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Item 7. Management’s Discussion and Analysis

2026-01-30 compared with 2025-02-07 · 103 added, 166 removed, 342 unchanged (44% of the section changed)

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BUSINESS ENVIRONMENT

GLOBAL EVENTS

The coronavirus (COVID-19) pandemic caused significant disruptions to national and global economies and government activities, including supply chain and staffing challenges.

Additionally, in response to the Russian invasion of Ukraine, the United States and several other countries imposed economic and trade sanctions, export controls and other restrictions targeting Russia and Belarus.

Lastly, the impact of the conflict in the Middle East continues to evolve.

The disruptions caused by these events continue to impact global economies and businesses, including ours.

The primary impact to our business is supply chain challenges, including availability of parts, quality escapes and inflationary pressures.

In our Aerospace segment, supply chain challenges paced our ability to ramp up production at the rate we like in response to strong customer demand for our aircraft, causing out-of-sequence manufacturing that increased costs and decreased operational efficiency.

In addition, the conflict in the Middle East impacted the delivery schedule for our Israel-based supplier of mid-cabin aircraft.

Within our defense segments, the COVID-19 pandemic resulted in supply chain challenges that continue to impact our Marine Systems segment.

The Russia-Ukraine conflict and increased threat environment have created additional demand for certain of our products and services, particularly in our Combat Systems segment.

Any longer-term impact of these global events to our business is currently unknown due to the uncertainty around duration and their broader impact.

For additional information, see the Risk Factors in Part I, Item 1A.

With approximately 70% of our revenue from the U.S.

government, government spending levels — particularly defense spending — influence our financial performance.

The Congress has not yet passed a defense appropriations bill for the government’s current fiscal year.

However, the government has been operating under a continuing resolution (CR) that provides funding for some federal agencies through March 14, 2025.

When the government operates under a CR, all programs of record are funded at the prior year’s appropriated levels until the current year appropriations bill is signed into law.

Therefore, the U.S.

Department of Defense (DoD) is prohibited from starting new programs or increasing funding on existing programs unless there is an exception for the program included in the CR.

The current CR included exceptions allowing the DoD to obligate additional funds for two fiscal year 2024 and one fiscal year 2025 Virginia-class submarines, and for non-executive pay improvements and infrastructure

investments to support the submarine industrial base.

In addition, the CR included an exception allowing the DoD to obligate funds for the construction of the second submarine under the existing Columbia-class submarine contract.

We do not anticipate the current CR having a material impact on our results of operations, financial condition or cash flows.

However, the impact to our business from an extended CR or government shutdown that may result from any continuing delay by Congress to pass a new defense appropriations bill would depend on the duration and government implementation of the CR or shutdown.

The long-term outlook for our U.S.

defense business is influenced by the U.S.

military’s funding priorities, the diversity of our programs and customers, our insight into customer requirements stemming from our incumbency on core programs, our ability to evolve our products to address a fast-changing threat environment and our proven track record of successful contract execution.

International demand for military equipment and technologies presents opportunities for our non-U.S.

operations and exports from our North American businesses.

While the revenue potential can be significant, there are risks to doing business in foreign countries, including changing budget priorities and overall spending pressures unique to each country.

In our Aerospace segment, we expect our investment in the development of new aircraft products and technologies to support the segment’s long-term growth.

Similarly, we believe our aircraft services business will be a source of steady revenue growth as the global business jet fleet continues to grow.

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

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

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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.

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.

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◦ Cash provided by operating activities of $5.1 billion, or 122% of net earnings

• Backlog of $90.6 billion, supporting our long-term growth expectations:

• 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 advance procurement and other work for the Virginia-class submarine program

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

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Total increase $ 1,861

Aircraft manufacturing revenue increased in 2024 due primarily to the number and mix of aircraft deliveries, including our ultra-long-range, ultra-large-cabin G700 aircraft, which began deliveries in the second quarter of 2024 following U.S.

Federal Aviation Administration (FAA) and European Union Aviation Safety Agency (EASA) certification.

The number of G700 deliveries in 2024 was impacted by supplier quality escapes, late delivery of components and out of station work.

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.

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Total increase $ 282

Aircraft manufacturing operating earnings increased in 2024 but not at the same rate as revenue, reflecting additional costs associated with the initial deliveries of G700 aircraft due to out of station work caused by supplier quality escapes and late delivery of components.

Aircraft services operating earnings were higher in 2024 due to higher volume.

G&A/other expenses increased in 2024 consistent with the growth in the business.

In total, the Aerospace segment’s operating margin decreased 70 basis points in 2024.

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.

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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Revenue from U.S.

Navy ship construction and engineering was up in 2024 due primarily to increased volume on the Columbia-class and Virginia-class submarine programs.

