What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-30 compared with 2026-05-05 · 154 added, 90 removed, 355 unchanged (41% of the section changed)

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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.

Defense Spending Environment – The President submitted the fiscal year 2027 budget request on April 3, 2026, which is now under consideration by Congress.

The budget request reflects continued investment in shipbuilding, recommending $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.

The discretionary request funds 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 Frigate class (FF(X)) ship.

The fiscal year 2027 budget request continues funding Gerald R.

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

Congressional consideration of the fiscal year 2027 budget request began following its release and is ongoing.

The House Appropriations Committee voted out a defense appropriations measure that supports the President’s topline budget request.

The Senate Appropriations Committee has yet to conduct markups, and the timing of committee action remains uncertain.

The House and Senate Armed Services Committees have each acted on their respective National Defense Authorization bills for fiscal year 2027.

We cannot predict the outcome of the fiscal year 2027 budget process or whether a short-term funding measure will be provided in the event annual appropriations measures are not finalized by the October 1 start of the fiscal year.

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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• Workers' compensation.

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

As of June 30, 2026, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2025.

Program Descriptions

For convenience, a brief description of certain programs discussed in this Quarterly Report on Form 10-Q is included in the Glossary of Programs in this section.

As of June 30, 2026, Frigate class (FF(X)) ships are included in the Glossary of Programs in this section.

Frigate class (FF(X)) ships are included as part of surface combatants described Part I, Item 1 in the 2025 Annual Report on Form 10-K.

CONSOLIDATED OPERATING RESULTS

The following table presents selected financial highlights:

Three Months Ended March 31

($ in millions) 2026 2025 Dollars Percent

Three Months Ended June 30 Six Months Ended June 30

2025 2026 vs.

($ in millions) 2026 2025 Dollars Percent 2026 2025 Dollars Percent

Sales and service revenues $ 3,418 $ 3,082 $ 336 11 % $ 6,517 $ 5,816 $ 701 12 %

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Income from operating investments, net 21 8 13 163 % 26 21 5 24 %

Other income and gains, net — 1 (1) (100) % — 1 (1) (100) %

General and administrative expenses 242 241 1 — % 500 487 13 3 %

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Changes in sales and service revenues are typically expressed in terms of volume.

Unless otherwise described, volume generally refers to increases (or decreases) in reported revenues due to varying production activity levels, delivery rates, or service levels on individual contracts.

Unless otherwise described, volume generally refers to increases (or decreases) in reported revenues due to varying production activity levels, delivery rates, or service

levels on individual contracts.

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 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.

Sales and service revenues for the three months ended June 30, 2026, increased $336 million, or 11%, compared to the same period in 2025, primarily due to higher volumes at Newport News and Ingalls.

Sales and service revenues for the six months ended June 30, 2026, increased $701 million, or 12%, compared to the same period in 2025, primarily due to higher volumes at Newport News and Ingalls.

Net Cumulative Catch-up Revenue Adjustments

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

For the three and six months ended June 30, 2026 and 2025, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Three Months Ended June 30 Six Months Ended June 30

($ in millions) 2026

2025 2026 2025

Gross favorable adjustments $ 168 $ 138 $ 234 $ 218

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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 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.

General and administrative expenses for the three and six months ended June 30, 2026 increased $1 million and $13 million, respectively, from the same periods in 2025, primarily due to higher non-current state income taxes.

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.

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

We 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 March 31

Three Months Ended June 30 Six Months Ended June 30

2025 2026 vs.

($ in millions) 2026

2025 Dollars Percent 2026

2025 Dollars Percent

Operating income $ 210 $ 163 $ 47 29 % $ 365 $ 324 $ 41 13 %

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

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

2025 2026 vs.

($ in millions) 2026

2025 Dollars Percent

2025 Dollars Percent 2026 2025 Dollars Percent

FAS benefit $ 30 $ 25 $ 5 20 % $ 61 $ 50 $ 11 22 %

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Operating FAS/CAS Adjustment expense $ (8) $ (6) $ (2) (33) % $ (17) $ (16) $ (1) (6) %

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.

The Operating FAS/CAS Adjustment was a net expense of $8 million and $6 million for the three months ended June 30, 2026 and 2025, respectively.

The Operating FAS/CAS Adjustment was a net expense of $17 million and $16 million for the six months ended June 30, 2026 and 2025, respectively.

The unfavorable change in the Operating FAS/CAS Adjustment for each period 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 $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.

Non-current state income tax expense was $6 million and $3 million for the three months ended June 30, 2026 and 2025, respectively.

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.

Non-current state income tax expense was $14 million and $3 million for the six months ended June 30, 2026 and 2025, respectively.

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The following table presents segment operating results:

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

2025 2026 vs.

($ in millions) 2026

2025 Dollars Percent

2025 Dollars Percent 2026 2025 Dollars Percent

Sales and Service Revenues

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Net Cumulative Catch-up Revenue Adjustments by Segment

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

For the three and six months ended June 30, 2026 and 2025, net cumulative catch-up revenue adjustments by segment were as follows:

Three Months Ended June 30 Six Months Ended June 30

($ in millions) 2026

2025 2026 2025

Ingalls $ (2) $ 4 $ (5) $ 4

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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 March 31

Three Months Ended June 30 Six Months Ended June 30

2025 2026 vs.

($ in millions) 2026

2025 Dollars Percent

2025 Dollars Percent 2026 2025 Dollars Percent

Sales and service revenues $ 845 $ 724 $ 121 17 % $ 1,570 $ 1,361 $ 209 15 %

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Sales and Service Revenues

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.

Ingalls revenues, including intersegment sales, for the three months ended June 30, 2026, increased $121 million, or 17%, from the same period in 2025, primarily driven by higher volumes in amphibious assault ships.

Ingalls revenues, including intersegment sales, for the six months ended June 30, 2026, increased $209 million, or 15%, from the same period in 2025, primarily driven by higher volumes in amphibious assault ships and surface combatants.

Segment Operating Income

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

Ingalls segment operating income for the three months ended June 30, 2026, was $58 million, compared to segment operating income of $54 million for the same period in 2025.

The increase was primarily driven by higher volumes in amphibious assault ships, partially offset by contract adjustments in surface combatants in 2025.

Ingalls segment operating income for the six months ended June 30, 2026, was $107 million, compared to segment operating income of $100 million for the same period in 2025.

The increase was primarily driven by higher volumes in amphibious assault ships and surface combatants, partially offset by contract adjustments in surface combatants in 2025.

Three Months Ended June 30 Six Months Ended June 30

2025 2026 vs.

($ in millions) 2026

2025 Dollars Percent

2025 Dollars Percent 2026 2025 Dollars Percent

Sales and service revenues $ 1,849 $ 1,603 $ 246 15 % $ 3,514 $ 2,999 $ 515 17 %

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Sales and Service Revenues

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.

Newport News revenues, including intersegment sales, for the three months ended June 30, 2026, increased $246 million, or 15%, from the same period in 2025, primarily driven by higher volumes in aircraft carriers and submarines.

Newport News revenues, including intersegment sales, for the six months ended June 30, 2026, increased $515 million, or 17%, from the same period in 2025, primarily driven by higher volumes in aircraft carriers and submarines.

Segment Operating Income

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.

Newport News segment operating income for the three months ended June 30, 2026, was $111 million, compared to segment operating income of $82 million for the same period in 2025.

The increase was primarily driven by contract adjustments and incentives in aircraft carriers and the higher volumes described above, partially offset by lower performance in aircraft carriers.

Newport News segment operating income for the six months ended June 30, 2026, was $199 million, compared to segment operating income of $167 million for the same period in 2025.

The increase was primarily driven by contract adjustments and incentives in aircraft carriers and the higher volumes described above, partially offset by lower performance in aircraft carriers.

Mission Technologies

Three Months Ended March 31

($ in millions) 2026 2025 Dollars Percent

Three Months Ended June 30 Six Months Ended June 30

2025 2026 vs.

($ in millions) 2026 2025 Dollars Percent 2026 2025 Dollars Percent

Sales and service revenues $ 760 $ 791 $ (31) (4) % $ 1,508 $ 1,526 $ (18) (1) %

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Sales and Service Revenues

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.

Mission Technologies revenues, including intersegment sales, for the three months ended June 30, 2026, decreased $31 million, or 4%, from the same period in 2025, primarily due to lower volumes in All-Domain Operations and Global Security, partially offset by higher volumes in Warfare Systems and Unmanned Systems.

Mission Technologies revenues, including intersegment sales, for the six months ended June 30, 2026, decreased $18 million, or 1%, from the same period in 2025, primarily due to lower volumes in All-Domain Operations and Global Security, partially offset by higher volumes in Warfare Systems and Unmanned Systems.

Segment Operating Income

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.

Mission Technologies segment operating income for the three months ended June 30, 2026, was $55 million, compared to segment operating income of $36 million for the same period in 2025.

