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gd-20221002_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 2, 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
274,548,961 shares of the registrant’s common stock, $1 par value per share, were outstanding on October 2, 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)October 2, 2022October 3, 2021
Revenue:
Products$5,935 $5,518 
Services4,040 4,050 
9,975 9,568 
Operating costs and expenses:
Products(4,905)(4,552)
Services(3,405)(3,386)
General and administrative (G&A)(567)(550)
(8,877)(8,488)
Operating earnings1,098 1,080 
Other, net41 34 
Interest, net(86)(99)
Earnings before income tax1,053 1,015 
Provision for income tax, net(151)(155)
Net earnings$902 $860 
Earnings per share
Basic$3.29 $3.09 
Diluted$3.26 $3.07 
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 2, 2022October 3, 2021
Revenue:
Products$16,201 $16,033 
Services12,355 12,144 
28,556 28,177 
Operating costs and expenses:
Products(13,386)(13,249)
Services(10,379)(10,286)
G&A(1,807)(1,665)
(25,572)(25,200)
Operating earnings2,984 2,977 
Other, net120 95 
Interest, net(279)(331)
Earnings before income tax2,825 2,741 
Provision for income tax, net(427)(436)
Net earnings$2,398 $2,305 
Earnings per share
Basic$8.70 $8.20 
Diluted$8.61 $8.16 
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 2, 2022October 3, 2021October 2, 2022October 3, 2021
Net earnings$902 $860 $2,398 $2,305 
Changes in unrealized cash flow hedges(67)(48)(223)(134)
Foreign currency translation adjustments(311)(107)(500)(77)
Changes in retirement plans’ funded status45 88 134 260 
Other comprehensive (loss) income, pretax(333)(67)(589)49 
Benefit (provision) for income tax, net8 (7)31 (20)
Other comprehensive (loss) income, net of tax(325)(74)(558)29 
Comprehensive income$577 $786 $1,840 $2,334 
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 2, 2022December 31, 2021
ASSETS
Current assets:
Cash and equivalents$2,496 $1,603 
Accounts receivable2,794 3,041 
Unbilled receivables8,111 8,498 
Inventories6,257 5,340 
Other current assets1,347 1,505 
Total current assets21,005 19,987 
Noncurrent assets:
Property, plant and equipment, net5,565 5,417 
Intangible assets, net1,921 1,978 
Goodwill20,155 20,098 
Other assets2,470 2,593 
Total noncurrent assets30,111 30,086 
Total assets$51,116 $50,073 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt$2,252 $1,005 
Accounts payable3,106 3,167 
Customer advances and deposits6,661 6,266 
Other current liabilities3,640 3,540 
Total current liabilities15,659 13,978 
Noncurrent liabilities:
Long-term debt9,239 10,490 
Other liabilities8,567 7,964 
Commitments and contingencies (see Note J)
Total noncurrent liabilities17,806 18,454 
Shareholders’ equity:
Common stock482 482 
Surplus3,511 3,278 
Retained earnings36,774 35,420 
Treasury stock(20,638)(19,619)
Accumulated other comprehensive loss(2,478)(1,920)
Total shareholders’ equity17,651 17,641 
Total liabilities and shareholders equity
$51,116 $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)

Nine Months Ended
(Dollars in millions)October 2, 2022October 3, 2021
Cash flows from operating activities - continuing operations:
Net earnings$2,398 $2,305 
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation of property, plant and equipment420 408 
Amortization of intangible and finance lease right-of-use assets224 242 
Equity-based compensation expense140 96 
Deferred income tax benefit(132)(38)
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable259 133 
Unbilled receivables422 (252)
Inventories(915)94 
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable(68)(291)
Customer advances and deposits1,598 228 
Other liabilities(309)(455)
Other, net(127)119 
Net cash provided by operating activities 3,910 2,589 
Cash flows from investing activities:
Capital expenditures(620)(502)
Other, net(378)1 
Net cash used by investing activities(998)(501)
Cash flows from financing activities:
Purchases of common stock(1,119)(1,491)
Dividends paid(1,024)(983)
Repayment of fixed-rate notes (2,500)
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, net103 223 
Net cash used by financing activities(2,040)(1,757)
Net cash provided (used) by discontinued operations21 (16)
Net increase in cash and equivalents893 315 
Cash and equivalents at beginning of period1,603 2,824 
Cash and equivalents at end of period$2,496 $3,139 
Supplemental cash flow information:
Income tax payments, net$(767)$(502)
Interest payments$(206)$(329)
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 3, 2022$482 $3,466 $36,218 $(20,632)$(2,153)$17,381 
Net earnings— — 902 — — 902 
Cash dividends declared— — (346)— — (346)
Equity-based awards— 45 — (6)— 39 
Other comprehensive loss— — — — (325)(325)
October 2, 2022$482 $3,511 $36,774 $(20,638)$(2,478)$17,651 
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 
Nine 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— — 2,398 — — 2,398 
Cash dividends declared— — (1,044)— — (1,044)
Equity-based awards— 233 — 78 — 311 
Shares purchased— — — (1,097)— (1,097)
Other comprehensive loss— — — — (558)(558)
October 2, 2022$482 $3,511 $36,774 $(20,638)$(2,478)$17,651 
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 
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 nine-month periods ended October 2, 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 nine-month periods ended October 2, 2022, and October 3, 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:
October 2, 2022December 31, 2021
PP&E$11,899 $11,464 
Accumulated depreciation(6,334)(6,047)
PP&E, net$5,565 $5,417 
Acquisitions and Divestitures. In July 2022, we acquired a provider of mission-critical embedded computing solutions for U.S. Navy platforms in our Technologies segment. The operating results of the acquisition have been included in our reported results since the closing date. The purchase price of the
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acquisition has been preliminarily allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.
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.

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 75% and 78% of our revenue for the three- and nine-month periods ended October 2, 2022, and 78% and 79% of our revenue for the three- and nine-month periods ended October 3, 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 25% and 22% of our revenue for the three- and nine-month periods ended October 2, 2022, and 22% and 21% of our revenue for the three- and nine-month periods ended October 3, 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 October 2, 2022, we had $88.8 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 2023, an additional 35% by year-end 2025 and the balance thereafter.
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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 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 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 EndedNine Months Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Revenue$67 $148 $286 $308 
Operating earnings115 134 321 273 
Diluted earnings per share$0.33 $0.38 $0.91 $0.76 
While no adjustment on any one contract was material to the unaudited Consolidated Financial Statements for the three- and nine-month periods ended October 2, 2022, or October 3, 2021, our Marine Systems segment’s 2022 results were negatively affected by supply chain impacts to the Virginia-class submarine schedule, offset partially by improved performance on auxiliary and support ships.
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 2, 2022October 3, 2021October 2, 2022October 3, 2021
Aircraft manufacturing$1,712 $1,462 $4,086 $3,906 
Aircraft services635 604 2,031 1,669 
Total Aerospace2,347 2,066 6,117 5,575 
Nuclear-powered submarines1,785 1,741 5,257 5,139 
Surface ships701 594 1,905 1,707 
Repair and other services283 302 909 810 
Total Marine Systems2,769 2,637 8,071 7,656 
Military vehicles1,134 1,099 3,313 3,533 
Weapons systems, armament and munitions480 480 1,314 1,451 
Engineering and other services174 166 502 480 
Total Combat Systems1,788 1,745 5,129 5,464 
Information technology (IT) services2,038 2,058 6,188 6,214 
C5ISR* solutions1,033 1,062 3,051 3,268 
Total Technologies3,071 3,120 9,239 9,482 
Total revenue$9,975 $9,568 $28,556 $28,177 
*Command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance
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Revenue by contract type was as follows:
Three Months Ended October 2, 2022AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
Fixed-price$2,127 $1,670 $1,575 $1,315 $6,687 
Cost-reimbursement 1,099 199 1,272 2,570 
Time-and-materials220  14 484 718 
Total revenue$2,347 $2,769 $1,788 $3,071 $9,975 
Three Months Ended October 3, 2021
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 
Nine Months Ended October 2, 2022AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
Fixed-price$5,414 $4,880 $4,481 $3,939 $18,714 
Cost-reimbursement 3,191 607 3,856 7,654 
Time-and-materials703  41 1,444 2,188 
Total revenue$6,117 $8,071 $5,129 $9,239 $28,556 
Nine Months Ended October 3, 2021
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 
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 October 2, 2022AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
U.S. government:
Department of Defense (DoD)$61 $2,723 $1,029 $1,716 $5,529 
Non-DoD  2 1,182 1,184 
Foreign military sales (FMS)20 45 82 7 154 
Total U.S. government81 2,768 1,113 2,905 6,867 
U.S. commercial1,418 1 62 56 1,537 
Non-U.S. government123  592 95 810 
Non-U.S. commercial725  21 15 761 
Total revenue$2,347 $2,769 $1,788 $3,071 $9,975 
Three Months Ended October 3, 2021
U.S. government:
DoD$73 $2,584 $937 $1,715 $5,309 
Non-DoD 1 2 1,241 1,244 
FMS23 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 
Nine Months Ended October 2, 2022AerospaceMarine SystemsCombat SystemsTechnologiesTotal
Revenue
U.S. government:
DoD$221 $7,948 $2,824 $