false--12-31Q220190000040533P0Y0M91D210.250.75P2Y0.00290.0038111400000000P1YP2YP1Y6MP2Y 0000040533 2019-01-01 2019-06-30 0000040533 2019-06-30 0000040533 2019-04-01 2019-06-30 0000040533 us-gaap:ProductMember 2019-04-01 2019-06-30 0000040533 2018-04-02 2018-07-01 0000040533 us-gaap:ServiceMember 2019-04-01 2019-06-30 0000040533 us-gaap:ProductMember 2018-04-02 2018-07-01 0000040533 us-gaap:ServiceMember 2018-04-02 2018-07-01 0000040533 2018-01-01 2018-07-01 0000040533 us-gaap:ServiceMember 2018-01-01 2018-07-01 0000040533 us-gaap:ProductMember 2019-01-01 2019-06-30 0000040533 us-gaap:ProductMember 2018-01-01 2018-07-01 0000040533 us-gaap:ServiceMember 2019-01-01 2019-06-30 0000040533 2018-12-31 0000040533 us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-07-01 0000040533 2018-07-01 0000040533 us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-06-30 0000040533 2017-12-31 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-07-01 0000040533 us-gaap:CommonStockMember 2018-12-31 0000040533 us-gaap:TreasuryStockMember 2018-07-01 0000040533 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-06-30 0000040533 us-gaap:TreasuryStockMember 2019-01-01 2019-06-30 0000040533 us-gaap:TreasuryStockMember 2018-01-01 2018-07-01 0000040533 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000040533 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-07-01 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0000040533 us-gaap:RetainedEarningsMember 2018-01-01 2018-07-01 0000040533 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0000040533 us-gaap:TreasuryStockMember 2018-12-31 0000040533 us-gaap:RetainedEarningsMember 2017-12-31 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0000040533 us-gaap:CommonStockMember 2019-06-30 0000040533 us-gaap:RetainedEarningsMember 2019-01-01 2019-06-30 0000040533 us-gaap:TreasuryStockMember 2019-06-30 0000040533 us-gaap:RetainedEarningsMember 2018-12-31 0000040533 us-gaap:CommonStockMember 2018-07-01 0000040533 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-06-30 0000040533 us-gaap:RetainedEarningsMember 2019-06-30 0000040533 us-gaap:TreasuryStockMember 2017-12-31 0000040533 us-gaap:CommonStockMember 2017-12-31 0000040533 us-gaap:AdditionalPaidInCapitalMember 2018-07-01 0000040533 us-gaap:RetainedEarningsMember 2018-07-01 0000040533 us-gaap:RetainedEarningsMember 2018-04-02 2018-07-01 0000040533 us-gaap:RetainedEarningsMember 2018-04-01 0000040533 us-gaap:CommonStockMember 2018-04-01 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0000040533 us-gaap:TreasuryStockMember 2019-03-31 0000040533 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 0000040533 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0000040533 2019-03-31 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01 0000040533 us-gaap:TreasuryStockMember 2018-04-01 0000040533 us-gaap:TreasuryStockMember 2018-04-02 2018-07-01 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0000040533 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000040533 2018-04-01 0000040533 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-02 2018-07-01 0000040533 us-gaap:CommonStockMember 2019-03-31 0000040533 us-gaap:AdditionalPaidInCapitalMember 2018-04-02 2018-07-01 0000040533 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0000040533 us-gaap:TreasuryStockMember 2019-04-01 2019-06-30 0000040533 us-gaap:RetainedEarningsMember 2019-03-31 0000040533 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0000040533 gd:MissionSystemsMember 2018-12-31 0000040533 gd:InformationTechnologyMember 2018-12-31 0000040533 gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:MarineSystemsMember 2018-12-31 0000040533 gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:InformationTechnologyMember 2019-06-30 0000040533 gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:CombatSystemsMember 2018-12-31 0000040533 gd:MarineSystemsMember 2019-06-30 0000040533 gd:MissionSystemsMember 2019-06-30 0000040533 gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:AerospaceMember 2019-06-30 0000040533 gd:AerospaceMember 2018-12-31 0000040533 gd:CombatSystemsMember 2019-06-30 0000040533 gd:CSRAInc.Member 2018-04-02 2018-07-01 0000040533 gd:CSRAInc.Member 2018-01-01 2018-07-01 0000040533 us-gaap:OtherIntangibleAssetsMember 2018-12-31 0000040533 gd:TradenamesAndTrademarksMember 2019-06-30 0000040533 gd:TechnologyAndSoftwareMember 2019-06-30 0000040533 gd:TradenamesAndTrademarksMember 2018-12-31 0000040533 gd:ContractAndProgramIntangibleAssetsMember 2019-06-30 0000040533 gd:ContractAndProgramIntangibleAssetsMember 2018-12-31 0000040533 us-gaap:OtherIntangibleAssetsMember 2019-06-30 0000040533 gd:TechnologyAndSoftwareMember 2018-12-31 0000040533 gd:CSRAInc.Member 2018-04-03 0000040533 us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember gd:AerospaceMember 2018-01-01 2018-12-31 0000040533 us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember 2019-01-01 2019-06-30 0000040533 gd:CSRAInc.Member 2018-04-03 2018-04-03 0000040533 gd:CSRAInc.Member us-gaap:CommonStockMember 2018-04-03 0000040533 us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember 2018-01-01 2018-12-31 0000040533 