Honeywell Aerospace Inc.

    HONA ·NASDAQ ·Aircraft Engines & Engine Parts ·Inc. in DE
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    data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .

    From 10-Q filed 2026-08-05 (period ending 2026-06-27).



    ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    (Dollars in tables and graphs in millions)
    The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of Honeywell Aerospace Inc. (“Honeywell Aerospace”, “we”, “us”, or “our”) for the three and six months ended June 27, 2026. The financial information as of June 27, 2026, should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the final Information Statement dated as of June 15, 2026 (the “Information Statement”), which was furnished as Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on June 15, 2026.
    OVERVIEW
    Business Overview
    We are a leading global tier-1 aerospace and defense supplier of mission critical systems and technologies that enable the production, maintenance, and safe operation of aerospace and defense platforms. Our systems and technologies support original equipment manufacturer (“OEM”), government, defense prime contractors, and aircraft operator customers across the Commercial Air Transport, Business Aviation, and Defense and Space end markets. Our comprehensive portfolio of market leading systems and technologies are organized into the following segments: Electronic Solutions (“ES”), Engines & Power Systems (“E&PS”), and Control Systems (“CS”).
    Spin-off from Honeywell
    On February 6, 2025, Honeywell announced its intention to separate its Aerospace Business into a standalone publicly traded company through a pro-rata distribution of all of the outstanding common shares of Honeywell Aerospace Inc. to Honeywell shareholders. On June 29, 2026 (the “Distribution Date”), Honeywell completed the spin-off of the Aerospace Business (the “Spin-off”). The Spin-off is intended to be a tax-free pro-rata distribution (the “Distribution”) of all of our outstanding common shares to holders of record of Honeywell's common shares as of the close of business on June 15, 2026 (the “Record Date”), at which time each holder of Honeywell's common shares received one Aerospace common share for every two Honeywell common shares held as of the close of business on the Record Date, resulting in the Distribution of 316,939,750 of our common shares. Upon completion of the Distribution, we became an independent public company. Our common stock is listed under the symbol “HONA” on The Nasdaq Stock Market LLC (“Nasdaq”). Following the Distribution, Honeywell did not beneficially own any Aerospace common shares and will no longer consolidate Aerospace with Honeywell’s financial results. Refer to Note 9. Debt and Credit Agreements and Note 17. Subsequent Events of the Notes to the Condensed Combined Financial Statements for additional information on the Spin-off and related transactions.
    Relationship with Honeywell
    The Condensed Combined Financial Statements included herein are derived from Honeywell’s historical accounting records and presented on a standalone basis as if Honeywell Aerospace’s operations had been conducted independently from Honeywell in accordance with GAAP. The Condensed Combined Financial Statements include certain assets and liabilities that have historically been held at the Honeywell corporate level but are specifically identifiable or otherwise attributable to us. Honeywell provides certain services, such as legal, accounting, information technology, human resources, and other infrastructure support, on behalf of Honeywell Aerospace. Honeywell Aerospace and Honeywell consider allocations of these costs to be a reasonable reflection of the benefits we received. However, the financial information presented in the Condensed Combined Financial Statements may not reflect our combined financial position, operating results, and cash flows had we been a separate standalone entity during the periods presented. Actual costs that would have been incurred if Honeywell Aerospace had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including
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    information technology and infrastructure. We consider the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefits received by Aerospace during the periods presented.
    In connection with the Spin-off, we entered into the Separation and Distribution Agreement and certain other agreements with Honeywell, including a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property license agreement, and a trademark license agreement. Refer to Note 17. Subsequent Events of the Notes to the Condensed Combined Financial Statements for additional information. We will utilize Honeywell’s services for a transitional period following the Spin-off before we replace these services over time with services supplied either internally or by third parties. The expenses for the services may vary from the historical costs directly billed and allocated to us for the same services.
    We have incurred and expect to incur certain costs in connection with our establishment as a standalone public company (the “transaction costs”). The transaction costs include non-recurring expenses associated with the Spin-off and stand up of functions required to operate as a standalone public entity. These non-recurring costs primarily relate to system implementation costs, business and facilities separation, applicable employee-related costs, evolution of our brand, and other matters. The transaction costs are expected to continue through at least fiscal year 2027. Additionally, we will incur increased costs as a result of becoming an independent, publicly traded company, primarily from establishing or expanding the corporate support for our businesses, including IT, human resources, treasury, tax, internal audit, risk management, stock-based compensation programs, accounting and financial reporting, investor relations, governance, legal, procurement, and other services. See “Unaudited Pro Forma Combined Financial Information” in the Information Statement.
