Leonardo DRS, Inc. (DRS)

CIK: 0001833756. SIC: 3812 Search, Detection, Navigation, Guidance, Aeronautical Sys. Latest 10-K as of: 2026-02-27.

SIC breadcrumb: Manufacturing > SIC Major Group 38 > SIC 3812 Search, Detection, Navigation, Guidance, Aeronautical Sys

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1833756. Latest filing source: 0001833756-26-000013.

Selected Fundamentals

Metric	Value	Unit	FY	Filed
Revenue	3,648,000,000	USD	2025	2026-02-27
Net income	278,000,000	USD	2025	2026-02-27
Assets	4,486,000,000	USD	2025	2026-02-27

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-27. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001833756.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Metric	2018	2019	2020	2021	2022	2023	2024	2025
Revenue		2,714,000,000	2,778,000,000	2,879,000,000	2,693,000,000	2,826,000,000	3,234,000,000	3,648,000,000
Net income		75,000,000	85,000,000	154,000,000	405,000,000	168,000,000	213,000,000	278,000,000
Operating income		163,000,000	181,000,000	236,000,000	561,000,000	231,000,000	293,000,000	348,000,000
Gross profit		459,000,000	494,000,000	547,000,000	575,000,000	648,000,000	736,000,000	869,000,000
Diluted EPS		0.52	0.40	0.73	1.88	0.64	0.80	1.03
Operating cash flow		157,000,000	125,000,000	178,000,000	33,000,000	205,000,000	271,000,000	366,000,000
Capital expenditures		55,000,000	56,000,000	60,000,000	65,000,000	60,000,000	85,000,000	139,000,000
Dividends paid			0.00	0.00	396,000,000	0.00	0.00
Share buybacks						0.00	0.00	35,000,000
Assets			2,956,000,000	3,069,000,000	3,677,000,000	3,921,000,000	4,184,000,000	4,486,000,000
Stockholders' equity	956,000,000	1,019,000,000	1,427,000,000	1,593,000,000	2,127,000,000	2,325,000,000	2,557,000,000	2,730,000,000
Cash and cash equivalents			61,000,000	240,000,000	306,000,000	467,000,000	598,000,000	647,000,000
Free cash flow		102,000,000	69,000,000	118,000,000	-32,000,000	145,000,000	186,000,000	227,000,000

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Metric	2019	2020	2021	2022	2023	2024	2025
Net margin	2.76%	3.06%	5.35%	15.04%	5.94%	6.59%	7.62%
Operating margin	6.01%	6.52%	8.20%	20.83%	8.17%	9.06%	9.54%
Return on equity	7.36%	5.96%	9.67%	19.04%	7.23%	8.33%	10.18%
Return on assets		2.88%	5.02%	11.01%	4.28%	5.09%	6.20%
Current ratio		1.30	1.40	1.64	1.78	1.94	1.89

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-05. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001833756.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarter	End Date	Revenue	Net Income	Diluted EPS	Method
2022-Q2	2022-06-30			0.17	reported discrete quarter
2022-Q3	2022-09-30			1.92	reported discrete quarter
2023-Q1	2023-03-31			0.05	reported discrete quarter
2023-Q2	2023-06-30	628,000,000	35,000,000	0.13	reported discrete quarter
2023-Q3	2023-09-30	703,000,000	47,000,000	0.18	reported discrete quarter
2023-Q4	2023-12-31	926,000,000	74,000,000		derived Q4 = FY annual - nine-month YTD
2024-Q1	2024-03-31	688,000,000	29,000,000	0.11	reported discrete quarter
2024-Q2	2024-06-30	753,000,000	38,000,000	0.14	reported discrete quarter
2024-Q3	2024-09-30	812,000,000	57,000,000	0.21	reported discrete quarter
2024-Q4	2024-12-31	981,000,000	89,000,000		derived Q4 = FY annual - nine-month YTD
2025-Q1	2025-03-31	799,000,000	50,000,000	0.19	reported discrete quarter
2025-Q2	2025-06-30	829,000,000	54,000,000	0.20	reported discrete quarter
2025-Q3	2025-09-30	960,000,000	72,000,000	0.26	reported discrete quarter
2025-Q4	2025-12-31	1,060,000,000	102,000,000		derived Q4 = FY annual - nine-month YTD
2026-Q1	2026-03-31	846,000,000	62,000,000	0.23	reported discrete quarter

Quarterly Charts

Macro Cross-References

CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
UNRATE - Unemployment Rate
FEDFUNDS - Federal Funds Effective Rate
CES0500000003 - Average Hourly Earnings of All Employees, Total Private
DFEDTARU - Federal Funds Target Range - Upper Limit
DFEDTARL - Federal Funds Target Range - Lower Limit
DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
PCEPI - Personal Consumption Expenditures: Chain-type Price Index
PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
PPIACO - Producer Price Index by Commodity: All Commodities
T10YIE - 10-Year Breakeven Inflation Rate
U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
PAYEMS - All Employees, Total Nonfarm
CIVPART - Labor Force Participation Rate
EMRATIO - Employment-Population Ratio
UNEMPLOY - Unemployed
CE16OV - Employment Level
ICSA - Initial Claims
JTSJOL - Job Openings: Total Nonfarm
JTSQUR - Quits: Total Nonfarm
GDPC1 - Real Gross Domestic Product
A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
INDPRO - Industrial Production: Total Index
TCU - Capacity Utilization: Total Index
HOUST - New Privately-Owned Housing Units Started: Total Units
PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
RSAFS - Advance Retail Sales: Retail Trade
PCE - Personal Consumption Expenditures
DSPIC96 - Real Disposable Personal Income
PSAVERT - Personal Saving Rate
M2SL - M2
BOPGSTB - U.S. International Trade in Goods and Services: Balance
MSPUS - Median Sales Price of Houses Sold for the United States
HSN1F - New One Family Houses Sold: United States
RHORUSQ156N - Homeownership Rate in the United States
TTLCONS - Total Construction Spending: Total Construction in the United States
RRVRUSQ156N - Rental Vacancy Rate in the United States
TOTALSL - Total Consumer Credit Owned and Securitized
REVOLSL - Revolving Consumer Credit Owned and Securitized
DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
GDP - Gross Domestic Product
GPDI - Gross Private Domestic Investment
GCE - Government Consumption Expenditures and Gross Investment
PCEC - Personal Consumption Expenditures
NETEXP - Net Exports of Goods and Services
GFDEBTN - Federal Debt: Total Public Debt
GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
FYFSD - Federal Surplus or Deficit
FGRECPT - Federal Government Current Receipts
FGEXPND - Federal Government: Current Expenditures
MANEMP - All Employees, Manufacturing
USCONS - All Employees, Construction
USTRADE - All Employees, Retail Trade
USFIRE - All Employees, Financial Activities
USGOVT - All Employees, Government
AWHAETP - Average Weekly Hours of All Employees, Total Private
DGORDER - Manufacturers' New Orders: Durable Goods
NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
BUSINV - Total Business Inventories
EXPGS - Exports of Goods and Services
IMPGS - Imports of Goods and Services
IR - Import Price Index (End Use): All Commodities
PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001833756-26-000025.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high. Filing date: 2026-05-05. Report date: 2026-03-31.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion together with our Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report.

