General Dynamics Corporation
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ITEM 1. BUSINESS
(Dollars in millions, unless otherwise noted)
BUSINESS OVERVIEW
General Dynamics is a global aerospace and defense company that specializes in high-end design, engineering and manufacturing to deliver state-of-the-art solutions to our customers. We offer a broad portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapon systems and munitions; and technology products and services. Our leadership positions in attractive business aviation and defense markets enable us to deliver superior and enduring capabilities to our customers and returns to our shareholders.
Our company consists of 10 business units, which are organized into four operating segments: Aerospace, Marine Systems, Combat Systems and Technologies. We refer to the latter three collectively as our defense segments. To ensure market focus, customer intimacy, agility and operating expertise, each business unit is responsible for the development and execution of its strategy and operating results. This structure allows for a lean corporate function, which sets the overall strategy and governance for the company and is responsible for allocating and deploying capital.
Our business units seek to deliver superior operating results by building industry-leading franchises. To achieve this goal, we invest in advanced technologies, focus on execution, pursue a culture of continuous improvement, and strive to be the low-cost, high-quality provider in each of our markets. The result is long-term value creation measured by delivering on our commitments to our customers coupled with strong earnings and cash flow and an attractive return on capital.
Over the past decade, we have invested to create, renew or expand our portfolio of products and services across our businesses. This includes product development investments in Aerospace to bring to market an all-new lineup of business jet aircraft, capital investments in Marine Systems to support significant growth in U.S. Navy ship and submarine construction over the next two decades, development of next-generation platforms and technologies to meet customers’ emerging requirements in Combat Systems, and both organic development and strategic acquisitions to ensure we can provide a complete spectrum of solutions for our Technologies customers. We expect to realize an attractive return from these investments in each of our segments, and we will continue to ensure our capital deployment delivers long-term growth and enduring value to our shareholders and our customers.
Following is additional information on each of our operating segments. For a supplemental discussion of segment performance and backlog, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.
AEROSPACE
Our Aerospace segment is recognized as a leading producer of business jets and the standard bearer in new technology aircraft, aircraft repair, customer support and custom completion services. The segment consists of our Gulfstream and Jet Aviation business units. We have earned our reputation through:
•superior aircraft design, manufacturing excellence, quality, performance, safety and reliability;
•technologically advanced flight deck and cabin systems; and
•industry-leading customer support.
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We believe the key to long-term value creation in the business jet industry is steady development and release of new aircraft models and technologies and in customer service capabilities. Since acquiring Gulfstream more than 25 years ago, we have made significant investments in research and development (R&D), state-of-the-art manufacturing facilities, and our global maintenance and support network.
We are committed to continual investment in R&D to create new aircraft that consistently broaden customer offerings while raising the bar for safety and performance. The result is the unprecedented development of an all-new lineup of the most technologically advanced business jet aircraft in the world. The Gulfstream family of aircraft offers industry-leading cabin, cockpit and safety technologies and the longest ranges at the fastest speeds in their respective classes.
The following represents Gulfstream’s current product line, along with the maximum range, maximum speed, cabin length (excluding baggage), and total number of city-pair speed records held for each aircraft:
Gulfstream’s in-service aircraft hold more than 350 city-pair speed records, more than any other business jet manufacturer, including the National Aeronautic Association’s polar and westbound around-the-world speed records.
The most recent addition to the in-service Gulfstream fleet is the ultra-long-range, ultra-large-cabin G800, which entered service in 2025 following U.S. Federal Aviation Administration (FAA) certification in April 2025. The G800 is Gulfstream’s longest-range aircraft, offering an 8,200-nautical-
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mile range at Mach 0.85. It replaces the G650 and G650ER, which currently operate in 55 countries with more than 595 aircraft of this family in service. The G800 features Gulfstream’s Symmetry Flight Deck—the industry’s most technologically advanced flight deck—industry-leading high-speed efficiency, and enhanced safety capabilities.
The ultra-long-range, ultra-large-cabin G700 entered service in 2024. It combines Gulfstream’s most spacious cabin with the advanced Symmetry Flight Deck, and the superior high-speed performance of all-new engines to deliver best-in-class capabilities.
The G500 and G600 entered service in 2018 and 2019, respectively. These clean-sheet aircraft replaced the G450 and G550 models, whose combined family has an installed base of more than 1,650 aircraft around the world. Our investment in the development of these aircraft included a new wing, new avionics, new fuselage and new ergonomically designed larger interiors, as well as systems and technologies to improve the manufacturing process and quality of the aircraft. As a result, the G500 and G600 are best in class in terms of speed, fuel efficiency, cabin volume, emissions, range and flight controls.
Gulfstream is currently developing the large-cabin G400 from a clean-sheet design developed in concert with the G500 and G600, expanding commonality across the Gulfstream family. The G400 will join a market segment in which Gulfstream has not participated for several decades, and completes a nearly two-decade effort to develop an all-new family of Gulfstream aircraft.