    Macroeconomic Conditions
    We continue to monitor elevated macroeconomic and geopolitical developments, including armed conflict in the Middle East and its effects on global energy markets and maritime shipping, evolving U.S. trade policy and tariff authorities, inflationary pressures, and financial market uncertainty. Moderated global growth projections and tariffs imposed during 2025 and 2026, together with evolving U.S. trade policy and international negotiations, contributed to increased volatility across global supply chains. Elevated energy prices, tariff-related cost impacts, and continued market uncertainty may contribute to supply chain disruptions, cost inflation, and pricing volatility. We continue to work proactively with our suppliers and customers to mitigate shortages, maintain supply continuity, and manage cost impacts.
    Mitigation strategies remain important to meeting customer demand in this evolving environment and include supply chain simplification, regional sourcing, strategic dual-source development, long-term capacity planning for constrained materials, enhanced digital visibility across the supply base, direct engagement with critical suppliers, supplier development, and disciplined pricing and inventory management. Strong relationships with strategic suppliers enable collaborative capacity planning, support product launches, improve supply continuity, and, where appropriate, facilitate design or sourcing changes that enhance resiliency. We believe these actions reduce supply risk, support customer commitments, and strengthen operational resilience. Due to our rigorous product qualification and quality processes, we do not believe these mitigation actions have adversely affected product quality or reliability.
    To date, these actions have helped reduce our exposure to these conditions. However, their continued effectiveness depends on successful execution, supplier performance, the availability of critical materials, and the broader macroeconomic environment. If these conditions worsen or our mitigation efforts prove insufficient, our results of operations, cash flows, or financial condition could be materially adversely affected.
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    RESULTS OF OPERATIONS
    27


    Net Sales by Segment
    28


    Total Segment Profit/Segment Adjusted EBIT by Segment
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    COMBINED OPERATING RESULTS
    Net Sales
    The following table sets forth the factors contributing to year-over-year changes in our Net sales for the three and six months ended June 27, 2026:
    Change in net sales from prior period
    Q2 2026 vs. Q2 2025YTD Q2 2026 vs. YTD Q2 2025
    Organic(1)
    %%
    Foreign currency translation— %— %
    Acquisitions
    — %— %
    Other— %— %
    Total % change in Net sales
    5 %6 %
    __________________
    (1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for the definition of Organic sales growth.
    A discussion of Net sales by reportable segment can be found under the “Segment Results” section within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    Net sales increased $233 million due to higher Commercial Aftermarket organic sales of $86 million and $53 million within CS and ES, respectively. Additionally, Net sales increased due to higher organic sales of $65 million within ES relating to Defense and Space.
    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    Net sales increased $511 million due to higher organic sales of $174 million in Defense and Space within ES, $157 million in Commercial Aftermarket within E&PS, and $108 million in Commercial Original Equipment within ES.
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    Cost of Products and Services Sold
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    Cost of products and services sold increased $216 million primarily due to $164 million of higher direct and indirect material costs and an approximately $50 million increase in inventory obsolescence charges. Gross margin percentage decreased by 1%.
    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    Cost of products and services sold increased $387 million primarily due to $305 million of higher direct and indirect material costs and an approximately $70 million increase in inventory obsolescence charges. Gross margin percentage decreased by 1%.
    Research and Development Expenses
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    Research and development expenses increased $16 million compared to the three months ended June 28, 2025, but remained flat at 4% as a percentage of Net sales.
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    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    Research and development expenses increased $36 million compared to the six months ended June 28, 2025, but remained relatively flat at 4% as a percentage of Net sales.
    A summary of our research and development costs for the three and six months ended June 27, 2026 and June 28, 2025 is as follows:
    Three Months Ended Six Months Ended
    June 27, 2026June 28, 2025June 27, 2026June 28, 2025
    Company funded research and development expenses
    $183 $167 $370 $334 
    Customer-sponsored research and development(1)
    329 274 625 536 
    Total research and development costs $512 $441 $995 $870 
    __________________
    (1)Includes expenditures on customer programs with significant engineering performance obligations, included in Cost of products and services sold in the Condensed Combined Statements of Operations, and capitalized expenditures on deferred customer funded nonrecurring engineering and development activities, included in Other assets in the Condensed Combined Balance Sheets.
