L3Harris Technologies Inc.
07/30/2026 | Press release | Distributed by Public on 07/30/2026 07:07
Quarterly Report for Quarter Ending July 3, 2026 (Form 10-Q)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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The following Management's Discussion and Analysis ("MD&A") is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Condensed Consolidated Financial Statements and accompanying Notes in this Report (the "Notes"). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to our Consolidated Financial Statements and Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Form 10-K. The discussions in this MD&A contain forward-looking statements.
OVERVIEW
We are the Trusted Disruptor in the defense industry. With customers' mission-critical needs always in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security. We support government customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government, their prime contractors and international allies. Our products, systems and services have defense and civil government applications, as well as commercial applications. The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 74% for year to date 2026.
U.S. and International Budget Environment
The U.S. and international budget environments are evolving rapidly within a dynamic geopolitical context, influenced by the Administration and Congress, heightened geopolitical tensions, global security concerns, inflationary pressures and overall macroeconomic conditions.
On April 3, 2026, the President submitted the U.S. Government fiscal year ("GFY") 2027 President's Budget Request ("PBR") to Congress. It called for a ~$1.5 trillion topline for national defense programs, comprised of $1.1 trillion for the DoW base budget and $350 billion in reconciliation funding. This total request represents a $441 billion increase, or 44%, over the GFY 2026 enacted value. Further, the PBR requested $18.8 billion for NASA, a $5.6 billion or 23% decrease from the GFY 2026 enacted level; $4.5 billion for National Oceanic and Atmospheric Administration ("NOAA"), a decrease from $6.1 billion in GFY 2026 enacted; and $22.4 billion for Federal Aviation Administration ("FAA"), a moderate increase above the $22.1 billion enacted in GFY 2026. Additionally, on June 24, 2026, the White House submitted an $88 billion supplemental funding request for GFY 2026, of which $67 billion is intended for defense spending.
Both the House and Senate have released GFY 2027 National Defense Authorization Act ("NDAA") markups that authorize $1.1 trillion for the DoW base budget. Given the election cycle, we expect the GFY 2027 appropriations cycle to be delayed and that the U.S. Government will begin operating on a continuing resolution on October 1, 2026.
Internationally, almost all NATO allies have committed to spend 5% of GDP annually over the next decade on defense and security-related expenditures, with 3.5% on core defense articles and another 1.5% on critical infrastructure, cyber and other key areas.
The overall defense spending environment, both in the U.S. and internationally, reflects the continued impacts of global conflicts and geopolitical tensions, and changes to U.S. Government or international spending priorities have and could in the future impact our business.
See our U.S. Government funding risks and the discussion of our international business risks within Part I. Item 1A. Risk Factors in our Fiscal 2025 Form 10-K.
Economic Environment
The ongoing uncertainty related to the impacts of inflation, supply chain disruptions, constraints in the availability of critical materials, including rare earth minerals and metals, as well as the interest rate environment and ongoing federal deficits could in the future impact U.S. Government spending priorities for our products and services. For a discussion of inflation-related risks, see Part I. Item 1A. Risk Factors in our Fiscal 2025 Form 10-K.
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We continue to monitor and evaluate the potential impact of current and proposed changes in trade policies and in particular, tariffs. In response to enacted tariffs, we are seeking exemptions, evaluating alternative sources of materials and subcontracted components, as well as engaging in supplier negotiations to help manage cost impacts and are considering price adjustments and other strategies to support profitability. Based on current conditions, we do not expect a material impact on our 2026 results, but will continue to monitor developments and assess potential implications as trade policies evolve.
RESULTS OF OPERATIONS
Second quarter 2026 and 2025 both include thirteen weeks, while year to date 2026 and 2025 include twenty-six and twenty-five weeks, respectively. Outcomes for specific periods, or year-over-year comparisons of results of operations and segment performance should be considered in this context.
Consolidated Results of Operations
| Second Quarter | Year to Date | ||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Revenue | $ | 5,881 | $ | 5,426 | $ | 11,625 | $ | 10,558 | |||||||||||||||
| Cost of revenue | (4,379) | (4,091) | (8,721) | (7,873) | |||||||||||||||||||
| Gross margin | 1,502 | 1,335 | 2,904 | 2,685 | |||||||||||||||||||
| General and administrative expenses | (848) | (764) | (1,598) | (1,589) | |||||||||||||||||||
| Operating Income | 654 | 571 | 1,306 | 1,096 | |||||||||||||||||||
| Non-service FAS pension income and other, net | 185 | 105 | 258 | 189 | |||||||||||||||||||
| Interest expense, net | (129) | (152) | (265) | (302) | |||||||||||||||||||
| Income before income taxes | 710 | 524 | 1,299 | 983 | |||||||||||||||||||
| Income tax expense | (110) | (66) | (187) | (139) | |||||||||||||||||||
| Effective Tax Rate | 15.5 | % | 12.6 | % | 14.4 | % | 14.1 | % | |||||||||||||||
| Net income | $ | 600 | $ | 458 | $ | 1,112 | $ | 844 | |||||||||||||||
| Subsidiary preferred stock deemed dividend | (14) | - | (14) | - | |||||||||||||||||||
| Net income available to common shareholders | $ | 586 | $ | 458 | $ | 1,098 | $ | 844 | |||||||||||||||
| Diluted EPS | $ | 3.13 | $ | 2.44 | $ | 5.85 | $ | 4.48 | |||||||||||||||
Revenue
Second Quarter Comparison. Revenue increased $455 million, or 8% reflecting higher revenues across all segments, primarily from higher volumes, driven by new program ramps, and strong execution.
Year to Date Comparison. Revenue increased $1,067 million, or 10% reflecting higher revenues across all segments, primarily from higher volumes, driven by new program ramps, including a milestone related to material procurement in support of classified contracts, and increased international deliveries.
See the "Business Segment Results of Operations" discussion below in this MD&A for further information.
Gross Margin
Second Quarter Comparison. Gross margin increased $167 million, primarily due to higher volumes across all segments and a $43 million favorable change in net EAC adjustments.
Year to Date Comparison. Gross margin increased $219 million, primarily due to higher volumes across all segments and a $82 million favorable change in net EAC adjustments, partially offset by the absence of the CAS disposal group as a result of the March 2025 divestiture.
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G&A Expenses
The following table presents the components of G&A expenses:
| Second Quarter | Year to Date | ||||||||||||||||||||||
| (In millions) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Corporate: | |||||||||||||||||||||||
| Amortization of acquisition-related intangibles | $ | (163) | $ | (177) | $ | (322) | $ | (354) | |||||||||||||||
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LHX NeXt implementation costs(1)
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- | (39) | - | (74) | |||||||||||||||||||
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Acquisition, divestiture and transaction-related expenses(2)
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(10) | (13) | (40) | (30) | |||||||||||||||||||
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Business divestiture-related losses(3)
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- | - | (10) | (17) | |||||||||||||||||||
| Changes in fair value of deferred compensation plan liabilities | (43) | (29) | (38) | (23) | |||||||||||||||||||
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Other items(4)
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(18) | (7) | (50) | (70) | |||||||||||||||||||
| Segment: | |||||||||||||||||||||||
| Company-funded R&D costs | (160) | (131) | (306) | (242) | |||||||||||||||||||
| Selling and marketing | (142) | (134) | (278) | (254) | |||||||||||||||||||
| Product line sale gains | - | 92 | 50 | 97 | |||||||||||||||||||
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Other(5)
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(312) | (326) | (604) | (622) | |||||||||||||||||||
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G&A expenses
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$ | (848) | $ | (764) | $ | (1,598) | $ | (1,589) | |||||||||||||||
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(1)Includes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness. See the "Operating Environment, Strategic Priorities and Key Performance Measures" section in the MD&A in our Fiscal 2025 Form 10-K for more detail on our LHX NeXt initiative and implementation costs.
(2)Includes costs related to pursuing acquisition and divestiture portfolio optimization; non-transaction costs related to divestitures; costs related to the carve-out and planned AXYV public offering; salaries of employees in roles dedicated to planned strategic transaction activity; and resolution of a procurement contract matter.
(3)Includes losses associated with the Space Technology disposal group and the CAS disposal group in 2026 and 2025, respectively. See Note P: Divestitures in the Notes for further information.
(4)Includes a portion of management and administration, legal, environmental, compensation, retiree benefits, the FAS/CAS operating adjustment, eliminations and other. Year to date 2025 also includes the CAS disposal group. See Note P: Divestitures in the Notes for further information.
(5)Includes other segment G&A expenses, primarily payroll and benefits, outside services, facilities and insurance.
Second Quarter Comparison. G&A expenses increased $84 million, or 11%, primarily due to the absence of a $75 million and $17 million gain recognized in connection with the sale of assets from a product line in second quarter 2025 in our Space and Mission Systems and Communications and Spectrum Dominance segments, respectively, and an increase in company-funded R&D costs. Such impacts were partially offset by the absence of LHX NeXt implementation costs, as the LHX NeXt implementation phase was completed in fiscal 2025.
Year to Date Comparison. G&A expenses increased $9 million, or 1%, primarily due to an increase in company-funded R&D costs and a decrease in gains recognized in connection with the sale of assets from product line sales, including recognition a $39 million gain in our Missile Solutions segment in first quarter 2026 compared to recognition of gains of $75 million and $17 million in second quarter 2025 in our Space and Mission Systems and Communications and Spectrum Dominance segments, respectively. Such impacts were partially offset by the absence of LHX NeXt implementation costs, as the LHX NeXt implementation phase was completed in fiscal 2025, and the absence of the CAS disposal group expenses.
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Non-service FAS Pension Income and Other, Net
The following table presents the components of non-service FAS pension income and other, net:
| Second Quarter | Year to Date | ||||||||||||||||||||||
| (In millions) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
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Non-service FAS pension income(1)
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$ | 75 | $ | 73 | $ | 150 | $ | 163 | |||||||||||||||
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Net investment gains(2)
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73 | 6 | 77 | 4 | |||||||||||||||||||
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Other, net(3)
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37 | 26 | 31 | 22 | |||||||||||||||||||
| Non-service FAS pension income and other, net | $ | 185 | $ | 105 | $ | 258 | $ | 189 | |||||||||||||||
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(1)Includes the non-service cost components of net periodic benefit income under our defined benefit plans. See Note J: Retirement Benefits in the Notes for further information.
(2)Includes gains and losses, net of impairments, from equity interests and higher equity in net earnings of investees related to dual-use technology investments that accelerate our capabilities and improve go-to-market efforts. Gains and losses from investments that are operationally aligned with our business segments are included as a component of segment operating income, while investments that are not aligned with a business segment are presented within Corporate non-operating results. See Note A: Basis of Presentation and Note Q: Business Segment Information in the notes for further information.
(3)Primarily includes changes in the market value of our rabbi trust assets and royalty income.
Interest Expense, Net
Interest expense, net decreased $23 million and $37 million for second quarter and year to date, respectively, primarily due to lower total outstanding debt, which reflects reductions in both long-term debt and average outstanding notes under our CP Program during 2026. See Note I: Debt and Credit Arrangements in the Notes and the "Liquidity and Capital Resources" section below in this MD&A for further information.
Income Taxes
During interim periods, we estimate our global annual ETR and apply that rate to ordinary income in order to compute the income tax provision. Although most items will be considered part of the annual ETR, there are a number of items that are instead required to be recorded in the interim period in which they occur; such as certain changes in uncertain tax positions, the accrual of interest and penalties, changes in tax laws or rates, and other items as prescribed by GAAP. As a result, there may be quarterly fluctuations in our ETR and the results for the interim periods are not necessarily indicative of the results to be expected for the full year or future periods.
Second Quarter Comparison. Our ETR was 15.5% and 12.6% for second quarter 2026 and 2025, respectively. Second quarter 2026 and 2025 ETR both benefited from R&D credits, tax deductions for FDII and the favorable resolution of audit uncertainties. Second quarter 2026 ETR increased primarily due to larger second quarter 2025 favorable audit settlements, partially offset by unfavorable impacts from the CAS disposal group divestiture and establishment of a state valuation allowance on R&D credit carryforwards.
Year to Date Comparison. Our ETR was 14.4% and 14.1% for year to date 2026 and 2025, respectively. Year to date 2026 and 2025 ETR both benefited from favorable impacts of R&D credits, the favorable resolution of audit matters and tax deductions for FDII. Year to date 2026 ETR benefited from the favorable impact of excess tax benefits from share based-compensation, partially offset by unfavorable return-to-provision adjustments. Year to date 2025 ETR was unfavorably impacted by the CAS disposal group divestiture and a state legislative change that required us to establish a valuation allowance on R&D credit carryforwards.
Diluted EPS
Diluted EPS increased 28% and 31% for second quarter and year to date, respectively, primarily due to higher net income from the combined effects of reasons noted in the sections above, partially offset by the subsidiary preferred stock deemed dividend for the accretion on the Subsidiary Series A Preferred Stock.
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Business Segment Results of Operations
See Note Q: Business Segment Information in the Notes for a description of the sectors in each segment.
Space & Mission Systems Segment
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | % Inc/(Dec) | 2026 | 2025 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 2,966 | $ | 2,770 | 7 | % | $ | 5,956 | $ | 5,181 | 15 | % | |||||||||||||||||||||||
| Operating income | 290 | 289 | - | % | 603 | 527 | 14 | % | |||||||||||||||||||||||||||
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Operating margin
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9.8 | % | 10.4 | % | 10.1 | % | 10.2 | % | |||||||||||||||||||||||||||
| Ending contractual backlog | $ | 22,431 | $ | 16,282 | |||||||||||||||||||||||||||||||
Second Quarter Comparison. Space and Mission Systems revenue increased primarily due to higher revenues of $81 million in ISR from higher volumes on missionized aircraft programs, $76 million in Space Systems from higher volumes on classified space programs, $40 million in Mission Networks from higher FAA volume, and $34 million in Airborne Solutions from higher F-35 volumes, partially offset by lower revenue in Intel and Cyber from lower classified program volume.
Space and Mission Systems operating income remained consistent primarily due to $34 million of net favorable EAC adjustments related to improved program performance, which includes a net increase of $30 million in unfavorable EAC adjustments on two programs, a $23 million net gain on investments in technologies operationally aligned with the business segment recognized in second quarter 2026 and higher volume, mostly offset by the absence of a $75 million gain recognized in connection with the sale of assets from a product line in second quarter 2025, which also impacted operating margin.
Year to Date Comparison. Space and Mission Systems revenue increased primarily due to higher revenues of $501 million in ISR associated with a milestone related to material procurement in support of classified contracts and higher volumes on missionized aircraft programs, $141 million in Space Systems from higher volumes on Space Development Agency ("SDA") Tracking Tranche 3 and classified space programs, $99 million in Mission Networks from higher FAA volume, $56 million in Maritime from higher volume on international programs associated with program timing and $51 million in Airborne Solutions from higher F-35 volumes. Such increases were partially offset by lower revenue of $38 million in Intel and Cyber from lower classified program volume.
Space and Mission Systems operating income increased primarily due to $101 million of net improved program performance, higher volume and a $23 million net gain on investments in technologies operationally aligned with the business segment recognized in second quarter 2026, partially offset by a shift in mix reflecting higher volume in lower margin programs associated with program timing and the absence of a $75 million gain recognized in connection with the sale of assets from a product line sale, in second quarter 2025, which also impacted operating margin.
Communications & Spectrum Dominance Segment
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | % Inc/(Dec) | 2026 | 2025 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 1,943 | $ | 1,861 | 4 | % | $ | 3,798 | $ | 3,670 | 3 | % | |||||||||||||||||||||||
| Operating income | 522 | 458 | 14 | % | 987 | 901 | 10 | % | |||||||||||||||||||||||||||
| Operating margin | 26.9 | % | 24.6 | % | 26.0 | % | 24.6 | % | |||||||||||||||||||||||||||
| Ending contractual backlog | $ | 9,031 | $ | 9,437 | |||||||||||||||||||||||||||||||
Second Quarter Comparison. Communications and Spectrum Dominance revenue increased primarily due to higher revenue of $70 million in Mission Critical Communications associated with increased international deliveries for our software-defined resilient communications equipment and higher revenue in Spectrum Superiority from program ramps, partially offset by lower revenue in Targeting and Sensor Systems from lower volumes.
Communications and Spectrum Dominance operating income increased primarily due to higher international volume and a $16 million gain on investments in technologies operationally aligned with the business segment recognized in second quarter 2026, partially offset by a $27 million increase in R&D and selling and marketing expenses, and the absence of a $17 million gain recognized in connection with the sale of assets from a product line in second quarter 2025.
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Year to Date Comparison. Communications and Spectrum Dominance revenue increased primarily due to higher revenues of $88 million in Mission Critical Communications associated with increased international deliveries for our software-defined resilient communications equipment, $38 million in Spectrum Superiority from program ramps and $22 million in Integrated Vision Solutions from higher volumes, partially offset by lower revenue of $19 million in Targeting and Sensor Systems from lower volumes.
Communications and Spectrum Dominance operating income increased primarily due to higher international volume, higher margin product mix and a $16 million gain on investments in technologies operationally aligned with the business segment recognized in second quarter 2026, partially offset by a $54 million increase in R&D and selling and marketing expenses, and the absence of gains recognized in connection with the sale of assets from product lines in year to date 2025.
Missile Solutions Segment
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | % Inc/(Dec) | 2026 | 2025 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 1,054 | $ | 925 | 14 | % | $ | 2,044 | $ | 1,765 | 16 | % | |||||||||||||||||||||||
| Operating income | 130 | 116 | 12 | % | 254 | 212 | 20 | % | |||||||||||||||||||||||||||
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Operating margin
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12.3 | % | 12.5 | % | 12.4 | % | 12.0 | % | |||||||||||||||||||||||||||
| Ending contractual backlog | $ | 10,531 | $ | 9,661 | |||||||||||||||||||||||||||||||
Second Quarter Comparison. Missile Solutions revenue increased primarily due to higher revenue of $85 million in Propulsion Systems as growth from increased production and development volumes on key missile and munitions programs was partially offset by lower growth in our space propulsion business. Revenue also increased by $44 million in Advanced Effects from higher volumes and program ramps.
Missile Solutions operating income increased primarily due to higher volume.
Year to Date Comparison. Missile Solutions revenue increased primarily due to higher revenue of $210 million in Propulsion Systems as growth from increased production and development volumes on key missile and munitions programs was partially offset by lower growth in our space propulsion business. Revenue also increased by $65 million in Advanced Effects from higher volumes and program ramps.
Missile Solutions operating income increased primarily due to higher volume and higher margin. Operating income was also impacted by a gain of $39 million recognized in connection with the sale of assets from a product line sale in first quarter 2026, partially offset by a $31 million unfavorable EAC adjustment on a legacy domestic naval sensor program in first quarter 2026.
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Unallocated Corporate Items and Other, Net
| Second Quarter | Year to Date | ||||||||||||||||||||||
| (In millions) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
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Amortization of acquisition-related intangibles(1)
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$ | (177) | $ | (193) | $ | (350) | $ | (387) | |||||||||||||||
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LHX NeXt implementation costs(2)
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- | (39) | - | (74) | |||||||||||||||||||
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Business divestiture-related losses(3)
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- | - | (10) | (17) | |||||||||||||||||||
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Acquisition, divestiture and transaction-related expenses(4)
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(10) | (13) | (40) | (30) | |||||||||||||||||||
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Segment investment income(5)
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(39) | - | (39) | - | |||||||||||||||||||
| Change in fair value of deferred compensation plan liabilities | (43) | (29) | (38) | (23) | |||||||||||||||||||
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Other items(6)
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(19) | (18) | (61) | (13) | |||||||||||||||||||
| Unallocated corporate items and other, net | $ | (288) | $ | (292) | $ | (538) | $ | (544) | |||||||||||||||
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(1)Includes amortization of intangible assets acquired in connection with business combinations. Because our acquisitions benefit the entire Company, the amortization was not allocated to any segment.
(2)Includes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness. For further information on our LHX NeXt initiative and implementation costs see the "General and Administrative Expenses" discussion above in this MD&A. The implementation phase of LHX NeXt was completed in fiscal 2025.
(3)Includes losses associated with the Space Technology disposal group and the CAS disposal group in 2026 and 2025, respectively. See Note P: Divestitures in the Notes for further information.
(4)Includes costs related to pursuing acquisition and divestiture portfolio optimization; non-transaction costs related to divestitures; costs related to the carve-out and planned AXYV public offering; salaries of employees in roles dedicated to planned strategic transaction activity; and resolution of a procurement contract matter.
(5)Includes gains and losses, net of impairments, on dual-use technology investments that accelerate our capabilities, improve go-to-market efforts and are operationally aligned with our business segments. See Note Q: Business Segment Information in the Notes for further information.
(6)Includes a portion of management and administration, legal, environmental, compensation, retiree benefits, the FAS/CAS operating adjustment, corporate eliminations and other. Year to date 2025 also includes the divested CAS disposal group. See Note P: Divestitures in the Notes for further information.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
As of July 3, 2026, we had cash and cash equivalents of $1,521 million, of which $349 million was held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost.
CP Program. As of July 3, 2026, we had no outstanding notes under our CP Program. Our CP Program serves as a source of short-term financing under which we may issue unsecured commercial paper notes supported by amounts available under our $2.5 billion 2025 Five-Year Credit Facility, discussed below. From time to time, we use borrowings under the CP Program for general corporate purposes, including funding acquisitions, repaying debt, paying dividends, and repurchasing our common stock. See the "Financing Activities" discussion below in this MD&A for further information about our CP Program.
Credit Facilities. As of July 3, 2026, we had no outstanding borrowings under our 2025 Five-Year Credit Facility, had available borrowing capacity of $2.5 billion, net of outstanding notes under our CP Program, and were in compliance with all covenants. Our previous $500 million 2025 364-Day Credit Facility matured on February 17, 2026 and our CP Program capacity was reduced accordingly.
See Note I: Debt and Credit Arrangements in the Notes for further information regarding our credit facilities.
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Cash Flows
The following table provides a summary of our cash flow information:
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Year to Date
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| (In millions) | 2026 | 2025 | |||||||||
| Cash and cash equivalents, beginning of period | $ | 1,069 | $ | 615 | |||||||
| Operating Activities: | |||||||||||
| Net income | 1,112 | 844 | |||||||||
| Non-cash adjustments | 692 | 540 | |||||||||
| Changes in working capital | (581) | (716) | |||||||||
| Other, net | (439) | (70) | |||||||||
| Net cash provided by operating activities | 784 | 598 | |||||||||
| Net cash (used in) provided by investing activities | (211) | 666 | |||||||||
| Net cash used in financing activities | (117) | (1,415) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (4) | 18 | |||||||||
| Net increase (decrease) in cash and cash equivalents | 452 | (133) | |||||||||
| Cash and cash equivalents, end of period | $ | 1,521 | $ | 482 | |||||||
Operating Activities. The $186 million increase in net cash provided by operating activities for year to date 2026 compared to year to date 2025 was primarily due to an increase in net income and $135 million less cash used to fund working capital, largely driven by timing of billing and collection activity, partially offset by timing of tax planning strategies.
Investing Activities. The $877 million change in net cash used in investing activities for year to date 2026 compared with net cash provided by investing activities for year to date 2025 was primarily due to a $831 million decrease in proceeds from sale of businesses, net of cash divested, reflecting the March 2025 CAS disposal group divestiture, and a $60 million increase in capital expenditures.
Financing Activities. The $1,298 million decrease in net cash used in financing activities for year to date 2026 compared year to date 2025 was primarily due to $973 million of net proceeds from issuance of Subsidiary Series A Preferred Stock in connection with the DoW strategic investment transaction, $499 million decrease in repayments of long-term debt, and $297 million decrease in cash used to repurchase common stock, partially offset by a $470 million decrease in net issuances of commercial paper. Our primary financing activities are further discussed below.
Common Stock Repurchases. On October 21, 2022, we announced that our Board approved a $3.0 billion share repurchase authorization under our repurchase program. Our previous $6.0 billion share repurchase authorization was fully utilized in first quarter 2025.
During year to date 2026, we used $525 million of cash to repurchase 1.5 million shares of our common stock under our share repurchase program. As of July 3, 2026, we had $1.7 billion of remaining unused authorizations under our repurchase program. During year to date 2025, we used $822 million of cash to repurchase 3.9 million shares of our common stock under our share repurchase program.
