NORTHROP GRUMMAN CORP /DE/

Previous wording

In addition, if interest rates increase or otherwise fluctuate, it could impact government spending priorities (in the U.S. and allied countries, in particular), including the demand for defense products. Economic tensions and changes in international trade policies, including, for example, widespread tariffs announced since last year by the U.S. on its major trading partners, higher tariffs on imported goods and materials and actions taken in response (such as retaliatory tariffs or other trade protectionist measures or the renegotiation of free trade agreements), could also further impact the global market for defense products, services and solutions. In addition, following the first quarter 2026 U.S. Supreme Court decision that invalidated tariffs imposed pursuant to the International Emergency Economic Powers Act (“IEEPA”), the U.S. announced tariffs under different statutory authorities, including a 10% global tariff. The full impact of these governmental actions on macroeconomic conditions and on our business is uncertain, difficult to predict and depends on a number of factors, including the extent and duration of tariffs, the availability of exemptions, changes in the amount and scope of tariffs, any reversal or temporary suspension of announced tariffs, the availability of refunds for tariffs paid under IEEPA, the imposition of new tariffs and other measures that target countries may take in response to U.S. trade policies, and possible resulting general inflationary pressures in the global economy. We are continuing to monitor the impact on our business, suppliers and customers, but do not believe that the tariffs, including the IEEPA tariffs, have had or will have a material adverse effect on our business.

Current wording

In addition, increases or fluctuations in interest rates could impact government spending priorities (in the U.S. and allied countries, in particular), including the demand for defense products. Economic tensions and changes in international trade policies, including, for example, widespread tariffs announced since last year by the U.S. on its major trading partners, higher tariffs on imported goods and materials and actions taken in response (such as retaliatory tariffs or other trade protectionist measures or the renegotiation of free trade agreements), could also further impact the global market for defense products, services and solutions. In addition, following the first quarter 2026 U.S. Supreme Court decision that invalidated tariffs imposed pursuant to the International Emergency Economic Powers Act (“IEEPA”), the U.S. has announced various tariffs under different statutory authorities. The full impact of these governmental actions on macroeconomic conditions and on our business is uncertain, difficult to predict and depends on a number of factors, including the extent and duration of tariffs, the availability of exemptions, changes in the amount and scope of tariffs, any reversal or temporary suspension of announced tariffs, the availability of refunds for tariffs paid under IEEPA, the imposition of new tariffs and other measures that target countries may take in response to U.S. trade policies, and possible resulting general inflationary pressures in the global economy. We are continuing to monitor the impact on our business, suppliers and customers, but do not believe that the tariffs, including the IEEPA tariffs, have had or will have a material adverse effect on our business.

Previous wording

On February 3, 2026, annual appropriations to fund a vast majority of the federal government for FY 2026, including approximately $859 billion for defense, were enacted. Appropriations to partially fund the Department of Homeland Security were enacted on April 30, 2026, with the remaining appropriations enacted on June 10, 2026. On April 3, 2026, the Trump Administration (the “Administration”) released its FY 2027 budget request. The request includes $1.45 trillion for defense, with $1.1 trillion in the base budget (discretionary funding) and $350 billion in reconciliation (mandatory) funding. The total defense budget request reflects an increase of 44% ($441 billion) above the FY 2026 enacted levels (including $153 billion in FY 2026 reconciliation funding). Congress is evaluating the Administration’s budget request as it drafts authorization and appropriations legislation for FY 2027. Additionally, the Administration recently transmitted an $88 billion supplemental funding request for FY 2026, of which $67 billion is intended to address the operational costs associated with the Iran conflict and other defense priorities. There is uncertainty as to when Congress will act on the reconciliation funding and supplemental request.

Current wording

On February 3, 2026, annual appropriations to fund a vast majority of the federal government for FY 2026, including approximately $859 billion for defense, were enacted. Appropriations to partially fund the Department of Homeland Security were enacted on April 30, 2026, with the remaining appropriations enacted on June 10, 2026. On April 3, 2026, the Trump Administration (the “Administration”) released its FY 2027 budget request. The request includes $1.45 trillion for defense, with $1.1 trillion in the base budget (discretionary funding) and $350 billion in reconciliation (mandatory) funding. The total defense budget request reflects an increase of 44% ($441 billion) above the FY 2026 enacted levels (including $153 billion in FY 2026 reconciliation funding). Congress is evaluating the Administration’s budget request as it drafts authorization and appropriations legislation for FY 2027. Additionally, the Administration requested $88 billion in supplemental funding for FY 2026, which included $67 billion to address the operational costs associated with the Iran conflict and other defense priorities. There is uncertainty as to when Congress will act on the reconciliation funding and supplemental request.

Previous wording

The Administration has issued numerous executive orders, including orders to undertake a comprehensive overhaul of the Federal Acquisition Regulation, to reform the DoW defense acquisition process and, more recently, to promote the use of fixed price contracts where appropriate and to address underperformance and insufficient prioritization of government contracts, insufficient investment in production and production speed and incentive compensation metrics applicable to defense contractors. See “Risk factors” for further discussion regarding risks associated with executive orders and regulatory changes. Some of the Administration’s executive orders are subject to ongoing court challenges. Implementation of certain of these executive orders could adversely affect our business or create a more challenging or costly regulatory, operating and economic environment.

Current wording

The Administration has issued numerous executive orders, including orders to undertake a comprehensive overhaul of the Federal Acquisition Regulation, to reform the DoW defense acquisition process and, more recently, to promote the use of fixed price contracts where appropriate and to address underperformance and insufficient prioritization of government contracts, insufficient investment in production and production speed and incentive compensation metrics applicable to defense contractors. See “Risk factors” for further discussion regarding risks associated with executive orders and regulatory changes. Some of the Administration’s executive orders are subject to ongoing court challenges. In addition, the DoW has outlined initiatives to, among other efforts, reform government contract accounting and promote supplier cost and pricing transparency. Implementation of certain of these executive orders and initiatives could adversely affect our business or create a more challenging or costly regulatory, operating and economic environment.

Previous wording

During the second quarter of 2026, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss. As we finalized certain details associated with the first quarter 2026 agreement with the U.S. Air Force described above, certain costs shifted between LRIP lots resulting in favorable EAC adjustments on the first four LRIP lots and an increase in the loss contingency accrual on the remainder of the program. The company’s second quarter 2026 results reflect our current best estimate of cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers. If our estimated cost to complete the aircraft changes, or if our assumptions regarding contract performance, quantities, or supplier negotiations are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

Current wording

During the third quarter of 2026, we again reviewed our estimated profitability on the LRIP phase of the program and made no significant changes to the previously recognized loss. The company’s third quarter 2026 results reflect our current best estimate of cost to complete the LRIP and NTE aircraft, as well as the outcome of ongoing discussions with our suppliers. If our estimated cost to complete the aircraft changes, or if our assumptions regarding contract performance, quantities, or supplier negotiations are resolved more or less favorably than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

Previous wording

During the second quarter of 2026, we continued to make progress on joint activities with the U.S. Air Force. These efforts, which included requirements and design maturation, risk reduction activities, and evaluation of options to accelerate fielding of initial capability, have resulted in further definition and authorization of elements of the program execution plan, resulting in a $7.6 billion increase in program backlog. We also reviewed our estimated profitability on the program and recognized a favorable earnings adjustment related to our recent achievement of certain contract incentives. If our estimated cost to complete the restructured EMD effort or our achievement of future contract incentives is more or less favorable than what we have estimated, our financial position, results of operations and/or cash flows could be materially affected.

Current wording

During the second and third quarters of 2026, we continued to make progress on joint activities with the U.S. Air Force. These efforts, which included requirements and design maturation, risk reduction activities, and evaluation of

Previous wording

Second quarter 2026 sales increased $525 million, or 5 percent, driven by higher sales at all four sectors, including a 13 percent increase at Aeronautics Systems.

Current wording

Year to date 2026 sales increased $1.6 billion, or 5 percent, driven by higher sales at all four sectors, including a 14 percent increase at Aeronautics Systems. These increases were partially offset by $393 million of higher intercompany eliminations.

Previous wording

Second quarter 2026 G&A costs as a percentage of sales decreased to 9.4 percent from 9.8 percent in the prior year period primarily due to higher sales.

Current wording

Third quarter 2026 G&A costs as a percentage of sales increased to 9.7 percent from 9.5 percent in the prior year period primarily due to an increase in our investments for future business opportunities, partially offset by higher sales.

Previous wording

Year to date 2026 operating income increased $87 million, or 4 percent, primarily due to $443 million of higher segment operating income largely driven by the prior year B-21 loss provision at Aeronautics Systems, partially offset by the prior year $231 million gain on the training services divestiture and a $112 million decrease in the FAS/CAS operating adjustment. Operating margin rate of 10.0 percent was comparable with the prior year.

Current wording

Year to date 2026 operating income increased $114 million, or 4 percent, primarily due to $511 million of higher segment operating income largely driven by the prior year B-21 loss provision at Aeronautics Systems, partially offset by the prior year $231 million gain on the training services divestiture and a $164 million decrease in the FAS/CAS operating adjustment. Operating margin rate declined to 10.5 percent from 10.7 percent primarily due to the prior year gain on the training services divestiture and the decrease in the FAS/CAS operating adjustment, partially offset by a higher segment operating margin rate.

Previous wording

Year to date 2026 G&A costs as a percentage of sales decreased to 9.6 percent from 10.2 percent in the prior year period primarily due to higher sales.

Current wording

Year to date 2026 G&A costs as a percentage of sales decreased to 9.7 percent from 9.9 percent in the prior year period primarily due to higher sales.

Previous wording

Second quarter 2026 income tax expense decreased $179 million, or 71 percent, due to a lower ETR and $259 million of lower earnings before income taxes. The second quarter 2026 ETR decreased to 6.3 percent from 17.7 percent principally due to the remeasurement of UTPs given recent developments with the IRS towards resolving our previously filed federal income tax returns and refund claims.

Current wording

Third quarter 2026 income tax expense decreased $49 million, or 22 percent, due to a lower ETR and $25 million of lower earnings before income taxes. The third quarter 2026 ETR decreased to 13.4 percent from 16.9 percent principally due to higher research credits.

Previous wording

Year to date 2026 income tax expense decreased $121 million, or 35 percent, due to a lower ETR, partially offset by $193 million of higher earnings before income taxes. The year to date 2026 ETR decreased to 10.4 percent from 17.5 percent primarily due to the remeasurement of UTPs described above, as well as higher research credits, including a benefit related to CAMT guidance recently issued by the IRS.

Current wording

Year to date 2026 income tax expense decreased $170 million, or 30 percent, due to a lower ETR, partially offset by $168 million of higher earnings before income taxes. The year to date 2026 ETR decreased to 11.5 percent from 17.2 percent primarily due to the remeasurement of unrecognized tax benefits during the second quarter of 2026 given recent developments with the IRS towards resolving our previously filed federal income tax returns and refund claims, as well as higher research credits, including a benefit related to CAMT guidance recently issued by the IRS.

Previous wording

Second quarter 2026 net earnings decreased $80 million, or 7 percent, primarily due to the $329 million decrease in operating income described above, partially offset by a $179 million decrease in income tax expense, a $29 million increase in the non-operating FAS pension benefit and a $29 million increase in Other, net largely driven by favorable returns associated with an investment sold during the quarter.

Current wording

Third quarter 2026 net earnings increased $24 million, or 2 percent, primarily due to a $49 million decrease in income tax expense, a $31 million increase in the non-operating FAS pension benefit and a $27 million increase in operating income, partially offset by an $86 million decrease in Other, net largely driven by favorable returns on marketable securities in the prior year.

Previous wording

Year to date 2026 net earnings increased $314 million, or 19 percent, primarily due to a $121 million decrease in income tax expense, an $87 million increase in operating income, a $65 million increase in the non-operating FAS pension benefit and a $35 million increase in Other, net largely driven by favorable returns associated with an investment sold during the second quarter.

Current wording

Year to date 2026 net earnings increased $338 million, or 12 percent, primarily due to a $170 million decrease in income tax expense, a $114 million increase in operating income and a $96 million increase in the non-operating FAS pension benefit, partially offset by a $51 million decrease in Other, net largely driven by lower favorable returns on marketable securities.

Previous wording

Second quarter 2026 diluted earnings per share decreased $0.47, or 6 percent, reflecting a 7 percent decrease in net earnings and a 1 percent reduction in weighted-average diluted shares outstanding.

Current wording

Third quarter 2026 diluted earnings per share increased $0.22, or 3 percent, reflecting a 2 percent increase in net earnings and a 1 percent reduction in weighted-average diluted shares outstanding.

Previous wording

Year to date 2026 diluted earnings per share increased $2.38, or 21 percent, reflecting a 19 percent increase in net earnings and a 1 percent reduction in weighted-average diluted shares outstanding.

Current wording

Year to date 2026 diluted earnings per share increased $2.60, or 14 percent, reflecting a 12 percent increase in net earnings and a 1 percent reduction in weighted-average diluted shares outstanding.

Previous wording

Year to date 2026 segment operating income increased $443 million, or 25 percent, primarily due to $529 million of higher operating income at Aeronautics Systems and $132 million of higher operating income at Mission Systems, partially offset by $92 million of lower operating income at both Defense Systems and Space Systems. Segment operating margin rate increased to 10.7 percent from 9.0 percent primarily due to a higher operating margin rate at Aeronautics Systems and Mission Systems, partially offset by a lower operating margin rate at Defense Systems and Space Systems.

Current wording

Year to date 2026 segment operating income increased $511 million, or 17 percent, primarily due to $601 million of higher operating income at Aeronautics Systems and $117 million of higher operating income at Mission Systems, partially offset by $78 million of lower operating income at Space Systems and $76 million of lower operating income at Defense Systems. Segment operating margin rate increased to 11.2 percent from 10.1 percent primarily due to a higher operating margin rate at Aeronautics Systems and Mission Systems, partially offset by a lower operating margin rate at Defense Systems and Space Systems.

Previous wording

The second quarter 2026 and year to date 2026 FAS/CAS operating adjustment reflects lower CAS pension expense largely driven by favorable plan asset returns in prior years.

Current wording

The third quarter 2026 and year to date 2026 FAS/CAS operating adjustment reflects lower CAS pension expense largely driven by favorable plan asset returns in prior years.

Previous wording

The change in year to date 2026 unallocated corporate expense (income) is primarily due to the prior year $231 million gain on the training services divestiture and $20 million of unallowable state taxes and transaction costs associated with the divestiture.

Current wording

The increase in year to date 2026 unallocated corporate expense is primarily due to the prior year $231 million gain on the training services divestiture.

Previous wording

Year to date 2026 sales increased $874 million, or 15 percent, primarily due to higher sales on B-21 and other restricted programs, a $193 million increase on the TACAMO program as it ramps up, as well as higher volume on the B-2 and F-35 programs. The higher B-21 sales reflect the company’s first quarter 2026 agreement with the U.S. Air Force to expand production capacity and increase the aircraft production rate, including the sale of a company-owned test asset. The sales increases were partially offset by a decrease on F/A-18 as final production deliveries have completed.

Current wording

Year to date 2026 sales increased $1.3 billion, or 14 percent, primarily due to higher sales on B-21 and other restricted programs, a $237 million increase on the E-130J TACAMO (“TACAMO”) program as it ramps up, a $229 million increase on F-35, and $116 million of higher B-2 sustainment volume. The higher B-21 sales reflect the company’s first quarter 2026 agreement with the U.S. Air Force to expand production capacity and increase the aircraft production rate, including the sale of a company-owned test asset. The sales increases were partially offset by a decrease on F/A-18 as final production deliveries have completed.

Previous wording

Year to date 2026 operating income increased $529 million, or 383 percent, primarily due to a higher operating margin rate. Operating margin rate increased to 9.8 percent primarily due to the absence of the prior year B-21 loss provision.

Current wording

Year to date 2026 operating income increased $601 million, or 136 percent, due to a higher operating margin rate and higher sales. Year to date 2026 operating margin rate of 10.1 percent reflects strong performance on certain mature production and sustainment programs. Operating margin rate increased from 4.9 percent in 2025 primarily due to the absence of the prior year B-21 loss provision.

Previous wording

Year to date 2026 sales increased $196 million, or 5 percent, primarily due to a $176 million increase on Sentinel as the program continues to ramp, as well as higher volume on tactical solid rocket motor programs and across the IBCS portfolio. These increases were partially offset by a $112 million reduction in sales related to the divested training services business as well as lower volume on armament programs, including certain military ammunition programs.

Current wording

Year to date 2026 sales increased $444 million, or 8 percent, primarily due to a $356 million increase on Sentinel as the program continues to ramp, a $114 million increase on various tactical solid rocket motor programs, and higher volume across the IBCS portfolio. These increases were partially offset by a $112 million reduction in sales related to the divested training services business and a $109 million decrease on armament programs, including certain military ammunition programs.

Previous wording

Second quarter 2026 operating income decreased $97 million, or 38 percent, primarily due to a lower operating margin rate, partially offset by higher sales. Operating margin rate decreased to 7.5 percent from 12.7 percent primarily due to lower net EAC adjustments, including the absence of a prior year $76 million favorable adjustment on Sentinel. In the current quarter, we continued to invest in our missile prime business. We are projecting higher costs to mature production on the Extended Range version of the Advanced Anti-Radiation Guided Missile (AARGM-ER) and to develop and qualify the Stand-in Attack Weapon (SiAW), which resulted in a $68 million unfavorable EAC adjustment on SiAW. These investments were partially offset by a favorable EAC adjustment on Sentinel related to our recent achievement of certain contract incentives.

Current wording

Year to date 2026 operating income decreased $76 million, or 11 percent, primarily due to a lower operating margin rate, partially offset by higher sales. Operating margin rate decreased to 9.4 percent from 11.4 percent principally due to lower net EAC adjustments, largely due to the Q2 2026 unfavorable EAC adjustment on the Stand-in Attack Weapon (SiAW) program and the absence of a prior year favorable EAC adjustment on the EMD phase of the Sentinel program.

Previous wording

Second quarter 2026 sales increased $93 million, or 3 percent, primarily due to a $130 million increase on marine systems programs, the timing of materials on F-35 and ramp-up on restricted airborne radar programs. These increases were partially offset by lower volume on restricted advanced microelectronics programs.

Current wording

Third quarter 2026 sales increased $62 million, or 2 percent, primarily due to ramp-up on restricted airborne radar programs and higher volume on marine systems programs. These increases were partially offset by lower volume on restricted advanced microelectronics programs.

Previous wording

Year to date 2026 sales increased $147 million, or 2 percent, primarily due to ramp-up on restricted airborne radar programs, higher sales of $163 million on marine systems programs, and the timing of materials on F-35. These increases were partially offset by a $106 million decrease on the Scalable Agile Beam Radar program and lower volume on restricted advanced microelectronics programs.

Current wording

Year to date 2026 sales increased $209 million, or 2 percent, primarily due to ramp-up on restricted airborne radar programs, higher sales of $255 million on marine systems programs, and the timing of materials on F-35. These increases were partially offset by lower volume on restricted advanced microelectronics programs and a $129 million decrease on the Scalable Agile Beam Radar program.

Previous wording

Year to date 2026 operating income increased $132 million, or 16 percent, due to a higher operating margin rate and higher sales. Operating margin rate increased to 15.3 percent from 13.4 percent, primarily due to higher net EAC adjustments driven by improved performance, as well as prior year investments made by the sector in connection with restricted business opportunities.

