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gd-20220703_g1.gif
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
[] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2022
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 1-3671
    
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
13-1673581
State or other jurisdiction of incorporation or organizationI.R.S. Employer Identification No.
11011 Sunset Hills RoadReston,Virginia20190
Address of principal executive officesZip code
(703) 876-3000
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockGDNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü No ___
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ü No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ü Accelerated filer ___ Non-accelerated filer ___
Smaller reporting company___ Emerging growth company___
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes___ No ü
274,246,220 shares of the registrant’s common stock, $1 par value per share, were outstanding on July 3, 2022.




INDEX

PART I -PAGE
Item 1 -

Item 2 -
Item 3 -
Item 4 -
PART II -
Item 1 -
Item 1A -
Item 2 -
Item 6 -
            
2


PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

Three Months Ended
(Dollars in millions, except per-share amounts)July 3, 2022July 4, 2021
Revenue:
Products$5,057 $5,160 
Services4,132 4,060 
9,189 9,220 
Operating costs and expenses:
Products(4,169)(4,259)
Services(3,428)(3,446)
General and administrative (G&A)(614)(556)
(8,211)(8,261)
Operating earnings978 959 
Other, net40 31 
Interest, net(95)(109)
Earnings before income tax923 881 
Provision for income tax, net(157)(144)
Net earnings$766 $737 
Earnings per share
Basic$2.77 $2.63 
Diluted$2.75 $2.61 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.
3


CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

Six Months Ended
(Dollars in millions, except per-share amounts)July 3, 2022July 4, 2021
Revenue:
Products$10,266 $10,515 
Services8,315 8,094 
18,581 18,609 
Operating costs and expenses:
Products(8,481)(8,697)
Services(6,974)(6,900)
G&A(1,240)(1,115)
(16,695)(16,712)
Operating earnings1,886 1,897 
Other, net79 61 
Interest, net(193)(232)
Earnings before income tax1,772 1,726 
Provision for income tax, net(276)(281)
Net earnings$1,496 $1,445 
Earnings per share
Basic$5.41 $5.12 
Diluted$5.35 $5.10 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.

4


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months EndedSix Months Ended
(Dollars in millions)July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Net earnings$766 $737 $1,496 $1,445 
Changes in unrealized cash flow hedges(102)5 (156)(86)
Foreign currency translation adjustments(251)68 (189)30 
Changes in retirement plans’ funded status47 71 89 172 
Other comprehensive (loss) income, pretax(306)144 (256)116 
Benefit (provision) for income tax, net18 (13)23 (13)
Other comprehensive (loss) income, net of tax(288)131 (233)103 
Comprehensive income$478 $868 $1,263 $1,548 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.

5


CONSOLIDATED BALANCE SHEET

(Unaudited)
(Dollars in millions)July 3, 2022December 31, 2021
ASSETS
Current assets:
Cash and equivalents$2,223 $1,603 
Accounts receivable3,213 3,041 
Unbilled receivables7,819 8,498 
Inventories6,158 5,340 
Other current assets1,166 1,505 
Total current assets20,579 19,987 
Noncurrent assets:
Property, plant and equipment, net5,479 5,417 
Intangible assets, net1,867 1,978 
Goodwill20,002 20,098 
Other assets2,554 2,593 
Total noncurrent assets29,902 30,086 
Total assets$50,481 $50,073 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt$1,754 $1,005 
Accounts payable3,138 3,167 
Customer advances and deposits6,531 6,266 
Other current liabilities3,313 3,540 
Total current liabilities14,736 13,978 
Noncurrent liabilities:
Long-term debt9,741 10,490 
Other liabilities8,623 7,964 
Commitments and contingencies (see Note J)
Total noncurrent liabilities18,364 18,454 
Shareholders’ equity:
Common stock482 482 
Surplus3,466 3,278 
Retained earnings36,218 35,420 
Treasury stock(20,632)(19,619)
Accumulated other comprehensive loss(2,153)(1,920)
Total shareholders’ equity17,381 17,641 
Total liabilities and shareholders equity
$50,481 $50,073 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.
6


CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Six Months Ended
(Dollars in millions)July 3, 2022July 4, 2021
Cash flows from operating activities - continuing operations:
Net earnings$1,496 $1,445 
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation of property, plant and equipment278 280 
Amortization of intangible and finance lease right-of-use assets147 159 
Equity-based compensation expense120 72 
Deferred income tax benefit(218)(37)
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable(172)(94)
Unbilled receivables695 134 
Inventories(816)(58)
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable(29)(364)
Customer advances and deposits1,402 (226)
Other, net(276)(193)
Net cash provided by operating activities 2,627 1,118 
Cash flows from investing activities:
Capital expenditures(365)(306)
Other, net (2)
Net cash used by investing activities(365)(308)
Cash flows from financing activities:
Purchases of common stock(1,094)(1,352)
Dividends paid(679)(651)
Repayment of fixed-rate notes (2,000)
Proceeds from commercial paper, gross (maturities greater than 3 months) 1,997 
Proceeds from fixed-rate notes 1,497 
Repayment of floating-rate notes (500)
Other, net110 338 
Net cash used by financing activities(1,663)(671)
Net cash provided (used) by discontinued operations21 (13)
Net increase in cash and equivalents620 126 
Cash and equivalents at beginning of period1,603 2,824 
Cash and equivalents at end of period$2,223 $2,950 
Supplemental cash flow information:
Income tax payments, net$(565)$(245)
Interest payments$(191)$(228)
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.

7


CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended
 Common StockRetainedTreasuryAccumulated
Other 
Comprehensive
Total
Shareholders’
(Dollars in millions)ParSurplusEarningsStockLossEquity
April 3, 2022$482 $3,434 $35,800 $(19,837)$(1,865)$18,014 
Net earnings— — 766 — — 766 
Cash dividends declared— — (348)— — (348)
Equity-based awards— 32 — 10 — 42 
Shares purchased— — — (805)— (805)
Other comprehensive loss— — — — (288)(288)
July 3, 2022$482 $3,466 $36,218 $(20,632)$(2,153)$17,381 
April 4, 2021$482 $3,152 $33,869 $(18,585)$(3,578)$15,340 
Net earnings— — 737 — — 737 
Cash dividends declared— — (333)— — (333)
Equity-based awards— 42 — 19 — 61 
Shares purchased— — — (615)— (615)
Other comprehensive income— — — — 131 131 
July 4, 2021$482 $3,194 $34,273 $(19,181)$(3,447)$15,321 
Six Months Ended
Common StockRetainedTreasuryAccumulated
Other 
Comprehensive
Total
Shareholders’
(Dollars in millions)ParSurplusEarningsStockLossEquity
December 31, 2021$482 $3,278 $35,420 $(19,619)$(1,920)$17,641 
Net earnings— — 1,496 — — 1,496 
Cash dividends declared— — (698)— — (698)
Equity-based awards— 188 — 84 — 272 
Shares purchased— — — (1,097)— (1,097)
Other comprehensive loss— — — — (233)(233)
July 3, 2022$482 $3,466 $36,218 $(20,632)$(2,153)$17,381 
December 31, 2020$482 $3,124 $33,498 $(17,893)$(3,550)$15,661 
Net earnings— — 1,445 — — 1,445 
Cash dividends declared— — (670)— — (670)
Equity-based awards— 70 — 71 — 141 
Shares purchased— — — (1,359)— (1,359)
Other comprehensive income— — — — 103 103 
July 4, 2021$482 $3,194 $34,273 $(19,181)$(3,447)$15,321 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.
8


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per-share amounts or unless otherwise noted)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. 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.
Basis of Consolidation and Classification. The unaudited Consolidated Financial Statements include the accounts of General Dynamics Corporation and our wholly owned and majority-owned subsidiaries. We eliminate all inter-company balances and transactions in the unaudited Consolidated Financial Statements.
Consistent with industry practice, we classify assets and liabilities related to long-term contracts as current, even though some of these amounts may not be realized within one year.
Further discussion of our significant accounting policies is contained in the other notes to these financial statements.
Interim Financial Statements. The unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). These rules and regulations permit some of the information and footnote disclosures included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) to be condensed or omitted.
Our fiscal quarters are typically 13 weeks in length. Because our fiscal year ends on December 31, the number of days in our first and fourth quarters varies slightly from year to year. Operating results for the three- and six-month periods ended July 3, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
The unaudited Consolidated Financial Statements contain all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations and financial condition for the three- and six-month periods ended July 3, 2022, and July 4, 2021.
These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Property, Plant and Equipment, Net. Property, plant and equipment (PP&E) is carried at historical cost, net of accumulated depreciation. Net PP&E consisted of the following:
July 3, 2022December 31, 2021
PP&E$11,727 $11,464 
Accumulated depreciation(6,248)(6,047)
PP&E, net$5,479 $5,417 
Accounting Standards Updates. There are accounting standards that have been issued by the Financial Accounting Standards Board (FASB) but are not yet effective. These standards are not expected to have a material impact on our results of operations, financial condition or cash flows.
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B. REVENUE
Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue. A contract’s transaction price is allocated to each distinct performance obligation within that contract and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product life cycle (development, production, maintenance and support). For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract.
Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue from products and services transferred to customers over time accounted for 80% of our revenue for the three- and six-month periods ended July 3, 2022, and 81% and 80% of our revenue for the three- and six-month periods ended July 4, 2021, respectively. 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. Incurred cost represents 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.
Revenue from goods and services transferred to customers at a point in time accounted for 20% of our revenue for the three- and six-month periods ended July 3, 2022, and 19% and 20% of our revenue for the three- and six-month periods ended July 4, 2021, respectively. Most of our revenue recognized at a point in time is for the manufacture of business jet aircraft in our Aerospace segment. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.
On July 3, 2022, we had $87.6 billion of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 50% of our remaining performance obligations as revenue by year-end 2023, an additional 30% by year-end 2025 and the balance thereafter.
Contract Estimates. The majority of our revenue is derived from long-term contracts and programs that can span several years. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.
Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability; the complexity
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of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.
The nature of our contracts gives rise to several types of variable consideration, including claims, award fees and incentive fees. We include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include award fees or incentive fees in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical award experience, anticipated performance and our best judgment at the time.
As a significant change in one or more of these estimates could affect the profitability of our contracts, 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. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it is identified.
The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates increased our revenue, operating earnings and diluted earnings per share as follows:
Three Months EndedSix Months Ended