See "Liquidity and Capital Resources" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Form 10-K and Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of this Report for further information regarding common stock repurchases.
Long-term debt. During year to date 2026, we repaid the entire outstanding $100 million 7.00% 2026 Debentures with cash on hand. During year to date 2025, we repaid the entire outstanding $600 million aggregate principal amount of our 3.832% notes, due April 27, 2025.
As of July 3, 2026, we had $11.0 billion of outstanding total long-term debt, which includes the current portion of long-term debt of $1,815 million. The current portion primarily consists of the $550 million 3.85% 2026 Notes and $1,250 million 5.40% 2027 Notes.
CP Program. During year to date 2026, our CP Program had a maximum outstanding balance of $880 million and a daily average outstanding balance of $412 million. During year to date 2025, our CP Program had a maximum outstanding balance of $1.8 billion and daily average outstanding balance of $1.3 billion.
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Dividends. On January 23, 2026, we announced that our Board increased the quarterly per share cash dividend rate on our common stock to $1.25 from $1.20, the 25th consecutive annual dividend increase. During year to date 2026 and 2025, we paid $470 million and $453 million in dividends, respectively. See Part II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in our Fiscal 2025 Form 10-K for further information regarding our dividends.
Cash Requirements
Except for the level of indebtedness under our CP Program, there were no material changes to our cash requirements or commercial commitments as disclosed in our Fiscal 2025 Form 10-K. Further information about our credit facilities and CP Program can be found in "Capital Resources" in this MD&A and Note I: Debt and Credit Arrangements in the Notes.
Defined Benefit Plan Contributions. As of July 3, 2026, we had net defined benefit plan assets of $1.3 billion, the majority of which pertain to our U.S. qualified defined benefit pension plans. We intend to contribute annually no less than the required minimum funding thresholds to these pension plans and do not expect to make material contributions in fiscal 2026. Future required contributions will depend primarily on the actual return on plan assets and the discount rate used to measure the benefit obligation at the end of each year.
We expect to continue evaluating opportunities to strategically manage our pension obligations, including the potential for additional pension de-risking transactions in the future, subject to market conditions and plan funding levels. These actions align with our long-term strategy to reduce exposure to pension volatility while maintaining financial flexibility.
See Note 9: Retirement Benefits in our Fiscal 2025 Form 10-K and Note J: Retirement Benefits in the Notes for further information regarding our defined benefit plans.
Liquidity Assessment
Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity for the next 12 months and in the longer term. Although we can give no assurances concerning our future liquidity, particularly in light of our overall level of debt, U.S. Government budget uncertainties, and the state of global commerce and general political and global financial uncertainty. See the "U.S. and International Budget Environment" discussion above in this MD&A and Part I. Item 1A. Risk Factors in our Fiscal 2025 Form 10-K for more information on budget uncertainties.
Based on our current business plan and revenue prospects, we believe that our existing cash, funds generated from operations, availability under our senior unsecured credit facility and our CP Program, and access to the public and private debt and equity markets will be sufficient to provide for our anticipated working capital requirements, capital expenditures, dividend payments, repurchases under our share repurchase program, and repayments of our debt securities at maturity for the next 12 months and the reasonably foreseeable future thereafter. Our capital expenditures for fiscal 2026 are expected to be approximately $600 million. See "Cash Requirements" in this MD&A and "Capital Resources", "Cash Requirements" and "Commercial Commitments" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Form 10-K, for further information regarding our cash requirements.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to the critical accounting estimates disclosed in "Critical Accounting Estimates" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Form 10-K, except for, as set forth below.
Goodwill
We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment or when we reorganize our reporting structure such that the composition of one or more of our reporting units is affected.
Fiscal 2026 Impairment Tests. Information on interim impairment tests can be found in "Critical Accounting Estimates - Fiscal 2026 Impairment Tests" in Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-Q for first quarter 2026, which is incorporated herein by reference. These assessments indicated no impairment existed either before or after the realignments.
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Impact of Recently Issued Accounting Pronouncements
There have been no new accounting pronouncements that became effective during second quarter 2026 that have had a material impact on our Condensed Consolidated Financial Statements.
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