us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember gd:InformationTechnologyMember 2018-01-01 2018-12-31 0000040533 us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 us-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:CostReimbursementMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 us-gaap:FixedPriceContractMember 2019-01-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember 2018-01-01 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:CostReimbursementMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember 2019-01-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 gd:CostReimbursementMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:CostReimbursementMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:CostReimbursementMember 2018-01-01 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:FixedPriceContractMember 2018-01-01 2018-07-01 0000040533 gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:CostReimbursementMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:CostReimbursementMember 2019-01-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 us-gaap:AccountingStandardsUpdate201409Member 2019-01-01 2019-06-30 0000040533 us-gaap:AccountingStandardsUpdate201409Member 2018-04-02 2018-07-01 0000040533 us-gaap:AccountingStandardsUpdate201409Member 2018-01-01 2018-07-01 0000040533 us-gaap:AccountingStandardsUpdate201409Member 2019-04-01 2019-06-30 0000040533 gd:InformationTechnologyServicesMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:MilitaryvehiclesMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:AircraftServicesMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:SurfaceshipsMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:C4ISRSolutionsMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:AircraftManufacturingandCompletionsMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:AircraftServicesMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:PreOwnedAircraftMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:RepairandOtherServicesMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:MilitaryvehiclesMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:WeaponsSystemsandMunitionsMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:PreOwnedAircraftMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:PreOwnedAircraftMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:C4ISRSolutionsMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NuclearPoweredSubmarinesMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:AircraftManufacturingandCompletionsMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:WeaponsSystemsandMunitionsMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:InformationTechnologyServicesMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:EngineeringandOtherServicesMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:RepairandOtherServicesMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:AircraftServicesMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:MilitaryvehiclesMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:EngineeringandOtherServicesMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:C4ISRSolutionsMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:InformationTechnologyServicesMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:NuclearPoweredSubmarinesMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:WeaponsSystemsandMunitionsMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NuclearPoweredSubmarinesMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:EngineeringandOtherServicesMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:SurfaceshipsMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:PreOwnedAircraftMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:SurfaceshipsMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:AircraftServicesMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:C4ISRSolutionsMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:RepairandOtherServicesMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:SurfaceshipsMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:RepairandOtherServicesMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:WeaponsSystemsandMunitionsMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:AircraftManufacturingandCompletionsMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:NuclearPoweredSubmarinesMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:AircraftManufacturingandCompletionsMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:InformationTechnologyServicesMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:EngineeringandOtherServicesMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:MilitaryvehiclesMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 gd:NonU.S.CommercialMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.CommercialMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember 2019-01-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:NonUSGovernmentMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember 2018-01-01 2018-07-01 0000040533 