The Marine Systems segment’s operating margin decreased 50 basis points in 2024 due to a $123 unfavorable profit adjustment in the fourth quarter of 2024 on the Virginia-class Block IV contract as it approaches completion in 2026.

The Virginia-class program has been impacted by supplier quality issues and late supply chain deliveries causing cost growth and schedule delays.

We expect the Marine Systems segment’s 2025 revenue to increase to approximately $15 billion with operating margin of approximately 6.8%.

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.

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

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The increase in the Combat Systems segment’s revenue in 2025 consisted of the following:

Weapons systems and munitions $ 509

military vehicles 218

Weapon systems and munitions $ 258

International military vehicles 194

military vehicles (203)

Total increase $ 249

Weapons systems and munitions revenue increased in 2024 due to heightened demand for artillery products.

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 was up in 2024 due primarily to higher volume on the U.S.

Army’s M10 Booker combat vehicle program.

The Combat Systems segment’s operating margin increased 30 basis points compared with 2023 driven by favorable contract mix.

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.

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%.

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* Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance

The Technologies segment’s revenue increased in 2024 due primarily to strong demand for IT services, including the ramp-up of new programs, offset partially by C5ISR solutions program timing and the ramp-down of legacy programs.

Overall, the segment’s margin increased 30 basis points compared with 2023 due to strong operating performance.

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.

We expect the Technologies segment’s 2026 revenue to increase to approximately $13.8 billion with operating margin of approximately 9.2%.

Corporate operating costs totaled $139 in 2024 and $160 in 2023 and consisted primarily of equity-based compensation expense.

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.

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The increase in product revenue in 2025 consisted of the following:

Aircraft manufacturing $ 2,101

Ship construction $ 2,213

Weapons systems and munitions 509

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.

Ship construction revenue was up due primarily to higher volume on the Columbia-class and Virginia-class submarine programs.

Weapons systems and munitions revenue increased due to heightened demand for artillery products.

In 2024, product operating costs increased at a higher rate than revenue due to supplier quality issues and late supply chain deliveries on the Virginia-class Block IV contract within our Marine Systems segment and additional costs associated with initial deliveries of G700 aircraft due to out of station work caused by supplier quality escapes and late delivery of components in our Aerospace segment.

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:

Aircraft services $ 527

C5ISR solutions/IT services $ 368

Ship services 357

Aircraft services 259

Other, net (179)

Total increase $ 448

Aircraft services revenue increased due to additional maintenance work.

C5ISR solutions and IT services revenue was up due to higher volume, including the ramp-up of new programs.

Ship services revenue increased due to higher volume on the Columbia-class submarine program.

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.

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See Note K to the Consolidated Financial Statements in Item 8 for additional information regarding our debt obligations, including interest rates.

We expect 2025 net interest expense to be consistent with 2024.

We expect 2026 net interest expense to be approximately $340, which assumes that we refinance the notes maturing in 2026 at higher interest rates.

PROVISION FOR INCOME TAX, NET

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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 2025, we expect a full-year effective tax rate of approximately 17.5%, generally consistent with our original expectations for 2024 before declining due to certain U.S.

and foreign tax credits and benefits and other timing items.

For 2026, we expect a full-year effective tax rate of approximately 17.5%.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

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Geographically, U.S.

customers represented 54% of the segment’s orders in 2024 and 56% of the segment’s backlog on December 31, 2024, demonstrating continued strong domestic demand.

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:

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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 remained steady compared with year-end 2023.

Significant contract awards in the Marine Systems segment during 2024 include:

• $780 from the U.S.

Navy for the construction of an additional John Lewis-class (T-AO-205) fleet replenishment oiler.

The contract including options for an additional seven T-AO-205 oilers has a maximum potential value of more than $6.7 billion.

• $2.9 billion from the Navy for long-lead materials for Block V and Block VI Virginia-class submarines.

• $205 from the Navy for planning yard services for the Arleigh Burke-class (DDG-51) guided-missile destroyer program.

The contract including options has a maximum potential value of $1.1 billion.

• $770 from the Navy for lead yard services, development studies, design and engineering efforts, procurement and delivery of initial spare parts to support maintenance availabilities for Virginia-class submarines.

• $530 from the Navy to provide maintenance, modernization and repair services for the DDG-51 destroyer, USS Hartford Los Angeles-class submarine and Wasp-class amphibious assault ship programs.

• $455 from the Navy to provide engineering, technical, design and planning yard support services for operational strategic and attack submarines.

• $255 for future technology development on the next-generation attack submarine, SSN(X), program for the Navy.

• $115 for advanced nuclear plant studies (ANPS) in support of the Columbia-class submarine program.

