HII 10-K & 10-Q changes, risk factors and insider trading

We depend on the U.S. Government for substantially all of our business,business. andChanges in the U.S. Government's priorities, strategies, spending, or other risks associated with conducting business with the U.S. Government could have a material adverse effect on our financial position, results of operations, or cash flows.

In addition, theThe U.S. Government generally has the ability to terminate contracts, in whole or in part, with little or no prior notice, for convenience or for default based upon performance. In the event of termination of a contract for the U.S. Government's convenience, a contractor generally is normally able to recover costs already incurred on the contract and profit on incurred costs up to the amount authorized under the contract, but not the profit that would have been earned had the contract been completed. OurHowever, unfundedthe backlogU.S. containsGovernment management’smay estimateassert ofthat revenuesit expectedis not required to beprovide realizedadditional onfunding unfundedfor contractssuch thatcosts mayif neversufficient befunding realized.has not been appropriated to cover them. Any termination also could also result in the cancellation of future work on the related program. A termination resulting from our default can expose us to various liabilities, including excess re-procurement costs, and could negatively affect our ability to compete for future contracts. Any contract termination (including a termination of a prime contract for which we are a subcontractor) could have a material adverse effect on our financial condition, results of operations, or cash flows.

CongressAs sometimesa appropriatesU.S. fundsGovernment contractor, we depend on anCongressional funding for our programs. U.S. Government programs are subject to annual fiscalcongressional yearbudget basisauthorization forand programsappropriation forprocesses whicheven thethough program performance period may extend over multipleseveral years. SuchThese programs aremay be funded initially on a partial basis,basis andwith additional funds are committed only as Congress makes further appropriations. If we or our subcontractors incur costs in excess of existing funding on a contract, we are generally at risk for reimbursement and may not recover those costs unless and until additional funds are appropriated. We cannot predict the extent to which total funding or funding for individual programs will be included, increased, or reduced as part of the annual budget process or through continuing resolutions or individual supplemental appropriations.

In addition, pressures on, as well as laws and plans relating to, the federal budget, potential changes in the threat environment, priorities and defense spending, government efficiency efforts, the timing and substance of the annual budget process, use of continuing resolutions, and the federal debt limit, have impacted and could continue to impact the amount and timing of funding for individual programs and delay purchasing or payments by our customers. For additional information relating to the U.S. defense budget, see the Business Environment section under Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7. Current U.S. Government spending levels for defense-related or other programs may not be sustained, and future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide products or services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of uncertainty surrounding the federal budget, increasing political pressure and legislation, shifts in spending priorities from defense-relateddefense, federal civilian, or other programs as a result of competing demands for federal funds,funds and government efficiency efforts, changes in the threat environment, including the number and intensity of military conflictsconflicts, or other factors. ForCertain example,of our programs providing products and services to federal civilian customers have been impacted, and we expect may continue to be impacted by government efficiency efforts. We have experienced price adjustments and renegotiations of certain of these contracts and may in the militaryfuture conflicts between Russia and Ukraine and Israel and Hamas have resulted in increased security assistancecontinue to Ukraine and Israel, respectively. Changes in defense budgetary priorities as a result ofexperience such conflictsimpacts or otherwisewhich could have an adverse impact on the programs in which we participate and, ultimately, our results.

Demand for our products and services also can be affected by shifts in customer priorities resulting from changes in military strategy and planning. In response to the need for less expensive alternatives and the increasing proliferation of advanced weapons, future strategy reassessments by the DoDDepartment may result in decreased demand for our shipbuilding programs, including our aircraft carrier programs. We cannot predict the impact of changes to customer priorities on existing, follow-on, replacement, or future programs. A shift of priorities to programs in which we do not participate and related reductions in funding forfor, or the termination of programs in which we do participate could have a material adverse effect on our financial position, results of operations, or cash flows.

Changes in estimates used in contract accounting and contract cost growth have affected and could continue to affect our profitability and our overall financial position.

Contract accounting requires risk-based judgments regarding estimated contract revenues and costs, and assumptions regarding scheduleschedule, technical matters, and technical matters.performance. Our ability to estimate total revenues and costs at completion depends on many variables,factors, including the size and nature of our contracts. For new shipbuilding programs, our estimates are based on contracts for the construction of ships that are not completely designed, which subjects our risk assessments, revenue and cost estimates, and related assumptions to the variability of the final ship design and an evolving scope of work. Our assessment, estimation, and assumption processes significantly impact our contract accounting, and materially different amounts can result if different assumptions are used or if actual events differ from our assumptions.

If estimated costs increase, particularly without comparable increases in revenue, our operating income can be adversely affected. We aim to mitigate thethis risk associated with our use of estimates through our contractual terms, and have submitted, and may submit, requests for equitable adjustment, engineering change proposals, or other claims to seek recovery, in whole or in part, of our increased costs. We have also sought, and will seek, other means or contract vehicles, as appropriate, to compensate the Company for certain unexpected cost increases. However, our contracts may not enable full recovery or the government may disagree with our requests or may not have funding to cover them.

Changes in our assumptions, circumstances, or estimatesestimates, and the inability to recover increased cost growth have in the past had, and may in the future have, a material adverse effect on our financial position, results of operations, or cash flows. See the Contracts section under Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

Changes to DoDthe U.S. Government's business practices could have a material effect on DoD'sits procurementprocurement, processcontracting, or other processes and practices and adversely impactaffect our current programs and potential new awards.

Our industry has experienced, and we expect will continue to experience, significant changes to business practices resulting fromfrom, among other things, a greater focus on affordability, efficiencies, business systems, recovery of costs, and a reprioritization of defenseavailable customer funding. These initiatives and changes to procurement practices may change the way U.S. Government contracts are solicited, negotiated, and managed, and may impact whether and how we pursue opportunities to provide our products and services to the U.S. Government, including the terms and conditions under which we do so, which may have an adverse impact on our business, financial condition, results of operations, or cash flows. Changes in procurement practices favoring incentive-based fee arrangements, different award fee criteria (such as the evaluation of environmental factors),criteria, non-traditional contract provisions, and cost mandates from the government may affect our profitability and the predictability of our profit rates.

The U.S. Government also is pursuing alternatives to shift additional responsibility and performance risks to contractors. For example, the DoDDepartment is accelerating development and acquisition of new technologies through increased use of rapid acquisition alternatives and procedures, including through other transaction authority agreements (“OTAs”). In recent years, the DoD has increased the frequency and sizeCommercial ofSolutions OTAs,Openings ("CSOs"). We have seen, and we expect this trend to continue into the future.see, OTAs areand exemptCSOs fromused manyas an alternative to traditional procurement laws,methods. These contracting methods are not subject to all of the procurement requirements that typically apply to Department contracts, including the FAR, and may be used, subject to certain conditions, for research, prototype development, and follow-on production for a successful prototype. OTA awards include,generally in certain instances, thatrequire a significant portion of the work under the OTAto be performed by a non-traditional defense contractor or that a portion of the cost of the prototype projectto be funded by non-governmental sources. Moreover, these solicitations typically have significantly shorter acquisition times as compared to traditional procurements. If we cannot adapt successfully adapt to the DoD’s acceleratedchanging acquisition processes or if the DoDDepartment significantly increasesfavors theprivately use of OTAs withfunded, non-traditional defense contractors or increases cost sharing mandates, we may lose new strategic business opportunitiesopportunities, including in high-growth areasor strategic areas, and our future performance and results of operations could be adversely affected.

In addition to the DoD'sDepartment's business practice initiatives, the DCMA and DCAA have implemented cost recovery/cost savings initiatives to prioritize cost recovery/savings. As a result, we have experienced and may continue to experience a higher number of audits and/or lengthened periods of time required to close open audits. These audits may result in costs being challenged, debated, and in certain cases, withheld or modified, and could adversely affect our financial position, results of operations, or cash flows.

Competition within our markets or an increase inand bid protests may reduceaffect our ability to win new contracts and result in reduced revenues andor market share.

OurWe shipbuilding business operatesoperate in a highly competitive market,environment and our competitors may have more financial capacity or other resource or capabilities. Our shipbuilding business is highly competitive, in part, due to the limited number of U.S. shipyards that compete for contracts to construct, overhaul, repair, maintain, and convert naval vessels. In addition, the competition for certain of our products, such as aircraft carriers, submarines, amphibious assault ships, surface combatants, and other ships, is heightened due to changes in budgetary pressures and priorities, and our programs and products may compete with each other for available funding in addition to other defense products and services provided by our competitors. We expect competition for future shipbuilding programs to continue to be intense.

We compete with another large defense contractor for contracts to build surface combatants, submarines, and large deck amphibious ships, and smaller shipyards have entered the market for surface combatants. We may compete in the future with the same contractor and other shipyards to build new and different classes of ships, as well as ships for which we are currently the sole source, including expeditionary warfare and amphibious assault ships. Moreover, reductionschanges in U.S. defense spending priorities that reduce the demand for the types of ships we build and services we provide increase our exposure to market competition risk. If we are unable to continue to compete successfully, we may generate lower revenues and lose market share, which would negatively impact our financial condition, results of operations, and cash flows and our ability to compete for future defense contracts could be impacted.

Although we are the only company currently capable of refueling nuclear-powered aircraft carriers, two existing U.S. Government shipyards may be able to refuel nuclear-powered aircraft carriers if they made substantial investments in facilities, personnel, and training. U.S. Government-owned shipyards currently engage in the refueling, overhaul, and inactivation of Los Angeles class (SSN 688) submarines andtraining are capable of repairing and overhauling non-nuclear ships.made. If a U.S. Government-owned shipyard became capable of, and engaged,engaged inin, the refueling of nuclear-powered aircraft carriers, our financial position, results of operations, or cash flows would likely be adversely affected.

The following discussion should be read along with the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K along with the other sections of this Form 10-K, including Item 1A. "Risk Factors."Factors, as well as Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for the year ended December 31, 2024.

WeThe United States political and economic environment in 2025 has been shaped by renewed national emphasis on industrial resilience, defense readiness, and maritime strength. However, 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, supplierssuppliers, and subcontractors continue to face challenges, and our results for the year were adversely affected by significant challenges relating to labor availability, our supply chain, and inflation, among other 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.

Global supply chain and labor markets continue to experience high levels of disruption, causing significant materials and parts shortages, including raw material, microelectronics and commodity shortages, as well as delivery delays, labor shortages, and price increases. The labor market continues to present significant challenges for our Company,company, our industry, and the supply chain. Our ability to increase throughput and meet production schedules is directly impacted by labor availability and performance. We monitor labor market conditions and trends and work to mitigate the effects of labor challenges through a variety of measures. Challenges in the labor market are addressed through targeted talent acquisition, partnerships with community colleges, apprentice school sourcing and recruiting, workforce succession planning, and initiatives to retain current employees. Labor shortages and retention are also are impacting our supply chain, resulting in longer lead times for materials, parts, and other supplies. Our supply chain has been impacted further by delivery delays, raw materialmaterials shortagesshortages, and price increases caused by continued inflationary pressures.

The shipbuilding defense industry is unique in many ways. It is heavilyboth capitalcapital- and skilled labor intensive.labor-intensive. The U.S. Navy, a large single customer with many needs and requirements, dominates the industry's customer base and is served by a fragile supplier base that has trended toward exclusive providers. The DoDDepartment continues to adjust its procurement practices and streamline acquisition organizations and processes in an ongoing effort to reduce costs, gain efficiencies, and enhance program management and control. Additionally, the U.S. Navy must compete with other national priorities, including other defense activities, non-defense discretionary spending, and entitlement programs, for a share of federal budget funding. While the impact to our business resulting from these developments remains uncertain, they could have a material impact on current programs, as well as new business opportunities with the DoD.Department.

Global Geopolitical Environment – The global geopolitical and economic environment continues to be impacted by uncertainty, heightened geopolitical tensions, and instability,instability. all of which drive the increasing need for defense offerings, including those provided by our company. Global geopoliticalGeopolitical relationships continue to evolve.change, Theand the U.S. and its allies face a global security environment that is impacted byincludes threats from state and non-state actors, including major global powers, as well as terrorist organizations, emerging nuclear tensions, diverse regional security concerns, and political instability. These global threats persist across all domains, from undersea to space to cyber, and the global market for defense products, services, and solutions is driven by these complex and evolving security challenges. In addition, changes in the global economic environment, including changes in international trade policies, including those imposing tariffs, could further impact the global market for defense products. Our current operating environment exists in the broader context of political and socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding geopolitical tensions, financial market volatility, inflation, trade policy, and a challenging labor market.

•Time and Materials Contracts - Time and materials contracts specify a fixed hourly billing rate for each direct labor hour expended and reimbursement for allowable material costs and expenses.

Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Management considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgment and estimates by management in its application. The development and selection of these critical accounting policies have been determined by our management. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors. Due to the significant judgment involved in selecting certain of the assumptions used in these policies, it is possible that different parties could choose different assumptions and reach different conclusions. While we base estimates and assumptions on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. We consider our policies relating to the following matters to involve our most critical accounting policies and estimates:

We calculate our retirement related benefit plan costs under both CAS and U.S. GAAP Financial Accounting Standards ("FAS"). The calculations under CAS and FAS require significant judgment. CAS prescribes the determination, allocation, and recovery of retirement related benefit plan costs on U.S. Government contracts through the pricing of products and services. FAS prescribes the methodology used to determine retirement related benefit plan expense or income, as well as the liability, for financial reporting purposes. The CAS requirements for these costs and their calculation methodologies differ from FAS. As a result, while both CAS and FAS use assumptions in their calculation methodologies, each method results in different calculated amounts of retirement related benefit plan costs.

Differences arising from actual experience or changes in assumptions might materially affect retirement related benefit plan obligations and the funded status. Actuarial gains and losses arising from differences between assumptions and actual experience or changes in assumptions are deferred in accumulated other comprehensive loss. This unrecognized amount is amortized as a component of net expense to the extent it exceeds 10% of the greater of the plan's benefit obligation or plan assets. The amortization period for actuarial gains and losses is the estimated average remaining service life of the plan participants. In 2024,2025, the actual return on assets was approximately 7.7%,10.7%, which was lessmore than the expected return assumption of 8.00%. For the year ended December 31, 2024,2025, the weighted average discount rates for our pension and other postretirement benefit plans increaseddecreased by 7026 and 4437 basis points, respectively. The differencesdifference in asset returns resulted in an actuarial lossgain of $24$187 million, and the differences in discount ratesrate changes resulted in an actuarial gainloss of $500$181 million for the year ended December 31, 2024.2025.

Assuming ana 8.00%7.90% expected return on assets assumption, a $50 million pension plan contribution is generally expected to favorably impact the current year expected return on assets by approximately $2 million, depending on the timing of the contribution.

Accumulated Other Comprehensive Loss - Changes in assumptions and changes to plan assets and benefit obligations due to differences between actuarial assumptions and actual results are reported as actuarial gains and losses and recorded in accumulated other comprehensive loss, along with unrecognized prior service costs arising from plan amendments. As disclosed in Note 1617: Employee Pension and Other Postretirement Benefits in Item 8, net pre-tax unrecognized actuarial gains as of December 31, 2025 and 2024 were $59$13 million and unrecognized$59 actuarialmillion, losses as of December 31, 2023 were $455 million.respectively. The increasedecrease in actuarial gains in 20242025 was primarily driven by higherlower discount rates used to determine benefit obligations of $500$181 million andmillion, amortization of previously unrecognized actuarial losses of $5$11 million, which were offset by lowerhigher than expected asset returns of $24$187 million.

Our operations are subject to federal and state workers' compensation laws. We maintain self-insured workers' compensation plans and participate in federally administered second injury workers' compensation funds. We estimate the liability for such claims and funding requirements on a discounted basis utilizing actuarial methods based on various assumptions, which include our historical loss experience and projected loss development factors. We periodically, and at least annually, update our assumptions based on an actuarial analysis. For further information on workers’ compensation, see Environmental, Health & Safety in Item 1 and Note 16: Commitments and Contingencies in Item 8.

Sales and service revenues for the year ended December 31, 2024,2025, increased $81$949 million, or 1%,8%, compared to the same period in 2023,2024, due to higher volumes at MissionNewport TechnologiesNews, Ingalls, and Ingalls,Mission partially offset by lower volumes at Newport News.Technologies.

Cost of Product Sales and Service Revenues

Refer to "Segment Operating Results" and "Product and Service Revenues and Cost Analysis" in this section for details related to cost of sales for both product sales and service revenues.

Refer to "Segment Operating Results" in this section for details related to income from operating investments.

General and administrative expenses in 20242025 decreasedincreased $49$4 million, or 5%,million compared to 2023.2024. The decreaseincrease was primarily due to lowerhigher state taxes.income taxes, partially offset by lower overhead costs.

We internally manage our operations by reference to "segment operating income," which is a non-GAAP measure and is defined as operating income before the Operating FAS/CAS Adjustment and non-current state income taxes, neither of which affects contract performance. Segment operating income is nota measure we use to evaluate our core operating performance as it reflects the aggregate performance results of contracts within a recognized measure under GAAP.segment. When analyzing our operating performance, investors should use segment operating income in addition to, and not as an alternative for, operating income or any other performance measure presented in accordance with GAAP. It is a measure we use to evaluate our core operating performance. 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. Because not all companies use identical calculations, our presentation of segment operating income may not be comparable to similarly titled measures of other companies. Refer to "Segment Operating Results" in this section for details related to segment operating income, as well as activity within each segment.

The FAS/CAS Adjustment reflects the difference between expenses for pension and other postretirement benefits determined in accordance with GAAPFAS and the expenses for these items included in segment operating income in accordance with CAS. The Operating FAS/CAS Adjustment excludes the following components of net periodic benefit costs: interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

We expect the FAS/CAS Adjustment in 20252026 to be a net benefit of approximately $148$169 million (($100$123) million FAS and $48$46 million CAS), primarily driven by higher discount2025 ratesreturns underon FAS.plan assets.

We expect the Operating FAS/CAS Adjustment in 20252026 to be a net expense of approximately $43$44 million ($91$90 million FAS and $48$46 million CAS), primarily driven by higherlower interest rates under FAS.rates.

Non-current state income tax benefitexpense in 20242025 was $24$25 million, compared to non-current state income tax benefit of $11$24 million in 2023.2024. The favorableunfavorable change in non-current state income taxes was driven by aan decreaseincrease in deferred state income tax expense, primarily attributable to thea reductionchange in net capitalized research and development expenditures and an increase in the blended state income tax rate applied to our deferred tax balances.

Net Cumulative Catch-up Revenue Adjustments by Segment

Ingalls sales and service revenues, including intersegment sales, increased $15$311 million, or 1%,11%, in 20242025 compared to 2023,2024, primarily driven by higher volumes in surface combatants,combatants partially offset by lower volumes inand amphibious assault ships and the NSC program.ships.

Ingalls segment operating income in 20242025 was $211$233 million, compared to segment operating income of $362$211 million in 2023.2024. The decreaseincrease was primarily drivendue byto thehigher salevolumes ofand acontract court judgmentadjustments in 2023surface andcombatants, partially offset by lower performance onin amphibious assault ships and surface combatants.ships.

MissionNewport TechnologiesNews sales and service revenues, including intersegment sales, for the year ended December 31, 2024, increased $238$538 million, or 9%, in 2025 compared to 2023,2024, primarily duedriven toby higher volumes in CEW&Ssubmarines and C5ISRaircraft contracts.carriers.

OnDefense Spending Environment – The President submitted the fiscal year 2027 budget request on April 3, 2026, thewhich Trumpis Administrationnow releasedunder theconsideration President'sby topline recommendations on funding levels for fiscal year 2027.Congress. The proposed budget recommendsrequest 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. Included in theThe discretionary request is funding forfunds 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)) frigate.ship. 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.

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

Sales and service revenues for the three months ended MarchJune 31,30, 2026, increased $365$336 million, or 13%,11%, compared to the same period in 2025, primarily due to higher volumes at Newport News, Ingalls,News and MissionIngalls. Technologies.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.

For the three and six months ended MarchJune 31,30, 2026 and 2025, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

General and administrative expenses for the three and six months ended MarchJune 31,30, 2026 increased $12$1 million and $13 million, respectively, from the same periodperiods in 2025, primarily due to higher non-current state income taxes and higher overhead costs.taxes.

The Operating FAS/CAS Adjustment was a net expense of $9$8 million and $10$6 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The favorableOperating 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 tax expense was $8$6 million and $3 million for the three months ended MarchJune 31,30, 2026,2026 comparedand to2025, a non-current state income tax expense of less than $1 million for the three months ended March 31, 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 and a change in state unrecognized tax benefits for the prior period.expenditures.

For the three and six months ended MarchJune 31,30, 2026 and 2025, net cumulative catch-up revenue adjustments by segment were as follows:

Ingalls revenues, including intersegment sales, for the three months ended MarchJune 31,30, 2026, increased $88$121 million, or 14%,17%, from the same period in 2025, primarily driven by higher volumes in surfaceamphibious combatants.assault ships.

Ingalls segmentrevenues, operatingincluding incomeintersegment sales, for the threesix months ended MarchJune 31,30, 2026, wasincreased $49$209 million, comparedor to15%, segment operating income of $46 million forfrom the same period in 2025. The increase was2025, primarily driven by higher volumes in surface combatants, partially offset by lower performance in amphibious assault ships.ships and surface combatants.

Newport News revenues, including intersegment sales, for the three months ended MarchJune 31,30, 2026, increased $269$246 million, or 19%,15%, from the same period in 2025, primarily driven by higher volumes in aircraft carriers, submarines,carriers and naval nuclear support services.submarines.

MissionNewport TechnologiesNews revenues, including intersegment sales, for the threesix months ended MarchJune 31,30, 2026, increased $13$515 million, or 2%,17%, from the same period in 2025, primarily duedriven toby higher volumes in All-Domainaircraft Operations, Unmanned Systems,carriers and Global Security, partially offset by lower volumes in Warfare Systems.submarines.

MissionNewport TechnologiesNews segment operating income for the three months ended MarchJune 31,30, 2026, was $35$111 million, compared to segment operating income of $40$82 million for the same period in 2025. The decreaseincrease was primarily duedriven toby lowercontract equity income from nuclearadjustments and environmentalincentives jointin ventures,aircraft carriers and the higher volumes described above, partially offset by higherlower performance in Warfareaircraft Systems.carriers.

Product sales for the three months ended MarchJune 31,30, 2026, increased $291$314 million, or 17%,16%, from the same period in 2025, primarily due to higher volumes in aircraft carriers and submarines at Newport News, and surfaceamphibious combatantsassault ships at Ingalls.

Segment cost of product sales for the three months ended MarchJune 31,30, 2026, increased $291$287 million, or 20%,17%, compared with the same period in 2025, primarily due to the higher volumes described above.

Service revenues for the three months ended MarchJune 31,30, 2026, increased $74$22 million, or 7%,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 MarchJune 31,30, 2026, increased $61$11 million, or 7%,1%, compared with the same period in 2025, primarily due to the higher volumes described above.

Interest expense for the three months ended MarchJune 31,30, 2026, was $22$27 million, compared withto $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.

For the three and six months ended MarchJune 31,30, 2026, the non-operating retirement benefit was $53 million and $106 million, respectively, compared with $48$47 million and $95 million, respectively, for the same periodperiods 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 MarchJune 31,30, 2026, was $2$18 million and $20 million, respectively, compared with other, net income of $6 million and $12 million, respectively, for the same periodperiods in 2025. The decreaseincrease in other, net income for both periods was primarily driven by an increase in unrealized lossesgains on investments.

For each of the three and six months ended MarchJune 31,30, 2026, our effective tax raterates did not differ materiallydiffered from the federal statutory corporate income tax rate of 21%.21% primarily due to income tax benefits associated with stock award settlement activity.

Total backlog as of MarchJune 31,30, 2026, and December 31, 2025, was $54.0$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 MarchJune 31,30, 2026 and December 31, 2025, respectively.

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

We expect approximately 21%22% of the $53.1 billion total backlog as of December 31, 2025, to be converted into sales in 2026. U.S. Government orders comprised substantially all of the backlog as of MarchJune 31,30, 2026 and December 31, 2025.

The value of new contract awards during the threesix months ended MarchJune 31,30, 2026, was approximately $4.0$10.7 billion, primarily driven by awards at Newport News and Ingalls.

We seek to efficiently convert operating results into cash for deployment in operating our businesses, implementing our business strategy, and maximizing stockholder value. We use various financial measures to inform our capital deployment strategy, including net cash provided by (used in) operating activities and free cash flow. We believe these measures are useful to investors in assessing our financial performance.

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

Cash used in operating activities for the threesix months ended MarchJune 31,30, 2026, was $390$421 million, compared with cash usedprovided inby operating activities of $395$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 AprilJuly 1, 2026, and beyond such twelve-month period based on our current business plans.

Cash used in investing activities for the threesix months ended MarchJune 31,30, 2026, was $71$189 million, compared to $199$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 the first quarter of 2025.

Cash used in financing activities for the threesix months ended MarchJune 31,30, 2026, was $97$152 million, compared with $70$625 million used in financing activities for the same period in 2025. The change in cash used in financing activities was primarily due to anthe increaserepayment of long-term debt in employee taxes on certain share-based payment arrangements.2025.

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 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. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to similarly titled measures of other companies.

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

Free cash flow for the threesix months ended MarchJune 31,30, 2026, increaseddecreased $1$879 million from the same period in 2025.2025, primarily due to an unfavorable change in trade working capital driven by the timing of billings across programs.

The U.S. 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 MarchJune 31,30, 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.

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 MarchJune 31,30, 2026, $11$10 million in letters of credit were issued but undrawn and $368$283 million of surety bonds were outstanding. As of MarchJune 31,30, 2026, we had no other significant off-balance sheet arrangements.