This discussion and other parts of this Quarterly Report include forward-looking statements such as those relating to our plans, objectives, expectations and beliefs, which involve risks, uncertainties and assumptions. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties discussed under “Special Note Regarding Forward-Looking Statements and Information” in this Quarterly Report and under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025. Actual results may differ materially from those contained in any forward-looking statements.

Business Overview and Considerations

General

DRS is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, and electric power and propulsion technologies and solutions. The strength of our market positioning in these technology areas has created a foundational and diverse base of programs across the DoW and its allies. We believe these technologies will not only support our customers in today’s mission but will also underpin their strategy to migrate towards more autonomous, dynamic, interconnected, and multi-domain capabilities needed to address evolving and emerging threats. We view more advanced capabilities in sensing, computing, self-protection and power as necessary to enable these strategic priorities.

Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoW. The U.S. government, primarily with the DoW, is our largest customer and, for the three months ended March 31, 2026, accounted for approximately 79% of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 39% and 35%, respectively, of our total revenues for such period, which is consistent with historic trends.

Our operations and reporting are structured into the following two technology driven segments based on the capabilities and solutions offered to our customers:

Advanced Sensing and Computing

Our Advanced Sensing and Computing (“ASC”) segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers across increasingly complex and contested operating environments.

Our sensing capabilities span numerous applications, including missions requiring advanced detection, precision targeting and surveillance sensing, long range electro-optic/infrared (“EO/IR”), signals intelligence (“SIGINT”) and other intelligence systems, electronic warfare (“EW”), ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing. Across our offerings, we are focused on advancing sensor range and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors to deliver actionable information in time-sensitive mission scenarios in combination with artificial intelligence (“AI”), enabled by our advanced edge processing solutions. We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements and

to support integration onto a wide range of tactical platforms, including mobile and power-constrained systems.

Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network edge computing products that support data processing, fusion, and dissemination at the tactical edge. Our network computing offerings are utilized across a broad range of mission applications including platform computing on ground and shipboard (both surface ship and submarine) for advanced battle management, combat systems, radar, command and control, tactical networks, tactical computing and communications. These products help support the DoW’s need for greater situational understanding and faster decision-making at the tactical edge by leveraging AI and AI-optimized open architecture software, SAGEcore™, to rapidly share, synthesize and transmit data securely between command centers and forward-positioned defense assets and personnel, while supporting reduced latency, operational continuity, and interoperability through modular, open-system architectures.

Within ASC, we are increasingly combining sensing, computing, and software to support applications such as counter-unmanned aircraft systems (“C-UAS”), electronic warfare, and networked sensing, where performance depends on the ability to detect, process, and act on data in real time. These integrated capabilities are designed to support evolving operational concepts that emphasize distributed operations, resilient communications, and decision advantage at the tactical edge.

Integrated Mission Systems

Our Integrated Mission Systems (“IMS”) segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers.

DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control, distribution and propulsion systems for the U.S. Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.

We believe DRS is well positioned to meet the needs of an increasingly electrified and power-intensive fleet through high-efficiency, power-dense permanent magnet motors, energy storage systems, and associated rugged and compact power conversion, electrical actuation, and advanced thermal management technologies. These capabilities support higher onboard power demands, improved efficiency, and enhanced platform performance across next-generation naval systems.

DRS has a long history of providing a number of other critical products to the U.S. Navy with a significant installed base on submarines, aircraft carriers and other surface ships including motor controllers, instrumentation and control equipment, electrical actuation systems, and thermal management systems for electronics and ship stores refrigeration.

DRS is also an integrator of complex systems in ground vehicles for short-range air defense, C-UAS, and vehicle survivability and protection. Our short-range air defense systems integrate advanced active electronically scanned array radars, EW equipment, reconnaissance and surveillance systems, mission command capabilities, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic and directed energy countermeasures to protect against evolving threats. Our force protection systems, including solutions for C-UAS, help protect personnel and defense assets from enemy combatants.

Focus on Customer and Execution

DRS and its employees focus on our end-customers – the men and women of the armed forces in the U.S. and its allies. We seek to provide high-quality equipment and services to support their mission success. We strive for excellence in everything we do, in every job in our Company, in order to satisfy our customers’ needs embedded in our contractual commitments. We seek to ensure that we learn from

every lesson experienced in our Company and insist that these lessons affect all elements of our businesses. This approach permeates through the Company with a focus on continuous improvement at every level.

Part of this learning has resulted in institutionalizing our continuous improvement process through our Business Excellence initiative called the Always Performing for Excellence (“APEX”) program. The APEX program’s goal is to strive for continuous improvement through unification of all of our business practices, tools and metrics, ongoing employee training and innovation. We believe that excellence is not a destination, but by constantly challenging ourselves to be better, we will improve, and ultimately approach excellence. We challenge ourselves to exceed our customers’ expectations and we partner with them to work to ensure that our execution meets their needs.

Continuous improvement through the APEX program also allows us to improve our efficiency, which we believe contributes to increased margins, helps us to remain competitive and allows us to make strategic investments, all while maintaining our focus on customer satisfaction. In these elements, our goals are aligned with those of our customers. We are humbled by the dedication and sacrifice that our ultimate customers have made to serve and we work to perform for them with excellence in everything we do.

We continue to align our investment strategy with the evolving priorities of the DoW, with a particular focus on increasing internal research and development to accelerate innovation in advanced sensing, networked systems, force protection and naval power & propulsion. In parallel, we are selectively investing in capacity, engineering resources and supply chain readiness to enhance our ability to deliver critical capabilities at the speed required by our service members.

Global Events and Business Impacts

Global Conflicts

The U.S. and its allies continue to face a global security environment marked by heightened tensions and instability, including threats from state and non-state actors—particularly major powers—as well as terrorist organizations, and diverse regional security challenges and political instability. Demand for defense products, services, and solutions worldwide is driven by these complex and evolving security conditions, considered in the broader context of political and socioeconomic circumstances and priorities. These events, including periods of global unrest, can affect our operations and financial performance and influence demand for our products and services.

The ongoing conflict in Ukraine, continued instability in parts of Latin America, and increasing risks across the Middle East and the Western Pacific have heightened global tensions and underscored evolving security requirements in Europe, the Middle East, Indo-Pacific, Latin America and within the U.S. In particular, the conflict involving Iran and associated regional escalation, including heightened maritime security risks and disruptions affecting commercial shipping and energy markets, has further amplified geopolitical uncertainty and the need for enhanced deterrence, integrated air and missile defense, cyber resilience, intelligence, surveillance, and reconnaissance, EW and secure communications. These developments have resulted in and may continue to result in, increased demand for defense products and services.

We believe the current global security environment continues to underscore the need for strong deterrence and robust defense capabilities. We are actively evaluating both opportunities and risks associated with these conditions.

Business Environment

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 79% and 78% of our total revenues for the three months ended March 31, 2026 and 2025, respectively. Our U.S. government sales ar

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Confidence: high. Filing date: 2026-02-27. Report date: 2025-12-31.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report, as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2024, which provides additional information on comparisons of the year ended December 31, 2024, to the year ended December 31, 2023.

This discussion and other parts of this document include forward-looking statements such as those relating to our plans, objectives, expectations and beliefs, which involve risks, uncertainties and assumptions. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements and Information.” Actual results may differ materially from those contained in any forward-looking statements.

Business Overview and Considerations

General

DRS is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, and electric power and propulsion technologies and solutions. The strength of our market positioning in these technology areas have created a foundational and diverse base of programs across the DoW and its allies. We believe these technologies will not only support our customers in today’s mission but will also underpin their strategy to migrate towards more autonomous, dynamic, interconnected, and multi-domain capabilities needed to address evolving and emerging threats. We view more advanced capabilities in sensing, computing, self-protection and power as necessary to enable these strategic priorities.

Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoW. The U.S. government, primarily with the DoW, is our largest customer and, for the years ended December 31, 2025 and 2024, accounted for approximately 80% and 79%, respectively, of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 36% and 36%, respectively, of our total revenues for the year ended December 31, 2025 and 37% and 32%, respectively, for the year ended December 31, 2024.

Our operations and reporting are structured into the following two technology driven segments based on the capabilities and solutions offered to our customers:

Advanced Sensing and Computing

Our ASC segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers across increasingly complex and contested operating environments.

Our sensing capabilities span numerous applications, including missions requiring advanced detection, precision targeting and surveillance sensing, long range electro-optic/infrared, signals intelligence and other intelligence systems, electronic warfare, ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing. Across our offerings, we are focused on advancing sensor range and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors to deliver actionable information in time-sensitive mission scenarios in combination with AI, enabled by our advanced edge processing solutions. We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight,

power and cost for our customers’ specific mission requirements and to support integration onto a wide range of tactical platforms, including mobile and power-constrained systems.

Within ASC, we are increasingly combining sensing, computing, and software to support applications such as C-UAS, electronic warfare, and networked sensing, where performance depends on the ability to detect, process, and act on data in real time. These integrated capabilities are designed to support evolving operational concepts that emphasize distributed operations, resilient communications, and decision advantage at the tactical edge.

Integrated Mission Systems

Our IMS segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers.

DRS is also an integrator of complex systems in ground vehicles for short-range air defense, C-UAS, and vehicle survivability and protection. Our short-range air defense systems integrate advanced AESA radars, EW equipment, reconnaissance and surveillance systems, mission command capabilities, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic countermeasures to protect against evolving threats. Our force protection systems, including solutions for C-UAS, help protect personnel and defense assets from enemy combatants.

Focus on Customer and Execution

businesses. This approach permeates through the Company with a focus on continuous improvement at every level.

Continuous improvement, through the APEX program also allows us to improve our efficiency, which we believe contributes to increased margins, helps us to remain competitive and allows us to make strategic investments, all while maintaining our focus on customer satisfaction. In these elements, our goals are aligned with those of our customers. We are humbled by the dedication and sacrifice that our ultimate customers have made to serve and we work to perform for them with excellence in everything we do.

Over the past 12 months, the Company has invested to accelerate both increased capacity and the pacing of innovation. Throughout 2025, we increased capital expenditures over 60% and IR&D by over 40%. The investments were highlighted by the opening of a 140,000 square foot naval power and propulsion manufacturing and testing facility in South Carolina, increasing capacity for U.S. Navy submarine and shipbuilding programs. This investment was complemented by $45 million of funding for an incremental 40,000 square feet of capacity expansion.

Global Events and Business Impacts

Global Conflicts

The ongoing conflict in Ukraine, recent events in Venezuela, and threats elsewhere—particularly in the Middle East and the Western Pacific—have increased global tensions and highlighted evolving security requirements in Europe, the Middle East, the Pacific region, Latin America, and the U.S. These developments have resulted in, and may continue to result in, increased demand for defense products and services.

Business Environment

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 80%, 79% and 80% of our total revenues for the years ended December 31, 2025, 2024 and 2023, respectively. Our U.S. government sales are highly concentrated within our DoW customers, which made up the overwhelming majority of our U.S. government revenue for the year ended December 31, 2025, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 36% and 36%, respectively, of our total revenues for the year ended December 31, 2025. Therefore, our revenue is highly correlated to changes in U.S.

government spending levels, especially within the DoW. The DoW budget is the largest defense budget in the world.

Given the reliance on the U.S. government, funding for our programs are subject to a variety of factors that can affect our business, including: the President’s budget requests and procurement priorities and policies; the annual congressional budget authorization and appropriations process; and other U.S. government domestic and international priorities. U.S. government spending levels, particularly defense spending and the timing of funding, can affect our financial performance over the short and long term.

The President’s FY2026 budget request was published in June 2025. The request includes $848 billion in base (discretionary) funding and $113 billion in reconciliation (mandatory) funding. The OBBBA was signed by the President on July 4, 2025, and provides more than $150 billion in mandatory funding (including the $113 billion reconciliation funding) for national defense, available through September 30, 2029.

Separately, the NDAA for FY2026 was signed into law on December 18, 2025. The NDAA authorizes $901 billion for defense, including an $8 billion increase over the President’s DoW budget request from June 2025. On November 12, 2025, the President signed a continuing resolution to fund the U.S. government, including the DoW, through January 30, 2026. On January 20, 2026, Congress unveiled its final appropriations package, which included the Defense Appropriations Act conference report. This legislation provides $839 billion in funding for the DoW, representing an $8 billion increase over the topline in the President’s DoW budget request. On February 3, 2026, Congress passed and the President signed the Consolidated Appropriations Act, 2026, providing funding for the government through the end of the government’s fiscal year, including authority for defense accounts.

Operating Performance Assessment and Reporting

For the majority of our contracts, revenues are recognized using the over time, percentage of completion cost-to-cost method of accounting, with revenue recognized based on the ratio of cumulative costs incurred to date to estimated total contract costs at completion. For contracts accounted for in this way, our reported revenues may contain amounts which we have not billed to customers if we have incurred costs, and recognized related profits, in excess of billed progress or performance based payments.

Under U.S. GAAP, contract costs are charged to work in progress inventory and are expensed as revenues are recognized. The Federal Acquisition Regulation (“FAR”) and the Defense Federal Acquisition Regulation Supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.

Our defense contracts and subcontracts that require the submission of cost or pricing data are subject to audit, various profit and cost controls, and standard provisions for termination at the convenience of the customer. The DCAA performs these audits on behalf of the U.S. government. The DCAA has the right to perform audits on our incurred costs on cost-type or price redeterminable-type contracts on a yearly basis. Approval of an incurred cost submission can take from one to three years from the date of the submission of the contract cost.

U.S. government contracts are, by their terms, subject to termination by the U.S. government for either convenience or default by the contractor. Fixed-price contracts provide for payment upon termination for items delivered to and accepted by the U.S. government and, if the termination is for convenience, for payment of fair compensation of work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses and a reasonable profit on the costs incurred. Cost-plus contracts provide that, upon termination, the contractor is entitled to reimbursement of its allowable costs and, if the termination is for convenience, a total fee proportionate to the percentage of the work completed under the contract. If a contract termination is for default, however, the contractor is

paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. government. In these circumstances, the U.S. government is not liable for excess costs incurred by us in procuring undelivered items from another source.

In addition to the right of the U.S. government to terminate U.S. government contracts, such contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract performance may take many years. Consequently, at the outset of a major program, the contract is typically only partially funded, and additional funds normally are committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years.

Components of Operations

Revenue

Revenue consists primarily of product related revenue, which represented 94%, 94% and 93% of our total revenues for the years ended December 31, 2025, 2024 and 2023, respectively. The remaining revenue was generated from service related contracts. Additionally, 88%, 84% and 84% of our revenue for the years ended December 31, 2025, 2024 and 2023, respectively, was derived from firm-fixed price contracts. For a firm-fixed price contract, customers agree to pay a fixed amount, negotiated in advance, for a specified scope of work. Revenue on fixed-price contracts is generally recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed that corresponds with and thereby best depicts the transfer of control to the customer.

Under flexibly priced contracts, which consisted of 12%, 16% and 16% of our total revenues for the years ended December 31, 2025, 2024 and 2023, respectively, we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness, cost-effectiveness or other factors. In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract. Revenue for flexibly priced contracts are generally recognized as services are performed and are contractually billable.

Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements for additional information.

Cost of Revenues

Cost of revenues includes materials, labor and overhead costs incurred in the manufacturing, design, and provision of products and services sold in the period as well as warranty costs. Material costs include raw materials, purchased components and sub-assemblies and outside processing and inbound freight. Labor and overhead costs consist of direct and indirect manufacturing costs, including wages and fringe benefits, operating supplies, depreciation and amortization, occupancy costs, and purchasing, receiving, inspection and inbound freight costs.

General and Administrative Expenses

General and administrative (“G&A”) expenses include G&A expenses not included within cost of revenues such as salaries, wages and fringe benefits, facility costs and other costs related to these indirect functions. Additionally, G&A expenses include company-funded independent research and development costs as well as expenditures related to bid and proposal (“B&P”) efforts.

Results of Operations

The following discussion of operating results is intended to help the reader understand the results of operations and financial condition of the Company, as well as individual segments, for the periods presented. Given the nature of our business, we believe revenue and earnings from operations are most relevant to an understanding of our performance at a business and segment level. Our operating cycle is lengthy and involves various types of production contracts and varying delivery schedules. Accordingly, operating results in a particular year may not be indicative of future operating results.

Year Ended December 31,

2025 vs. 2024 Change

2024 vs. 2023 Change

(Dollars in millions, except per share amounts)

2025

2024

2023

Revenues

3,648

3,234

2,826

414

12.8

408

14.4

Cost of revenues

(2,779)

(2,498)

(2,178)

(281)

11.2

(320)

14.7

Gross profit

869

736

648

133

18.1

13.6

Gross margin

23.8

22.8

22.9

100

bps

(10)

bps

General and administrative expenses

(497)

(414)

(384)

(83)

20.0

(30)

7.8

Amortization of acquired intangible assets

(22)

—

Other operating expenses, net

(2)

(7)

(11)

(71.4)

(36.4)

Operating earnings

348

293

231

18.8

26.8

Interest expense, net

(8)

(21)

(36)

(61.9)

(41.7)

Other, net

(4)

(8)

(3)

(50.0)

(5)

166.7

Earnings before taxes

336

264

192

27.3

37.5

Income tax provision

(58)

(51)

(24)

(7)

13.7

(27)

112.5

Net earnings

278

213

168

30.5

26.8

Basic EPS

1.05

0.81

0.64

0.24

29.6

0.17

26.6

Diluted EPS

1.03

0.80

0.64

0.23

28.8

0.16

25.0

Backlog

8,448

8,268

7,751

180

2.2

517

6.7

Bookings

4,245

4,077

3,516

168

4.1

561

16.0

Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

Our operating results for the year ended December 31, 2025, are highlighted by our strong $8.4 billion of backlog and over $4.2 billion of new orders, demonstrating the strong customer demand for our mission critical technologies. Embedded in our backlog is a diversified, balanced portfolio supported by foundational programs strongly aligned in areas of, in our view, growing importance within the DoW budget priorities. Our backlog position is highlighted by our contract to support the electric power and propulsion system for the Columbia Class production program, as well as continued demand in our force protection, network computing, and advanced sensing programs. We believe the performance on these and other programs within our portfolio will support continued revenue growth.

Revenue of $3,648 million for the year ended December 31, 2025 represented an increase of $414 million (12.8%) driven by increased demand across our program portfolio. Our gross profit of $869 million increased $133 million (18.1%) from the prior year results attributed to the increased volume and higher profitability levels. This contributed to a gross margin increase of 100 bps attributed to a quantum cascade laser license for specific use in the quantum space, positive program performance on our Columbia Class program and favorable revenue mix as we realized increased revenue from our tactical radars. These benefits were offset in large part by the negotiated conclusion of the work on a legacy

ground surveillance program, which triggered a program charge. Our operating and net earnings increased $55 million (18.8%) and $65 million (30.5%) from the year ended December 31, 2024, respectively, attributed to the higher gross profit, and lower net interest expense, offset slightly by higher tax expense.

Revenue

For the year ended December 31, 2025, revenue increased by $414 million, or 12.8%, to $3,648 million from $3,234 million for year ended December 31, 2024. The revenue increase in 2025 was attributed to increased customer demand across our portfolio, highlighted by increased revenue contribution from our naval power and propulsion efforts, continued counter drone and short-range air defense (“SHORAD”) programs, as well as the quantum laser license noted above. The revenue growth is attributed to both of our operating segments, see “—Review of Operating Segments” below for additional detail.

Cost of Revenues

Cost of revenues increased $281 million, or 11.2%, from $2,498 million to $2,779 million for the year ended December 31, 2025, due to the 12.8% increase in revenue as described above. The 11.2% increase, which was slightly lower than the 12.8% revenue increase, was impacted by improved program performance and favorable revenue mix, due in part to the quantum laser license, which was offset by increased cost at completion estimates, which negatively impacted earnings with net charges totaling approximately 2% of revenue for the year ended December 31, 2025 (see Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements for further detail). The increased cost at completion includes the aforementioned legacy ground surveillance program noted above and the impact of cost increases tied to germanium used in our optics and infrared programs that increased our cost of revenues for the period within our ASC segment.

Gross Profit

Gross profit increased $133 million, or 18.1%, from $736 million for the year ended December 31, 2024, to $869 million for the year ended December 31, 2025, attributed to increased volume offset by the program impacts for the legacy ground surveillance program and optics and infrared programs noted above.

General and Administrative Expenses

G&A expenses increased by $83 million, or 20.0%, from $414 million for the year ended December 31, 2024, to $497 million for the year ended December 31, 2025. The increase is largely attributed to enhanced IR&D expenditures, B&P expenditures, stock-based compensation expenses and G&A efforts to expand the business internationally.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets for the year ended December 31, 2025 of $22 million remained consistent with the year ended December 31, 2024.

Other Operating Expenses, Net

Other operating expenses, net decreased $5 million from $7 million for the year ended December 31, 2024 to $2 million for the year ended December 31, 2025. The expense in both periods is attributed to restructuring efforts implemented in our ASC segment.

Operating Earnings

Operating earnings increased by $55 million, or 18.8%, to $348 million for the year ended December 31, 2025, from $293 million for the year ended December 31, 2024, driven by the higher gross profit offset by the impacts of G&A expenditures.

Interest Expense, Net

Net interest expense decreased by $13 million to $8 million for the year ended December 31, 2025, from $21 million for the year ended December 31, 2024. The decrease is primarily attributed to increased interest income as a result of higher cash balances during the year and a decrease in borrowings on our revolving credit facility. See Note 12: Debt to the Consolidated Financial Statements for further information regarding our debt.

Other, Net

Other, net decreased to $4 million for the year ended December 31, 2025, from $8 million for the year ended December 31, 2024 driven by lower foreign exchange rate impacts.

Earnings Before Taxes

Earnings before taxes increased by $72 million to $336 million for the year ended December 31, 2025, from $264 million for the year ended December 31, 2024. This was primarily due to increased operating earnings of $55 million, the decrease of $13 million in net interest expense and the decrease in other, net costs of $4 million, as described above.

Income Tax Provision

Income tax provision increased by $7 million to $58 million for the year ended December 31, 2025, from $51 million for the year ended December 31, 2024. This was primarily due to an increase in earnings before taxes, partially offset by an increase in tax credits. Our effective tax rate was 17.3% for 2025 compared to 19.3% for 2024.

Net Earnings

Net earnings increased by $65 million to $278 million for the year ended December 31, 2025, when compared to the year ended December 31, 2024. This was driven by increased earnings before taxes of $72 million offset by the increased income tax provision of $7 million, as described above.

Basic and Diluted EPS

For the year ended December 31, 2025, the weighted average shares outstanding totaled 265.9 million and 268.7 million for basic and diluted shares, respectively, an increase of approximately 2 million and 1 million shares as compared to the prior year. The increase in weighted average shares outstanding is attributed to equity vesting and stock option exercises, offset slightly by shares repurchased throughout the course of the year. Basic and diluted earnings per share (“EPS”) was $1.05 and $1.03 for the year ended December 31, 2025, respectively, as compared to the prior year basic and diluted EPS of $0.81 and $0.80, respectively. The increase in basic and diluted EPS is attributed to the increased net earnings described above, partially offset by the increased weighted average shares outstanding.

Backlog

Total backlog includes the following components:

•Funded - Funded backlog represents the revenue value of orders for products and services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.

•Unfunded - Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not yet been appropriated less funding previously recognized on these contracts.

The following table summarizes the value of our backlog at December 31, 2025 and 2024, incorporating both funded and unfunded components:

December 31,

(Dollars in millions)

2025

2024

Funded

4,643

4,177

Unfunded

3,805

4,091

Total backlog

8,448

8,268

Backlog increased by $180 million, or 2.2%, from $8,268 million as of December 31, 2024, to $8,448 million as of December 31, 2025. The backlog increase is largely attributed to increased demand in space, ground vehicle, and airborne sensing programs as well as logistic support programs within our ASC segment, partially offset by a reduction in new awards for tactical computing and dismounted soldier sensing programs. See “—Review of Operating Segments” below for a more detailed analysis.

At December 31, 2025 we changed our remaining performance obligations / backlog. The change resulted in an immaterial impact on prior year and prior quarter amounts. The following table summarizes the adjusted value of our backlog for each of the five quarters in the period ended December 31, 2025:

2025

2024

(Dollars in millions)

Funded

4,643

4,678

4,355

4,354

4,177

Unfunded

3,805

3,991

4,011

4,018

4,091

Total backlog

8,448

8,669

8,366

8,372

8,268

Bookings

We define bookings as the total value of contract awards received from the U.S. government for which it has appropriated funds and legally obligated such funds to the Company through a contract or purchase order, plus the funded value of contract awards and orders received from customers other than the U.S. government.

For the year ended December 31, 2025, we generated bookings of $4,245 million, a 4.1% increase over the $4,077 million realized during the year ended December 31, 2024. The bookings increase is attributed to increased customer demand within our IMS segment realizing bookings growth of 21.7%, which was offset in part by ASC new orders which declined from the prior year (5.7%). The bookings increase was driven by strong performance within both our force protection (counter drone and SHORAD) and naval power and propulsion programs. These increases were offset in part by lower new awards received at our ASC segment. See “—Review of Operating Segments” below for a more detailed analysis.

Factors Impacting Our Performance

U.S. Government Spending and Federal Budget Uncertainty

Changes in the volume and relative mix of U.S. and allied government spending as well as areas of spending growth, including due to the evolution of warfare, could impact our business and results of operations. In particular, our results can be affected by shifts in strategies and priorities on homeland security, intelligence, defense-related programs, infrastructure and urbanization and continued increased spending on technology and innovation, including cybersecurity with respect to our and third parties'

information networks and related systems, AI, connected communities and physical infrastructure (for example, the potential impacts for the Russia / Ukraine conflict and the Israel-Hamas war). Cost-cutting and efficiency initiatives, increasing nationalization efforts, current and future budget restrictions, spending cuts and other efforts to reduce government spending and shifts in overall priorities could cause our government customers to reduce or delay funding or invest appropriated funds on a less consistent basis or not at all, and demand for our solutions or services could diminish. Existing contracts could also be canceled due to changes in need and prioritization. Furthermore, any disruption in the functioning of government agencies, including as a result of government closures and shutdowns, could have a negative impact on our operations and cause us to lose revenue or incur additional costs due to, among other things, our inability to maintain access and schedules for government testing or deploy our staff to customer locations or facilities as a result of such disruptions.

There is also uncertainty around the timing, extent, nature and effect of Congressional and other U.S. government actions to address budgetary constraints, caps on certain discretionary budgets, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund U.S. government departments and agencies. Additionally, budget deficits and the growing U.S. national debt may increase pressure on the U.S. government to reduce federal spending across all federal agencies, with uncertainty about the size and timing of those reductions. Furthermore, delays in the completion of future U.S. government budgets could in the future delay procurement of the federal government services we provide. A reduction in the amount of, or reductions, delays, or cancellations of funding for, services that we are contracted to provide to the U.S. government as a result of any of these impacts or related initiatives, legislation or otherwise could have a material adverse effect on our business and results of operations. See Part I, Item 1A, “Risk Factors—Risks Related to Our Business—Significant delays, including government shutdowns, or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment” in this Annual Report for further details on U.S. government spending’s impact on our business.

Operational Performance on Contracts

The Company recognizes revenue for each separately identifiable performance obligation in a contract representing an obligation to transfer a distinct good or service to a customer. In most cases, goods and services provided under the Company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the Company provides multiple distinct goods or services to a customer. In those cases, the Company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using cost plus a reasonable margin. While the Company provides warranties on certain contracts, we typically do not provide for services beyond standard assurances and therefore do not consider warranties to be separate performance obligations.

Typically, we enter into three types of contracts: fixed-price contracts, cost-plus contracts and T&M contracts. The majority of our total revenues are derived from fixed-price contracts; refer to the revenue disaggregation disclosures in Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements.

For fixed-price contracts, customers agree to pay a fixed amount, negotiated in advance for a specified scope of work.

For cost-plus contracts, typically we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness

and cost-effectiveness. In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract.

T&M contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus the actual costs of material and other direct non-labor costs. The fixed labor rates on T&M contracts include amounts for the cost of direct labor, indirect contract costs and profit.

Revenue from contracts with customers is recognized when the performance obligations are satisfied through the transfer of control over the good or service to the customer, which may occur either over time or at a point in time.

Revenues for the majority of our contracts are measured using the over time, percentage of completion cost-to-cost method of accounting to calculate percentage of completion. We believe this is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Due to the long-term nature of many of our contracts, developing the estimated transaction price and total cost at completion often requires judgment. The estimated transaction price may include variable consideration such as performance incentives, requests for equitable adjustment (“REAs”) and claims. Variable consideration is included in the estimated transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.

After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts on a routine basis. Adjustments to original estimates for a contract's revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change and are also required if contract modifications occur. When adjustments in estimated total costs at completion are determined, the related impact on revenue and operating earnings are recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.

The following represents the net impact that changes in our estimates, particularly those regarding our fixed-price programs, have had on our revenues for the periods presented:

Year Ended December 31,

(Dollars in millions)

2025

2024

2023

Revenue

(59)

(25)

(23)

Total % of revenue

Regulations

Increased audit, review, investigation and general scrutiny by U.S. government agencies of performance under government contracts and compliance with the terms of those contracts and applicable laws, including executive orders, could affect our operating results. Negative publicity and increased scrutiny of government contractors in general, including us, relating to government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information as well as the increasingly complex requirements of the DoW and the U.S. intelligence community, including those related to cybersecurity, could impact our ability to perform in the markets we serve.

International Sales

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 8%, 13% and 10% of our revenue for the years ended December 31, 2025, 2024 and 2023, respectively. The reduction in international sales is due in part to the reduction of exposure to the Ukraine conflict coupled with the decrease in revenue on the legacy ground surveillance program noted above. We believe that despite the reduction, international sales will be an important growth opportunity driven by higher defense spending within Europe and recent foreign military sales agreements signed between the U.S. and allied nations in the Middle East. We remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.

Additionally, some international sales may expose us to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the U.S. dollar relative to other currencies. The impact of those fluctuations is reflected throughout our Consolidated Financial Statements, but in the aggregate, did not have a material impact on our results of operations for the years ended December 31, 2025, 2024 and 2023.

Acquisitions

We consider the acquisition of businesses and investments that we believe will expand or complement our current portfolio and allow access to new customers or technologies. We also may explore the divestiture of businesses that no longer meet our needs or strategy or that could perform better outside of our organization.

Review of Operating Segments

The following is a discussion of operating results for each of our operating segments. We have elected to use revenue, operating earnings, operating margin, bookings and backlog to provide detailed

information on our segment performance. Additional information regarding our segments can be found in Note 18: Segment Information within the Consolidated Financial Statements.

Year Ended December 31,

2025 vs. 2024 Change

2024 vs. 2023 Change

(Dollars in millions)

2025

2024

2023

Revenues:

ASC

2,355

2,118

1,831

237

11.2

287

15.7

IMS

1,307

1,138

1,021

169

14.9

117

11.5

Corporate & Eliminations

(14)

(22)

(26)

(36.4)

(15.4)

Total revenues

3,648

3,234

2,826

414

12.8

408

14.4

Operating earnings:

ASC

240

183

136

31.1

34.6

IMS

115

117

(2)

(1.7)

27.2

Corporate & Eliminations

(7)

—

(10)

(333.3)

Total operating earnings

348

293

231

18.8

26.8

Operating margin:

ASC

10.2

8.6

7.4

IMS

8.8

10.3

9.0

Bookings:

ASC

2,459

2,609

2,307

(150)

(5.7)

302

13.1

IMS

1,786

1,468

1,209

318

21.7

259

21.4

Total bookings

4,245

4,077

3,516

168

4.1

561

16.0

Backlog:

ASC

3,250

2,992

2,402

258

8.6

590

24.6

IMS

5,198

5,276

5,349

(78)

(1.5)

(73)

(1.4)

Total backlog

8,448

8,268

7,751

180

2.2

517

6.7

Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

ASC

Revenue

In total, ASC segment revenue increased $237 million, or 11.2%, from $2,118 million for the year ended December 31, 2024 to $2,355 million for the year ended December 31, 2025. The increase is attributed to the quantum laser license as well as increased demand realized throughout the segment. Major drivers include continued expansion of dismounted and ground vehicle sensing, tactical radar programs for C-UAS applications and naval computing programs across the portfolio.

Operating Earnings and Operating Margin

ASC’s operating earnings increased by $57 million, or 31.1%, from $183 million for the year ended December 31, 2024 to $240 million for the year ended December 31, 2025. Operating margin increased from 8.6% for the year ended December 31, 2024 to 10.2% for the year ended December 31, 2025.

The increase in operating earnings and operating margin is driven by the increase in overall revenue contribution noted above, coupled with the profit increase associated with the quantum laser license. This was offset in part by increased G&A expenditures and increased IR&D investments during the period.

Bookings

ASC’s bookings decreased by $150 million, or 5.7%, from $2,609 million for the year ended December 31, 2024 to $2,459 million for the year ended December 31, 2025. The decrease in new awards is a result of certain multi-year bookings realized in the prior year on naval and airborne

computing programs that did not recur in 2025. Despite the decline in new orders, the ASC segment realized a book to bill ratio of 1.0 to 1 for the year ended December 31, 2025, continuing to demonstrate a strong foundation for growth. New bookings were highlighted by demand in airborne and ground vehicle sensing coupled with continued need for tactical radars for SHORAD and counter drone activities.

Backlog

ASC’s backlog increased by $258 million, or 8.6%, from $2,992 million for the year ended December 31, 2024 to $3,250 million for the year ended December 31, 2025. This was attributed to the increased demand and new awards realized (noted above) which were 1.0x that of the revenue generated during the period, coupled with increased unfunded backlog attributed to our recent SDA missile tracking award, driving an increase in the overall backlog position.

IMS

Revenue

IMS revenue increased by $169 million, or 14.9%, from $1,138 million for the year ended December 31, 2024 to $1,307 million for the year ended December 31, 2025. The increase is attributed primarily to our increased output within our power and propulsion programs with the U.S. Navy’s surface and submarine platforms. The naval growth was compounded by force protection efforts for SHORAD and counter drone programs. This was offset by the decrease in revenue related to the negotiated conclusion of a legacy ground surveillance program of approximately $67 million in the period.

Operating Earnings and Operating Margin

In total, IMS’s operating earnings decreased by $2 million, or 1.7%, from $117 million for the year ended December 31, 2024 to $115 million for the year ended December 31, 2025, driven by the negotiated conclusion of work on a legacy ground surveillance program noted earlier. The impact was offset by increased revenue output noted above. Operating margin decreased 150 bps from 10.3% for the year ended December 31, 2024 to 8.8% for the year ended December 31, 2025. This decrease in operating margin is attributed to the impact of the legacy ground surveillance program noted above and minor increases in G&A and IR&D expenditures which were largely offset by operational leverage realized on the expanding revenue base coupled with improved program performance on our Columbia Class program.

Bookings

Bookings for the year ended December 31, 2025 were $1,786 million, an increase of $318 million as compared to the year ended December 31, 2024, driving a book to bill ratio of 1.4 to 1. The new awards are highlighted by the receipt of awards totaling approximately $580 million for new Columbia Class funding, approximately $570 million of additional naval power awards outside of the Columbia Class programs and approximately $323 million of short-range air defense and C-UAS programs during the period.

Backlog

Backlog decreased by $78 million, or 1.5%, to $5,198 million for the year ended December 31, 2025, from $5,276 million for the year ended December 31, 2024. The backlog decrease is largely attributed to a reduction in unfunded backlog as awards were received on Columbia Class programs within our power and propulsion line of business.

Liquidity and Capital Resources

We endeavor to ensure the most efficient conversion of operating earnings into cash for deployment in our business and to maximize stockholder value through cash deployment activities. In addition to our cash position, we use various financial measures to assist in capital deployment decision-making,

including cash provided by operating activities. We believe that the combination of our existing cash, access to credit facilities as described in Note 12: Debt to the Consolidated Financial Statements, and future cash that we expect to generate from our operations will be sufficient to meet our short and long-term liquidity needs. There can be no assurance, however, that our business will continue to generate cash flow at current levels or that anticipated operational improvements will be achieved. We may also pursue acquisitions or other strategic priorities that will require additional liquidity beyond the liquidity we generate through our operations. Our cash balance as of December 31, 2025 was $647 million compared to $598 million as of December 31, 2024.

The following table summarizes our cash flows for the periods presented:

Year ended December 31,

(Dollars in millions)

2025

2024

2023

Net cash provided by operating activities

366

271

205

Net cash used in investing activities

(154)

(84)

(59)

Net cash (used in) provided by financing activities

(163)

(56)

Effect of exchange rate changes on cash and cash equivalents

—

Net increase in cash and cash equivalents

131

161

Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

Operating Activities

We generated cash from operating activities of $366 million for the year ended December 31, 2025, as compared to $271 million for the year ended December 31, 2024. The increase in cash from operating activities is attributed to improved profit generation during the period and lower cash used to fund working capital. In total our changes in our assets and liabilities absorbed $65 million of cash for the year ended December 31, 2025, compared to $79 million for the year ended December 31, 2024.

Investing Activities

Investing activities used $154 million of cash during the year ended December 31, 2025 as compared to $84 million during the year ended December 31, 2024. The $70 million increase is primarily due to higher capital expenditures attributed to capacity expansion throughout the portfolio, highlighted by our new naval power facility project in South Carolina and a $15 million investment to extend our ownership stake in Hoverfly, a power-tethered unmanned aerial systems company.

Financing Activities

Cash used in financing activities for the year ended December 31, 2025 was $163 million compared to $56 million for the year ended December 31, 2024. The change was primarily due to cash outlays related to dividends paid in the current period and share buy backs under the share repurchase program announced in the first quarter of 2025. These outflows were offset in part by higher debt repayments in the prior year period.

Material Cash Requirements

As of December 31, 2025, our material cash requirements were as follows:

(Dollars in millions)

Total

Due Within

1 Year

Loans from banks(1)

212

Operating leases

138

Finance leases and other(2)

225

Postretirement obligations(3)

109

Purchase commitments(4)

1,278

897

Total

1,962

975

________________

(1)Includes scheduled interest payments.

(2)Finance leases and other includes financing arrangement related to our Menomonee Falls, WI manufacturing facility. See Note 12: Debt to the Consolidated Financial Statements.

(3)Postretirement obligations include those amounts we expect to pay out in benefit payments and are further explained in Note 13: Pension and Other Postretirement Benefits to the Consolidated Financial Statements.

(4)Purchase commitments include open purchase orders with vendors for which the Company is contractually obligated.

Subsequent to year-end, the Company terminated the senior unsecured credit agreement with Bank of America (the “2022 Credit Agreement”), repaid the remaining outstanding balance of the term loan under the 2022 Credit Agreement (the “2022 Term Loan A”), and entered into a new credit agreement. See Note 12: Debt to the Consolidated Financial Statements for further information.

Off-Balance Sheet Arrangements

As of December 31, 2025 and 2024, we had no significant off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The following is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are more fully described in Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements. The accounting treatment of a particular transaction is dictated by accounting principles generally accepted in the United States of America. Other areas require management's judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and costs and expenses during the reporting period. Ultimately, actual amounts may differ from these estimates. We believe that critical accounting estimates have the following attributes: (1) they require management to make assumptions about matters that are uncertain at the time of the estimate; and (2) different estimates we reasonably could have used, or changes in the estimates that are reasonably likely to occur, that would have a material effect on our consolidated financial condition or results of operations.

We believe the following critical accounting policies contain the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements:

•Revenue Recognition on Contracts and Contract Estimates

•Income Taxes

Revenue Recognition on Contracts and Contract Estimates

We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606. Substantially all of our contracts are accounted for using the over time, percentage of completion cost-to-cost method of accounting as determined by the ratio of cumulative costs incurred to date to

estimated total contract costs at completion. We believe this is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers.

Revenue and cost estimates for substantially all over time contract performance obligations are reviewed and updated quarterly. Contract estimates are based on various assumptions to project the outcome of future events that can span multiple years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors and the availability and timing of funding from the customer. Changes in estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. The aggregate net impact of adjustments in contract estimates that negatively impacted our revenue and profit totals were $59 million, $25 million, and $23 million for 2025, 2024, and 2023, respectively. The changes in estimates are primarily attributed to changes in our firm-fixed-priced development type programs. As changes happen in the design to meet required specifications, those changes often result in changes to the overall profitability of the programs. Our contract reviews are conducted at least quarterly in which we incorporate our best estimate to complete the program known at that point in time.

For further discussion, see Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements.

Income Taxes

We account for income taxes under the asset and liability method in accordance with the accounting standard for income taxes. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. If we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount or would no longer be able to realize our deferred income tax assets in the future as currently recorded, we would make an adjustment to the valuation allowance which would decrease or increase the provision for income taxes.

The provision for federal, state, foreign and local income taxes is calculated on earnings before taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes.

We recognize liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in our income tax expense.

As of December 31, 2025 and 2024, we had gross deferred tax assets of $252 million and $297 million, respectively, and deferred tax asset valuation allowances of $36 million and $25 million, respectively. The deferred tax assets principally relate to capitalized R&D, benefit accruals, inventory obsolescence, tax benefit carryforwards and contract reserves. The deferred tax assets as of

December 31, 2025 and 2024 include $7 million related to tax benefit carryforwards associated with net operating losses. The decrease in the deferred tax asset as compared to the prior year is primarily attributed to the deduction of previously capitalized R&D expenditures pursuant to Section 174 of the Tax Code. The OBBBA allows taxpayers to make elections to deduct the capitalized expenditures over certain periods.

Accounting Standards Updates

See Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements for information regarding accounting standards we adopted in 2025 and other new accounting standards that have been issued by the Financial Accounting Standards Board but are not effective until after December 31, 2025.