• $55 from the Navy to support non-nuclear maintenance on submarines based at the New England Naval Submarine Support Facility.

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:

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The Combat Systems segment’s backlog consists of a mix of U.S.

and international combat vehicles, weapons systems and munitions programs.

The vehicle programs are generally long-term franchise programs, while the weapons systems and munitions programs tend to be shorter-term in nature.

The segment’s backlog was up 16.8% from year-end 2023 to $17 billion.

The segment’s estimated potential contract value was $8.6 billion on December 31, 2024, compared with $6.2 billion at year-end 2023.

Significant contract awards in the Combat Systems segment during 2024 include:

• $2 billion for various munitions and ordnance.

These contracts have a maximum potential value of $3.2 billion.

• An IDIQ contract to provide medium-caliber ammunition cartridges for the U.S.

The contract has a maximum potential value of $3 billion among two awardees.

• $1.6 billion from the Army to produce 155mm artillery projectile metal parts and propelling bag charges and establish additional capacity for artillery propellant.

The contracts have a maximum potential value of $2.5 billion.

• $1.3 billion for the production of Pandur 6x6 wheeled combat vehicles from the Austrian Federal Ministry of Defense.

The contract including options has a maximum potential value of $2 billion.

• Two contracts from the Canadian government for the Logistics Vehicle Modernization (LVM) program to provide a new fleet of light and heavy armored vehicles and logistics support services for the Canadian Army.

These contracts including options have a maximum potential value of $1.9 billion.

The scope of the work is shared with an industry partner.

• $605 from the Army for Stryker vehicle upgrades, systems technical support and inventory management.

The contracts have a maximum potential value of $1.1 billion.

• $350 from the Army for Abrams main battle tank upgrades, engineering and logistics support services, and system and sustainment technical support services.

• $325 from the Army for the third phase of the low-rate initial production (LRIP) of the M10 Booker Combat Vehicle.

• $325 from the Canadian government to produce armored combat support vehicles (ACSVs).

• $285 to produce Abrams main battle tanks in the system enhancement package version 3 (SEPv3) configuration for Romania.

• $280 from the Army to produce Stryker Sgt.

Stout vehicles and provide long-lead materials to support the future retrofit of the vehicles to a dual Stinger Vehicle Universal Launcher (SVUL) configuration.

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.

The following represents the Combat Systems segment’s total estimated contract value by market on December 31, 2025:

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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 $48.1 billion on December 31, 2024, up 18.1% compared with $40.8 billion at year-end 2023.

Significant contract awards in the Technologies segment during 2024 include:

• $50 from the U.S.

Air Force to modernize, integrate and operate the DoD’s Mission Partner Environments (MPEs), enabling the military and its partners to securely communicate and share real-time information at multiple levels of classification.

The contract has a maximum potential value of $5.6 billion.

• $2.2 billion for several key classified contracts.

These contracts have a maximum potential value of $4.4 billion.

• A contract from the U.S.

Space Force to provide sustainment services for the Mobile User Objective System (MUOS) satellite communications system.

The contract has a maximum potential value of $2.2 billion.

• Four IDIQ contracts from the Canadian government to support the Land Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) system for the Canadian Army.

The contracts have a maximum potential value of $1.3 billion.

• $125 to modernize the U.S.

Central Command’s (CENTCOM) enterprise IT infrastructure.

The contract including options has a maximum potential value of $920.

• $140 from the Navy to manufacture and test various components for MK54 torpedoes and for general engineering services.

The contract including options has a maximum potential value of $810.

• $340 from the Navy to provide full life cycle and operational support for the Trident II Fire Control System (FCS) onboard Ohio-class submarines and continue the development, production and installation of FCS for all new Columbia-class submarines.

The contract including options has a maximum potential value of $620.

• $605 for multiple awards from the U.S.

Space Development Agency (SDA) to develop and integrate ground systems for the low-Earth orbit (LEO) satellite network.

• $205 from the North Carolina Department of Health and Human Services to operate its Medicaid Management Information System.

The contract including options has a maximum potential value of $525.

• $515 from the National Geospatial-Intelligence Agency (NGA) to provide hybrid cloud services and IT design, engineering, and operations and sustainment services.

• $280 for two awards from the New York State Department of Health to operate and modernize the state’s health insurance exchange and to support and enhance the state’s Medicaid Management Information System.

These contracts including options have a maximum potential value of $480.

• $235 from the Centers for Medicare and Medicaid Services (CMS) to provide cloud services and software tools and to support the Benefits Coordination & Recovery Center.

The contracts including options have a maximum potential value of $470.

• $115 from the Department of Veteran Affairs (VA) under the Veterans Intake, Conversion and Communications Services (VICCS) program to digitally convert historical veteran records and automate data extraction of existing records.