In the second half of 2025, we announced the all new, super midsize G300 as the latest aircraft to join our next-generation fleet. The aircraft will replace the G280 and feature signature Gulfstream Panoramic Windows as well as an all-new Harmony Flight Deck, which includes next-generation avionics to enhance safety and operational efficiency.
Our disciplined and consistent approach to new product development has allowed us to repeatedly introduce first-to-market capabilities that set industry standards for safety, performance, quality, speed and comfort. Product enhancement and development efforts include initiatives in advanced avionics, composites, flight-control and vision systems, acoustics, and cabin technologies.
Gulfstream designs, develops and manufactures aircraft in Savannah, Georgia, including all large-cabin models. The midsize aircraft are assembled by a non-U.S. partner. All models are outfitted in Gulfstream’s and Jet Aviation’s facilities. As Gulfstream’s aircraft portfolio and customer base have grown and become increasingly global in reach over the years, we have invested in our facilities and operations around the world. At our Savannah campus, we added new purpose-built manufacturing facilities, increased aircraft service capacity, opened a customer-support distribution center and expanded our R&D capabilities.
We offer comprehensive support for the more than 3,000 Gulfstream aircraft in service around the world and operate an extensive network of service centers. We continue to invest in maintenance, repair and overhaul (MRO) facilities, technologies to enhance service, and inventory to accommodate fleet growth. We also operate a 24/7 year-round customer support center and offer on-call Gulfstream aircraft technicians ready to deploy around the world for customer service requirements under our Field and Airborne Support Team (FAST) rapid-response unit.
In addition to expanding the reach of Gulfstream’s aircraft maintenance network outside the United States, Jet Aviation provides a comprehensive suite of innovative aircraft services for aircraft owners and operators around the world. Jet Aviation manages over 300 business aircraft globally on behalf of individuals and corporate owners. We operate a leading global fixed-base operator (FBO) network of
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approximately 30 facilities on four continents and support all aircraft types with a full range of maintenance services, including 24/7 global aircraft-on-ground support. We also operate one of the world’s largest custom completion and refurbishment centers for both narrow- and wide-body aircraft and perform modifications, upgrades and lifecycle sustainment support for various government fleets. We continue to grow our global footprint through acquisitions, expansions and significant renovations in strategic business aviation markets most frequented by these customers. In 2025, Jet Aviation acquired an FBO at Paris - Le Bourget Airport, the busiest business aviation airport in Europe. This acquisition expands our global FBO network and our capabilities to meet customer needs. We also launched initial operations at our new FBO at Miami Opa Locka Executive Airport in Florida. The facility is expected to be fully operational in mid-2026.
The following map displays the broad reach of our combined Gulfstream and Jet Aviation services network, including authorized service centers:
The Aerospace segment places a priority on sustainability throughout its manufacturing and service operations, producing aircraft that maximize fuel efficiency while offering customers options to reduce or eliminate their carbon footprints. Gulfstream and Jet Aviation have been at the forefront of the industry by adopting and expanding the availability of sustainable aviation fuel (SAF), which achieves as much as an 80% reduction in carbon dioxide emissions per gallon over its lifecycle compared to petroleum-based jet fuel. Gulfstream also offers operators the ability to achieve carbon-neutral travel by facilitating the purchase of carbon-offset credits. In addition to actively expanding the availability of SAF at its FBO locations, Jet Aviation allows customers to purchase SAF at locations where it is not available through a book-and-claim system. Since 2019, Jet Aviation has uploaded more than 12 million gallons of blended SAF to its customers.
Revenue for the Aerospace segment was 25% of our consolidated revenue in 2025, 24% in 2024 and 20% in 2023. Revenue by major products and services was as follows:
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| Year Ended December 31 | 2025 | 2024 | 2023 | ||||||||||||
| Aircraft manufacturing | $ | 9,413 | $ | 7,811 | $ | 5,710 | |||||||||
| Aircraft services | 3,697 | 3,438 | 2,911 | ||||||||||||
| Total Aerospace | $ | 13,110 | $ | 11,249 | $ | 8,621 | |||||||||
MARINE SYSTEMS
Our Marine Systems segment is the leading designer and builder of nuclear-powered submarines and a leader in surface combatant and auxiliary ship design and construction for the U.S. Navy. We also provide maintenance, modernization and lifecycle support services for Navy ships and maintain the most sophisticated marine engineering expertise in the world to support future capabilities. Our ability to design, build and maintain our nation’s most technologically sophisticated warships is a critical element of the U.S. defense industrial base. In addition to Navy ships, we have designed and built ocean-going Jones Act ships for commercial customers. Marine Systems consists of three business units — Electric Boat, Bath Iron Works and NASSCO.
In support of our Navy customer’s significant increase in demand for submarines and surface ships, we have made substantial investments to expand our facilities, grow and train our workforce, and expand our supply chain. The resulting increase in capacity and capabilities will support the significant demand expected in our shipbuilding business, particularly submarines, over the next two decades.