    Selling, General and Administrative Expenses
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    Selling, general and administrative expenses increased $339 million due to $253 million of incremental transaction costs incurred in the period related to the Spin-off and $68 million of higher labor costs.
    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    Selling, general and administrative expenses increased $538 million due to $411 million of incremental transaction costs incurred in the period related to the Spin-off and $86 million of higher labor costs.
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    Other Expense, Net
    Other expense, net primarily includes the following:
    Three Months Ended Six Months Ended
    June 27, 2026June 28, 2025June 27, 2026June 28, 2025
    Environmental expenses$18 $22 $37 $93 
    Transaction costs74 15 109 15 
    Equity income of affiliated companies(6)(6)(12)(11)
    Other expense (income), net12 (17)14 (25)
    Total Other expense, net $98 $14 $148 $72 
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    Other expense, net increased by $84 million for the three months ended June 27, 2026, due primarily to higher transaction costs of $59 million related to the Spin-off.
    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    Other expense, net increased by $76 million for the six months ended June 27, 2026, driven by higher transaction costs of $94 million related to the Spin-off, partially offset by lower environmental expenses of $56 million. Refer to Note 15. Commitments and Contingencies of the Notes to Condensed Combined Financial Statements for a discussion of the environmental matters.
    Interest and Other Financial Charges
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    Interest and other financial charges increased $200 million related to the $16.0 billion of senior unsecured notes issued in connection with the Spin-off. Refer to Note 9. Debt and Credit Agreements of the Notes to the Condensed Combined Financial Statements for further information.
    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    Interest and other financial charges increased $229 million related to the $16.0 billion of senior unsecured notes issued in connection with the Spin-off.
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    Income Tax Expense
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    The effective tax rate for the three months ended June 27, 2026, increased 1,750 basis points compared to the effective tax rate for the three months ended June 28, 2025, primarily due to nondeductible transaction costs and frictional tax costs in advance of the Spin-off (2,040 basis points), partially offset by favorable changes in the jurisdictional mix of earnings (290 basis points).

    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    The effective tax rate for the six months ended June 27, 2026, increased 850 basis points compared to the effective tax rate for the six months ended June 28, 2025, primarily due to nondeductible transaction costs and frictional tax costs in advance of the Spin-off (790 basis points) and incremental tax expense associated with reserves for ongoing examinations (290 basis points), partially offset by favorable changes in the jurisdictional mix of earnings (230 basis points).
    SEGMENT RESULTS
    We manage and report our operating results through three reportable segments: Electronic Solutions, Engines & Power Systems, and Control Systems. The remainder of our operations are presented in Corporate and All Other, which is not a reportable business segment.
    Electronic Solutions
    The following table sets forth the operating results for our ES segment for the three and six months ended June 27, 2026 and June 28, 2025:
    Three Months Ended Six Months Ended
    June 27, 2026June 28, 2025June 27, 2026June 28, 2025
    Net sales$1,774 $1,645 $3,515 $3,195 
    Segment profit/Segment adjusted EBIT(1)
    459 475 969 885 
    Segment profit margin/Segment adjusted EBIT margin(1)
    26 %29 %28 %28 %
    __________________
    (1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for the definition of Segment adjusted EBIT and Segment adjusted EBIT margin.
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    The following table sets forth the factors contributing to year-over-year changes in our ES segment’s Net sales for the three and six months ended June 27, 2026:
    Q2 2026 vs. Q2 2025YTD Q2 2026 vs. YTD Q2 2025
    Organic(1)
    %10 %
    Foreign currency translation
    — %— %
    Acquisitions
    — %— %
    Other
    — %— %
    Total % change in Net sales 8 %10 %
    __________________
    (1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for the definition of Organic sales growth.
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    ES Net sales increased $129 million due to higher organic sales of $65 million in Defense and Space and $53 million in Commercial Aftermarket.
    Segment Profit and Segment adjusted EBIT decreased by $16 million or 3% and Segment profit margin and Segment adjusted EBIT margin decreased 3% for the three months ended June 27, 2026.
    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    ES Net sales increased $320 million due to higher organic sales of $174 million in Defense and Space and $108 million in Commercial Original Equipment.
    Segment Profit and Segment adjusted EBIT increased by $84 million or 9% and Segment profit margin and Segment adjusted EBIT margin remained flat for the six months ended June 27, 2026.