July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Revenue$112 $75 $219 $160 
Operating earnings101 76 206 139 
Diluted earnings per share$0.29 $0.21 $0.58 $0.39 
No adjustment on any one contract was material to the unaudited Consolidated Financial Statements for the three- and six-month periods ended July 3, 2022, or July 4, 2021.
Revenue by Category. Our portfolio of products and services consists of approximately 10,000 active contracts. The following series of tables presents our revenue disaggregated by several categories.
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Revenue by major products and services was as follows:
Three Months EndedSix Months Ended
July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Aircraft manufacturing$1,112 $1,072 $2,374 $2,444 
Aircraft services755 550 1,396 1,065 
Total Aerospace1,867 1,622 3,770 3,509 
Nuclear-powered submarines1,710 1,679 3,472 3,398 
Surface ships611 585 1,204 1,113 
Repair and other services330 272 626 508 
Total Marine Systems2,651 2,536 5,302 5,019 
Military vehicles1,084 1,231 2,179 2,434 
Weapons systems, armament and munitions418 511 834 971 
Engineering and other services164 157 328 314 
Total Combat Systems1,666 1,899 3,341 3,719 
Information technology (IT) services2,010 2,071 4,150 4,156 
C5ISR* solutions995 1,092 2,018 2,206 
Total Technologies3,005 3,163 6,168 6,362 
Total revenue$9,189 $9,220 $18,581 $18,609 
*Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance
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Revenue by contract type was as follows:
Three Months Ended July 3, 2022AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
Fixed-price$1,614 $1,609 $1,441 $1,286 $5,950 
Cost-reimbursement 1,042 211 1,256 2,509 
Time-and-materials253  14 463 730 
Total revenue$1,867 $2,651 $1,666 $3,005 $9,189 
Three Months Ended July 4, 2021
Fixed-price$1,440 $1,810 $1,668 $1,304 $6,222 
Cost-reimbursement 726 216 1,363 2,305 
Time-and-materials182  15 496 693 
Total revenue$1,622 $2,536 $1,899 $3,163 $9,220 
Six Months Ended July 3, 2022AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
Fixed-price$3,287 $3,210 $2,906 $2,624 $12,027 
Cost-reimbursement 2,092 408 2,584 5,084 
Time-and-materials483  27 960 1,470 
Total revenue$3,770 $5,302 $3,341 $6,168 $18,581 
Six Months Ended July 4, 2021
Fixed-price$3,149 $3,594 $3,237 $2,644 $12,624 
Cost-reimbursement 1,425 451 2,726 4,602 
Time-and-materials360  31 992 1,383 
Total revenue$3,509 $5,019 $3,719 $6,362 $18,609 
Our segments operate under fixed-price, cost-reimbursement and time-and-materials contracts. Our production contracts are primarily fixed-price. Under these contracts, we agree to perform a specific scope of work for a fixed amount. Contracts for research, engineering, repair and maintenance, and other services are typically cost-reimbursement or time-and-materials. Under cost-reimbursement contracts, the customer reimburses contract costs incurred and pays a fixed, incentive or award-based fee. The amount for an incentive or award fee is determined by our ability to achieve targets set in the contract, such as cost, quality, schedule and performance. Under time-and-materials contracts, the customer pays a fixed hourly rate for direct labor and generally reimburses us for the cost of materials.
Each of these contract types presents advantages and disadvantages. Typically, we assume more risk with fixed-price contracts. However, these types of contracts offer additional profits when we complete the work for less than originally estimated. Cost-reimbursement contracts generally subject us to lower risk. Accordingly, the associated base fees are usually lower than fees earned on fixed-price contracts. Under time-and-materials contracts, our profit may vary if actual labor-hour rates vary significantly from the negotiated rates. Also, because these contracts can provide little or no fee for managing material costs, the content mix can impact profitability.
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Revenue by customer was as follows:
Three Months Ended July 3, 2022AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
U.S. government:
Department of Defense (DoD)$80 $2,620 $940 $1,667 $5,307 
Non-DoD  3 1,178 1,181 
Foreign military sales (FMS)49 29 50 6 134 
Total U.S. government129 2,649 993 2,851 6,622 
U.S. commercial1,088 1 60 53 1,202 
Non-U.S. government179 1 590 93 863 
Non-U.S. commercial471  23 8 502 
Total revenue$1,867 $2,651 $1,666 $3,005 $9,189 
Three Months Ended July 4, 2021
U.S. government:
DoD$72 $2,492 $954 $1,758 $5,276 
Non-DoD  3 1,295 1,298 
FMS18 41 62 6 127 
Total U.S. government90 2,533 1,019 3,059 6,701 
U.S. commercial982 1 42 36 1,061 
Non-U.S. government50  822 64 936 
Non-U.S. commercial500 2 16 4 522 
Total revenue$1,622 $2,536 $1,899 $3,163 $9,220 
Six Months Ended July 3, 2022AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
U.S. government:
DoD$160 $5,225 $1,795 $3,418 $10,598 
Non-DoD