Electric Boat is the prime contractor and lead shipyard on all Navy nuclear-powered submarine programs. The business is responsible for all aspects of design and engineering and leads the construction of both Columbia-class ballistic-missile submarines and Virginia-class attack submarines.
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except per-share amounts or unless otherwise noted)
For an overview of our operating segments, including a discussion of our major products and services, see the Business discussion contained in Item 1. The following discussion of our financial condition and results of operations for 2025 compared with 2024 should be read in conjunction with our Consolidated Financial Statements included in Item 8, while a discussion of 2024 compared with 2023 can be found in Item 7 of our annual report on Form 10-K for the year ended December 31, 2024.
BUSINESS ENVIRONMENT
As a global aerospace and defense company, we compete in domestic and international markets, serving both government and commercial customers. Our financial performance is significantly influenced by U.S. government spending levels, administration priorities and the overall economy.
In the federal market, defense spending has been at elevated levels, and the administration has publicly stated support for further increases in fiscal year (FY) 2027. This is reflected in the significant demand in U.S. Navy shipbuilding, particularly submarines. We have invested in our facilities and workforce to increase production capacity to meet this demand, and expect to continue to do so. The increased demand has placed great pressure on the shipbuilding supply chain, which was already impacted by significant demographic issues coming out of the global pandemic. Together with the Navy customer, we have been working to stabilize and grow the supply chain to meet this heightened demand.
We have also been investing in the development of the next generation of combat vehicles and artillery. While the U.S. Army is reviewing its funding priorities and begins transitioning to next-generation combat vehicles, we expect short-term production volumes to be down slightly. Demand for our munitions products has been high and is expected to remain at an elevated level given ongoing conflicts and regional threats.
The administration began taking steps in 2025 to address federal spending and reduce the size of the government. These actions resulted in federal government staff reductions, contract modifications and terminations, and award delays. We experienced some impact from these actions which were largely limited to our IT services business. Our IT services business was also somewhat impacted by the government shutdown at the start of the current fiscal year. We expect some limited ongoing impact from these actions.
We entered 2026 with the government operating under a continuing resolution that expires on January 30. Our outlook for the year assumes that the FY26 budget is approved without significant delay or another prolonged shutdown.
Internationally, as a result of ongoing regional conflicts and the overall threat environment, we have seen increased demand, particularly in Europe, for our Combat Systems military products and services. This provides opportunities for our European businesses present in local markets as well as exports from our North American businesses. To meet this expected demand, there will be increased pressure on the supply chain and our hiring of skilled workers.
In our principal commercial market, Aerospace is experiencing strong demand for business jets. Our ability to produce new aircraft is dependent on our supply chain, and while performance has improved
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and the overall supply chain has stabilized, we have experienced some challenges in terms of delay including at our Israel-based supplier of mid-cabin airframes caused by the conflict with Hamas.
Our Aerospace business has been impacted by inflationary pressures and the administration’s implementation of tariffs. To date, the tariffs have not had a material impact on our results but did reduce the Aerospace operating margins by 30 basis points in 2025. The duration and extent of the tariffs continue to evolve. The ongoing sanctions on Russia have also restricted access to a segment of the market.
Overall, we believe our investments in a new family of Gulfstream aircraft will continue to fuel demand. The most recent addition is the G800, which entered service in 2025. In addition, we expect the growing installed base of aircraft will continue to lead to increased demand for global aircraft services.
RESULTS OF OPERATIONS
INTRODUCTION
The following paragraphs explain how we recognize revenue and operating costs in our operating segments and the terminology we use to describe our operating results.
In the Aerospace segment, we record revenue on contracts for new aircraft when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft. Revenue associated with the segment’s services businesses is recognized as work progresses or upon delivery of services. Fluctuations in revenue from period to period result from the number and mix of new aircraft deliveries, and the level and type of aircraft services performed during the period.
The majority of the Aerospace segment’s operating costs relates to new aircraft production on firm orders and consists of labor, material, subcontractor and overhead costs. The costs are accumulated in production lots, recorded in inventory and recognized as operating costs at aircraft delivery based on the estimated average unit cost in a production lot. While changes in the estimated average unit cost for a production lot impact the level of operating costs, the amount of operating costs reported in a given period is based largely on the number and type of aircraft delivered. Operating costs in the Aerospace segment’s services businesses are recognized generally as incurred.
For new aircraft, operating earnings and margin are a function of the prices of our aircraft, our operational efficiency in manufacturing and outfitting the aircraft, and the mix of ultra-large-cabin, large-cabin and mid-cabin aircraft deliveries. Aircraft mix can also refer to the stage of program maturity for our aircraft models. A new aircraft model typically has lower margins in its initial production lots, and then margins generally increase as we realize efficiencies in the production process. Additional factors affecting the segment’s earnings and margin include the volume, mix and profitability of services work performed, the market for pre-owned aircraft, and the level of general and administrative (G&A) and net research and development (R&D) costs incurred by the segment.
In the defense segments, revenue on long-term government contracts is recognized generally over time as the work progresses, either as products are produced or as services are rendered. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses.
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Variances in costs recognized from period to period reflect primarily increases and decreases in production or activity levels on individual contracts. Because costs are used as a measure of progress, year-over-year variances in costs result in corresponding variances in revenue, which we generally refer to as volume.
Operating earnings and margin in the defense segments are driven by changes in volume, performance or contract mix. Performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract or both. Therefore, changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value (or vice versa) that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. Higher or lower margins can result from a number of factors, including contract type (e.g., fixed-price/cost-reimbursable) and type of work (e.g., development/production). Contract mix can also refer to the stage of program maturity for our long-term production contracts. New long-term production contracts typically have lower margins initially, and then margins generally increase as we achieve learning curve improvements or realize other cost reductions.
CONSOLIDATED OVERVIEW
2025 IN REVIEW
•Strong operating performance:
◦Revenue of $52.6 billion, an increase of 10.1% from 2024
◦Operating earnings of $5.4 billion, an increase of 11.7% from 2024, with sequential growth throughout the year
◦Diluted earnings per share of $15.45, up 13.4% from 2024
◦Cash provided by operating activities of $5.1 billion, or 122% of net earnings
•Backlog of $118 billion, an increase of 30% from 2024, supports our long-term growth expectations:
◦Strong Gulfstream aircraft order activity, including orders across all aircraft models
◦Several significant contract awards received in our defense segments, including $20.1 billion of combined awards from the U.S. Navy for the Virginia-class and Columbia-class submarine programs and $9.2 billion of combined awards for wheeled and tracked vehicles for international customers
| Year Ended December 31 | 2025 | 2024 | Variance | ||||||||||||||||||
| Revenue | $ | 52,550 | $ | 47,716 | $ | 4,834 | 10.1 | % | |||||||||||||
| Operating costs and expenses | (47,194) | (42,920) | (4,274) | 10.0 | % | ||||||||||||||||
| Operating earnings | 5,356 | 4,796 | 560 | 11.7 | % | ||||||||||||||||
| Operating margin | 10.2 | % | 10.1 | % | |||||||||||||||||
Our consolidated revenue increased in 2025 driven by growth across all segments, including double-digit percentage growth in our Aerospace and Marine Systems segments. Operating margin increased 10 basis points.
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REVIEW OF OPERATING SEGMENTS
Following is a discussion of operating results and outlook for each of our operating segments. For the Aerospace segment, results are analyzed by specific types of products and services, consistent with how the segment is managed. For the defense segments, the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results. Additional information regarding our segments can be found in Note O to the Consolidated Financial Statements in Item 8.
AEROSPACE
| Year Ended December 31 | 2025 | 2024 | Variance | ||||||||||||||||||
| Revenue | $ | 13,110 | $ | 11,249 | $ | 1,861 | 16.5 | % | |||||||||||||
| Operating earnings | 1,746 | 1,464 | 282 | 19.3 | % | ||||||||||||||||
| Operating margin | 13.3 | % | 13.0 | % | |||||||||||||||||
| Gulfstream aircraft deliveries (in units) | 158 | 136 | 22 | 16.2 | % | ||||||||||||||||
Operating Results
The increase in the Aerospace segment’s revenue in 2025 consisted of the following:
| Aircraft manufacturing | $ | 1,602 | ||
| Aircraft services | 259 | |||
| Total increase | $ | 1,861 | ||
Aircraft manufacturing revenue increased in 2025 due to additional G700 deliveries. Initial deliveries of the new G800 largely offset the decrease in G650 revenue with its final deliveries in 2025. Aircraft services revenue was higher in 2025 due to increased customer demand for aircraft maintenance based on established maintenance cycles, a larger installed base and customer flight activity.
The increase in the segment’s operating earnings in 2025 consisted of the following:
| Aircraft manufacturing | $ | 222 | ||
| Aircraft services | (53) | |||
| G&A/other expenses | 113 | |||
| Total increase | $ | 282 | ||
Aircraft manufacturing operating earnings increased in 2025 due primarily to the increase in ultra-large-cabin aircraft deliveries. G&A/other expenses decreased in 2025 due primarily to reduced R&D expenditures after completion of the G800 certification process. In total, the Aerospace segment’s operating margin increased 30 basis points in 2025.
2026 Outlook
We expect the Aerospace segment’s 2026 revenue to increase to approximately $13.6 billion with operating margin of approximately 14%.
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MARINE SYSTEMS
| Year Ended December 31 | 2025 | 2024 | Variance | ||||||||||||||||||
| Revenue | $ | 16,723 | $ | 14,343 | $ | 2,380 | 16.6 | % | |||||||||||||
| Operating earnings | 1,177 | 935 | 242 | 25.9 | % | ||||||||||||||||
| Operating margin | 7.0 | % | 6.5 | % | |||||||||||||||||
Operating Results
The increase in the Marine Systems segment’s revenue in 2025 consisted of the following:
| U.S. Navy ship construction | $ | 2,213 | ||
| U.S. Navy ship engineering, repair and other services | 167 | |||
| Total increase | $ | 2,380 | ||
Revenue from U.S. Navy ship construction was up in 2025 due primarily to increased volume on Virginia-class and Columbia-class submarine construction. The Marine Systems segment’s operating margin increased 50 basis points in 2025 as 2024 included the unfavorable impact of supplier cost growth.
2026 Outlook
We expect the Marine Systems segment’s 2026 revenue to increase to $17.3-$17.7 billion with operating margin of around 7.3%.
COMBAT SYSTEMS
| Year Ended December 31 | 2025 | 2024 | Variance | ||||||||||||||||||
| Revenue | $ | 9,246 | $ | 8,997 | $ | 249 | 2.8 | % | |||||||||||||
| Operating earnings | 1,331 | 1,276 | 55 | 4.3 | % | ||||||||||||||||
| Operating margin | 14.4 | % | 14.2 | % | |||||||||||||||||
Operating Results
The increase in the Combat Systems segment’s revenue in 2025 consisted of the following:
| Weapon systems and munitions | $ | 258 | ||
| International military vehicles | 194 | |||
| U.S. military vehicles | (203) | |||
| Total increase | $ | 249 | ||
Weapon systems and munitions revenue increased in 2025 due to increased propellant production and higher volume on missile subsystems programs. Revenue from international military vehicles was up in 2025 due to higher volume on several wheeled and tracked vehicle programs in Europe. Revenue from U.S. military vehicles decreased in 2025 due primarily to the termination of the M10 Booker program and lower volume on Stryker programs, partially offset by higher volume on the XM30 program. The Combat Systems segment’s operating margin increased 20 basis points compared with 2024 driven by favorable program mix.
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2026 Outlook
We expect the Combat Systems segment’s 2026 revenue to increase to approximately $9.6-$9.7 billion with operating margin of approximately 14.1%.
TECHNOLOGIES
| Year Ended December 31 | 2025 | 2024 | Variance | ||||||||||||||||||
| Revenue | $ | 13,471 | $ | 13,127 | $ | 344 | 2.6 | % | |||||||||||||
| Operating earnings | 1,277 | 1,260 | 17 | 1.3 | % | ||||||||||||||||
| Operating margin | 9.5 | % | 9.6 | % | |||||||||||||||||
Operating Results
The increase in the Technologies segment’s revenue in 2025 consisted of the following:
| Information technology (IT) services | $ | 296 | ||
| C5ISR* solutions | 48 | |||
| Total increase | $ | 344 | ||
*Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance
The Technologies segment’s revenue increased in 2025 due primarily to demand for IT services. Overall, the segment’s margin decreased 10 basis points compared with 2024.
2026 Outlook
We expect the Technologies segment’s 2026 revenue to increase to approximately $13.8 billion with operating margin of approximately 9.2%.
CORPORATE
Corporate operating costs totaled $175 in 2025 and $139 in 2024 and consisted of equity-based compensation expense and other miscellaneous expenses. Corporate operating costs are expected to be approximately $160 in 2026.
OTHER INFORMATION
PRODUCT AND SERVICE REVENUE AND OPERATING COSTS
| Year Ended December 31 | 2025 | 2024 | Variance | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||
| Products | $ | 33,021 | $ | 28,635 | $ | 4,386 | 15.3 | % | |||||||||||||
| Services | 19,529 | 19,081 | 448 | 2.3 | % | ||||||||||||||||
| Operating Costs: | |||||||||||||||||||||
| Products | $ | (27,965) | $ | (24,332) | $ | (3,633) | 14.9 | % | |||||||||||||
| Services | (16,634) | (16,020) | (614) | 3.8 | % | ||||||||||||||||
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The increase in product revenue in 2025 consisted of the following:
| Ship construction | $ | 2,213 | ||||||
| Aircraft manufacturing | 1,602 | |||||||
| Weapon systems and munitions | 258 | |||||||
| International military vehicles | 194 | |||||||
| Other, net | 119 | |||||||
| Total increase | $ | 4,386 | ||||||
Ship construction revenue was up due primarily to higher volume on submarine programs. Aircraft manufacturing revenue increased due to additional aircraft deliveries. Weapon systems and munitions revenue increased due to increased propellant production and higher volume on missile subsystems programs. International military vehicles was up due primarily to demand for wheeled and tracked combat vehicle programs. The primary drivers of the increase in product operating costs were the changes in volume on the programs described above.
The increase in service revenue in 2025 consisted of the following:
| C5ISR solutions/IT services | $ | 368 | ||
| Aircraft services | 259 | |||
| Other, net | (179) | |||
| Total increase | $ | 448 | ||
The increase in service revenue is due to demand for IT services and aircraft maintenance work. The primary drivers of the increase in service operating costs were the changes in volume on the programs described above.
G&A EXPENSES
As a percentage of revenue, G&A expenses decreased to 4.9% in 2025 compared with 5.4% in 2024 due to growth in revenue. We expect G&A expenses as a percentage of revenue in 2026 to be generally consistent with 2025.