Current wording

Year to date 2026 operating income increased $117 million, or 9 percent, due to a higher operating margin rate and higher sales. Operating margin rate increased to 15.5 percent from 14.5 percent, primarily due to higher net EAC adjustments driven by improved performance, as well as prior year investments made by the sector in connection with restricted business opportunities.

Previous wording

Second quarter 2026 product sales increased $550 million, or 7 percent, primarily due to higher sales on B-21 and TACAMO at Aeronautics Systems, higher volume on Sentinel and across the IBCS portfolio at Defense Systems, and increased sales for CRS missions, GPI and GMD WS at Space Systems.

Current wording

Third quarter 2026 product sales increased $729 million, or 9 percent, primarily due to higher sales on F-35, B-21 and TACAMO at Aeronautics Systems and higher volume on Sentinel, GMLRS ER, and tactical solid rocket motor programs at Defense Systems.

Previous wording

Year to date 2026 product sales increased $987 million, or 6 percent, primarily due to higher sales on B-21 and TACAMO at Aeronautics Systems, as well as higher volume on Sentinel, tactical solid rocket motor programs and across the IBCS portfolio at Defense Systems.

Current wording

Year to date 2026 product sales increased $1.7 billion, or 7 percent, primarily due to higher sales on B-21, TACAMO and F-35 at Aeronautics Systems and higher volume on Sentinel, tactical solid rocket motor programs and across the IBCS portfolio at Defense Systems.

Previous wording

Year to date 2026 product costs increased $613 million, or 4 percent, reflecting a higher operating margin rate principally due to the absence of the prior year B-21 loss provision at Aeronautics Systems, partially offset by lower net EAC adjustments on product programs at Defense Systems and Space Systems.

Current wording

Year to date 2026 product costs increased $1.2 billion, or 6 percent, reflecting a higher operating margin rate principally due to the absence of the prior year B-21 loss provision at Aeronautics Systems.

Previous wording

Year to date 2026 service sales decreased $49 million, or 1 percent, primarily due to lower restricted sales at Space Systems and lower service volume at Defense Systems due to the training services divestiture, partially offset by higher restricted sales at Aeronautics Systems.

Current wording

Year to date 2026 service sales decreased $79 million, or 1 percent, primarily due to lower restricted service sales at Space Systems, lower service volume at Defense Systems due to the training services divestiture, and lower volume on airborne electronic warfare programs at Mission Systems, partially offset by higher restricted service sales at Aeronautics Systems.

Previous wording

Year to date 2026 service costs decreased $118 million, or 3 percent, reflecting a higher operating margin rate principally driven by higher net EAC adjustments on service programs at Aeronautics Systems and Space Systems.

Current wording

Year to date 2026 service costs decreased $122 million, or 2 percent, reflecting a higher operating margin rate principally driven by higher net EAC adjustments on service programs at Aeronautics Systems, Mission Systems and Space Systems.

Previous wording

Second quarter and year to date 2026 net awards totaled $20.0 billion and $29.8 billion, respectively. Backlog totaled $104.7 billion. Significant second quarter new awards include $7.6 billion for Sentinel, $4.3 billion for restricted programs (primarily at Aeronautics Systems and Space Systems), $1.0 billion for F-35 (at Aeronautics Systems and Mission Systems), $0.8 billion for Glide Phase Interceptor (GPI), and $0.7 billion for Multi-role Electronically Scanned Array (MESA).

Current wording

Third quarter and year to date 2026 net awards totaled $16.4 billion and $46.2 billion, respectively. Backlog totaled $109.6 billion. Significant third quarter new awards include $4.6 billion for restricted programs (primarily at Aeronautics Systems, Space Systems, and Mission Systems), $2.0 billion for Sentinel, $1.4 billion for Virginia Class submarines, $1.3 billion for F-35 at Aeronautics Systems, and $1.0 billion for E-2.

Previous wording

At June 30, 2026, we had $2.3 billion in cash and cash equivalents. We expect cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets, if needed, to be sufficient to provide liquidity to the company in the short-term and long-term. The company has a five-year senior unsecured revolving credit facility in an aggregate principal amount of $3.0 billion, and in April 2026, we renewed our one-year $500 million uncommitted credit facility. At June 30, 2026, there were no borrowings outstanding under these credit facilities.

Current wording

At September 30, 2026, we had $3.7 billion in cash and cash equivalents. We expect cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper and/or in the capital markets, if needed, to be sufficient to provide liquidity to the company in the short-term and long-

Previous wording

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

Current wording

The table below summarizes key components of cash provided by operating activities:

Previous wording

Year to date 2026 net cash used in operating activities decreased $321 million as compared with the same period in 2025, primarily due to lower net cash tax payments.

Current wording

Year to date 2026 net cash provided by operating activities increased $509 million as compared with the same period in 2025, primarily due to lower net cash tax payments.

Previous wording

Adjusted free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by or used in operating activities, less capital expenditures, plus proceeds from the sale of equipment to a customer (not otherwise included in net cash provided by or used in operating activities) and the after-tax impact of discretionary pension contributions. Adjusted free cash flow includes proceeds from the sale of equipment to a customer, if any, as such proceeds were generated in a customer sales transaction. It also includes the after-tax impact of discretionary pension contributions, if any, for consistency and comparability of financial performance. This measure may not be defined and calculated by other companies in the same manner. We use adjusted free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases. This non-GAAP measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP. During the six months ended June 30, 2026 and 2025, the company received no proceeds from the sale of equipment to a customer and made no discretionary pension contributions.

Current wording

Adjusted free cash flow, as reconciled in the table below, is a non-GAAP measure defined as net cash provided by or used in operating activities, less capital expenditures, plus proceeds from the sale of equipment to a customer (not otherwise included in net cash provided by or used in operating activities) and the after-tax impact of discretionary pension contributions. Adjusted free cash flow includes proceeds from the sale of equipment to a customer, if any, as such proceeds were generated in a customer sales transaction. It also includes the after-tax impact of discretionary pension contributions, if any, for consistency and comparability of financial performance. This measure may not be defined and calculated by other companies in the same manner. We use adjusted free cash flow as a key factor in our planning for, and consideration of, acquisitions, the payment of dividends and stock repurchases. This non-GAAP measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP. During the nine months ended September 30, 2026 and 2025, the company made no discretionary pension contributions.

Previous wording

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

Current wording

The table below reconciles net cash provided by operating activities to adjusted free cash flow:

Previous wording

Year to date 2026 adjusted free cash flow increased $339 million, or 29 percent, as compared with the same period in 2025, primarily due to an increase in net cash from operating activities.

Current wording

Year to date 2026 adjusted free cash flow increased $893 million, or 1,240 percent, as compared with the same period in 2025, primarily due to higher net cash from operating activities and proceeds received in connection with the sale of equipment to a customer.

Previous wording

Year to date 2026 net cash used in investing activities increased $173 million, or 91 percent, as compared with the same period in 2025, principally due to $333 million of proceeds from the training services divestiture in the prior year, partially offset by $107 million of proceeds from the sale of an investment in the current year.

Current wording

Year to date 2026 net cash used in investing activities decreased $177 million, or 36 percent, as compared with the same period in 2025, principally due to $371 million of proceeds from the sale of equipment to a customer and $107 million of proceeds from the sale of an investment, partially offset by $333 million of proceeds from the training services divestiture in the prior year.

Previous wording

Year to date 2026 net cash used in financing activities decreased $210 million, or 13 percent, as compared with the same period in 2025, primarily due to an $823 million decrease in share repurchases, partially offset by $566 million in net borrowings on commercial paper in the prior year.

Current wording

Year to date 2026 net cash used in financing activities decreased $1.1 billion, or 38 percent, as compared with the same period in 2025, primarily due to a $1.1 billion decrease in share repurchases.

Previous wording

•cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners, and changes in related regulations

Current wording

•cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners, including threats or disruptions from the use of artificial intelligence models capable of exploiting vulnerabilities to conduct or enhance cyber attacks, and changes in related regulations