What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-23 compared with 2026-04-23 · 165 added, 124 removed, 227 unchanged (56% of the section changed)

9 unchanged sentences

Government and allies.

During the quarter ended March 29, 2026, 69% of our $18.0 billion in sales were from the U.S.

During the six months ended June 28, 2026, 70% of our $38.1 billion in sales were from the U.S.

Government, either as a prime contractor or as a subcontractor (including 61% from U.S.

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Government has been broadly focused on increasing industry capacity to meet long-term demand.

We continue to work with the U.S.

Government, international partners, and our supply chain to increase capacity and enhance our ability to scale our operations to meet potential demand, deliver critical capabilities, and replenish depleted U.S.

and allied stockpiles of products that have been consumed over the past several years.

We are working with the U.S.

Government, international partners, and our supply chain with the objective of increasing capacity and enhancing our ability to scale operations to anticipated demand.

We expect these efforts will enable us to deliver critical capabilities and replenish depleted U.S.

and allied stockpiles, although there can be no assurance that production capacity will increase at the rate or to the extent we or our customers expect due to supply chain constraints, workforce limitations, government funding decisions, and other factors described in our risk factors.

Global Economic and Geopolitical Environment

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We have experienced, and continue to experience, supply chain challenges, including supplier shortages and performance issues.

While on-time deliveries are stable, pressures remain in certain areas, and we are proactively working with our suppliers to meet our contract commitments.

Although on‑time deliveries have generally been steady, pressures remain in certain areas, and we are proactively working with our suppliers to meet our contract commitments.

In addition, macroeconomic conditions including elevated levels of inflation present risks for us, our suppliers and the stability of the broader defense industrial base.

Supply chain challenges, including both the availability and cost of goods, may be further impacted due to the imposition of tariffs and the availability of raw materials including rare earth minerals.

We continue to work to mitigate challenges caused by the supply chain or current macroeconomic environment on our business, including by deploying resources to work with our supply chain, securing materials and support by executing long-term contracts, enforcing existing contract terms, identifying alternative sources, collaborating with our customers to address industry-wide challenges, and optimizing our supply chain organization through digital transformation and workforce development.

If we experience significant supply chain issues or high rates of inflation, and are unable to successfully mitigate the impact, our future profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected.

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and are subject to tariffs, sanctions, embargoes, export and import controls, and other trade restrictions.

Changes in trade policies, including tariffs and other restrictions, may affect the cost or availability of certain materials and components.

Changes in trade policies,

including tariffs and other restrictions, may affect the cost or availability of certain materials and components.

While we continue to monitor these developments and pursue mitigation strategies where appropriate, excluding the near-term cash flow impact, we do not currently expect existing tariffs to have a material long-term impact on our results of operations.

Through the six months ended June 28, 2026, we have received approximately $140 million in refunds related to prior tariff assessments.

Significant changes in tax, trade, or other policies either in the U.S.

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Our primary customer is the U.S.

Government, from which we derived 69% of our sales during the quarter ended March 29, 2026, including 59% from the DoW.

Government, from which we derived 70% of our sales during the six months ended June 28, 2026, including 61% from the DoW.

Funding for U.S.

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The National Defense Authorization Act (NDAA) for FY 2026 was signed into law on December 18, 2025.

This legislation authorizes $901 billion for Defense.

On February 3, 2026, the President signed the Consolidated Appropriations Act, 2026 funding the DoW through the end of the fiscal year, September 30, 2026.

This legislation provides $839.2 billion in funding for the DoW representing an $8.4 billion increase over the topline in the President’s DoW Budget Request.

The One Big Beautiful Bill Act (the Tax Act) was signed by the President on July 4, 2025.

The bill provides more than $150 billion in mandatory funding for the DoW available until September 30, 2029.

This legislation authorizes $901 billion for national defense.

On February 3, 2026, the President signed the Consolidated Appropriations Act, 2026, which provided $839.2 billion of discretionary funding for national defense through September 30, 2026, an increase of $8.4 billion over the President’s FY2026 Budget Request.

Separately, the One Big Beautiful Bill Act (the Tax Act), signed into law on July 4, 2025, provides more than $150 billion of additional mandatory funding for Defense that is available through September 30, 2029.

On April 3, 2026, the Administration released the FY 2027 Defense topline request.

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It emphasizes a $760 billion weapons‑procurement and modernization effort—highlighting commitment to munitions framework deals, Golden Dome missile defense, a major shipbuilding program, and an increase in F‑35 purchases.

The approach is reliant upon Congress to pass a second reconciliation bill.

We will continue to monitor the FY 2027 budget cycle as additional information is released.

The FY 2027 proposal is subject to Congressional appropriation, and there can be no assurance that it will be enacted at the levels proposed or that increases in authorized quantities will translate into increased orders for our programs within any particular timeframe.

Despite the Administration indicating their desire for a significant increase in defense spending in FY 2027, we anticipate the federal budget, additional potential tax law changes, and regulatory environment will continue to be subject to debate and compromise shaped by, among other things, the Administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions.

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Our consolidated results of operations were as follows (in millions, except per share data):

Quarters Ended

2026 March 30,

Quarters Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

Sales $ 20,063 $ 18,155 $ 38,084 $ 36,118

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Gross profit 2,446 734 4,524 3,057

Other (expense) income, net (15) 49

Other income, net 33 14 18 63

Operating profit 2,479 748 4,542 3,120

1 unchanged sentence

Non-service FAS pension expense

(80) (99) (160) (197)

Other non-operating income, net 45 42 105 72

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Our consolidated sales and operating costs and expenses were as follows (in millions):

Quarters Ended

2026 March 30,

Quarters Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

Products $ 16,783 $ 15,149 $ 31,614 $ 30,085

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% of service sales 87.3 % 104.1 % 87.3 % 95.6 %

Impairment and other charges — (66) — (66)

Other unallocated, net 308 244 547 528

1 unchanged sentence

Product Sales and Costs

Product sales during the quarter ended March 29, 2026 decreased $105 million, or 1%, compared to the same period in 2025.

Lower product sales of approximately $325 million at RMS and $240 million at Aeronautics were offset by higher product sales of $305 million at MFC and $155 million at Space.

Lower product sales at RMS were due to lower volume on radar and CH-53K programs.

Lower product sales at Aeronautics were due to lower volume on classified programs.

Higher product sales at MFC were due to production ramp-up on PAC-3 contracts, Joint Air-to-Surface Standoff Missile (JASSM), Long Range Anti-Ship Missile (LRASM) and Precision Strike Missile (PrSM) programs.

Higher product sales at Space were due to higher volume on Fleet Ballistic Missile (FBM) programs.

Product costs during the quarter ended March 29, 2026 increased $114 million, or 1%, compared to the same period in 2025.

Higher product costs of approximately of $255 million at MFC and $245 million at Space were offset by lower product costs of $245 million at RMS and $140 million at Aeronautics.

These changes reflected production ramp-up at MFC, higher volume at Space and lower volumes at RMS and Aeronautics, as described above.

Product sales increased $1.6 billion, or 11%, during the quarter ended June 28, 2026, compared to the same period in 2025.

This increase was due to higher product sales of approximately $650 million at Aeronautics (higher volume on F-35 production contracts and the sales impact of the 2025 reach-forward loss on a classified program);

$635 million at MFC (production ramp-up on Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) programs);

$185 million at RMS (higher volume on undersea combat systems programs and the River Class Destroyer program and the sales impact of the 2025 reach-forward loss on the Türkish Utility Helicopter Program (TUHP) program);

and $165 million at Space (higher volume on Fleet Ballistic Missile (FBM) and Next Generation Interceptor (NGI) programs).

Product costs increased $594 million, or 4%, during the quarter ended June 28, 2026, compared to the same period in 2025.

Higher product costs of approximately $515 million at MFC, $165 million at RMS and $155 million at Space, partially offset by lower product costs of $240 million at Aeronautics.

Product costs for all four business segments reflect the production ramp-up and higher volume as described above in “Product Sales”.

Additionally, lower product costs at Aeronautics reflect the 2025 reach-forward loss on a classified program.

Product sales during the six months ended June 28, 2026 increased $1.5 billion, or 5%, compared to the same period in 2025.

This increase was due to higher product sales of approximately $940 million at MFC (production ramp-up on PAC-3 and THAAD programs);

$405 million at Aeronautics (primarily higher volume on F-35 production contracts);

and $320 million at Space (higher volume on FBM and NGI programs).

Product costs during the six months ended June 28, 2026 increased $708 million, or 3%, compared to the same period in 2025.

Higher product costs of approximately of $765 million at MFC and $400 million at Space were partially offset by lower product costs of $380 million at Aeronautics.

Product costs for MFC, Aeronautics and Space reflect the production ramp-up and higher volume as described above in “Product Sales”.

Additionally, lower product costs at Aeronautics reflect the 2025 reach-forward loss on a classified program.

Service Sales and Costs

Service sales during the quarter ended March 29, 2026 increased $163 million, or 5%, compared to the same period in 2025.

The increase was primarily attributable to due to higher service sales of approximately $135 million at Aeronautics as a result of higher volume on the F-35 sustainment contracts.

Service costs during the quarter ended March 29, 2026 increased $144 million, or 5%, compared to the same period in 2025.

The increase was primarily attributable to higher service costs of approximately $140 million at Aeronautics, which is consistent with the higher service sales as described above.

Service sales increased $274 million, or 9%, during the quarter ended June 28, 2026, compared to the same period in 2025 due to higher service sales of approximately $175 million at RMS (sales impact of the 2025 reach-forward loss on Canadian Maritime Helicopter Program (CMHP));

and $45 million at Aeronautics (higher volume on F-35 sustainment contracts, partially offset by lower volume on C-130 sustainment contracts).

Service costs decreased $268 million, or 9%, during the quarter ended June 28, 2026, compared to the same period in 2025 primarily attributable to lower service costs of approximately $410 million at RMS, partially offset by higher service costs of approximately $75 million at Aeronautics as described above in “Service Sales”.

Service sales during the six months ended June 28, 2026 increased $437 million, or 7%, compared to the same period in 2025.

The increase was primarily attributable to higher service sales of approximately $180 million at Aeronautics (higher volume on the F-35 sustainment contracts, partially offset by the sales impact of lower net favorable profit adjustments on C-130 program);

and $160 million at RMS (sales impact of the 2025 reach-forward loss on CMHP).

Service costs during the six months ended June 28, 2026 decreased $124 million, or 2%, compared to the same period in 2025.

The decrease was primarily attributable to lower service costs of $465 million at RMS, partially offset by higher service costs of approximately $210 million at Aeronautics as described above in “Service Sales”.

Impairment and Other Charges

During the second quarter of 2025, we recorded charges totaling $66 million ($52 million, or $0.22 per share, after-tax) primarily for the write-off of fixed assets resulting from the U.S.

Air Force’s Next Generation Air Dominance (NGAD) competition and down-select decision.

Other Unallocated, Net

Other unallocated, net primarily includes the FAS/CAS pension operating adjustment (which represents the difference between total CAS pension cost recorded in our business segments’ results of operations and the service cost component of FAS pension expense), stock-based compensation expense, changes in the fair value of assets and liabilities for deferred compensation plans, significant severance charges, significant asset impairments, intangible asset amortization expense, and other miscellaneous corporate activities.

These items are not allocated to the business segments and, therefore, are not allocated to operating costs and expenses for products or services.

Other unallocated, net reduced operating expenses by $239 million and $284 million during the quarters ended March 29, 2026 and March 30, 2025.

The fluctuations in other unallocated, net were due to costs associated with various corporate items, none of which were individually significant.

Other (Expense) Income, Net

Other expense, net was $15 million during the quarter ended March 29, 2026, compared to other income, net of $49 million during the quarter ended March 30, 2025.

Other (expense) income, net, primarily includes earnings generated by equity method investees, as well as gains or losses for acquisitions, divestitures, and other items, none of which are individually significant.

The decrease in other expense (income), net resulted primarily from an intellectual property license arrangement during the quarter ended March 30, 2025.

Other unallocated, net operating expenses were $308 million and $547 million during the quarter and six months ended June 28, 2026, compared to $244 million and $528 million during the quarter and six months ended June 29, 2025.

The fluctuations in other unallocated, net were primarily due to changes in fair value of net assets and liabilities for deferred compensation plans and costs associated with various corporate items, none of which were individually significant.

Other Income, Net

Other income, net was $33 million and $18 million during the quarter and six months ended June 28, 2026, compared to $14 million and $63 million during the quarter and six months ended June 29, 2025.

Other income, net, primarily includes earnings generated by equity method investees, as well as gains or losses for acquisitions, divestitures, and other items, none of which are individually significant.

Non-service FAS Pension Expense

Non-service FAS pension expense was $80 million and $98 million during the quarters ended March 29, 2026 and March 30, 2025.

Non-service FAS pension expense was $80 million and $160 million during the quarter and six months ended June 28, 2026, compared to $99 million and $197 million during the quarter and six months ended June 29, 2025.

See “Note 6 - Retirement Benefits” included in our Notes to Consolidated Financial Statements for additional information.

1 unchanged sentence

Other non-operating income, net primarily includes gains or losses related to adjustments in valuation of early-stage company investments or gains or losses upon the sale of these investments and interest income earned on cash and cash equivalents.

Other non-operating income, net was $60 million and $30 million during the quarters ended March 29, 2026 and March 30, 2025.

Other non-operating income, net was $45 million and $105 million during the quarter and six months ended June 28, 2026, compared to $42 million and $72 million during the quarter and six months ended June 29, 2025.

See “Note 8 - Fair Value Measurements” included in our Notes to Consolidated Financial Statements for additional information.

Income Tax Expense

Our effective income tax rates were 16.1% and 15.9% for the quarters ended March 29, 2026 and March 30, 2025.

The rates for all periods benefited from the tax deductions for foreign derived deduction eligible income (formerly known as foreign derived intangible income), research and development tax credits, dividends paid to our defined contribution plans with an employee stock ownership plan feature and employee equity awards.

Our effective income tax rates were 15.7% and 15.9% for the quarter and six months ended June 28, 2026 and 18.0% and 16.3% for the quarter and six months ended June 29, 2025.

The lower effective income tax rates for the quarter and six months ended June 28, 2026 were primarily attributable to lower interest expense on our uncertain tax position and the reach-forward losses recognized in 2025.

The rates for all periods benefited from the tax deductions for foreign derived deduction eligible income, research and development tax credits, dividends paid to our defined contribution plans with an employee stock ownership plan feature and employee equity awards.

Changes in U.S.

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In addition to future changes in tax laws, the amount of net deferred tax assets will change periodically based on several factors, including the measurement of our retirement benefit obligations, actual cash contributions to our retirement benefit plans and the change in the amount or reevaluation of uncertain tax positions.

On July 4, 2025, the President signed into law the Tax Act.

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (the Tax Act).

Key provisions included the permanent reinstatement of immediate expensing for domestic research expenditures, the restoration of full expensing for qualified machinery, equipment and other short-lived assets, and several modifications to existing corporate alternative minimum tax (CAMT) and international tax provisions.

1 unchanged sentence

Department of Treasury issued Notice 2026-7 (the Notice) providing additional interim guidance regarding the application of the CAMT.

We are continuing to evaluate the impacts of the Tax Act and the Notice and there could be additional impacts to our financial results or cash flows.

As a result of the Tax Act and the Notice, we are no longer subject to CAMT this year and expect to make reduced federal income tax payments for 2026.

We are regularly under audit or examination by tax authorities, including U.S.

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These increases or changes could have a material impact on financial condition and results of operations in such period.

The Organisation for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenue and profits above certain thresholds (referred to as Pillar 2).

Although the U.S.

has not enacted legislation to implement Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2.

The OECD issued new administrative guidance on January 5, 2026, with respect to Pillar 2 which modifies key aspects of the framework for countries to enact in their own laws.

This new guidance reaffirms we do not expect Pillar 2 to have a material impact on our effective tax rate or our financial results or cash flows.

We reported net earnings of $1.5 billion ($6.44 per share) and and $1.7 billion ($7.28 per share) during the quarters ended March 29, 2026 and March 30, 2025.

Net earnings and earnings per share for the quarter ended March 29, 2026 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 4.2 million weighted average common shares outstanding during the quarter ended March 29, 2026, compared to the same period in 2025.

The reduction in weighted average common shares was a result of share repurchases in 2025, but none during the quarter ended March 29, 2026, partially offset by share issuances under our stock-based awards and certain defined contribution plans.

We reported net earnings of $1.8 billion ($7.94 per share) and $3.3 billion ($14.38 per share) during the quarter and six months ended June 28, 2026 and $342 million ($1.46 per share) and $2.1 billion ($8.75 per share) during the quarter and six months ended June 29, 2025.

Net earnings and earnings per share for the quarter and six months ended June 28, 2026 were affected by the factors mentioned above.

Earnings per share also benefited from a net decrease of approximately 3.2 million and 3.7 million weighted average common shares outstanding during the the quarter and six months ended June 28, 2026, compared to the same periods in 2025.

The reduction in weighted average common shares was a result of share repurchases in the second half of 2025, but none during the quarter and six months ended June 28, 2026, partially offset by share issuances under our stock-based awards and certain defined contribution plans.

BUSINESS SEGMENT RESULTS OF OPERATIONS

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Sales and operating profit for each of our business segments were as follows (in millions):

Quarters Ended

2026 March 30,

Quarters Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

Aeronautics $ 8,112 $ 7,420 $ 15,065 $ 14,477

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FAS/CAS pension operating adjustment $ 422 $ 379 $ 843 $ 758

Impairment and other charges — (66) — (66)

Intangible asset amortization expense (50) (63) (100) (127)

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The following table presents the effect of our consolidated net profit booking rate adjustments on segment operating profit (in millions):

Quarters Ended

2026 March 30,

Quarters Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

Aeronautics $ 60 $ (730) $ 75 $ (620)

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Rotary and Mission Systems 25 (550) 60 (465)

Space 100 105 130 260

Total net adjustments to segment operating profit $ 375 $ (1,045) $ 590 $ (565)

During the quarter ended March 29, 2026, we recorded unfavorable profit adjustments of $125 million on the F-16 program as a result of production performance and development delays, $85 million on the C-130 program as a result of continued diminishing manufacturing source integration challenges and associated delivery delays, and $130 million of favorable profit adjustment on the F-35 program.

During the quarter ended March 30, 2025, we recorded $185 million of adjustments resulting from favorable performance upon completion on certain commercial civil space programs at our Space business segment and a classified program at our Aeronautics business segment.

During the six months ended June 28, 2026, we recorded unfavorable profit adjustments of $125 million on the F-16 program at Aeronautics as a result of production performance and development delays, $95 million on the C-130 program at Aeronautics as a result of continued diminishing manufacturing source integration challenges and associated delivery delays, $95 million on Heavy Lift programs at RMS as a result of production performance, and $80 million on Seahawk programs at RMS as a result of production performance and schedule delays.

During the quarter ended June 29, 2025, we recorded losses of $950 million on an ongoing classified program at Aeronautics, and $570 million on Canadian Maritime Helicopter Program (CMHP) and $95 million on Türkish Utility Helicopter Program (TUHP) at RMS.

During the six months ended June 29, 2025, in addition to the losses above, we recorded $125 million of adjustments resulting from favorable performance upon completion on certain commercial civil space programs at Space and an $80 million favorable adjustment upon completion of a classified program at Aeronautics.

There are certain programs where there is a risk of additional losses, including Aeronautics, MFC and RMS business segments.

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Summary operating results for our Aeronautics business segment were as follows (in millions):

Quarters Ended

2026 March 30,

Quarters Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

Sales $ 8,112 $ 7,420 $ 15,065 $ 14,477

Operating profit 619 720

Operating profit (loss) 760 (98) 1,379 622

Operating margin 9.4 % (1.3 %) 9.2 % 4.3 %

Aeronautics’ sales during the quarter ended March 29, 2026 decreased $104 million , or 1%, compared to the same period in 2025.

The decrease was primarily attributable to lower sales of approximately $325 million on classified programs due to lower volume;

and approximately $145 million for the F-16 program due to the sales impact of unfavorable profit adjustments recognized in first quarter of 2026 and lower production volume.

These decreases were partially offset by higher sales of approximately $325 million for the F-35 program due to higher volume on sustainment contracts.

A eronautics’ operating profit during the quarter ended March 29, 2026 decreased $101 million, or 14%, compared to the same period in 2025, primarily due to a $95 million decrease in profit booking rate adjustments.

This decrease in profit book rate adjustments reflects $125 million of unfavorable profit adjustments on the F-16 program as a result of production performance and development delays;

$55 million of net unfavorable profit adjustments on the C-130 program as a result of continued diminishing manufacturing source integration challenges and associated delivery delays;

and the absence of an $80 million adjustment that occurred in the quarter ended March 30, 2025 resulting from favorable performance at completion on a classified program.

These decreases in profit booking rate adjustments were partially offset by $130 million of higher favorable profit adjustments on the F-35 program.

Additionally, during the first quarter of 2026, we delivered 32 F-35 aircraft.

Since the program inception through March 29, 2026, we delivered 1,325 production F-35 aircraft, including 948 F-35A variants, 245 F-35B variants and 132 F-35C variants, and our backlog as of that date was 336 aircraft.

Aeronautics’ sales during the quarter ended June 28, 2026 increased $692 million, or 9%, compared to the same period in 2025.

The increase was primarily due to higher sales of $475 million on the F‑35 program as a result of higher volume on production contracts, and $360 million due to the sales impact of the reach-forward loss recognized on a classified contract in 2025.

These increases were partially offset by lower sales of $120 million on F-16 and C-130 programs due to lower volume on sustainment contracts.

Aeronautics’ operating profit during the quarter ended June 28, 2026 increased $858 million compared to the same period in 2025.

The increase was attributable to the $950 million reach-forward loss recognized on a classified contract in 2025, and higher sales volume on F-35 production contracts.

The increases were partially offset by $160 million of lower net favorable profit adjustments across the portfolio.

Aeronautics’ sales during the six months ended June 28, 2026 increased $588 million , or 4%, compared to the same period in 2025.

The increase was primarily due to higher sales of $795 million on the F‑35 program as a result of higher volume on production and sustainment contracts;

partially offset by lower sales of $225 million on the F-16 program due to the sales impact of unfavorable profit adjustments recognized in first quarter of 2026 and lower production volume, and

$110 million on the C-130 program due to the sales impact of lower net favorable profit adjustments.

Sales for classified programs were comparable as lower volume was mostly offset by the reach-forward loss recognized on a classified contract in 2025.

A eronautics ’ operating profit during the six months ended June 28, 2026 increased $757 million compared to the same period in 2025.

The increase was attributable to the $950 million reach-forward loss recognized on a classified contract in 2025;

partially offset by $125 million of unfavorable profit adjustments on the F-16 program recognized in first quarter of 2026 and $130 million of lower net favorable profit adjustments across the portfolio.

Additionally, during the quarter ended June 28, 2026 , we delivered 19 F-35 aircraft.

Since the program inception through June 28, 2026, we delivered 1,344 production F-35 aircraft, including 956 F-35A variants, 250 F-35B variants and 138 F-35C variants, and our backlog as of that date was 317 aircraft.

Missiles and Fire Control

Summary operating results for our MFC business segment were as follows (in millions):

Quarters Ended

2026 March 30,

Quarters Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

Sales $ 4,101 $ 3,433 $ 7,750 $ 6,806

1 unchanged sentence

Operating margin 14.5 % 14.0 % 14.1 % 13.9 %

MFC’s sales during the quarter ended March 29, 2026 increased $276 million, or 8%, compared to the same period in 2025.

This increase was primarily attributable to production ramp-up of $190 million at integrated air and missile defense programs (existing contracts on PAC-3) and $75 million at tactical and strike missile programs (JASSM, LRASM and PrSM).

MFC’s operating profit during the quarter ended March 29, 2026 increased $35 million, or 8%, compared to the same period in 2025.

This increase was primarily attributable to higher sales volume previously described.

MFC’s sales during the quarter ended June 28, 2026 increased $668 million, or 19%, compared to the same period in 2025.

The increase was primarily attributable to higher sales of $560 million on integrated air and missile defense programs due to production ramps (PAC-3 and THAAD), and $100 million on tactical and strike missile programs due to production ramps (Precision Strike Missile (PrSM)).

MFC’s operating profit during the quarter ended June 28, 2026 increased $115 million, or 24%, compared to the same period in 2025.

The increase was primarily attributable to higher sales volume previously described, and $60 million due to higher net favorable profit adjustments.

MFC’s sales during the six months ended June 28, 2026 increased $944 million, or 14%, compared to the same period in 2025.

The increase was primarily attributable to higher sales of $750 million on integrated air and missile defense programs due to production ramps (PAC-3 and THAAD), and $175 million on tactical and strike missile programs due to production ramps (PrSM).

MFC’s operating profit during the six months ended June 28, 2026 increased $150 million, or 16%, compared to the same period in 2025.

The increase was primarily attributable to higher sales volume previously described, and $65 million due to higher net favorable profit adjustments.

Rotary and Mission Systems

Effective January 2026, the Integrated Warfare Systems and Sensors (IWSS) and C6ISR lines of business within RMS were restructured and renamed Sensors, Effectors & Mission Systems (SEMS) and Mission Integrated Command and Control (MIC2).

This includes realignment of various programs, such as Aegis and River-Class Destroyer (RCD) moving from what was historically IWSS to MIC2, which more closely aligns with C6ISR.

SEMS and MIC2 will therefore incorporate an updated mix of existing program portfolios designed to accelerate mission‑focused solutions and enhance our customers’ experience.

Summary operating results for our RMS business segment were as follows (in millions):

Quarters Ended

2026 March 30,

Quarters Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

Sales $ 4,354 $ 3,995 $ 8,345 $ 8,323

Operating profit 423 521

Operating profit (loss) 437 (172) 860 349

Operating margin 10.0 % (4.3 %) 10.3 % 4.2 %

RMS’ sales during the quarter ended March 29, 2026 decreased $337 million, or 8%, compared to the same period in 2025.

The decrease was primarily attributable to lower net sales of $170 million on SEMS programs due to lower volume on radar programs;

and $110 million on Sikorsky helicopter programs (CH-53K, Seahawk and Black Hawk) primarily due to lower volume and the sales impact of unfavorable profit adjustments recognized in the quarter ended March 29, 2026.

RMS’ operating profit during the quarter ended March 29, 2026 decreased $98 million, or 19%, compared to the same period in 2025.

This was primarily attributable to a $50 million decrease in profit booking rate adjustments largely

driven by unfavorable profit adjustments on the CH-53K and Seahawk programs;

and the absence of a $50 million cost recovery related to an intellectual property license arrangement that occurred in the quarter ended March 30, 2025.

RMS’ sales during the quarter ended June 28, 2026 increased $359 million, or 9%, compared to the same period in 2025.

The increase was attributable to higher sales of $255 million on Sikorsky helicopter programs due to the sales impact of the reach-forward loss recognized on CMHP and TUHP in 2025, and $115 million on Mission Integrated Command & Control (MIC2) programs due to higher volume on undersea combat systems programs and the River Class Destroyer program.

RMS’ operating profit during the quarter ended June 28, 2026 increased $609 million compared to the same period in 2025.

The increase was attributable to the $570 million reach-forward loss recognized on the CMHP program and the $95 million reach-forward loss recognized on the TUHP program in 2025.

This increase was offset by unfavorable profit adjustments of $65 million on Heavy Lift and $50 million on Seahawk programs, partially offset by higher net favorable profit adjustments across the portfolio.

RMS’ sales during the six months ended June 28, 2026 were comparable to the same period in 2025.

Lower sales of $160 million on Sensors, Effectors & Mission Systems (SEMS) programs due to lower volume across the portfolio were mostly offset by higher sales of $145 million at Sikorsky.

Higher sales at Sikorsky were due to the sales impact of the reach-forward losses recognized on CMHP and TUHP in 2025, partially offset by the sales impact of unfavorable profit adjustments recognized in 2026.

RMS’ operating profit during the six months ended June 28, 2026 increased $511 million compared to the same period in 2025.

The increase was attributable to the $570 million reach-forward loss recognized on the CMHP program and the $95 million reach-forward loss recognized on TUHP in 2025, partially offset by unfavorable profit adjustments of $95 million on Heavy Lift and $80 million on Seahawk programs in 2026.

Summary operating results for our Space business segment were as follows (in millions):

Quarters Ended

2026 March 30,

Quarters Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

Sales $ 3,496 $ 3,307 $ 6,924 $ 6,512

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Operating margin 10.6 % 10.9 % 9.4 % 11.4 %

Space’s sales during the quarter ended March 29, 2026 increased $223 million, or 7%, compared to the same period in 2025.

This increase was primarily attributable to higher sales volume of $245 million for strategic and missile defense programs on the FBM and Next Generation Interceptor (NGI) programs.

Space’s operating profit during the quarter ended March 29, 2026 decreased $98 million, or 26%, compared to the same period in 2025.

This decrease was primarily attributable to a $125 million decrease in profit booking rate adjustments driven by favorable performance at completion on certain commercial civil space programs for the quarter ended March 30, 2025;

partially offset by an increase from higher sales volume previously described.

Space’s s a les during the quarter ended June 28, 2026 increased $189 million, or 6%, compared to the same period in 2025.

The increase was primarily attributable to higher sales of $190 million on strategic and missile defense programs due to increased volume (FBM and NGI).

Space’s operating profit during the quarter ended June 28, 2026 was comparable to the same period in 2025.

Space’s sales during the six months ended June 28, 2026 increased $412 million, or 6%, compared to the same period in 2025.

The increase was primarily attributable to higher sales of $435 million on strategic and missile defense programs due to increased volume (FBM and NGI).

Space’s operating profit during the six months ended June 28, 2026 decreased $89 million, or 12%, compared to the same period in 2025.

The decrease was primarily due to favorable performance at completion on certain commercial civil space programs in 2025, partially offset by higher sales volume previously described.

FINANCIAL CONDITION

Liquidity and Capital Resources

At March 29, 2026, we had cash and cash equivalents of $1.9 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

At June 28, 2026, we had cash and cash equivalents of $3.8 billion that was generally available to fund ordinary business operations without significant legal, regulatory or other restrictions.

Our principal source of liquidity is our cash from operations and access to credit markets.

Access to credit markets includes our revolving credit facilities, including the ability to issue commercial paper.

Access to credit markets includes our revolving credit facilities, and the ability to issue commercial paper.

We may, as conditions warrant, issue commercial paper backed by our revolving credit facility to manage the timing of cash flows.

There were no borrowings outstanding under the revolving credit facilities or the commercial paper program at March 29, 2026 or December 31, 2025.

There were no borrowings outstanding under the revolving credit facilities or the commercial paper program at June 28, 2026 or December 31, 2025.

Cash received from customers is our primary source of cash from operations.

However, from time to time, we fund customer programs ourselves pending government appropriations or prior to contract award.

See “Note 5 - Inventories” included in our Notes to Consolidated Financial Statements for additional information.

If we incur costs in excess of funds obligated on the contract or in advance of a contract award, this negatively affects our cash flows, and we may be at risk for reimbursement of the excess costs.

In addition, when estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is evident, which we refer to as a reach-forward loss.

These reach-forward losses do not have an immediate cash flow impact, but as future costs are incurred on these contracts, these losses will negatively impact cash flows over the remaining period of performance.

Typically, these reach-forward losses do not have an immediate cash flow impact, but as future costs are incurred on these contracts, these losses will negatively impact cash flows over the remaining period of performance.

Increases in costs due to tariffs may impact our cash flows, as we may not be able to fully recover these costs, and even if recovery is possible, it may not occur in the same period as the incurred costs.

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Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type.

We generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately 42% of the sales we recorded during the quarter ended March 29, 2026, as we are authorized to bill as the costs are incurred.

We generally bill and collect cash more frequently under cost-reimbursable contracts, which represented approximately 41% of the sales we recorded during the six months ended June 28, 2026, as we are authorized to bill as the costs are incurred.

A number of our fixed-price contracts may provide for performance-based payments, which allow us to bill and collect cash as we perform on the contract as we achieve milestones.

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Government has indicated that it would consider progress payments as the baseline for negotiating payment terms on fixed-price contracts, rather than performance-based payments.

In contrast to negotiated performance-based payment terms, progress payment provisions correspond to a percentage of the amount of costs incurred during

the performance of the contract and are invoiced regularly as costs are incurred.

In contrast to negotiated performance-based payment terms, progress payment provisions correspond to a percentage of the amount of costs incurred during the performance of the contract and are invoiced regularly as costs are incurred.

Our cash flows may be affected if the U.S.

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We may at times refinance existing indebtedness, vary our mix of variable-rate and fixed-rate debt or seek alternative financing sources or arrangements for our cash and operational needs.

We also actively manage our pension obligations and expect to continue to opportunistically manage our pension obligations through additional contributions at our discretion, the purchase of group annuity contracts or other actions for portions of our outstanding defined benefit pension obligations using assets from the pension trust.

portions of our outstanding defined benefit pension obligations using assets from the pension trust.

See “Note 6 - Retirement Benefits” included in our Notes to Consolidated Financial Statements for additional information.

The following table provides a summary of our cash flow information followed by a discussion of the key elements (in millions):

Quarters Ended

2026 March 30,

Six Months Ended

2026 June 29,

Cash and cash equivalents at beginning of year $ 4,121 $ 2,483

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Operating Activities

Net cash provided by operating activities during the quarter ended March 29, 2026 decreased $1.2 billion compared to the same period in 2025.

The decrease in cash from operations was primarily due to higher working capital largely as a result of timing of billing activities.

Net cash provided by operating activities during the six months ended June 28, 2026 increased $1.8 billion compared to the same period in 2025.

The increase in cash from operations was primarily due to the timing of customer receipts, and lower tax payments reflecting the impact of the Tax Act and the Notice.

Non-GAAP Financial Measure - Free Cash Flow

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We use free cash flow to evaluate our business performance and overall liquidity.

While management believes that free cash flow as a non-GAAP financial measure may be useful in evaluating our financial performance, it should be considered supplemental to, and not a

substitute for, financial information prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.

While management believes that free cash flow as a non-GAAP financial measure may be useful in evaluating our financial performance, it should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.

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

Quarters Ended

2026 March 30,

Six Months Ended

2026 June 29,

Cash from operations $ 3,455 $ 1,610

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Free cash flow $ 2,626 $ 805

Free cash flow d uring the quarter ended March 29, 2026 decreased $1.2 billion compared to the same period in 2025 primarily due to operating cash flow drivers described above and higher software expenditures.

Free cash flow d uring the six months ended June 28, 2026 increased $1.8 billion compared to the same period in 2025 primarily due to operating cash flow drivers described above.

Investing Activities

Net cash used for investing activities duri ng the quarter ended March 29, 2026 increased $111 million compared to the same period in 2025.

Capital expenditures totaled $511 million and $454 million during the quarter ended March 29, 2026 and March 30, 2025.

Net cash used for investing activities duri ng the six months ended June 28, 2026 decreased $255 million compared to the same period in 2025.

Capital expenditures totaled $829 million and $805 million during the six months ended June 28, 2026 and June 29, 2025.

The majority of our capital expenditures are for equipment and facilities infrastructure that generally are incurred to support new and existing programs across all of our business segments.

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Financing Activities

Net cash used for financing activities during t he quarter ended March 29, 2026 increased $247 million compared to the same period in 2025.

D uri ng the quarter ended March 29, 2026, we repaid $1.0 billion of long-term notes with a fixed interest rate of 3.55% according to their scheduled maturities.

Additionally, d uri ng the quarter ended March 29, 2026, we did not make any repurchase of our common stock, compared to $750 million to repurchase 1.7 million shares during the same period in 2025.

Net cash used for financing activities during t he six months ended June 28, 2026 increased $1.2 billion compared to the same period in 2025.

D uri ng the six months ended June 28, 2026, we did not make any repurchase of our common stock, compared to $1.3 billion to repurchase 2.7 million shares during the same period in 2025.

Also, d uri ng the six months ended June 28, 2026 and June 29, 2025, we repaid $1.2 billion and $142 million of long-term notes according to their scheduled maturities.

Additionally, there were no commercial paper borrowings outstanding as of June 28, 2026, compared to net proceeds of $1.4 billion from commercial paper issuance during the same period in 2025.

OTHER MATTERS

Contingencies

See “Note 7 - Legal Proceedings and Contingencies” included in our Notes to Consolidated Financial Statements for information regarding our contingent obligations, including off-balance sheet arrangements.

Critical Accounting Policies

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What changed 10-Q

Item 2. Management’s Discussion and Analysis