OTHER, NET
Net other income was $61 in 2025 and $68 in 2024 and represents primarily the non-service components of pension and other post-retirement benefits. In 2026, we expect net other income to be approximately $50.
INTEREST, NET
Net interest expense was $314 in 2025 and $324 in 2024. See Note K to the Consolidated Financial Statements in Item 8 for additional information regarding our debt obligations, including interest rates. We expect 2026 net interest expense to be approximately $340, which assumes that we refinance the notes maturing in 2026 at higher interest rates.
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PROVISION FOR INCOME TAX, NET
Our effective tax rate was 17.5% in 2025 and 16.7% in 2024. For further discussion, including a reconciliation of our effective tax rate from the statutory federal rate, see Note D to the Consolidated Financial Statements in Item 8. For 2026, we expect a full-year effective tax rate of approximately 17.5%.
BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE
Our total backlog, including funded and unfunded portions, was $118 billion on December 31, 2025, compared to $90.6 billion at the end of 2024. Our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in Note B to the Consolidated Financial Statements in Item 8. Our total estimated contract value, which combines total backlog with estimated potential contract value, was $178.9 billion on December 31, 2025.
The following table details the backlog and estimated potential contract value of each segment at the end of 2025 and 2024:
| Funded | Unfunded | Total Backlog | Estimated Potential Contract Value | Total Estimated Contract Value | |||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Aerospace | $ | 20,804 | $ | 1,024 | $ | 21,828 | $ | 1,120 | $ | 22,948 | |||||||||||||||||||
| Marine Systems | 36,808 | 15,532 | 52,340 | 11,823 | 64,163 | ||||||||||||||||||||||||
| Combat Systems | 26,064 | 1,154 | 27,218 | 14,670 | 41,888 | ||||||||||||||||||||||||
| Technologies | 9,865 | 6,795 | 16,660 | 33,280 | 49,940 | ||||||||||||||||||||||||
| Total | $ | 93,541 | $ | 24,505 | $ | 118,046 | $ | 60,893 | $ | 178,939 | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Aerospace | $ | 18,895 | $ | 798 | $ | 19,693 | $ | 1,132 | $ | 20,825 | |||||||||||||||||||
| Marine Systems | 30,530 | 9,288 | 39,818 | 9,560 | 49,378 | ||||||||||||||||||||||||
| Combat Systems | 16,142 | 838 | 16,980 | 8,647 | 25,627 | ||||||||||||||||||||||||
| Technologies | 9,577 | 4,529 | 14,106 | 34,029 | 48,135 | ||||||||||||||||||||||||
| Total | $ | 75,144 | $ | 15,453 | $ | 90,597 | $ | 53,368 | $ | 143,965 | |||||||||||||||||||
For additional information about our major products and services in backlog see the Business discussion contained in Item 1.
AEROSPACE
Aerospace funded backlog represents primarily new aircraft orders for which we have definitive purchase contracts and deposits from customers. Unfunded backlog consists of agreements to provide future aircraft maintenance and support services. The Aerospace segment ended 2025 with backlog of $21.8 billion.
Orders in 2025 reflected strong demand across our portfolio of products and services, including orders for all models of Gulfstream aircraft. The segment’s book-to-bill ratio (orders divided by revenue) was 1.2-to-1 in 2025, even as revenue grew by more than 15% year over year.
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Beyond total backlog, estimated potential contract value represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements. On December 31, 2025, estimated potential contract value in the Aerospace segment was $1.1 billion.
Demand for Gulfstream aircraft remains strong across customer types and geographic regions, generating orders from public and privately held companies, individuals, and governments around the world. Geographically, U.S. customers represented 68% of Gulfstream’s orders in 2025 and 61% of Gulfstream’s backlog on December 31, 2025, demonstrating continued strong domestic demand.
The following represents Gulfstream aircraft (in units) in backlog by region on December 31, 2025:
DEFENSE SEGMENTS
The total backlog in our defense segments represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of total backlog includes items that have been authorized and appropriated by the Congress and funded by customers, as well as commitments by international customers that are approved and funded similarly by their governments. The unfunded portion of total backlog includes the amounts we believe are likely to be funded, but there is no guarantee that future budgets and appropriations will provide the same funding level currently anticipated for a given program.
Estimated potential contract value in our defense segments includes unexercised options associated with existing firm contracts and unfunded work on indefinite delivery, indefinite quantity (IDIQ) contracts. Contract options represent agreements to perform additional work under existing contracts at the election of the customer. We recognize options in backlog when the customer exercises the option and establishes a firm order. For IDIQ contracts, we evaluate the amount of funding we expect to receive and include this amount in our estimated potential contract value. This amount is often less than the total IDIQ contract value, particularly when the contract has multiple awardees. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value.
Total backlog in our defense segments was $96.2 billion on December 31, 2025, compared with $70.9 billion at year-end 2024. In 2025, the total book-to-bill ratio in our defense segments was 1.6-to-1. Estimated potential contract value in our defense segments was $59.8 billion on December 31, 2025, up 14.4% compared with $52.2 billion at year-end 2024.
