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gd-20211003_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 October 3, 2021
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
279,222,830 shares of the registrant’s common stock, $1 par value per share, were outstanding on October 3, 2021.




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)October 3, 2021September 27, 2020
Revenue:
Products$5,518 $5,454 
Services4,050 3,977 
9,568 9,431 
Operating costs and expenses:
Products(4,552)(4,459)
Services(3,386)(3,388)
General and administrative (G&A)(550)(512)
(8,488)(8,359)
Operating earnings1,080 1,072 
Other, net34 24 
Interest, net(99)(118)
Earnings before income tax1,015 978 
Provision for income tax, net(155)(144)
Net earnings$860 $834 
Earnings per share
Basic
$3.09 $2.91 
Diluted
$3.07 $2.90 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.
3


CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

Nine Months Ended
(Dollars in millions, except per-share amounts)October 3, 2021September 27, 2020
Revenue:
Products$16,033 $15,849 
Services12,144 11,595 
28,177 27,444 
Operating costs and expenses:
Products(13,249)(13,052)
Services(10,286)(9,941)
G&A(1,665)(1,611)
(25,200)(24,604)
Operating earnings2,977 2,840 
Other, net95 70 
Interest, net(331)(357)
Earnings before income tax2,741 2,553 
Provision for income tax, net(436)(388)
Net earnings$2,305 $2,165 
Earnings per share
Basic
$8.20 $7.54 
Diluted
$8.16 $7.52 
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 EndedNine Months Ended
(Dollars in millions)October 3,
2021
September 27, 2020October 3,
2021
September 27, 2020
Net earnings$860 $834 $2,305 $2,165 
(Losses) gains on cash flow hedges(48)110 (134)181 
Foreign currency translation adjustments(107)139 (77)60 
Change in retirement plans’ funded status88 76 260 247 
Other comprehensive (loss) income, pretax(67)325 49 488 
Provision for income tax, net(7)(45)(20)(101)
Other comprehensive (loss) income, net of tax(74)280 29 387 
Comprehensive income$786 $1,114 $2,334 $2,552 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.

5


CONSOLIDATED BALANCE SHEET

(Unaudited)
(Dollars in millions)October 3, 2021December 31, 2020
ASSETS
Current assets:
Cash and equivalents$3,139 $2,824 
Accounts receivable3,046 3,161 
Unbilled receivables8,334 8,024 
Inventories5,651 5,745 
Other current assets1,516 1,789 
Total current assets21,686 21,543 
Noncurrent assets:
Property, plant and equipment, net5,195 5,100 
Intangible assets, net2,022 2,117 
Goodwill20,092 20,053 
Other assets2,375 2,495 
Total noncurrent assets29,684 29,765 
Total assets$51,370 $51,308 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt$2,183 $3,003 
Accounts payable2,682 2,952 
Customer advances and deposits6,167 6,276 
Other current liabilities3,572 3,733 
Total current liabilities14,604 15,964 
Noncurrent liabilities:
Long-term debt11,485 9,995 
Other liabilities9,560 9,688 
Commitments and contingencies (see Note M)
Total noncurrent liabilities21,045 19,683 
Shareholders’ equity:
Common stock482 482 
Surplus3,236 3,124 
Retained earnings34,800 33,498 
Treasury stock(19,276)(17,893)
Accumulated other comprehensive loss(3,521)(3,550)
Total shareholders’ equity15,721 15,661 
Total liabilities and shareholders equity
$51,370 $51,308 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.
6


CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Nine Months Ended
(Dollars in millions)October 3, 2021September 27, 2020
Cash flows from operating activities - continuing operations:
Net earnings$2,305 $2,165 
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation of property, plant and equipment
408 376 
Amortization of intangible and finance lease right-of-use assets
242 267 
Equity-based compensation expense
96 91 
Deferred income tax benefit
(38)(112)
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable
133 (336)
Unbilled receivables
(252)(239)
Inventories
94 (134)
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable
(291)(558)
Customer advances and deposits
228 (906)
Other current liabilities
(202)360 
Other liabilities(455)3 
Other, net321 319 
Net cash provided by operating activities 2,589 1,296 
Cash flows from investing activities:
Capital expenditures(502)(622)
Other, net1 33 
Net cash used by investing activities(501)(589)
Cash flows from financing activities:
Repayment of fixed-rate notes(2,500)(2,000)
Proceeds from commercial paper, gross (maturities greater than 3 months)1,997 420 
Proceeds from fixed-rate notes1,497 3,960 
Purchases of common stock(1,491)(501)
Dividends paid(983)(925)
Repayment of floating-rate notes(500)(500)
Repayment of commercial paper, gross (maturities greater than 3 months) (420)
Other, net223 (134)
Net cash used by financing activities(1,757)(100)
Net cash used by discontinued operations(16)(40)
Net increase in cash and equivalents315 567 
Cash and equivalents at beginning of period2,824 902 
Cash and equivalents at end of period$3,139 $1,469 
Supplemental cash flow information:
Income tax payments, net$(502)$(345)
Interest payments$(329)$(261)
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
July 4, 2021$482 $3,194 $34,273 $(19,181)$(3,447)$15,321 
Net earnings— — 860 — — 860 
Cash dividends declared— — (333)— — (333)
Equity-based awards— 42 — 22 — 64 
Shares purchased— — — (117)— (117)
Other comprehensive loss— — — — (74)(74)
October 3, 2021$482 $3,236 $34,800 $(19,276)$(3,521)$15,721 
June 28, 2020$482 $3,050 $32,294 $(17,809)$(3,711)$14,306 
Net earnings— — 834 — — 834 
Cash dividends declared— — (316)— — (316)
Equity-based awards— 32 — 4 — 36 
Other comprehensive income— — — — 280 280 
September 27, 2020$482 $3,082 $32,812 $(17,805)$(3,431)$15,140 
Nine Months Ended
 Common StockRetainedTreasuryAccumulated
Other 
Comprehensive
Total
Shareholders’
(Dollars in millions)ParSurplusEarningsStockLossEquity
December 31, 2020$482 $3,124 $33,498 $(17,893)$(3,550)$15,661 
Net earnings— — 2,305 — — 2,305 
Cash dividends declared— — (1,003)— — (1,003)
Equity-based awards— 112 — 93 — 205 
Shares purchased— — — (1,476)— (1,476)
Other comprehensive income— — — — 29 29 
October 3, 2021$482 $3,236 $34,800 $(19,276)$(3,521)$15,721 
December 31, 2019$482 $3,039 $31,633 $(17,358)$(3,818)$13,978 
Cumulative-effect adjustment*— — (37)— — (37)
Net earnings— — 2,165 — — 2,165 
Cash dividends declared— — (949)— — (949)
Equity-based awards— 43 — 54 — 97 
Shares purchased— — — (501)— (501)
Other comprehensive income— — — — 387 387 
September 27, 2020$482 $3,082 $32,812 $(17,805)$(3,431)$15,140 
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.
*Reflects the cumulative effect of Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which we adopted on January 1, 2020.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except 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. Some prior-year amounts have been reclassified among financial statement accounts or disclosures to conform to the current-year presentation.
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 nine-month periods ended October 3, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
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 nine-month periods ended October 3, 2021, and September 27, 2020.
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, 2020.
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:
October 3, 2021December 31, 2020
PP&E$11,104 $10,714 
Accumulated depreciation(5,909)(5,614)
PP&E, net$5,195 $5,100 
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Accounting Standards Updates. There are accounting standards that have been issued by the Financial Accounting Standards Board 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.

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 78% and 79% of our revenue for the three- and nine-month periods ended October 3, 2021, and 77% and 78% of our revenue for the three- and nine-month periods ended September 27, 2020, 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 22% and 21% of our revenue for the three- and nine-month periods ended October 3, 2021, and 23% and 22% of our revenue for the three- and nine-month periods ended September 27, 2020, 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 October 3, 2021, we had $88.1 billion of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 45% of our remaining performance obligations as revenue by year-end 2022, an additional 30% by year-end 2024 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
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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 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 and award 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 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. Because of our certainty in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.
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 EndedNine Months Ended
October 3,
2021
September 27, 2020October 3,
2021
September 27, 2020
Revenue$148 $126 $308 $270 
Operating earnings134 84 273 169 
Diluted earnings per share$0.38 $0.23 $0.76 $0.46 
No adjustment on any one contract was material to the unaudited Consolidated Financial Statements for the three- and nine-month periods ended October 3, 2021, or September 27, 2020.
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 EndedNine Months Ended
October 3,
2021
September 27, 2020October 3,
2021
September 27, 2020
Aircraft manufacturing$1,462 $1,507 $3,906 $4,204 
Aircraft services and completions604 468 1,669 1,436 
Total Aerospace2,066 1,975 5,575 5,640 
Nuclear-powered submarines1,741 1,704 5,139 4,972 
Surface ships594 461 1,707 1,433 
Repair and other services302 240 810 717 
Total Marine Systems2,637 2,405 7,656 7,122 
Military vehicles1,099 1,179 3,533 3,428 
Weapons systems, armament and munitions480 496 1,451 1,444 
Engineering and other services166 126 480 391 
Total Combat Systems1,745 1,801 5,464 5,263 
Information technology (IT) services2,058 2,029 6,214 5,901 
C4ISR* solutions1,062 1,221 3,268 3,518 
Total Technologies3,120 3,250 9,482 9,419 
Total revenue$9,568 $9,431 $28,177 $27,444 
*Command, control, communications, computers, intelligence, surveillance and reconnaissance
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Revenue by contract type was as follows:
Three Months Ended October 3, 2021AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
Fixed-price$1,847 $1,930 $1,515 $1,349 $6,641 
Cost-reimbursement 705 216 1,279 2,200 
Time-and-materials219 2 14 492 727 
Total revenue$2,066 $2,637 $1,745 $3,120 $9,568 
Three Months Ended September 27, 2020
Fixed-price$1,821 $1,641 $1,552 $1,500 $6,514 
Cost-reimbursement 763 231 1,324 2,318 
Time-and-materials154 1 18 426 599 
Total revenue$1,975 $2,405 $1,801 $3,250 $9,431 
Nine Months Ended October 3, 2021AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
Fixed-price$4,996 $5,524 $4,752 $3,993 $19,265 
Cost-reimbursement 2,130 667 4,005 6,802 
Time-and-materials579 2 45 1,484 2,110 
Total revenue$5,575 $7,656 $5,464 $9,482 $28,177 
Nine Months Ended September 27, 2020
Fixed-price$5,148 $4,926 $4,524 $4,293 $18,891 
Cost-reimbursement 2,188 690 3,942 6,820 
Time-and-materials492 8 49 1,184 1,733 
Total revenue$5,640 $7,122 $5,263 $9,419 $27,444 
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. These fees are 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 October 3, 2021AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
U.S. government:
Department of Defense (DoD)$73 $2,584 $937 $1,715 $5,309 
Non-DoD 1 2 1,241 1,244 
Foreign Military Sales (FMS)23 51 63 7 144 
Total U.S. government96 2,636 1,002 2,963 6,697 
U.S. commercial1,201  55 51 1,307 
Non-U.S. government46 1 670 101 818 
Non-U.S. commercial723  18 5 746 
Total revenue$2,066 $2,637 $1,745 $3,120 $9,568 
Three Months Ended September 27, 2020
U.S. government:
DoD$41 $2,333 $942 $1,823 $5,139 
Non-DoD 1 3 1,200 1,204 
FMS23 51 87 8 169 
Total U.S. government64 2,385 1,032 3,031 6,512 
U.S. commercial1,123 17 76 64 1,280 
Non-U.S. government59 2 678 139 878 
Non-U.S. commercial729 1 15 16 761 
Total revenue$1,975 $