General Dynamics Corporation

10/24/2025 | Press release | Distributed by Public on 10/24/2025 08:36

Quarterly Report for Quarter Ending September 28, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in millions, except per-share amounts or unless otherwise noted)
BUSINESS OVERVIEW
General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services.
Our company is organized into four operating segments: Aerospace, Marine Systems, Combat Systems and Technologies. We refer to the latter three collectively as our defense segments. Our primary customer is the U.S. government, including the Department of War (DoW) (previously referred to as Department of Defense), the intelligence community and other U.S. government agencies. We also have significant business with non-U.S. governments and a diverse base of corporate and individual buyers of business jet aircraft and related services. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024, and with the unaudited Consolidated Financial Statements included in this Form 10-Q.
BUSINESS ENVIRONMENT
Federal Government
With approximately 70% of our revenue from the U.S. government, government spending levels influence our financial performance. Although the government's new fiscal year (FY) began on October 1, 2025, the Congress has not passed a continuing resolution (CR) nor a FY funding bill, resulting in a government shutdown. The impact on our 2025 results of operations, financial condition and cash flows is uncertain and depends on the duration and government management of the shutdown. In response to the shutdown, we issued commercial paper subsequent to quarter end to support liquidity in the event of slow or non-payment by our customers impacted by the shutdown. In the Results of Operations section that follows, we have included our current outlook for each operating segment. This outlook reflects management's judgment in light of the uncertainties due to the government shutdown.
In 2025, the administration has taken steps to address federal spending, including forming the Department of Government Efficiency (DOGE) to assist in this process. Thus far, the directives of the administration and actions of the DOGE have resulted in federal government staff reductions, hiring freezes, contract modifications and terminations, and delays in contract awards. We have experienced some award delays and contract terminations as a result of these actions as well as changes in agency priorities, largely within our IT services business. In addition, the administration has implemented new tariffs as part of U.S. trade policy. The duration and extent of the tariffs and any reciprocal tariffs, as well as any available opportunities to lessen the impact, continue to evolve. To date, these actions have not had a material impact on our results of operations, financial condition or cash flows.
Business Aviation
During the third quarter, we began deliveries of our new ultra-large-cabin G800, the world's longest-range business aircraft. The G800 is the replacement aircraft for the G650, which had its final delivery in the second quarter of 2025. In September 2025, we announced our all-new super-midsize G300 aircraft, which will replace the G280 aircraft.
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. 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
Three Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 12,907 $ 11,671 $ 1,236 10.6 %
Operating costs and expenses (11,576) (10,490) (1,086) 10.4 %
Operating earnings 1,331 1,181 150 12.7 %
Operating margin 10.3 % 10.1 %
Nine Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 38,171 $ 34,378 $ 3,793 11.0 %
Operating costs and expenses (34,267) (31,005) (3,262) 10.5 %
Operating earnings 3,904 3,373 531 15.7 %
Operating margin 10.2 % 9.8 %
Our consolidated revenue increased in the third quarter and first nine months of 2025 due primarily to double digit percentage growth in our Aerospace and Marine Systems segments. Operating margin increased 20 basis points in the third quarter and 40 basis points in the first nine months of 2025 due primarily to strong operating performance in our Aerospace segment.
REVIEW OF OPERATING SEGMENTS
Following is a discussion of operating results 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 L to the unaudited Consolidated Financial Statements in Part I, Item 1.
AEROSPACE
Three Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 3,234 $ 2,482 $ 752 30.3 %
Operating earnings 430 305 125 41.0 %
Operating margin 13.3 % 12.3 %
Gulfstream aircraft deliveries (in units) 39 28 11 39.3 %
Nine Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 9,322 $ 7,506 $ 1,816 24.2 %
Operating earnings 1,265 879 386 43.9 %
Operating margin 13.6 % 11.7 %
Gulfstream aircraft deliveries (in units) 113 89 24 27.0 %
Operating Results
The increase in the Aerospace segment's revenue in the third quarter and first nine months of 2025 consisted of the following:
Third Quarter Nine Months
Aircraft manufacturing $ 630 $ 1,576
Aircraft services 122 240
Total increase $ 752 $ 1,816
Aircraft manufacturing revenue increased in the third quarter and first nine months of 2025 due primarily to additional G700 aircraft deliveries. Aircraft services revenue was up in the third quarter and first nine months of 2025 due primarily 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 the third quarter and first nine months of 2025 consisted of the following:
Third Quarter Nine Months
Aircraft manufacturing $ 95 $ 293
Aircraft services (4) (7)
G&A/other expenses 34 100
Total increase $ 125 $ 386
Aircraft manufacturing operating earnings increased in the third quarter and first nine months of 2025 due primarily to the number and mix of aircraft deliveries, as well as productivity improvements stemming from increased stabilization of the supply chain. G&A/other expenses decreased in the third quarter and first nine months of 2025 due primarily to reduced R&D expenditures after the completion of G800 certification processes. In total, the Aerospace segment's operating margin increased 100 basis points in the third quarter and 190 basis points in the first nine months of 2025 compared with the prior-year periods.
2025 Outlook
We expect the Aerospace segment's 2025 revenue to be approximately $13.2 billion with operating margin of approximately 13.3%.
MARINE SYSTEMS
Three Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 4,096 $ 3,599 $ 497 13.8 %
Operating earnings 291 258 33 12.8 %
Operating margin 7.1 % 7.2 %
Nine Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 11,905 $ 10,383 $ 1,522 14.7 %
Operating earnings 832 735 97 13.2 %
Operating margin 7.0 % 7.1 %
Operating Results
The increase in the Marine Systems segment's revenue in the third quarter and first nine months of 2025 consisted of the following:
Third Quarter Nine Months
U.S. Navy ship construction $ 509 $ 1,552
U.S. Navy ship engineering, repair and other services (12) (30)
Total increase $ 497 $ 1,522
Revenue from U.S. Navy ship construction was up in the third quarter and first nine months of 2025 due primarily to increased volume on Virginia-class and Columbia-class submarine construction. The Marine Systems segment's operating margin continues to reflect the impact of a relatively new workforce in some disciplines and supply chain challenges.
2025 Outlook
We expect the Marine Systems segment's 2025 revenue to be approximately $16 billion with operating margin of approximately 7%.
COMBAT SYSTEMS
Three Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 2,252 $ 2,212 $ 40 1.8 %
Operating earnings 335 325 10 3.1 %
Operating margin 14.9 % 14.7 %
Nine Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 6,711 $ 6,602 $ 109 1.7 %
Operating earnings 950 920 30 3.3 %
Operating margin 14.2 % 13.9 %
Operating Results
The increase in the Combat Systems segment's revenue in the third quarter and first nine months of 2025 consisted of the following:
Third Quarter Nine Months
Weapons systems and munitions $ 77 $ 140
International military vehicles 39 74
U.S. military vehicles (76) (105)
Total increase $ 40 $ 109
Weapons systems and munitions revenue increased in the third quarter and first nine months of 2025 due primarily to increased ammunition and ordnance work and higher volume on missile subsystems programs. Revenue from U.S. military vehicles decreased in the third quarter and first nine months of 2025 due primarily to lower volume on Stryker programs as well as the termination of the M10 Booker program. Overall, the Combat Systems segment's operating margin increased 20 basis points in the third quarter and 30 basis points in the first nine months of 2025 on improved performance.
2025 Outlook
We expect the Combat Systems segment's 2025 revenue to be approximately $9.2 billion with operating margin of approximately 14.3%.
TECHNOLOGIES
Three Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 3,325 $ 3,378 $ (53) (1.6 %)
Operating earnings 327 326 1 0.3 %
Operating margin 9.8 % 9.7 %
Nine Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 10,233 $ 9,887 $ 346 3.5 %
Operating earnings 987 941 46 4.9 %
Operating margin 9.6 % 9.5 %
Operating Results
The change in the Technologies segment's revenue in the third quarter and first nine months of 2025 consisted of the following:
Third Quarter Nine Months
Information technology (IT) services $ 9 $ 356
C5ISR* solutions (62) (10)
Total change $ (53) $ 346
*Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance
The Technologies segment's revenue decreased as expected in the third quarter due primarily to program timing and ramp-down of legacy programs, and increased in the first nine months of 2025 due primarily to higher volume of IT services. Overall, the Technologies segment's operating margin increased 10 basis points in the third quarter and first nine months of 2025.