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MARINE SYSTEMS
The Marine Systems segment’s backlog consists of very long-term submarine and surface ship construction programs, as well as numerous engineering and repair contracts. The segment’s total estimated contract value was $64.2 billion on December 31, 2025, up 30% compared with $49.4 billion at year-end 2024. The increase was due primarily to $20.1 billion of combined submarine awards, a contract award for the construction of John Lewis-class (T-AO-205) fleet replenishment oilers and a contract award for the construction of an Arleigh Burke-class (DDG-51) guided-missile destroyer.
The following represents the Marine Systems segment’s total estimated contract value by major program on December 31, 2025:
COMBAT SYSTEMS
The Combat Systems segment’s backlog consists of a mix of U.S. and international combat vehicles, weapon systems and munitions programs. The vehicle programs are generally long-term franchise programs, while the weapon systems and munitions programs tend to be shorter-term in nature. The segment’s backlog was $27.2 billion on December 31, 2025, up 60.3% from $17 billion at year-end 2024. The segment’s estimated potential contract value was $14.7 billion on December 31, 2025, up 69.7% compared with $8.6 billion at year-end 2024. The increase in the Combat Systems segment’s backlog and estimated potential contract value was driven primarily by $9.2 billion of combined awards for wheeled and tracked vehicles for international customers, $3.3 billion for various munitions and ordnance, and $1 billion for next-generation Abrams main battle tanks.
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The following represents the Combat Systems segment’s total estimated contract value by market on December 31, 2025:
TECHNOLOGIES
The Technologies segment’s backlog consists of thousands of contracts and task orders across a mix of U.S. and non-U.S. government and commercial customers. These contracts can be shorter-cycle or span multiple years, but commonly include a smaller, initially funded order. Therefore, our estimated potential contract value of $33.3 billion is an important indicator of future orders and revenue. In 2025, approximately 85% of the segment’s orders were from additional work on IDIQ contracts or the exercise of options. The segment’s total estimated contract value was $49.9 billion on December 31, 2025, compared with $48.1 billion at year-end 2024. Several significant contract awards in the Technologies segment leverage the Digital Accelerator portfolio of solutions in cyber, AI, cloud services and digital modernization.
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The following represents the Technologies segment’s total estimated contract value by customer on December 31, 2025:
LIQUIDITY AND CAPITAL RESOURCES
We place a strong emphasis on cash flow generation, which is underpinned by an operating discipline focused on cost control and working capital management. This emphasis gives us the flexibility for prudent capital deployment, while allowing us to maintain an appropriate debt level, and preserves a strong balance sheet for future opportunities.
We evaluate a variety of capital deployment options based on current market conditions and our long-term outlook, and we believe agility is a key component of our capital deployment strategy as market conditions change over time. Our capital deployment priorities include investments in our business infrastructure, products and services to drive long-term growth, a predictable dividend, strategic acquisitions and opportunistic share repurchases primarily to address dilution.
We believe cash generated by operating activities, supplemented by commercial paper issuances, is sufficient to satisfy our short- and long-term liquidity needs. An additional potential source of capital is the issuance of long-term debt in capital market transactions.
We ended 2025 with a cash and equivalents balance of $2.3 billion compared with $1.7 billion at the end of 2024. The following is a discussion of our major operating, investing and financing activities in 2025 and 2024, as classified on the Consolidated Statement of Cash Flows in Item 8:
| Year Ended December 31 | 2025 | 2024 | ||||||||
| Net cash provided by operating activities | $ | 5,120 | $ | 4,112 | ||||||
| Net cash used by investing activities | (1,284) | (953) | ||||||||
| Net cash used by financing activities | (3,190) | (3,369) | ||||||||
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OPERATING ACTIVITIES
Cash provided by operating activities was $5.1 billion in 2025 compared with $4.1 billion in 2024. The primary driver of cash flows in both years was net earnings. Cash flows in 2024 were affected negatively by growth in operating working capital, particularly driven by timing in our Aerospace and Combat Systems segments. Cash flows in 2025 were affected positively as operating working capital balances in our Aerospace and Combat Systems segments began to unwind.
INVESTING ACTIVITIES
Cash used by investing activities was $1.3 billion in 2025 and $953 in 2024. Our investing activities include cash paid for capital expenditures; business acquisitions; purchases, sales and maturities of marketable securities; and proceeds from asset sales.
Capital Expenditures. The primary use of cash for investing activities in both years was capital expenditures. Capital expenditures were up almost 30% to $1.2 billion in 2025 versus $916 in 2024. Capital expenditures include equipment and facility enhancements to support new and existing programs across our businesses.
FINANCING ACTIVITIES
Cash used by financing activities was $3.2 billion in 2025 and $3.4 billion in 2024. Financing activities include the use of cash for payment of dividends, settlement of finance lease liabilities, debt and commercial paper repayments, and some repurchase of common stock. Our financing activities also include proceeds received from debt and commercial paper issuances and employee stock option exercises.
Dividends. On March 5, 2025, our board of directors (Board) declared an increased quarterly dividend of $1.50 per share, the 28th consecutive annual increase. Previously, the Board had increased the quarterly dividend to $1.42 per share in March 2024. Cash dividends paid were $1.6 billion in 2025 and $1.5 billion in 2024.
Share Repurchases. With respect to share repurchases, we paid $637 in 2025 to cover dilution from stock vesting and exercises, and $1.5 billion in 2024. On December 31, 2025, 6.8 million shares remained of the amount authorized by our Board in 2024 for repurchase, representing 2.5% of our total shares outstanding.
Debt Issuances and Repayments. In March 2025, we repaid fixed-rate notes of $750 with cash on hand and commercial paper issuances. In May 2025, we issued $750 of fixed-rate notes. The proceeds were used to repay fixed-rate notes of $750 that matured in May 2025. Fixed-rate notes of $500 mature in June and August 2026. Our plan is to refinance these notes but we will continue to evaluate our approach as the maturity dates draw near. For additional information regarding our debt obligations, including scheduled debt maturities and interest rates, see Note K to the Consolidated Financial Statements in Item 8.
On December 31, 2025, we had no commercial paper outstanding, but we maintain the ability to access the commercial paper market in the future. In addition, we have a $5 billion committed bank credit facility for general corporate purposes and working capital needs and to support our commercial paper issuances. We also have an effective shelf registration on file with the Securities and Exchange Commission (SEC) that allows us to access the debt markets.
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NON-GAAP FINANCIAL MEASURES
We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow and return on invested capital (ROIC) to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, GAAP measures.
Free Cash Flow. We define free cash flow as net cash provided by operating activities less capital expenditures. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying debt, funding business acquisitions, paying dividends and repurchasing our common stock to cover dilution. We use free cash flow to assess the quality of our earnings and as a key performance measure in evaluating management. The following table reconciles free cash flow with net cash from operating activities, as classified on the Consolidated Statement of Cash Flows in Item 8:
| Year Ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 5,120 | $ | 4,112 | $ | 4,710 | |||||||||||||||||
| Capital expenditures | (1,161) | (916) | (904) | ||||||||||||||||||||
| Free cash flow | $ | 3,959 | $ | 3,196 | $ | 3,806 | |||||||||||||||||
| Cash flows as a percentage of net earnings: | |||||||||||||||||||||||
| Net cash provided by operating activities | 122 | % | 109 | % | 142 | % | |||||||||||||||||
| Free cash flow | 94 | % | 85 | % | 115 | % | |||||||||||||||||
Return on Invested Capital. We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as net earnings plus after-tax interest and amortization expense, calculated using the statutory federal income tax rate. Average invested capital is defined as the sum of the average debt and average shareholders’ equity excluding accumulated other comprehensive loss. Average debt and average shareholders’ equity excluding accumulated other comprehensive loss are calculated using the respective balances at the end of the preceding year and the respective balances at the end of each of the four quarters of the year presented. ROIC excludes goodwill impairments and non-economic accounting changes as they are not reflective of company performance.
ROIC is calculated as follows:
| Year Ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||||||||
| Net earnings | $ | 4,210 | $ | 3,782 | $ | 3,315 | |||||||||||||||||
| After-tax interest expense | 318 | 310 | 315 | ||||||||||||||||||||
| After-tax amortization expense | 193 | 191 | 201 | ||||||||||||||||||||
| Net operating profit after taxes | $ | 4,721 | $ | ||||||||||||||||||||
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-05-12 | Burns Mark Lagrand | Executive Vice President | Sell | -36,480 ×2 | $345.29 | -$12,596,055 |
| 2026-05-11 | Burns Mark Lagrand | Executive Vice President | Sell | -36,230 ×2 | $343.49 | -$12,444,640 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-07-22 10-Q expected by 2026-08-07 (in 37 days)
- ~2026-10-23 10-Q expected by 2026-11-08 (in 130 days)
- ~2027-01-30 10-K expected by 2027-02-25 (in 229 days)
- ~2027-04-28 10-Q expected by 2027-05-14 (in 317 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-04-29 8-K Earnings Release; Financial Statements and Exhibits
- 2026-04-29 10-Q Quarterly Report
- 2026-01-30 10-K Annual Report
- 2026-01-28 8-K Earnings Release; Financial Statements and Exhibits
- 2025-12-05 8-K Officer/Director Change
- 2025-12-05 8-K Officer/Director Change
- 2025-10-24 10-Q Quarterly Report
- 2025-10-24 8-K Earnings Release; Financial Statements and Exhibits
- 2025-07-23 10-Q Quarterly Report
- 2025-07-23 8-K Earnings Release; Financial Statements and Exhibits
- 2025-06-09 8-K Officer/Director Change
- 2025-06-04 8-K Other Events
- 2025-05-07 8-K Other Events; Financial Statements and Exhibits
- 2025-04-23 10-Q Quarterly Report
- 2025-04-23 8-K Earnings Release; Financial Statements and Exhibits