What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-05 compared with 2025-10-30 · 120 added, 176 removed, 325 unchanged (48% of the section changed)

7 unchanged sentences

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

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

Government, primarily the Department of War.

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

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Newport News includes all of our nuclear ship design, construction, overhaul, refueling, and repair and maintenance businesses.

Our Mission Technologies segment is organized into four groups, All-Domain Operations, Warfare Systems, Global Security, and Uncrewed Systems, and specializes in a wide range of services and products across our capabilities, which include command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations;

Our Mission Technologies segment provides a wide range of services and products, including command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance systems and operations;

the application of artificial intelligence and machine learning to battlefield decisions;

defensive and offensive cyber, electronic warfare & space;

unmanned systems;

defense and offensive cyberspace strategies and electronic warfare;

unmanned autonomous systems;

live, virtual, and constructive training solutions;

fleet sustainment;

platform modernization;

and critical nuclear operations.

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Business Environment

The federal budget environment remains a significant long-term risk, and we continue to see uncertainty in the economy, our industry, and our company.

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 – 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.

Against a backdrop of heightened geopolitical tension and domestic policy realignment, we continue to see uncertainty in the economy, our industry, and our company.

Our customers, suppliers, and subcontractors continue to face challenges.

We cannot 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 fiscal year 2026 budget cycle concluded with the passage of the Consolidated Appropriations Act, 2026, signed into law February 3, 2026.

The fiscal year 2026 defense appropriations bill includes continued incremental funding for Enterprise (CVN 80) and Doris Miller (CVN 81), along with advance procurement for William J.

Clinton (CVN 82);

continued funding for the RCOH of USS John C.

Stenn is (CVN 74);

funding for the Virginia class (SSN 774) and Columbia class (SSBN 826) submarine programs;

advanced procurement for the Arleigh Burke class (DDG 51) destroyer program, including additional funding for shipyard infrastructure and wage enhancements;

and funding for long-lead-time materials for the new FF(X) frigate program.

Additionally, the bill provides funding for the Maritime Industrial Base to invest in critical areas including supplier capacity and capability, strategic outsourcing, workforce training, and technology and infrastructure.

On April 3, 2026, the Trump Administration released the President's topline recommendations on funding levels for fiscal year 2027.

The proposed budget recommends $60.2 billion in discretionary funding for the shipbuilding construction account and an additional $5.6 billion in mandatory funding, for a total of $65.8 billion for shipbuilding procurement.

Included in the discretionary request is funding for one Columbia class (SSBN 826) submarine, two Virginia class (SSN 774) submarines, one Arleigh Burke class (DDG 51) destroyer, one San Antonio class (LPD 17) amphibious transport dock ship, one America class (LHA 6) amphibious assault ship, and the first FF(X) frigate.

The fiscal year 2027 budget request continues funding Gerald R.

Ford class (CVN 78) aircraft carriers and aircraft carrier refueling programs, and provides initial advance procurement funding for the lead ship of the Trump class (BBG(X)) battleship program.

The fiscal year 2027 budget request also reflects increased investments in capability enablers including unmanned surface and underwater vehicles.

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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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.

For further information on our business environment, see the discussion under Business Environment under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2024 Annual Report on Form 10-K.

For further information on our business environment, see the Business Environment section under Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2025 Annual Report on Form 10-K.

Critical Accounting Policies, Estimates, and Judgments

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• Workers' compensation.

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

As of March 31, 2026, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2025.

Program Descriptions

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The following table presents selected financial highlights:

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

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

Three Months Ended March 31

($ in millions) 2026 2025 Dollars Percent

Sales and service revenues $ 3,099 $ 2,734 $ 365 13 %

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Income from operating investments, net 5 13 (8) (62) %

Other income and gains, net — — — — % 1 — 1 — %

General and administrative expenses 258 246 12 5 %

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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 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.

Sales and service revenues for the three months ended March 31, 2026, increased $365 million, or 13%, compared to the same period in 2025, primarily due to higher volumes at Newport News, Ingalls, and Mission Technologies.

Net Cumulative Catch-up Revenue Adjustments

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

For the three months ended March 31, 2026 and 2025, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Three Months Ended March 31

($ in millions) 2026

2024 2025 2024

Gross favorable adjustments $ 66 $ 80

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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 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.

General and administrative expenses for the three months ended March 31, 2026 increased $12 million from the same period in 2025, primarily due to higher non-current state income taxes and higher overhead costs.

Operating Income

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We believe segment operating income reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our business.

We believe the measure is used by investors and is a useful indicator to measure our performance.

believe the measure is used by investors and is a useful indicator to measure our performance.

Because not all companies use identical calculations, our presentation of segment operating income may not be comparable to similarly titled measures of other companies.

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The following table reconciles operating income to segment operating income:

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

Three Months Ended March 31

($ in millions) 2026

2025 Dollars Percent

2024 Dollars Percent

Operating income $ 155 $ 161 $ (6) (4) %

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

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

Three Months Ended March 31

($ in millions) 2026

2024 Dollars Percent 2025 2024 Dollars Percent

2025 Dollars Percent

FAS benefit $ 31 $ 25 $ 6 24 %

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Operating FAS/CAS Adjustment expense $ (9) $ (10) $ 1 10 %

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.

The Operating FAS/CAS Adjustment was a net expense of $9 million and $10 million for the three months ended March 31, 2026 and 2025, respectively.

The favorable change in the Operating FAS/CAS Adjustment was primarily driven by higher asset returns in 2025.

Non-current State Income Taxes

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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 $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.

Non-current state income tax expense was $8 million for the three months ended March 31, 2026, compared to a non-current state income tax expense of less than $1 million for the three months ended March 31, 2025.

The unfavorable change in non-current state income taxes was driven by an increase in deferred state income tax expense, primarily attributable to a change in net capitalized research and development expenditures and a change in state unrecognized tax benefits for the prior period.

SEGMENT OPERATING RESULTS

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The following table presents segment operating results:

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

Three Months Ended March 31

($ in millions) 2026

2024 Dollars Percent 2025 2024 Dollars Percent

2025 Dollars Percent

Sales and Service Revenues

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Net Cumulative Catch-up Revenue Adjustments by Segment

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

For the three months ended March 31, 2026 and 2025, net cumulative catch-up revenue adjustments by segment were as follows:

Three Months Ended March 31

($ in millions) 2026

2024 2025 2024

Ingalls $ (3) $ —

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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 September 30 Nine Months Ended September 30

2024 2025 vs.

Three Months Ended March 31

($ in millions) 2026

2024 Dollars Percent 2025 2024 Dollars Percent

2025 Dollars Percent

Sales and service revenues $ 725 $ 637 $ 88 14 %

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Sales and Service Revenues

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.

Ingalls revenues, including intersegment sales, for the three months ended March 31, 2026, increased $88 million, or 14%, from the same period in 2025, primarily driven by higher volumes in surface combatants.

Segment Operating Income

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.

Ingalls segment operating income for the three months ended March 31, 2026, was $49 million, compared to segment operating income of $46 million for the same period in 2025.

The increase was primarily driven by higher volumes in surface combatants, partially offset by lower performance in amphibious assault ships.

Three Months Ended March 31

($ in millions) 2026

2024 Dollars Percent 2025 2024 Dollars Percent

2025 Dollars Percent

Sales and service revenues $ 1,665 $ 1,396 $ 269 19 %

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As a percentage of segment sales 5.3 % 6.1 %

The Company’s Newport News segment continues to experience performance challenges in the construction of aircraft carriers and the Virginia class (SSN 774) submarine program.

Sales and Service Revenues

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.

Newport News revenues, including intersegment sales, for the three months ended March 31, 2026, increased $269 million, or 19%, from the same period in 2025, primarily driven by higher volumes in aircraft carriers, submarines, and naval nuclear support services.

Segment Operating Income

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.

Newport News segment operating income for the three months ended March 31, 2026, was $88 million, compared to segment operating income of $85 million for the same period in 2025.

The increase was primarily driven by the higher volumes described above, partially offset by contract adjustments and incentives in 2025 in the Virginia class (SSN 774) submarine program and lower performance in aircraft carrier construction.

Mission Technologies

Three Months Ended September 30 Nine Months Ended September 30

2024 2025 vs.

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

Three Months Ended March 31

($ in millions) 2026 2025 Dollars Percent

Sales and service revenues $ 748 $ 735 $ 13 2 %

2 unchanged sentences

Sales and Service Revenues

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.

Mission Technologies revenues, including intersegment sales, for the three months ended March 31, 2026, increased $13 million, or 2%, from the same period in 2025, primarily due to higher volumes in All-Domain Operations, Unmanned Systems, and Global Security, partially offset by lower volumes in Warfare Systems.

Segment Operating Income

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.

Mission Technologies segment operating income for the three months ended March 31, 2026, was $35 million, compared to segment operating income of $40 million for the same period in 2025.

The decrease was primarily due to lower equity income from nuclear and environmental joint ventures, partially offset by higher performance in Warfare Systems.

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 September 30 2025 vs.

2024 Three Months Ended September 30 2025 vs.

Segment Information 2025 2024 Dollars Percent 2025 2024 Dollars Percent

Product $ 697 $ 569 $ 128 22 % $ 603 $ 485 $ 118 24 %

Service 128 93 35 38 % 112 83 29 35 %

Intersegment 3 2 1 50 % 3 2 1 50 %

Total Ingalls 828 664 164 25 % 718 570 148 26 %

Product 1,330 1,163 167 14 % 1,163 1,036 127 12 %

Service 287 249 38 15 % 244 208 36 17 %

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

Mission Technologies

Product 45 29 16 55 % 41 22 19 86 %

Service 705 646 59 9 % 626 577 49 8 %

Intersegment 37 34 3 9 % 37 34 3 9 %

Total Mission Technologies 787 709 78 11 % 704 633 71 11 %

Segment Totals

Product $ 2,072 $ 1,761 $ 311 18 % $ 1,807 $ 1,543 $ 264 17 %

Service 1,120 988 132 13 % 982 868 114 13 %

Total Segment 1

$ 3,192 $ 2,749 $ 443 16 % $ 2,789 $ 2,411 $ 378 16 %

1 Operating FAS/CAS Adjustment is excluded from segment cost of product sales and service revenues.

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

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

2024 Nine Months Ended September 30 2025 vs.

($ in millions) Three Months Ended March 31 2026 vs.

2025 Three Months Ended March 31 2026 vs.

Segment Information 2026 2025 Dollars Percent 2026 2025 Dollars Percent

5 unchanged sentences

Service 301 236 65 28 % 255 193 62 32 %

Intersegment 1 2 (1) (50) % 1 2 (1) (50) %

Total Newport News 1,665 1,396 269 19 % 1,434 1,164 270 23 %

11 unchanged sentences

Product Sales and Segment Cost of Product Sales

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.

Product sales for the three months ended March 31, 2026, increased $291 million, or 17%, from the same period in 2025, primarily due to higher volumes in aircraft carriers and submarines at Newport News, and surface combatants at Ingalls.

Segment cost of product sales for the three months ended March 31, 2026, increased $291 million, or 20%, compared with the same period in 2025, primarily due to the higher volumes described above.

Service Revenues and Segment Cost of Service Revenues

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.

Service revenues for the three months ended March 31, 2026, increased $74 million, or 7%, from the same period in 2025, primarily due to higher volumes in naval nuclear support services and aircraft carriers at Newport News, and higher volumes in All-Domain Operations at Mission Technologies.

Segment cost of service revenues for the three months ended March 31, 2026, increased $61 million, or 7%, compared with the same period in 2025, primarily due to the higher volumes described above.

OTHER FINANCIAL INFORMATION

Interest Expense

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.

Interest expense for the three months ended March 31, 2026, was $22 million, compared with $28 million for the same period in 2025.

The decrease in interest expense was driven by a decrease in outstanding long-term debt from the prior 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 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 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.

For the three months ended March 31, 2026, the non-operating retirement benefit was $53 million, compared with $48 million for the same period in 2025.

The favorable change in the non-operating retirement benefit was primarily driven by higher asset returns in 2025.

Other, net income for the three months ended March 31, 2026, was $2 million, compared with other, net income of $6 million for the same period in 2025.

The decrease in other, net income was primarily driven by an increase in unrealized losses on investments.

Federal and Foreign Income Taxes

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.

Our effective income tax rates on earnings from operations for the three months ended March 31, 2026 and 2025, were 20.7 % and 20.3 %, respectively.

For the three months ended March 31, 2026, our effective tax rate did not differ materially from the federal statutory corporate income tax rate of 21 %.

In January 2026, the Organization for Economic Co-operation and Development issued administrative guidance on Pillar Two’s 15% global minimum tax, including a “side-by-side" ("SbS") system with permanent and temporary safe harbors.

is recognized as a qualified SbS regime, which effectively alleviates U.S.

based multi-national companies from top-up tax collectible under Pillar Two.

We expect that the SbS system or other transitional safe harbor provisions will be broadly applicable to our international operations and, accordingly, do not expect Pillar Two to have a material impact on our effective tax rate, consolidated results of operations, financial position, or cash flows.

Total backlog as of March 31, 2026, and December 31, 2025, was $54.0 billion and $53.1 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 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

For contracts having no stated contract values, backlog includes only the amounts committed by the customer as of March 31, 2026 and December 31, 2025, respectively.

The following table presents funded and unfunded backlog by segment as of March 31, 2026, and December 31, 2025:

March 31, 2026 December 31, 2025

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

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We expect approximately 21% of the $53.1 billion total backlog as of December 31, 2025, to be converted into sales in 2026.

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

Government orders comprised substantially all of the backlog as of March 31, 2026 and December 31, 2025.

Contract Awards

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.

The value of new contract awards during the three months ended March 31, 2026, was approximately $4.0 billion, primarily driven by awards at Newport News and Ingalls.

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 operating activities and free cash flow.

We use various financial measures to inform our capital deployment strategy, including net cash used in 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 operating activities:

Nine Months Ended September 30 2025 vs.

The following table summarizes key components of cash flow used in operating activities:

Three Months Ended March 31 2026 vs.

($ in millions) 2026

3 unchanged sentences

Deferred income taxes 43 (11) 54

Gain on investments in marketable securities (28) (22) (6)

Loss (gain) on investments in marketable securities 3 (3) 6

Other non-cash transactions, net 3 3 —

1 unchanged sentence

Trade working capital increase (640) (598) (42)

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

Net cash used in operating activities $ (390) $ (395) $ 5

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

We vary our leverage both to optimize our equity return and to pursue acquisitions.

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 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 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 twelve calendar months beginning October 1, 2025, and beyond such twelve-month period based on our current business plans.

Cash used in operating activities for the three months ended March 31, 2026, was $390 million, compared with cash used in operating activities of $395 million for the same period in 2025.

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 April 1, 2026, and beyond such twelve-month period based on our current business plans.

Investing Activities

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.

Cash used in investing activities for the three months ended March 31, 2026, was $71 million, compared to $199 million used in investing activities for the same period in 2025.

The change in investing cash was primarily driven by the acquisition of a business in the first quarter of 2025.

For 2026, we expect our capital expenditures for maintenance and sustainment to be approximately 1.0% to 1.5% of annual revenues and our discretionary capital expenditures to be approximately 3.0% to 3.5% of annual revenues.

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Financing Activities

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.

Cash used in financing activities for the three months ended March 31, 2026, was $97 million, compared with $70 million used in financing activities for the same period in 2025.

The change in cash used in financing activities was primarily due to an increase in employee taxes on certain share-based payment arrangements.

Free Cash Flow

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

Free cash flow represents cash used in 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 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 used in 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 operating activities to free cash flow:

Nine Months Ended September 30 2025 vs.

The following table reconciles net cash used in operating activities to free cash flow:

Three Months Ended March 31 2026 vs.

($ in millions) 2026

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

Net cash used in operating activities $ (390) $ (395) $ 5

Less capital expenditures:

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Free cash flow $ (461) $ (462) $ 1

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.

Free cash flow for the three months ended March 31, 2026, increased $1 million from the same period in 2025.

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

As of March 31, 2026 and 2025, 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 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.

As of March 31, 2026, $11 million in letters of credit were issued but undrawn and $368 million of surety bonds were outstanding.

As of March 31, 2026, we had no other significant off-balance sheet arrangements.

ACCOUNTING STANDARDS UPDATES

Accounting Standards Updates in Part I, Item 1 for further information.

Accounting Standards Updates for further information.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

Statements in this Quarterly Report on Form 10-Q and in our other filings with the SEC, as well as other statements we may make from time to time, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.

within the meaning of the Private Securities Litigation Reform Act of 1995.

In some cases, you can identify forward-looking statements by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "guidance," "outlook," "predicts," "potential," "continue," and similar words or phrases or the negative of these words or phrases.

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• 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;

• changes in business practices, procurement processes and government regulations and our ability to comply with such requirements;

• changes in business practices, procurement processes and government regulations, including changes through executive orders, contract terms, or other policies or practices applicable to our industry, and our ability to comply with such requirements;

• adverse economic conditions in the United States and globally;

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• changes in key estimates and assumptions regarding our pension and retiree health care costs;

• security threats, including cyber security threats, and related disruptions;

• security threats, including cybersecurity threats, and related disruptions;

• natural and environmental disasters and political instability;

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Navy's primary surface combatant, and have been constructed in variants, allowing technological advances during construction.

We delivered USS Frank E.

(DDG 121), USS Lenah H.

Sutcliffe Higbee (DDG 123), and USS Jack H.

Lucas (DDG 125) in 2021, 2022, and 2023, respectively.

We delivered USS Jack H.

Lucas (DDG 125) and USS Ted Stevens (DDG 128) in 2023 and 2025, respectively.

We have contracts to construct the following Arleigh Burke class (DDG 51) destroyers:

Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George M.

Jeremiah Denton (DDG 129), George M.

Neal (DDG 131), Sam Nunn (DDG 133), Thad Cochran (DDG 135), John F.

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Evans (DDG 141), Charles J.

French (DDG 142), and Richard J.

Danzig (DDG 143).

French (DDG 142), Richard J.

Danzig (DDG 143), Intrepid (DDG 145), and Robert Kerrey (DDG 146).

Columbia class (SSBN 826) submarines

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The Columbia class (SSBN 826) program plan of record is to construct 12 new SSBNs to replace the current aging Ohio class.

We have a teaming agreement with Electric Boat to build modules for the entire Columbia class (SSBN 826) submarine program that leverages our Virginia class (SSN 774) experience.

As a subcontractor to Electric Boat, we leverage our Virginia class (SSN 774) experience to perform design work and build modules for the entire Columbia class (SSBN 826) submarine program.

We have been awarded contracts from Electric Boat for integrated product and process development, providing long–lead–time material and advance construction, and construction of the first two boats of the Columbia class (SSBN 826) submarine program.

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The NSC is equipped to carry out maritime homeland security, maritime safety, protection of natural resources, maritime mobility, and national defense missions.

There were initially 11 ships planned for this program, of which the first ten ships have been delivered.

In Q2 2025, we reached agreement with the U.S.

Coast Guard to terminate production and delivery of the 11th ship.

There were initially 11 ships for this program, of which the first ten ships have been delivered.

In 2025, we reached agreement with the U.S.

Coast Guard to terminate production and delivery of the 11th and final ship.

Naval nuclear support services Provide services to and in support of the U.S.

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Navy nuclear ships worldwide through mobile and in-house capabilities.

Services include maintenance services on nuclear reactor prototypes.

Services include maintenance services on nuclear reactor prototypes, such as those at the Kenneth A.

Kesselring Site, a research and development facility in New York that supports the U.S.

Navy, which were completed in 2024.

San Antoni o class (LPD 17) amphibious transport dock ships

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Navy's seabase transformation.

In 2022, we delivered USS Fort Lauderdale (LPD 28), and we were awarded a long-lead-time material contract for Philadelphia (LPD 32).

In 2022, we were awarded a long-lead-time material contract for Philadelphia (LPD 32).

In 2023, we received an award modification for the detail design and construction of Philadelphia (LPD 32).

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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