The increase was primarily due to higher equity income from nuclear and environmental joint ventures.

Mission Technologies segment operating income for the six months ended June 30, 2026, was $90 million, compared to segment operating income of $76 million for the same period in 2025.

The increase was primarily due

to lower purchased intangible amortization, higher performance in Warfare Systems, and higher equity income from nuclear and environmental joint ventures.

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 March 31 2026 vs.

2025 Three Months Ended March 31 2026 vs.

($ in millions) Three Months Ended June 30 2026 vs.

2025 Three Months Ended June 30 2026 vs.

Segment Information 2026 2025 Dollars Percent 2026 2025 Dollars Percent

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Service 329 283 46 16 % 275 234 41 18 %

Intersegment — 1 (1) (100) % — 1 (1) (100) %

Total Newport News 1,849 1,603 246 15 % 1,602 1,380 222 16 %

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(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) Six Months Ended June 30 2026 vs.

2025 Six Months Ended June 30 2026 vs.

Segment Information 2026

2025 Dollars Percent 2026

2025 Dollars Percent

Product $ 1,335 $ 1,136 $ 199 18 % $ 1,162 $ 978 $ 184 19 %

Service 230 218 12 6 % 207 190 17 9 %

Intersegment 5 7 (2) (29) % 5 7 (2) (29) %

Total Ingalls 1,570 1,361 209 15 % 1,374 1,175 199 17 %

Product 2,884 2,479 405 16 % 2,506 2,116 390 18 %

Service 630 519 111 21 % 530 427 103 24 %

Intersegment — 1 (1) (100) % — 1 (1) (100) %

Total Newport News 3,514 2,999 515 17 % 3,036 2,544 492 19 %

Mission Technologies

Product 56 55 1 2 % 44 40 4 10 %

Service 1,382 1,409 (27) (2) % 1,212 1,260 (48) (4) %

Intersegment 70 62 8 13 % 70 62 8 13 %

Total Mission Technologies 1,508 1,526 (18) (1) % 1,326 1,362 (36) (3) %

Segment Totals

Product $ 4,275 $ 3,670 $ 605 16 % $ 3,712 $ 3,134 $ 578 18 %

Service 2,242 2,146 96 4 % 1,949 1,877 72 4 %

Total Segment (1)

$ 6,517 $ 5,816 $ 701 12 % $ 5,661 $ 5,011 $ 650 13 %

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

Product Sales and Segment Cost of Product Sales

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.

Product sales for the three months ended June 30, 2026, increased $314 million, or 16%, from the same period in 2025, primarily due to higher volumes in aircraft carriers and submarines at Newport News, and amphibious assault ships at Ingalls.

Segment cost of product sales for the three months ended June 30, 2026, increased $287 million, or 17%, compared with the same period in 2025, primarily due to the higher volumes described above.

Product sales for the six months ended June 30, 2026, increased $605 million, or 16%, from the same period in 2025, primarily due to higher volumes in aircraft carriers and submarines at Newport News, and amphibious assault ships and surface combatants at Ingalls.

Segment cost of product sales for the six months ended June 30, 2026, increased $578 million, or 18%, 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 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.

Service revenues for the three months ended June 30, 2026, increased $22 million, or 2%, 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 Warfare Systems at Mission Technologies, partially offset by lower volumes in All-Domain Operations and Global Security at Mission Technologies.

Segment cost of service revenues for the three months ended June 30, 2026, increased $11 million, or 1%, compared with the same period in 2025, primarily due to the higher volumes described above.

Service revenues for the six months ended June 30, 2026, increased $96 million, or 4%, 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 Warfare Systems at Mission Technologies, partially offset by lower volumes in All-Domain Operations and Global Security at Mission Technologies.

Segment cost of service revenues for the six months ended June 30, 2026, increased $72 million, or 4%, compared with the same period in 2025, primarily due to the higher volumes described above, partially offset by lower purchased intangible amortization.

OTHER FINANCIAL INFORMATION

Interest Expense

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.

Interest expense for the three months ended June 30, 2026, was $27 million, compared to $28 million for the same period in 2025.

Interest expense for the six months ended June 30, 2026, was $49 million, compared to $56 million for the same period in 2025.

The decrease in interest expense was driven by a decrease 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 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.

For the three and six months ended June 30, 2026, the non-operating retirement benefit was $53 million and $106 million, respectively, compared with $47 million and $95 million, respectively, for the same periods in 2025.

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

Other, net income for the three and six months ended June 30, 2026, was $18 million and $20 million, respectively, compared with other, net income of $6 million and $12 million, respectively, for the same periods in 2025.

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 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 %.

Our effective income tax rates on earnings from operations for the three months ended June 30, 2026 and 2025, were 18.1 % and 19.1 %, respectively.

Our effective income tax rates on earnings from operations for the six months ended June 30, 2026 and 2025, were 19.2 % and 19.7 %, respectively.

The lower effective tax rates for the three and six months ended June 30, 2026, were primarily attributable to income tax benefits associated with stock award settlement activity.

For each of the three and six months ended June 30, 2026, our effective tax rates differed from the federal statutory corporate income tax rate of 21 % primarily due to income tax benefits associated with stock award settlement activity.

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.

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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).

Total backlog as of June 30, 2026, and December 31, 2025, was $57.3 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 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

For contracts having no stated contract values, backlog includes only the amounts committed by the customer as of June 30, 2026 and December 31, 2025, respectively.

The following table presents funded and unfunded backlog by segment as of June 30, 2026, and December 31, 2025:

June 30, 2026 December 31, 2025

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

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We expect approximately 22% 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 March 31, 2026 and December 31, 2025.

Government orders comprised substantially all of the backlog as of June 30, 2026 and December 31, 2025.

Contract Awards

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.

The value of new contract awards during the six months ended June 30, 2026, was approximately $10.7 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 used in operating activities and free cash flow.

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

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

Three Months Ended March 31 2026 vs.

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

Six Months Ended June 30 2026 vs.

($ in millions) 2026

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Deferred income taxes 89 (19) 108

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

Gain on investments in marketable securities (19) (10) (9)

Other non-cash transactions, net 12 9 3

Retiree benefits (90) (77) (13)

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

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

Change in trade working capital (956) 29 (985)

Net cash provided by (used in) operating activities $ (421) $ 428 $ (849)

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

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Operating Activities

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.

Cash used in operating activities for the six months ended June 30, 2026, was $421 million, compared with cash provided by operating activities of $428 million for the same period in 2025.

The change in operating cash flow was primarily due to an unfavorable change in trade working capital driven by the timing of billings across programs.

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

Investing Activities

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.

Cash used in investing activities for the six months ended June 30, 2026, was $189 million, compared to $291 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 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 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.

Cash used in financing activities for the six months ended June 30, 2026, was $152 million, compared with $625 million used in financing activities for the same period in 2025.

The change in cash used in financing activities was primarily due to the repayment of long-term debt in 2025.

Free Cash Flow

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

Free cash flow represents cash provided by (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 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 (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 used in operating activities to free cash flow:

Three Months Ended March 31 2026 vs.

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

Six Months Ended June 30 2026 vs.

($ in millions) 2026

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

Net cash provided by (used in) operating activities $ (421) $ 428 $ (849)

Less capital expenditures:

2 unchanged sentences

Free cash flow $ (611) $ 268 $ (879)

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

Free cash flow for the six months ended June 30, 2026, decreased $879 million from the same period in 2025, primarily due to an unfavorable change in trade working capital driven by the timing of billings across programs.

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 March 31, 2026 and 2025, the cumulative amounts of payments withheld by the U.S.

As of June 30, 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.

1 unchanged sentence

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 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.

As of June 30, 2026, $10 million in letters of credit were issued but undrawn and $283 million of surety bonds were outstanding.

As of June 30, 2026, we had no other significant off-balance sheet arrangements.

ACCOUNTING STANDARDS UPDATES

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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.

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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The class is expected to bring improved warfighting capability, quality of life improvements for sailors, and reduced life cycle costs.

Frigate class (FF(X)) ships

Design and build frigate ships that provide small blue-water surface combatants, producible in volume, and designed to fit within the Golden Fleet’s High/Low fleet architecture, complementing larger, multi-mission capable platforms.

Frigate will be a vanguard of the Navy’s Hedge Strategy within the General-Purpose Force, handling routine missions across the globe and freeing the Main Battle Force to remain focused on high-end combat.

Frigate will act as the command ship for Tailored Offsets, specifically Robotic and Autonomous Systems (RAS), and integrating with RAS to lead Tailored Forces into a cohesive warfighting approach.

In 2026, we were awarded a lead yard services contract to begin Frigate class baseline design engineering and included funding for long-lead-material procurements and preconstruction efforts on the first ship in the class.

Legend class National Security Cutter

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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