The contract including options has a maximum potential value of $345.

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.

The following represents the Technologies segment’s total estimated contract value by customer on December 31, 2025:

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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.

We believe cash generated by operating activities, supplemented by commercial paper issuances, is sufficient to satisfy our short- and long-term liquidity needs.

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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 the ramp-up in production of new Gulfstream aircraft models, offset partially by an increase in customer deposits driven by Gulfstream aircraft orders in our Aerospace segment.

Cash flows in 2023 were affected positively by a decrease in unbilled receivables due to the receipt of progress payments on large international vehicle contracts in our Combat Systems segment and an increase in customer deposits driven by Gulfstream aircraft orders, offset partially by an increase in inventory due primarily to the ramp-up in production of new Gulfstream aircraft models.

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 $953 in 2024 and $941 in 2023.

Our investing activities include cash paid for capital expenditures and business acquisitions;

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;

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The primary use of cash for investing activities in both years was capital expenditures.

Capital expenditures were $916 in 2024 and $904 in 2023.

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.

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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 repurchases of common stock, payment of dividends, and debt and commercial paper repayments.

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.

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Share Repurchases.

Our Board from time to time authorizes management’s repurchase of outstanding shares of our common stock on the open market.

On December 4, 2024, the Board authorized management to repurchase up to 10 million additional shares of the company’s outstanding stock.

We paid $1.5 billion and $434 in 2024 and 2023, respectively, to repurchase our outstanding

On December 31, 2024, 9.2 million shares remained authorized by our Board for repurchase, representing 3.4% of our total shares outstanding.

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 November 2024, we repaid fixed-rate notes of $500, and in May and August 2023, we repaid fixed-rate notes of $750 and $500, respectively, all at their respective scheduled maturities using cash on hand.

Fixed-rate notes of $750 mature in both April and May 2025.

We currently plan to repay these notes at maturity using cash on hand, potentially supplemented by commercial paper or other borrowings.

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.

Separately, we have a $4 billion committed bank credit facility for general corporate purposes and working capital needs and to support our commercial paper issuances.

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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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, repurchasing our common stock and paying dividends.

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.

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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.

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.

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We similarly enter into long-term agreements with suppliers and subcontractors for goods and services in support of these contracts and programs with payment terms that are generally aligned with the payment terms from our customers.

In some instances, we require advance payments or deposits from our customers, which help fund our purchase commitments and reduce the risk of customer performance.

In some instances, we receive advance payments or deposits from our customers, which help fund our purchase commitments and reduce collection risk.

Additionally, we have significant liabilities under our defined benefit retirement plans.

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See Note S to the Consolidated Financial Statements in Item 8 for additional information.

Other obligations, such as scheduled principal and interest payments on our fixed-rate notes, and scheduled payments in accordance with our lease agreements are expected to be satisfied using cash generated from operations.

See Notes J and K to the Consolidated Financial Statements in Item 8 for additional information.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on the 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.

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Substantially all of our revenue in the defense segments is recognized over time because control is transferred continuously to our customers.

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.

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.

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Such circumstances include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit.

Our reporting

units are consistent with our operating segments in Note O to the Consolidated Financial Statements in Item 8.

Our reporting units are consistent with our operating segments in Note O to the Consolidated Financial Statements in Item 8.

We use both qualitative and quantitative approaches when testing goodwill for impairment.

4 unchanged sentences

Our estimate of a reporting unit’s fair value is based primarily on the discounted cash flows of the underlying operations and requires the use of judgment by management.

The process requires numerous assumptions, including the timing of work embedded in our backlog, our performance and profitability under our contracts, our success in securing future business, the appropriate risk-adjusted interest rate used to discount the projected cash flows, and terminal-value growth rates applied to the final year of projected cash flows.

used to discount the projected cash flows, and terminal-value growth rates applied to the final year of projected cash flows.

Due to the variables inherent in our estimates of fair value, differences in assumptions may have a material effect on the result of our impairment analysis.

1 unchanged sentence

Additionally, we evaluate the reasonableness of each reporting unit’s fair value by comparing the fair value to peer companies and recent relevant market transactions.

In the fourth quarter of 2024, we completed qualitative assessments for each of our reporting units.

In the fourth quarter of 2025, we completed qualitative assessments of goodwill for each of our reporting units.

Our Aerospace, Marine Systems and Combat Systems reporting units’ estimated fair values significantly exceeded their respective carrying values based on our most recent quantitative assessments, which were performed in the fourth quarter of 2018.

20 unchanged sentences

A listing of the guarantors is included in an exhibit to this Form 10-K.

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.

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.

22 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis