GENERAL DYNAMICS CORPGD
GENERAL DYNAMICS CORP Stock Compensation Disclosure
EQUITY COMPENSATION PLANS
Equity Compensation Overview. We have equity compensation plans for employees, as well as for non-employee members of our Board. The equity compensation plans seek to provide an effective means of attracting and retaining directors, officers and key employees, and to provide them with incentives to enhance our growth and profitability. Under the equity compensation plans, awards may be granted to officers, employees or non-employee directors in common stock, options to purchase common stock, restricted shares of common stock, participation units (including RSUs, stock appreciation rights and phantom stock units) or any combination of these.
Annually, we grant awards of stock options, restricted stock and RSUs to participants in our equity compensation plans in early March. Additionally, we may make limited ad hoc grants on a quarterly basis for new hires or promotions. We issue common stock under our equity compensation plans from treasury stock. On December 31, 2025, in addition to the shares reserved for issuance upon the exercise of outstanding stock options, approximately 13 million shares have been authorized for awards that may be granted in the future.
Equity-based Compensation Expense. Equity-based compensation expense is included in G&A expenses. The following table details the components of equity-based compensation expense recognized in net earnings in each of the past three years:
| Year Ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||
| Stock options | $ | 61 | $ | 60 | $ | 65 | |||||||||||
| Restricted stock/RSUs | 94 | 85 | 78 | ||||||||||||||
| Total equity-based compensation expense, net of tax | $ | 155 | $ | 145 | $ | 143 | |||||||||||
Stock Options. Stock options granted under our equity compensation plans are issued with an exercise price at the fair value of our common stock determined by the average of the high and low stock prices as listed on the New York Stock Exchange (NYSE) on the date of grant. Participants generally vest in stock options over three years – with 50% of the options vesting after two years and the remaining 50% vesting the following year – and expire 10 years after the grant date.
We recognize compensation expense related to stock options on a straight-line basis over the vesting period of the awards, net of estimated forfeitures, except for awards to retirement-eligible participants that are recognized on an accelerated basis. Estimated forfeitures are based on our historical forfeiture experience. We estimate the fair value of stock options on the date of grant using the Black-Scholes option pricing model with the following assumptions for each of the past three years:
| Year Ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||
| Expected volatility | 22.5-22.7% | 23.2-23.3% | 22.7-22.9% | ||||||||||||||
| Weighted average expected volatility | 22.5 | % | 23.3 | % | 22.8 | % | |||||||||||
| Expected term (in months) | 72 | 60 | 60 | ||||||||||||||
| Risk-free interest rate | 3.9-4.6% | 4.2-4.6% | 3.6-4.7% | ||||||||||||||
| Expected dividend yield | 2.2 | % | 2.2 | % | 2.3 | % | |||||||||||
We determine the above assumptions based on the following:
•Expected volatility is based on the historical volatility of our common stock
•Expected term is based on our historical experience
•Risk-free interest rate is the yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option at the grant date
•Expected dividend yield is based on our historical dividend yield
The resulting weighted average fair value per stock option granted (in dollars) was $62.18 in 2025, $60.55 in 2024 and $47.46 in 2023. Stock option expense reduced pretax operating earnings (and on a diluted per-share basis) by $77 ($0.22) in 2025, $75 ($0.21) in 2024 and $82 ($0.24) in 2023. On December 31, 2025, we had $37 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 1.7 years.
A summary of stock option activity during 2025 follows:
| In Shares and Dollars | Shares Under Option | Weighted Average Exercise Price Per Share | |||||||||
| Outstanding on December 31, 2024 | 10,150,922 | $ | 206.08 | ||||||||
| Granted | 1,327,450 | 258.36 | |||||||||
| Exercised | (2,346,690) | 188.17 | |||||||||
| Forfeited/canceled | (81,080) | 257.89 | |||||||||
| Outstanding on December 31, 2025 | 9,050,602 | $ | 217.93 | ||||||||
| Vested and expected to vest on December 31, 2025 | 8,966,663 | $ | 217.50 | ||||||||
| Exercisable on December 31, 2025 | 5,782,637 | $ | 195.45 | ||||||||
Summary information with respect to our stock options’ intrinsic value and remaining contractual term on December 31, 2025, follows:
| Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||
| Outstanding | 6.1 | $ | 1,075 | ||||||||
| Vested and expected to vest | 6.1 | 1,068 | |||||||||
| Exercisable | 4.8 | 817 | |||||||||
In the table above, intrinsic value is calculated as the excess, if any, of the market price of our stock on the last trading day of the year over the exercise price of the options. For stock options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise and the exercise price. The total intrinsic value of stock options exercised was $280 in 2025, $249 in 2024 and $75 in 2023.
Restricted Stock/RSUs. Grants of restricted stock are awards of shares of common stock. RSUs represent obligations that have a value derived from or related to the value of our common stock, and are payable in cash or common stock. The fair value of restricted stock and RSUs equals the average of the high and low market prices of our common stock as listed on the NYSE on the date of grant.
Participants generally vest in restricted stock and RSUs, over a three-year restriction period after the grant date, during which recipients may not sell, transfer, pledge, assign or otherwise convey their restricted shares to another party. During this period, restricted stock recipients receive cash dividends on their restricted shares and are entitled to vote those shares, while RSU recipients receive dividend-equivalent units instead of cash dividends and are not entitled to vote their RSUs or dividend-equivalent units.
We grant RSUs with one or more performance measures (performance stock units or PSUs) determined by the compensation committee of the Board as described in our proxy statement. Depending on the company’s performance, the number of PSUs earned may be less than, equal to or greater than the original number of PSUs awarded subject to a payout range.
We recognize compensation expense related to restricted stock and RSUs on a straight-line basis over the vesting period of the awards, except for restricted stock awards to retirement-eligible participants that are recognized on an accelerated basis. Compensation expense related to restricted stock and RSUs reduced pretax operating earnings (and on a diluted per-share basis) by $119 ($0.35) in 2025, $108 ($0.31) in 2024 and $99 ($0.28) in 2023. On December 31, 2025, we had $104 of unrecognized compensation cost related to restricted stock and RSUs, which is expected to be recognized over a weighted average period of 1.9 years.
A summary of restricted stock and RSU activity during 2025 follows:
| In Shares and Dollars | Shares/ Share-Equivalent Units | Weighted Average Grant-Date Fair Value Per Share | |||||||||
| Nonvested at December 31, 2024 | 1,284,736 | $ | 252.27 | ||||||||
| Granted | 540,027 | 266.36 | |||||||||
| Vested | (446,794) | 246.07 | |||||||||
| Forfeited | (43,858) | 258.84 | |||||||||
| Nonvested at December 31, 2025 | 1,334,111 | $ | 260.27 | ||||||||
The total fair value of vesting shares was $115 in 2025, $148 in 2024 and $96 in 2023.
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About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.