2025 Outlook
We expect the Technologies segment's 2025 revenue to be approximately $13.5 billion with operating margin of approximately 9.4%.
CORPORATE
Corporate operating costs totaled $52 in the third quarter and $130 in the first nine months of 2025 compared with $33 in the third quarter and $102 in the first nine months of 2024 and consisted primarily of equity-based compensation expense. Corporate operating costs are expected to be around $160 in 2025.
OTHER INFORMATION
PRODUCT REVENUE AND OPERATING COSTS
Three Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 8,021 $ 6,767 $ 1,254 18.5 %
Operating costs (6,788) (5,760) (1,028) 17.8 %
Nine Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 23,367 $ 20,061 $ 3,306 16.5 %
Operating costs (19,752) (17,074) (2,678) 15.7 %
The increase in product revenue in the third quarter and first nine months of 2025 consisted of the following:
Third Quarter Nine Months
Aircraft manufacturing $ 630 $ 1,576
Ship construction 509 1,552
Other, net 115 178
Total increase $ 1,254 $ 3,306
Aircraft manufacturing revenue increased in the third quarter and first nine months of 2025 due to additional aircraft deliveries. Ship construction revenue increased due primarily to higher volume on the Virginia-class and Columbia-class submarine programs. The primary drivers of the increase in product operating costs were the changes in volume on the programs described above.
SERVICE REVENUE AND OPERATING COSTS
Three Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 4,886 $ 4,904 $ (18) (0.4 %)
Operating costs (4,151) (4,095) (56) 1.4 %
Nine Months Ended September 28, 2025 September 29, 2024 Variance
Revenue $ 14,804 $ 14,317 $ 487 3.4 %
Operating costs (12,609) (12,025) (584) 4.9 %
The change in service revenue in the third quarter and first nine months of 2025 consisted of the following:
Third Quarter Nine Months
C5ISR solutions/IT services $ 10 $ 451
Aircraft services 122 240
Other, net (150) (204)
Total change $ (18) $ 487
Increased IT services volume drove the higher service revenue in the first nine months of 2025. Aircraft services revenue was up in 2025 due to additional 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 5% in the first nine months of 2025 compared with 5.5% in the first nine months of 2024.
OTHER, NET
Net other income was $51 in the first nine months of 2025 compared with $47 in the first nine months of 2024, and represents primarily the non-service components of pension and other post-retirement benefits. In 2025, we expect net other income to be approximately $70.
INTEREST, NET
Net interest expense was $251 in the first nine months of 2025 compared with $248 in the prior-year period. See Note H to the unaudited Consolidated Financial Statements in Part I, Item 1, for additional information regarding our debt obligations, including interest rates. In 2025, we expect net interest expense to be approximately $330.
PROVISION FOR INCOME TAX, NET
Our effective tax rate was 17.2% in the first nine months of 2025 compared with 17.0% in the prior-year period. For 2025, we anticipate 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 $109.9 billion at the end of the third quarter of 2025 compared with $103.7 billion at the end of the second quarter. Our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in Note B to the unaudited Consolidated Financial Statements in Part I, Item 1. Our total estimated contract value, which combines total backlog with estimated potential contract value, was $167.7 billion on September 28, 2025.
The following table details the backlog and estimated potential contract value of each segment at the end of the third and second quarters of 2025:
Funded Unfunded Total Backlog Estimated Potential Contract Value Total
Estimated Contract Value
September 28, 2025
Aerospace $ 19,476 $ 1,131 $ 20,607 $ 1,147 $ 21,754
Marine Systems 38,757 14,854 53,611 14,839 68,450
Combat Systems 17,232 1,470 18,702 9,553 28,255
Technologies 10,269 6,668 16,937 32,341 49,278
Total $ 85,734 $ 24,123 $ 109,857 $ 57,880 $ 167,737
June 29, 2025
Aerospace $ 18,676 $ 1,227 $ 19,903 $ 1,165 $ 21,068
Marine Systems 39,298 13,674 52,972 14,708 67,680
Combat Systems 15,961 616 16,577 9,592 26,169
Technologies 9,945 4,285 14,230 32,011 46,241
Total $ 83,880 $ 19,802 $ 103,682 $ 57,476 $ 161,158
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 the third quarter of 2025 with backlog of $20.6 billion.
Orders for new Gulfstream aircraft reflected strong demand across our portfolio of products and services, including orders for our recently announced G300 aircraft. The segment achieved a book-to-bill ratio (orders divided by revenue) of 1.3-to-1 in the third quarter of 2025, even as revenue grew more than 30% over the year-ago quarter.
Estimated potential contract value represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements. On September 28, 2025, estimated potential contract value in the Aerospace segment was $1.1 billion.
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 U.S. 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 $89.3 billion on September 28, 2025. In the third quarter and first nine months of 2025, the defense segments achieved a book-to-bill ratio of 1.6-to-1. Estimated potential contract value in our defense segments was $56.7 billion on September 28, 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 products and services to drive long-term growth, a predictable dividend, strategic acquisitions and opportunistic share repurchases.
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 the third quarter of 2025 with a cash and equivalents balance of $2.5 billion compared with $1.7 billion at the end of 2024. Following is a discussion of our major operating, investing and financing activities in the first nine months of 2025 and 2024, as classified on the Consolidated Statement of Cash Flows in Part I, Item 1:
Nine Months Ended September 28, 2025 September 29, 2024
Net cash provided by operating activities $ 3,559 $ 1,952
Net cash used by investing activities (422) (588)
Net cash used by financing activities (2,306) (1,173)
OPERATING ACTIVITIES
Cash provided by operating activities was $3.6 billion in the first nine months of 2025 compared with $2 billion in the same period in 2024. The primary driver of cash flows in both periods 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.
INVESTING ACTIVITIES
Cash used by investing activities was $422 in the first nine months of 2025 compared with $588 in the same period in 2024. Our investing activities include cash paid for capital expenditures and business
acquisitions; purchases, sales and maturities of marketable securities; and proceeds from asset sales. The primary use of cash for investing activities in both periods was capital expenditures. Capital expenditures were $552 in the first nine months of 2025 compared with $561 in the same period in 2024.
FINANCING ACTIVITIES
Cash used by financing activities was $2.3 billion in the first nine months of 2025 compared with $1.2 billion in the same period in 2024. Financing activities include the use of cash for repurchases of common stock, payment of dividends, and debt and commercial paper repayments. Our financing activities also include proceeds received from debt and commercial paper issuances and employee stock option exercises.
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 $1.2 billion in the first nine months of 2025 compared with $1.1 billion in the same period in 2024.
We paid $600 and $183 in the first nine months of 2025 and 2024, respectively, to repurchase our outstanding shares. On September 28, 2025, 6.9 million shares remained authorized by our Board for repurchase, representing 2.5% of our total shares outstanding.
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. In late March 2025, we repaid fixed-rate notes of $750 prior to their scheduled maturity on April 1, 2025 with cash on hand and commercial paper issuances. For additional information regarding our debt obligations, including scheduled debt maturities and interest rates, see Note H to the unaudited Consolidated Financial Statements in Part I, Item 1.
On September 28, 2025, we had no commercial paper outstanding, but we maintain the ability to access the commercial paper market in the future. Separately, we have $5 billion in committed bank credit facilities 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.
NON-GAAP FINANCIAL MEASURE - FREE CASH FLOW
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 to measure our performance in these areas. While we believe this metric provides useful information, it is not a defined operating measure under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with its use. Our calculation of this metric may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of this metric should not be considered in isolation from, or as a substitute for, GAAP measures.
We define free cash flow as net cash from 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, repurchasing our common stock and paying dividends. 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 Part I, Item 1:
Nine Months Ended September 28, 2025 September 29, 2024
Net cash provided by operating activities $ 3,559 $ 1,952
Capital expenditures (552) (561)
Free cash flow $ 3,007 $ 1,391
Cash flows as a percentage of net earnings:
Net cash provided by operating activities 116 % 74 %
Free cash flow 98 % 53 %
ADDITIONAL FINANCIAL INFORMATION
ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES
For a discussion of environmental matters and other contingencies, see Note J to the unaudited Consolidated Financial Statements in Part I, Item 1. Except as otherwise noted in Note J, we do not expect our aggregate liability with respect to these matters to have a material impact on our results of operations, financial condition or cash flows.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of Operations is based on the unaudited Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We employ judgment in making our estimates, but they are based on historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe our judgment is applied consistently and produces financial information that fairly depicts our results of operations for all periods presented.
Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. Contract estimates are based on various assumptions to project the outcome of future events that often span several years. We review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. The aggregate impact of adjustments in contract estimates increased our operating earnings (and diluted earnings per share) by $57 ($0.17) and $119 ($0.35) for the three- and nine-month periods ended September 28, 2025, and $101($0.29) for the
nine-month period ended September 29, 2024, and decreased our operating earnings (and diluted earnings per share) by $12 ($0.03) for the three-month period ended September 29, 2024. No adjustment on any one contract was material to the unaudited Consolidated Financial Statements for the three- and nine-month periods ended September 28, 2025, or September 29, 2024.
Other critical accounting policies and estimates include long-lived assets and goodwill, commitments and contingencies, and retirement plans. For a full discussion of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the year ended December 31, 2024.
GUARANTOR FINANCIAL INFORMATION
The outstanding notes described in Note H to the unaudited Consolidated Financial Statements in Part I, Item 1, issued by General Dynamics Corporation (the parent), are fully and unconditionally guaranteed on an unsecured, joint and several basis by several of the parent's 100%-owned subsidiaries (the guarantors). The guarantee of each guarantor ranks equally in right of payment with all other existing and future senior unsecured indebtedness of such guarantor. A listing of the guarantors is included in an exhibit to this Form 10-Q.
Because the parent is a holding company, its cash flow and ability to service its debt, including the outstanding notes, depends on the performance of its subsidiaries and the ability of those subsidiaries to distribute cash to the parent, whether by dividends, loans or otherwise. Holders of the outstanding notes have a direct claim only against the parent and the guarantors.
Under the relevant indenture, the guarantee of each guarantor is limited to the maximum amount that can be guaranteed without rendering the guarantee voidable under applicable laws relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each indenture also provides that, in the event (1) of a merger, consolidation or sale or disposition of all or substantially all of the assets of a guarantor (other than a transaction with the parent or any of its subsidiaries) or (2) there occurs a transfer, sale or other disposition of the voting stock of a guarantor so that the guarantor is no longer a subsidiary of the parent, then the guarantor or the entity acquiring the assets (in the event of a sale or other disposition of all or substantially all of the assets of a guarantor) will be released and relieved of any obligations under the guarantee.
The following summarized financial information presents the parent and guarantors (collectively, the combined obligor group) on a combined basis. The summarized financial information of the combined obligor group excludes net investment in and earnings of subsidiaries related to interests held by the combined obligor group in subsidiaries that are not guarantors of the notes.
STATEMENT OF EARNINGS INFORMATION - COMBINED OBLIGOR GROUP
Nine Months Ended September 28, 2025 Year Ended
December 31, 2024
Revenue $ 14,905 $ 18,701
Operating costs and expenses, excluding G&A (13,293) (16,638)
Net earnings 605 785
BALANCE SHEET INFORMATION - COMBINED OBLIGOR GROUP
September 28, 2025 December 31, 2024
Cash and equivalents $ 1,018 $ 474
Other current assets 5,093 5,187
Noncurrent assets 4,887 4,841
Total assets $ 10,998 $ 10,502
Short-term debt and current portion of long-term debt $ 1,003 $ 1,500
Other current liabilities 3,326 3,016
Long-term debt 6,957 7,210
Other noncurrent liabilities 3,105 3,170
Total liabilities $ 14,391 $ 14,896
The summarized balance sheet information presented above includes the funded status of the company's primary qualified U.S. government pension plans as the parent has the ultimate obligation for the plans.
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