nine months ended September 30, 2025, was $79 million, compared to $68 million for the same period in 2024.

The increase in interest expense for the nine months ended September 30, 2025 was driven by an increase in outstanding long-term debt compared to the prior year period.

Non-Operating Retirement Benefit

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interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

For the three and six months ended June 30, 2025, the non-operating retirement benefit was $47 million and $95 million, respectively, compared with $46 million and $90 million, respectively, for the same periods in 2024.

For the three and nine months ended September 30, 2025, the non-operating retirement benefit was $48 million and $143 million, respectively, compared with $44 million and $134 million, respectively, for the same periods in 2024.

The favorable change in the non-operating retirement benefit for both periods was primarily driven by the amortization of net actuarial costs.

Other, net income for the three and six months ended June 30, 2025, was $6 million and $12 million, respectively, compared with other, net income of $5 million and $12 million, respectively, for the same periods in 2024.

For both periods, there were no individually significant drivers in other, net income.

Other, net income for the three and nine months ended September 30, 2025, was $18 million and $30 million, respectively, compared with other, net income of $9 million and $21 million, respectively, for the same periods in 2024.

The increase in other, net income for both periods was primarily driven by an increase in unrealized gains on investments.

Federal and Foreign Income Taxes

Our effective income tax rates on earnings from operations for the three months ended June 30, 2025 and 2024, were comparable at 19.1 % and 19.9 %, respectively.

Our effective income tax rates on earnings from operations for the six months ended June 30, 2025 and 2024, were 19.7 % and 18.5 %, respectively.

The higher effective tax rate for the six months ended June 30, 2025, was primarily attributable to excess tax benefits recognized on stock-based compensation recorded in the prior period.

For each of the three and six months ended June 30, 2025, our effective tax rate differed from the federal statutory corporate income tax rate of 21 % primarily due to research and development tax credits for the current periods.

Total backlog as of June 30, 2025, and December 31, 2024, was $56.9 billion and $48.7 billion, respectively.

Our effective income tax rates on earnings from operations for the three months ended September 30, 2025 and 2024, were 28.9 % and 9.8 %, respectively.

Our effective income tax rates on earnings from operations for the nine months ended September 30, 2025 and 2024, were 23.0 % and 16.6 %, respectively.

The higher effective tax rates for the three and nine months ended September 30, 2025, were primarily attributable to a reduction in the estimated research and development tax credits for the prior period recorded in the current period.

For each of the three and nine months ended September 30, 2025, our effective tax rate differed from the federal statutory corporate income tax rate of 21 % primarily due to a reduction in the estimated research and development tax credits for the prior period recorded in the current period.

Total backlog as of September 30, 2025, and December 31, 2024, was $55.7 billion and $48.7 billion, respectively.

Total backlog includes both funded backlog (firm orders for which funding is contractually obligated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer).

Backlog excludes unexercised contract options and unfunded indefinite delivery/indefinite quantity orders.

For contracts having no stated contract values, backlog includes only the amounts committed by the customer as of June 30, 2025 and December 31, 2024, respectively.

The following table presents funded and unfunded backlog by segment as of June 30, 2025, and December 31, 2024:

June 30, 2025 December 31, 2024

For contracts having no stated contract values, backlog includes only the amounts committed by the customer as of September 30, 2025 and December 31, 2024, respectively.

The following table presents funded and unfunded backlog by segment as of September 30, 2025, and December 31, 2024:

September 30, 2025 December 31, 2024

($ in millions) Funded Unfunded Total Backlog Funded Unfunded Total Backlog

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We expect approximately 21% of the $48.7 billion total backlog as of December 31, 2024, to be converted into sales in 2025.

Government orders comprised substantially all of the backlog as of June 30, 2025 and December 31, 2024.

Government orders comprised substantially all of the backlog as of September 30, 2025 and December 31, 2024.

Contract Awards

The value of new contract awards during the six months ended June 30, 2025, was approximately $14.0 billion, primarily driven by awards at Newport News and Ingalls, inclusive of a contract modification for construction of two additional Block V Virginia -class submarines.

The value of new contract awards during the nine months ended September 30, 2025, was approximately $16.0 billion, primarily driven by awards at Newport News and Ingalls, inclusive of a contract modification for construction of two additional Block V Virginia -class submarines.

LIQUIDITY AND CAPITAL RESOURCES

We seek to efficiently convert operating results into cash for deployment in operating our businesses, implementing our business strategy, and maximizing stockholder value.

We use various financial measures to inform our capital deployment strategy, including net cash provided by (used in) operating activities and free cash flow.

We use various financial measures to inform our capital deployment strategy, including net cash provided by operating activities and free cash flow.

We believe these measures are useful to investors in assessing our financial performance.

The following table summarizes key components of cash flow provided by (used in) operating activities:

Six Months Ended June 30 2025 vs.

($ in millions) 2025 2024 Dollars

The following table summarizes key components of cash flow provided by operating activities:

Nine Months Ended September 30 2025 vs.

($ in millions) 2025

Net earnings $ 446 $ 427 $ 19

Depreciation and amortization of purchased intangible assets 162 160 2

Depreciation and amortization of purchased intangibles 242 242 —

Stock-based compensation 43 15 28

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Retiree benefits (116) (84) (32)

Trade working capital decrease (increase) 29 (610) 639

Net cash provided by (used in) operating activities $ 428 $ (211) $ 639

Trade working capital increase (177) (528) 351

Net cash provided by operating activities $ 546 $ 2 $ 544

We have historically maintained a capital structure comprised of a mix of equity and debt financing.

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We expect to meet our current debt obligations as they come due through internally generated funds from current levels of operations, existing borrowing facilities, and/or through refinancing in the debt markets prior to the maturity dates of our debt.

We discuss below our significant operating, investing, and financing activities affecting cash flows for the six months ended June 30, 2025 and 2024, as classified in our unaudited condensed consolidated statements of cash flows.

We discuss below our significant operating, investing, and financing activities affecting cash flows for the nine months ended September 30, 2025 and 2024, as classified in our unaudited condensed consolidated statements of cash flows.

Operating Activities

Cash provided by operating activities for the six months ended June 30, 2025, was $428 million, compared with cash used in operating activities of $211 million for the same period in 2024.

Cash provided by operating activities for the nine months ended September 30, 2025, was $546 million, compared with cash provided by operating activities of $2 million for the same period in 2024.

The change in operating cash flow was primarily due to a favorable change in trade working capital driven by the timing of billings across programs and lower payments for income taxes.

We expect cash generated from operations in combination with our current cash and cash equivalents, as well as existing borrowing facilities, to be sufficient to service debt and retiree benefit plans, meet contractual obligations, and fund capital expenditures for at least the next 12 calendar months beginning July 1, 2025, and beyond such 12-month period based on our current business plans.

We expect cash generated from operations in combination with our current cash and cash equivalents, as well as existing borrowing facilities, to be sufficient to service debt and retiree benefit plans, meet contractual obligations, and fund capital expenditures for at least the next twelve calendar months beginning October 1, 2025, and beyond such twelve-month period based on our current business plans.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2025, was $291 million, compared to $162 million used in investing activities for the same period in 2024.

Cash used in investing activities for the nine months ended September 30, 2025, was $387 million, compared to $238 million used in investing activities for the same period in 2024.

The change in investing cash was primarily driven by the acquisition of W International.

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Financing Activities

Cash used in financing activities for the six months ended June 30, 2025, was $625 million, compared with $46 million used in financing activities for the same period in 2024.

Cash used in financing activities for the nine months ended September 30, 2025, was $678 million, compared with $184 million used in financing activities for the same period in 2024.

The change in cash used in financing activities was primarily due to a $396 million decrease in proceeds from our commercial paper program and a $271 million increase in repayments of long term debt, partially offset by a decrease of $162 million in common stock repurchases.

Free Cash Flow

Free cash flow represents cash provided by (used in) operating activities less capital expenditures net of related grant proceeds.

Free cash flow represents cash provided by operating activities less capital expenditures net of related grant proceeds.

Free cash flow is not a measure recognized under GAAP.

Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, net earnings as a measure of our performance or net cash provided by (used in) operating activities as a measure of our liquidity.

Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, net earnings as a measure of our performance or net cash provided by operating activities as a measure of our liquidity.

We believe free cash flow is an important liquidity measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations.

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Free cash flow may not be comparable to similarly titled measures of other companies.

The following table reconciles net cash provided by (used in) operating activities to free cash flow:

Six Months Ended June 30 2025 vs.

($ in millions) 2025 2024 Dollars

Net cash provided by (used in) operating activities $ 428 $ (211) $ 639

The following table reconciles net cash provided by operating activities to free cash flow:

Nine Months Ended September 30 2025 vs.

($ in millions) 2025

Net cash provided by operating activities $ 546 $ 2 $ 544

Less capital expenditures:

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Free cash flow $ 284 $ (237) $ 521

Free cash flow for the six months ended June 30, 2025, increased $641 million from the same period in 2024, primarily due to a favorable change in trade working capital driven by the timing of billings across programs and lower payments for income taxes.

Free cash flow for the nine months ended September 30, 2025, increased $521 million from the same period in 2024, primarily due to a favorable change in trade working capital driven by the timing of billings across programs and lower payments for income taxes.

Governmental Regulation and Supervision

Government has the ability, pursuant to regulations relating to contractor business systems, to decrease or withhold contract payments if it determines material weaknesses exist in one or more such systems.

As of June 30, 2025 and 2024, the cumulative amounts of payments withheld by the U.S.

As of September 30, 2025 and 2024, the cumulative amounts of payments withheld by the U.S.

Government under our contracts subject to these regulations were not material to our liquidity or cash flows.

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In the ordinary course of business, we use letters of credit issued by commercial banks to support certain leases, insurance policies, and contractual performance obligations, as well as surety bonds issued by insurance companies principally to support our self-insured workers' compensation plans.

As of June 30, 2025, $11 million in letters of credit were issued but undrawn and $380 million of surety bonds were outstanding.

As of June 30, 2025, we had no other significant off-balance sheet arrangements.

As of September 30, 2025, $11 million in letters of credit were issued but undrawn and $368 million of surety bonds were outstanding.

As of September 30, 2025, we had no other significant off-balance sheet arrangements.

ACCOUNTING STANDARDS UPDATES

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Government for substantially all of our business;

• significant delays or reductions in appropriations for our programs and/or changes in customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans);

• significant delays or reductions in appropriations for our programs and/or changes in customer priorities and requirements (including government budgetary constraints, government shutdowns, shifts in defense spending, and changes in customer short-range and long-range plans);

• our ability to estimate our future contract costs, including cost increases due to inflation, labor challenges, changes in trade policy, or other factors and our efforts to recover or offset such costs and/or changes in estimated contract costs, and perform our contracts effectively;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis