On April 17, 2026, through our wholly owned subsidiary, Aerojet Rocketdyne Holdings, Inc. ("AR"), which operates as our Missile Solutions segment, we entered into a definitive agreement (the “DoW Investment Agreement”) with the United States Department of War (the “Investor”). The DoW Investment Agreement provides for the issuance and sale of 10,000 shares of Redeemable AR Series A Convertible Preferred Stock (the “Subsidiary Series A Preferred Stock”) at a par value of $0.0001 per share and stated value of $100,000 per share, as well as pre-IPO and post-IPO warrants (collectively referred to herein as the “Subsidiary Warrants”), for an aggregate purchase price of $1 billion, which is the initial face value of the Subsidiary Series A Preferred Stock.

The Subsidiary Series A Preferred Stock payout options include either one of the following: (i) a liquidation preference equal to face value of the preferred shares plus 7% cumulative annual dividends, compounded quarterly (the “Liquidation Preference”); (ii) an automatic conversion to AXYV Inc., our newly formed wholly owned subsidiary (“AXYV”), common stock upon a Qualified Initial Public Offering of AR on or before December 31, 2027 (as defined in the DoW Investment Agreement; herein “QIPO”); or (iii) a redemption feature at fair value of the Missile Solutions segment on April 17, 2031 if a QIPO does not occur. Under the DoW Investment Agreement, we are expected to use commercially reasonable efforts to consummate a QIPO, assuming certain contractual milestones are met. The options are mutually exclusive and are dependent on achieving those milestones.

The purpose of the investment is to strengthen the U.S. defense industrial base by providing funding for the Missile Solutions segment to expand and modernize its facilities, accelerate research and development, and increase production capacity for critical technologies. The fair value of the investment exceeds the proceeds as it simultaneously provides financing, the opportunity to substantially expand an existing commercial relationship, and the benefit of an anchor investor whose participation tangibly demonstrates the Missile Solutions segment’s strong long-term business prospects.

The DoW Investment Agreement contains customary representations, warranties, and covenants by us and the Investor. Under the terms of the DoW Investment Agreement, AR or the Investor may redeem the Subsidiary Series A Preferred Stock and Subsidiary Warrants held by the Investor under certain conditions.

Net proceeds of $973 million are to be used, under the terms of the DoW Investment Agreement, to fund development and construction activities on expanding our missile manufacturing capacity and capabilities within our Missile Solutions segment. We intend to use the remaining net proceeds, if any, for general corporate purposes. The net proceeds are presented as “Proceeds from issuance of subsidiary Series A preferred stock, net” line item in our Condensed Consolidated Statement of Cash Flows as Net cash used in financing activities.

Because redemption of the Subsidiary Series A Preferred Stock is not solely within our control due to the redemption features described above, the Subsidiary Series A Preferred Stock is classified as mezzanine equity and included in the "Redeemable subsidiary Series A convertible preferred stock" line item in our Condensed Consolidated Balance Sheet.

Conversion Upon QIPO. Upon completion of a QIPO, the Subsidiary Series A Preferred Stock will convert into common stock of AXYV (the “AXYV Common Stock”) at a 20% discount (the “Conversion Price”) to the public offering price in the QIPO (the “QIPO Price”). The conversion terms are designed to provide the holder with a fixed return settled in a variable number of AXYV Common Stock. At QIPO, depending on valuation, we expect the investor to own approximately 10% of the outstanding shares.

Non-IPO Redemption. If a QIPO does not occur on or before December 31, 2027, the redemption price calculation methodology varies depending on whether specified milestones have been achieved by such date. If such milestones are not achieved by December 31, 2027, the redemption price would be calculated using an alternative methodology that applies a contractual premium of 110% to the Liquidation Preference. If the milestones are achieved by December 31, 2027, the redemption price would be calculated on or after April 16, 2031, and would equal the greater of (i) the Liquidation Preference or (ii) the fair market value on a proforma ownership percentage basis. If there is a sale of AXYV before a QIPO, the Investor is entitled to receive cash equal to the greater of the Liquidation Preference or the if-converted value based on the Conversion Price described above.

Conversion and Redemption Feature Embedded Derivatives. Certain of the conversion and redemption features represent embedded derivatives. These features of the Subsidiary Series A Preferred Stock were bifurcated from the host instrument and recorded as a derivative liability, which is included in the "Subsidiary Series A preferred stock conversion feature" line item in the Condensed Consolidated Balance Sheet at its fair value. The derivative liability is measured at fair value each reporting period, with changes recognized in earnings as a component of the "Non-service FAS pension income and other, net" line item in our Condensed Consolidated Statement of Operations.

The Subsidiary Warrants entitle the Investor to purchase shares representing 3% of the AXYV Common Stock, on a fully diluted basis, and consist of pre-IPO warrants exercisable at 100%, 110%, and 120% of the non-IPO common stock price, and post-IPO warrants exercisable at 100%, 110%, and 120% of the QIPO Price, which take effect upon a QIPO. The pre-IPO warrants become exercisable only upon (i) the occurrence of certain events outlined in the DoW Investment Agreement and (ii) the passage of time (i.e., on or after December 31, 2027), but only if certain operational conditions are met that are outside the control of the Company and the Investor. Upon a QIPO, the pre-IPO warrants automatically convert to post-IPO warrants.

The pre-IPO warrants are accounted for as derivative liabilities, included in the "Subsidiary warrants" line item in the Condensed Consolidated Balance Sheet, initially measured at fair value with subsequent changes recognized in earnings as a component of the "Non-service FAS pension income and other, net" line item in our Condensed Consolidated Statement of Operations.

Immediately prior to the QIPO, the pre-IPO warrants will convert into post‑IPO warrants of AXYV. The number of shares underlying the post-IPO warrants will be calculated as a specified percentage of the fully diluted common stock of AXYV immediately prior to the QIPO, after giving effect to the conversion of the Subsidiary Series A Preferred Stock.

The conversion and redemption feature embedded derivatives and warrants are measured at fair value using valuation models containing expected QIPO timing and probability, projected valuation of AXYV, equity volatility, and probability-weighted scenario outcomes. The significant unobservable quantitative input used for the fair value measurement of the warrants is equity volatility, which was 30% as of July 3, 2026. These liabilities are classified within Level 3 of the fair value hierarchy. See Note H: Fair Value Measurements in these Notes for further information on fair value methodology.

Upon initial recognition, the fair value of the Subsidiary Series A Preferred Stock was assigned first to the conversion feature embedded derivative based on the fair value at issuance and the residual amount was recorded as the initial fair value of the Subsidiary Series A Preferred Stock. The Subsidiary Warrants were separately recognized at their fair value. No fair value gains or losses associated with these instruments were recognized during second quarter or year to date 2026.

Fair values recognized upon initial issuance in our Condensed Consolidated Balance Sheet are summarized below:


(In millions)	April 17, 2026

Subsidiary Series A preferred stock conversion feature	$	130
Subsidiary warrants	186

Redeemable subsidiary Series A convertible preferred stock	1,070

Program Investment Asset. We recognized a program investment intangible asset of $386 million, which represents the fair value in excess of cash proceeds from our issuance of preferred stock, embedded derivative instruments, and warrants related to the DoW strategic investment. This asset will be amortized as a reduction to revenue on a straight-line basis over its estimated useful life of 20 years, commencing upon achievement of a milestone. The asset is included in the “Intangible assets, net” line item in the Condensed Consolidated Balance Sheet and is recognized as a non-cash financing activity and excluded from our Condensed Consolidated Statement of Cash Flows for year to date 2026. See Note F: Goodwill and Intangible Assets in these Notes for further information.

Upon recognition of this asset, we recorded a deferred tax liability of $89 million, which is netted against the Subsidiary Series A Preferred Stock, and is included in the “Deferred income taxes” line item in the Condensed Consolidated Balance Sheet.

Transaction Costs. We incurred transaction costs of $27 million in connection with the issuance of the Subsidiary Series A Preferred Stock and related derivative instruments. These costs were recognized as a reduction to the initial carrying value of the Subsidiary Series A Preferred Stock, reflected in the “Redeemable subsidiary Series A convertible preferred stock” line item in the Condensed Consolidated Balance Sheet.

Subsidiary Preferred Stock Deemed Dividend. The Subsidiary Series A Preferred Stock has multiple redemption factors, as described above. As of July 3, 2026, we evaluated if the Subsidiary Series A Preferred Stock was currently redeemable or probable of becoming redeemable. While the Subsidiary Series A Preferred Stock is not currently redeemable, it is probable of becoming redeemable based on passage of time and certain milestones that are not currently achieved. Accordingly, we will recognize accretion to the current highest redemption value of $1,422 million through a subsidiary preferred stock deemed dividend. The highest redemption value will be reevaluated each quarter and the accretion will be recognized ratably over time through April 16, 2031.

The Redeemable subsidiary Series A convertible preferred stock recognized in our Condensed Consolidated Balance Sheet after consideration of the aforementioned items is summarized below:


(In millions)

Balance as of April 17, 2026	$	1,070
Deferred tax liability	(89)
Transaction costs	(27)
Subsidiary preferred stock deemed dividend	14
Balance as of July 3, 2026	$	968