    Engines & Power Systems
    The following table sets forth the operating results for our E&PS segment for the three and six months ended June 27, 2026 and June 28, 2025:
    Three Months Ended Six Months Ended
    June 27, 2026June 28, 2025June 27, 2026June 28, 2025
    Net sales
    $1,406 $1,390 $2,826 $2,664 
    Segment profit/Segment adjusted EBIT(1)
    174 256 455 449 
    Segment profit margin/Segment adjusted EBIT margin(1)
    12 %18 %16 %17 %
    __________________
    (1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for the definition of Segment adjusted EBIT and Segment adjusted EBIT margin.
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    The following table sets forth the factors contributing to year-over-year changes in our E&PS segment’s Net sales for the three and six months ended June 27, 2026:
    Q2 2026 vs. Q2 2025YTD Q2 2026 vs. YTD Q2 2025
    Organic(1)
    %%
    Foreign currency translation— %— %
    Acquisitions
    — %— %
    Other— %— %
    Total % change in Net sales
    1 %6 %
    __________________
    (1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for the definition of Organic sales growth.
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    E&PS Net sales increased $16 million primarily due to higher organic sales of $30 million in Commercial Original Equipment, partially offset by lower organic sales of $20 million in Defense and Space.
    Segment profit and Segment adjusted EBIT decreased by $82 million or 32% and Segment profit margin and Segment adjusted EBIT margin decreased 6% for the three months ended June 27, 2026.
    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    E&PS Net sales increased $162 million primarily due to higher organic sales of $157 million in Commercial Aftermarket.
    Segment profit and Segment adjusted EBIT increased by $6 million or 1% and Segment profit margin and Segment adjusted EBIT margin decreased 1% for the six months ended June 27, 2026.
    Control Systems
    The following table sets forth the operating results for our CS segment for the three and six months ended June 27, 2026 and June 28, 2025:
    Three Months Ended Six Months Ended
    June 27, 2026June 28, 2025June 27, 2026June 28, 2025
    Net sales
    $1,342 $1,254 $2,533 $2,504 
    Segment Profit/Segment adjusted EBIT(1)
    389 361 716 808 
    Segment Profit margin/Segment adjusted EBIT margin(1)
    29 %29 %28 %32 %
    _________________
    (1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for the definition of Segment adjusted EBIT and Segment adjusted EBIT margin.
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    The following table sets forth the factors contributing to year-over-year changes in our CS segment’s Net sales for the three and six months ended June 27, 2026:
    Q2 2026 vs. Q2 2025YTD Q2 2026 vs. YTD Q2 2025
    Organic(1)
    %%
    Foreign currency translation— %— %
    Acquisitions
    — %— %
    Other— %— %
    Total % change in Net sales 7 %1 %
    __________________
    (1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for the definition of Organic sales growth.
    For the three months ended June 27, 2026 compared with the three months ended June 28, 2025
    CS Net sales increased $88 million due to higher organic sales of $86 million in Commercial Aftermarket.
    Segment profit and Segment adjusted EBIT increased by $28 million or 8% and Segment profit margin and Segment adjusted EBIT margin remained flat for the three months ended June 27, 2026.
    For the six months ended June 27, 2026 compared with the six months ended June 28, 2025
    CS Net sales increased $29 million due to higher organic sales of $65 million in Commercial Aftermarket and $15 million in Defense and Space. The increase was offset by lower organic sales of $60 million in Commercial Original Equipment.
    Segment profit and Segment adjusted EBIT decreased by $92 million or 11% and Segment profit margin and Segment adjusted EBIT margin decreased 4% for the six months ended June 27, 2026.
    Corporate and All Other
    Corporate and All Other primarily includes unallocated corporate costs and is not a separate reportable business segment. We monitor the activities in Corporate and All Other to determine the need for further reportable business segment disaggregation.
    NON-GAAP FINANCIAL MEASURES
    We use non-GAAP financial measures to supplement the financial measures prepared in accordance with GAAP. These include (1) Organic sales growth, (2) Total segment profit, (3) Adjusted EBIT, (4) Adjusted EBIT margin, (5) Segment adjusted EBIT, and (6) Segment adjusted EBIT margin.
    Below are definitions and reconciliations of certain non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Management believes that, when considered together with reported amounts, these measures are useful to investors and management in understanding our ongoing operations and in the analysis of ongoing operating trends. Management believes these non-GAAP financial measures provide investors with a more meaningful measure of its performance period to period, align with how management evaluates performance internally, and make it easier for investors to compare our performance to peers. These measures should be considered in addition to, and not as replacements for, the most directly comparable GAAP measure. The non-GAAP financial measures we use are as follows:
    Organic sales growth: We define organic sales growth as the change in reported Net sales relative to the comparable period, excluding the impact on sales from foreign currency translation and acquisitions, net of divestitures, for the first 12 months following the transaction date, and other items that are unusual and non-recurring in nature (e.g. impact of comprehensive settlement related
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    to Flexjet litigation). We believe this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.
    Total segment profit: We define Total segment profit as Net income, excluding taxes, interest, amortization of acquisition-related intangibles, stock compensation expense, environmental expense, pension income (expense), repositioning and other charges, transaction costs, expenses associated with the Honeywell trademark license, and other items within Other expense, net. We believe this measure is useful to investors as it provides greater transparency with respect to supplemental information used by management in its financial and operational decision making, as well as for understanding ongoing operating trends.
    Adjusted EBIT and Adjusted EBIT margin: We define Adjusted EBIT as Net income excluding taxes, interest, amortization of acquisition-related intangibles, stock compensation expense, environmental expense, pension income (expense), repositioning and other charges, transaction costs, expenses associated with the Honeywell trademark license, other items within Other expense, net, and other items that are unusual or non-recurring in nature, including but not limited to impairment charges and litigation charges (e.g., comprehensive settlement related to Flexjet litigation). We define Adjusted EBIT margin as Adjusted EBIT divided by Net sales adjusted for the impact of the Flexjet-related litigation settlement. We believe these measures are useful to investors as they provide greater transparency with respect to supplemental information used by management in its financial and operational decision making, as well as for understanding ongoing operating trends.
    Segment adjusted EBIT and Segment adjusted EBIT margin: We define Segment adjusted EBIT as Income before taxes excluding interest, amortization of acquisition-related intangibles, stock compensation expense, environmental expense, pension income (expense), repositioning and other charges, transaction costs, expenses associated with the Honeywell trademark license, other items within Other expense, net, and other items that are otherwise of an unusual or non-recurring in nature, including but not limited to impairment charges and litigation charges (e.g., comprehensive settlement related to Flexjet litigation). We define Segment adjusted EBIT margin as Segment adjusted EBIT divided by Net sales adjusted for the impact of the Flexjet-related litigation settlement. We believe these measures are useful to investors as they provide greater transparency with respect to supplemental information used by management in its financial and operational decision making, as well as for understanding ongoing operating trends.
    Three Months Ended
    June 27, 2026June 28, 2025
    Amount
    Percentage of Net Sales
    Amount
    Percentage of Net Sales
    Net Income$256 6 %$852 20 %
    Income tax expense122 %148 %
    Amortization of acquisition-related intangibles(1)
    22 %17 — %
    Stock compensation expense(2)
    36 %22 %
    Environmental expense(3)
    20 — %24 %
    Transaction costs(4)
    329 %17 — %
    Interest and other financial charges200 %— — %
    Other, net(5)
    10 — %(14)— %
    Total segment profit/Segment adjusted EBIT$995 22 %$1,066 25 %
    __________________
    (1)Amounts included in Cost of products and services sold and Selling, general and administrative.
    (2)Amounts included in Selling, general and administrative expenses.
    (3)Amounts included in Cost of products and services sold and Other expense, net.
    (4)Amounts included in Selling, general and administrative expenses and Other expense, net.

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    Recent SEC filings

    • 2026-08-05 10-Q Quarterly Report
    • 2026-08-05 8-K Earnings Release; Officer/Director Change; Other Events; Financial Statements and Exhibits
    • 2026-07-06 S-4 Registration (Merger)
    • 2026-06-29 8-K Material Agreement Entered; Earnings Release; Material Financial Obligation; Material Modification to Rights; Control Change; Officer/Director Change; Bylaws/Articles Amended; Code of Ethics Changed; Regulation FD Disclosure; Other Events; Financial Statements and Exhibits
    • 2026-06-29 S-8 Employee Benefit Plan Registration
    • 2026-06-29 S-8 Employee Benefit Plan Registration
    • 2026-06-15 8-K Officer/Director Change; Other Events; Financial Statements and Exhibits