v3.26.1
Revenue from Contracts with Customers
 3 Months Ended
Mar. 31, 2026
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers Revenue from Contracts with Customers
Contract Estimates
Revenues for the majority of our contracts are measured using the over time, percentage of completion cost-to-cost method of accounting to calculate percentage of completion. We believe this is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Due to the long-term nature of many of our contracts, developing the estimated transaction price and total cost at completion often requires judgment. The estimated transaction price may include variable consideration such as performance incentives, requests for equitable adjustment (“REAs”) and claims. Variable consideration is included in the estimated transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.
After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts on a routine basis. Adjustments to original estimates for a contract's revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained
and as more information is obtained, even though the scope of work required under the contract may not change and are also required if contract modifications occur. When adjustments in estimated total costs at completion are determined, the related impact on revenue and operating earnings are recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.
Net EAC adjustments had the following impacts for the periods presented:
Three Months Ended March 31,
(Dollars in millions, except per share amounts)
20262025
Revenue and operating earnings
$4 $(9)
Total % of revenue—%1%
Net earnings$3 $(7)
Impact on diluted earnings per share$0.01 $(0.03)
The impacts noted above are attributed primarily to changes in our fixed-price programs. As changes happen in the design required to achieve contractual specifications, those changes often result in a change in the programs’ estimates and related profitability.
Contract Assets and Liabilities
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. Contract assets and contract liabilities as of the dates presented were:
(Dollars in millions)March 31, 2026December 31, 2025
Contract assets$975 $931 
Contract liabilities640 585 
Revenue recognized in the three months ended March 31, 2026 and 2025, that was included in the contract liability balance at the beginning of each period was $209 million and $161 million, respectively.
Value of Remaining Performance Obligations
As of March 31, 2026, the total value of our remaining performance obligations was $8,382 million. We expect to recognize approximately 32% of our March 31, 2026 remaining performance obligations as revenue over the next nine months, with the remainder to be recognized thereafter. Approximately 45% of our remaining performance obligations relates to long-term contracts on electric power and propulsion programs with the U.S. Navy, which are expected to be recognized as revenue over a span of up to 11 years.
Disaggregation of Revenue
ASC: ASC revenue is primarily derived from U.S. government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of accounting. We disaggregate ASC revenue by geographical region, customer relationship and contract
type. We believe these categories best depict how the nature, amount, timing and uncertainty of ASC revenue and cash flows are affected by economic factors.
Three Months Ended March 31,
(Dollars in millions)20262025
Revenue by Geographical Region
United States$471 $446 
International81 62 
Intersegment sales7 3 
Total $559 $511 
Revenue by Customer Relationship
Prime contractor$261 $224 
Subcontractor291 284 
Intersegment sales7 3 
Total $559 $511 
Revenue by Contract Type
Fixed-price
$491 $437 
Flexibly priced(1)
61 71 
Intersegment sales7 3 
Total $559 $511 
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(1)Includes revenue derived from cost-plus and time-and-materials contracts.
IMS: IMS revenue is primarily derived from U.S. government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of accounting. We disaggregate IMS revenue by geographical region, customer relationship and contract type. We believe these categories best depict how the nature, amount, timing and uncertainty of IMS revenue and cash flows are affected by economic factors.
Three Months Ended March 31,
(Dollars in millions)20262025
Revenue by Geographical Region
United States$277 $294 
International17 (3)
Intersegment sales1 — 
Total $295 $291 
Revenue by Customer Relationship
Prime contractor$62 $46 
Subcontractor232 245 
Intersegment sales1 — 
Total $295 $291 
Revenue by Contract Type
Fixed-price
$242 $254 
Flexibly priced(1)
52 37 
Intersegment sales1 — 
Total $295 $291 
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(1)Includes revenue derived from cost-plus and time-and-materials contracts.