gd:U.S.CommercialMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.CommercialMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:NonUSGovernmentMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember 2019-01-01 2019-06-30 0000040533 gd:NonUSGovernmentMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:NonU.S.CommercialMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:NonU.S.CommercialMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember 2018-01-01 2018-07-01 0000040533 gd:NonU.S.CommercialMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:NonU.S.CommercialMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 gd:U.S.CommercialMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 gd:U.S.CommercialMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.CommercialMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentMember 2019-01-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:U.S.CommercialMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 gd:NonU.S.CommercialMember 2018-01-01 2018-07-01 0000040533 gd:U.S.GovernmentMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember 2018-01-01 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 2019-01-01 2018-12-31 0000040533 us-gaap:TransferredOverTimeMember 2018-04-02 2018-07-01 0000040533 us-gaap:TransferredAtPointInTimeMember 2018-04-02 2018-07-01 0000040533 2019-07-01 2019-06-30 0000040533 us-gaap:TransferredAtPointInTimeMember 2019-04-01 2019-06-30 0000040533 us-gaap:TransferredOverTimeMember 2019-04-01 2019-06-30 0000040533 2020-01-01 2018-12-31 0000040533 2021-01-01 2019-06-30 0000040533 us-gaap:TransferredOverTimeMember 2018-01-01 2018-07-01 0000040533 us-gaap:TransferredAtPointInTimeMember 2018-01-01 2018-07-01 0000040533 gd:NonU.S.CommercialMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember 2018-04-02 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentMember 2019-04-01 2019-06-30 0000040533 gd:NonUSGovernmentMember 2019-04-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember 2019-04-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:NonU.S.CommercialMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.CommercialMember 2019-04-01 2019-06-30 0000040533 gd:NonUSGovernmentMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NonUSGovernmentMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember 2018-04-02 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NonUSGovernmentMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.CommercialMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember 2019-04-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.CommercialMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:NonU.S.CommercialMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NonUSGovernmentMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:NonUSGovernmentMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.CommercialMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 gd:U.S.CommercialMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:U.S.CommercialMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember 2018-04-02 2018-07-01 0000040533 gd:U.S.CommercialMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentNonDepartmentofDefenseMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:NonUSGovernmentMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:U.S.GovernmentForeignMilitarySalesMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:NonU.S.CommercialMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:U.S.GovernmentDepartmentofDefenseMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:CostReimbursementMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:CostReimbursementMember 2018-04-02 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember 2018-04-02 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 gd:CostReimbursementMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 gd:CostReimbursementMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember 2019-04-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 us-gaap:TimeAndMaterialsContractMember 2019-04-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 gd:CostReimbursementMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 gd:CostReimbursementMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 gd:CostReimbursementMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 gd:CostReimbursementMember 2019-04-01 2019-06-30 0000040533 us-gaap:FixedPriceContractMember 2018-04-02 2018-07-01 0000040533 us-gaap:FixedPriceContractMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 us-gaap:TimeAndMaterialsContractMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 gd:CostReimbursementMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-06-30 0000040533 us-gaap:TransferredOverTimeMember 2019-01-01 2019-06-30 0000040533 gd:StockOptionsAndRestrictedStockMember 2019-01-01 2019-06-30 0000040533 gd:StockOptionsAndRestrictedStockMember 2019-04-01 2019-06-30 0000040533 gd:StockOptionsAndRestrictedStockMember 2018-01-01 2018-07-01 0000040533 gd:StockOptionsAndRestrictedStockMember 2018-04-02 2018-07-01 0000040533 us-gaap:FairValueInputsLevel1Member 2019-06-30 0000040533 us-gaap:FairValueInputsLevel2Member 2019-06-30 0000040533 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-06-30 0000040533 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-06-30 0000040533 us-gaap:FairValueInputsLevel3Member 2019-06-30 0000040533 us-gaap:FairValueInputsLevel1Member 2018-12-31 0000040533 us-gaap:FairValueInputsLevel3Member 2018-12-31 0000040533 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0000040533 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-12-31 0000040533 us-gaap:FairValueInputsLevel2Member 2018-12-31 0000040533 us-gaap:CommercialPaperMember 2019-06-30 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyEightMember 2018-12-31 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyThreeMember 2019-06-30 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyFiveMember 2019-06-30 0000040533 gd:FixedRateNotesDueNovemberTwoThousandTwentyFourMember 2019-06-30 0000040533 gd:FixedRateNotesDueNovemberTwoThousandTwentySevenMember 2018-12-31 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyDomain 2019-06-30 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyOneDomain 2019-06-30 0000040533 gd:FixedRateNotesDueNovemberTwoThousandTwentyTwoMember 2018-12-31 0000040533 gd:FixedRateNotesDueNovemberTwoThousandFortyTwoMember 2018-12-31 0000040533 gd:FixedRateNotesDueJulyTwoThousandTwentyOneMember 2018-12-31 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyEightMember 2019-06-30 0000040533 gd:FixedRateNotesDueNovemberTwoThousandTwentyTwoMember 2019-06-30 0000040533 gd:FloatingRateNotesDueMayTwoThousandTwentyOneMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-12-31 0000040533 gd:FixedRateNotesDueNovemberTwoThousandFortyTwoMember 2019-06-30 0000040533 us-gaap:OtherDebtSecuritiesMember 2019-01-01 2019-06-30 0000040533 gd:FixedRateNotesDueNovemberTwoThousandTwentyFourMember 2018-12-31 0000040533 gd:FixedRateNotesDueAugustTwoThousandTwentySixMember 2018-12-31 0000040533 gd:FixedRateNotesDueJulyTwoThousandTwentyOneMember 2019-06-30 0000040533 gd:FixedRateNotesDueNovemberTwoThousandTwentySevenMember 2019-06-30 0000040533 gd:FloatingRateNotesDueMayTwoThousandTwentyOneMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-06-30 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyDomain 2018-12-31 0000040533 gd:FixedRateNotesDueAugustTwoThousandTwentySixMember 2019-06-30 0000040533 us-gaap:CommercialPaperMember 2018-12-31 0000040533 gd:FixedRateNotesDueAugustTwoThousandTwentyThreeMember 2019-06-30 0000040533 us-gaap:OtherDebtSecuritiesMember 2019-06-30 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyFiveMember 2018-12-31 0000040533 gd:FloatingRateNotesDueMayTwoThousandTwentyMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-12-31 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyOneDomain 2018-12-31 0000040533 us-gaap:OtherDebtSecuritiesMember 2018-12-31 0000040533 gd:FixedRateNotesDueMayTwoThousandTwentyThreeMember 2018-12-31 0000040533 gd:FixedRateNotesDueAugustTwoThousandTwentyThreeMember 2018-12-31 0000040533 gd:FloatingRateNotesDueMayTwoThousandTwentyMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-06-30 0000040533 gd:CommittedBankCreditFacilityMember us-gaap:LineOfCreditMember 2019-01-01 2019-06-30 0000040533 gd:CommittedBankCreditFacilityMember us-gaap:LineOfCreditMember 2019-06-30 0000040533 gd:MultiyearFacilityExpiringNovember2020Member us-gaap:LineOfCreditMember 2019-06-30 0000040533 gd:MultiYearFacilityExpiringMarch2023Member us-gaap:LineOfCreditMember 2019-06-30 0000040533 gd:FloatingRateNotesDueMayTwoThousandTwentyOneMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-06-30 0000040533 gd:FloatingRateNotesDueMayTwoThousandTwentyMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-06-30 0000040533 2018-12-05 0000040533 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-12-31 0000040533 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-01-01 2018-07-01 0000040533 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-01-01 2018-07-01 0000040533 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 2018-07-01 0000040533 us-gaap:AccumulatedTranslationAdjustmentMember 2018-07-01 0000040533 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-07-01 0000040533 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-07-01 0000040533 us-gaap:AccumulatedTranslationAdjustmentMember 2017-12-31 0000040533 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2017-12-31 0000040533 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-07-01 0000040533 us-gaap:AccumulatedTranslationAdjustmentMember 2018-01-01 2018-07-01 0000040533 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2017-12-31 0000040533 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-06-30 0000040533 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0000040533 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-01-01 2019-06-30 0000040533 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-06-30 0000040533 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-06-30 0000040533 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-12-31 0000040533 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-06-30 0000040533 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-06-30 0000040533 us-gaap:AccumulatedTranslationAdjustmentMember 2019-06-30 0000040533 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-06-30 0000040533 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0000040533 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-12-31 0000040533 srt:MaximumMember 2019-01-01 2019-06-30 0000040533 srt:MinimumMember 2019-01-01 2019-06-30 0000040533 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2018-01-01 2018-07-01 0000040533 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2018-04-02 2018-07-01 0000040533 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-01-01 2019-06-30 0000040533 us-gaap:PensionPlansDefinedBenefitMember 2019-01-01 2019-06-30 0000040533 us-gaap:PensionPlansDefinedBenefitMember 2018-04-02 2018-07-01 0000040533 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-04-01 2019-06-30 0000040533 us-gaap:PensionPlansDefinedBenefitMember 2018-01-01 2018-07-01 0000040533 us-gaap:PensionPlansDefinedBenefitMember 2019-04-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:AerospaceMember 2018-01-01 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:AerospaceMember 2018-04-02 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:MarineSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:InformationTechnologyMember 2018-01-01 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:MarineSystemsMember 2019-01-01 2019-06-30 0000040533 us-gaap:CorporateNonSegmentMember 2019-04-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:CombatSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:CorporateNonSegmentMember 2018-04-02 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:AerospaceMember 2019-01-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:MarineSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:CorporateNonSegmentMember 2018-01-01 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:MissionSystemsMember 2019-04-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:CombatSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:MissionSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:MissionSystemsMember 2019-01-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:MarineSystemsMember 2018-04-02 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:AerospaceMember 2019-04-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:CombatSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:InformationTechnologyMember 2019-04-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:InformationTechnologyMember 2018-04-02 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:MissionSystemsMember 2018-01-01 2018-07-01 0000040533 us-gaap:OperatingSegmentsMember gd:InformationTechnologyMember 2019-01-01 2019-06-30 0000040533 us-gaap:OperatingSegmentsMember gd:CombatSystemsMember 2019-01-01 2019-06-30 0000040533 us-gaap:CorporateNonSegmentMember 2019-01-01 2019-06-30 0000040533 srt:ParentCompanyMember 2019-04-01 2019-06-30 0000040533 srt:NonGuarantorSubsidiariesMember 2019-04-01 2019-06-30 0000040533 srt:ParentCompanyMember 2018-04-02 2018-07-01 0000040533 srt:ConsolidationEliminationsMember 2018-04-02 2018-07-01 0000040533 srt:NonGuarantorSubsidiariesMember 2018-04-02 2018-07-01 0000040533 srt:ConsolidationEliminationsMember 2019-04-01 2019-06-30 0000040533 srt:GuarantorSubsidiariesMember 2018-04-02 2018-07-01 0000040533 srt:GuarantorSubsidiariesMember 2019-04-01 2019-06-30 0000040533 srt:ParentCompanyMember 2018-01-01 2018-07-01 0000040533 srt:NonGuarantorSubsidiariesMember 2019-01-01 2019-06-30 0000040533 srt:GuarantorSubsidiariesMember 2019-01-01 2019-06-30 0000040533 srt:ParentCompanyMember 2019-01-01 2019-06-30 0000040533 srt:ConsolidationEliminationsMember 2019-01-01 2019-06-30 0000040533 srt:GuarantorSubsidiariesMember 2018-01-01 2018-07-01 0000040533 srt:NonGuarantorSubsidiariesMember 2018-01-01 2018-07-01 0000040533 srt:ConsolidationEliminationsMember 2018-01-01 2018-07-01 0000040533 srt:GuarantorSubsidiariesMember 2019-06-30 0000040533 srt:ParentCompanyMember 2019-06-30 0000040533 srt:NonGuarantorSubsidiariesMember 2019-06-30 0000040533 srt:ConsolidationEliminationsMember 2019-06-30 0000040533 srt:NonGuarantorSubsidiariesMember 2018-12-31 0000040533 srt:GuarantorSubsidiariesMember 2018-12-31 0000040533 srt:ConsolidationEliminationsMember 2018-12-31 0000040533 srt:ParentCompanyMember 2018-12-31 0000040533 srt:ConsolidationEliminationsMember 2017-12-31 0000040533 srt:GuarantorSubsidiariesMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-07-01 0000040533 srt:GuarantorSubsidiariesMember 2017-12-31 0000040533 srt:GuarantorSubsidiariesMember 2018-07-01 0000040533 srt:ConsolidationEliminationsMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-07-01 0000040533 srt:ParentCompanyMember 2018-07-01 0000040533 srt:NonGuarantorSubsidiariesMember 2017-12-31 0000040533 srt:ParentCompanyMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-07-01 0000040533 srt:NonGuarantorSubsidiariesMember 2018-07-01 0000040533 srt:ConsolidationEliminationsMember 2018-07-01 0000040533 srt:ParentCompanyMember 2017-12-31 0000040533 srt:NonGuarantorSubsidiariesMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-07-01 xbrli:shares iso4217:USD xbrli:shares xbrli:pure gd:contract iso4217:USD gd:business gd:Segment



gdlogo20190331a01.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 June 30, 2019
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
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 organization
 
I.R.S. employer identification no.
 
 
 
 
2941 Fairview Park Drive
Suite 100
 
 
Falls Church
Virginia
 
22042-4513
Address of principal executive offices
 
Zip code
(703) 876-3000
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
GD
New 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
288,844,120 shares of the registrant’s common stock, $1 par value per share, were outstanding on June 30, 2019.





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)
June 30, 2019
 
July 1, 2018
Revenue:
 
 
 
Products
$
5,401

 
$
4,754

Services
4,154

 
4,432

 
9,555


9,186

Operating costs and expenses:
 
 
 
Products
(4,342
)
 
(3,702
)
Services
(3,527
)
 
(3,784
)
General and administrative (G&A)
(596
)
 
(612
)
 
(8,465
)
 
(8,098
)
Operating earnings
1,090

 
1,088

Interest, net
(119
)
 
(103
)
Other, net
12

 
(15
)
Earnings before income tax
983


970

Provision for income tax, net
(177
)
 
(184
)
Net earnings
$
806


$
786

 
 
 
 
Earnings per share
 
 
 
Basic
$
2.80

 
$
2.65

Diluted
$
2.77

 
$
2.62

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)
June 30, 2019
 
July 1, 2018
Revenue:
 
 
 
Products
$
10,652

 
$
9,330

Services
8,164

 
7,391

 
18,816


16,721

Operating costs and expenses:
 
 
 
Products
(8,577
)
 
(7,248
)
Services
(6,925
)
 
(6,228
)
G&A
(1,210
)
 
(1,149
)
 
(16,712
)
 
(14,625
)
Operating earnings
2,104


2,096

Interest, net
(236
)
 
(130
)
Other, net
30

 
(36
)
Earnings before income tax
1,898


1,930

Provision for income tax, net
(347
)
 
(345
)
Net earnings
$
1,551


$
1,585

 
 
 
 
Earnings per share
 
 
 
Basic
$
5.39

 
$
5.35

Diluted
$
5.33

 
$
5.27

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 Ended
Six Months Ended
(Dollars in millions)
June 30, 2019
 
July 1, 2018
June 30, 2019
 
July 1, 2018
Net earnings
$
806

 
$
786

$
1,551

 
$
1,585

Gains (losses) on cash flow hedges
51

 
(18
)
68

 
(21
)
Foreign currency translation adjustments
125

 
(216
)
156

 
(215
)
Change in retirement plans’ funded status
59

 
79

122

 
163

Other comprehensive income (loss), pretax
235

 
(155
)
346

 
(73
)
Provision for income tax, net
(28
)
 
(12
)
(44
)
 
(27
)
Other comprehensive income (loss), net of tax
207

 
(167
)
302

 
(100
)
Comprehensive income
$
1,013


$
619

$
1,853

 
$
1,485

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.


5



CONSOLIDATED BALANCE SHEET

 
(Unaudited)
 
 
(Dollars in millions)
June 30, 2019
 
December 31, 2018
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
702

 
$
963

Accounts receivable
3,673

 
3,759

Unbilled receivables
7,554

 
6,576

Inventories
6,480

 
5,977

Other current assets
1,148

 
914

Total current assets
19,557


18,189

Noncurrent assets:
 
 
 
Property, plant and equipment, net
4,091

 
3,978

Intangible assets, net
2,457

 
2,585

Goodwill
19,662

 
19,594

Other assets
2,307

 
1,062

Total noncurrent assets
28,517


27,219

Total assets
$
48,074


$
45,408

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
4,960

 
$
973

Accounts payable
2,860

 
3,179

Customer advances and deposits
6,714

 
7,270

Other current liabilities
3,480

 
3,317

Total current liabilities
18,014


14,739

Noncurrent liabilities:
 
 
 
Long-term debt
8,975

 
11,444

Other liabilities
8,208

 
7,493

Commitments and contingencies (see Note M)


 


Total noncurrent liabilities
17,183


18,937

Shareholders’ equity:
 
 
 
Common stock
482

 
482

Surplus
2,959

 
2,946

Retained earnings
30,291

 
29,326

Treasury stock
(17,379
)
 
(17,244
)
Accumulated other comprehensive loss
(3,476
)
 
(3,778
)
Total shareholders’ equity
12,877


11,732

Total liabilities and shareholders equity
$
48,074


$
45,408

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)
June 30, 2019
 
July 1, 2018
Cash flows from operating activities - continuing operations:
 
 
 
Net earnings
$
1,551

 
$
1,585

Adjustments to reconcile net earnings to net cash from operating activities:
 
 

Depreciation of property, plant and equipment
232

 
206

Amortization of intangible and finance lease right-of-use assets
183

 
121

Equity-based compensation expense
72

 
71

Deferred income tax benefit
(17
)
 
(6
)
(Increase) decrease in assets, net of effects of business acquisitions:
 
 
 
Accounts receivable
64

 
344

Unbilled receivables
(1,074
)
 
(1,030
)
Inventories
(556
)
 
(542
)
Increase (decrease) in liabilities, net of effects of business acquisitions:
 
 
 
Accounts payable
(301
)
 
(324
)
Customer advances and deposits
(607
)
 
(159
)
Other, net
(51
)
 
25

Net cash (used) provided by operating activities
(504
)
 
291

Cash flows from investing activities:
 
 
 
Capital expenditures
(362
)
 
(279
)
Business acquisitions, net of cash acquired
(17
)
 
(10,039
)
Other, net
16

 
74

Net cash used by investing activities
(363
)
 
(10,244
)
Cash flows from financing activities:
 
 
 
Proceeds from commercial paper, net
1,394

 
2,786

Dividends paid
(563
)
 
(526
)
Purchases of common stock
(231
)
 
(436
)
Proceeds from fixed-rate notes

 
6,461

Proceeds from floating-rate notes

 
1,000

Repayment of CSRA accounts receivable purchase agreement

 
(450
)
Other, net
30

 
3

Net cash provided by financing activities
630

 
8,838

Net cash used by discontinued operations
(24
)
 
(6
)
Net decrease in cash and equivalents
(261
)
 
(1,121
)
Cash and equivalents at beginning of period
963

 
2,983

Cash and equivalents at end of period
$
702

 
$
1,862

Supplemental cash flow information:
 
 
 
Income tax payments, net
$
397

 
$
155

Interest payments
$
216

 
$
95

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 Stock
 
Retained
 
Treasury
 
Accumulated
Other 
Comprehensive
 
Total
Shareholders’    
(Dollars in millions)
Par
 
Surplus
 
Earnings
 
Stock
 
Loss
 
Equity
March 31, 2019
$
482

 
$
2,937

 
$
29,781

 
$
(17,283
)
 
$
(3,683
)
 
$
12,234

Net earnings

 

 
806

 

 

 
806

Cash dividends declared

 

 
(296
)
 

 

 
(296
)
Equity-based awards

 
22

 

 
2

 

 
24

Shares purchased

 

 

 
(98
)
 

 
(98
)
Other comprehensive income

 

 

 

 
207

 
207

June 30, 2019
$
482

 
$
2,959

 
$
30,291

 
$
(17,379
)
 
$
(3,476
)
 
$
12,877

 
 
 
 
 
 
 
 
 
 
 
 
April 1, 2018
$
482

 
$
2,820

 
$
27,605

 
$
(15,742
)
 
$
(3,391
)
 
$
11,774

Net earnings

 

 
786

 

 

 
786

Cash dividends declared

 

 
(276
)
 

 

 
(276
)
Equity-based awards

 
45

 

 
11

 

 
56

Shares purchased

 

 

 
(179
)
 

 
(179
)
Other comprehensive loss

 

 

 

 
(167
)
 
(167
)
July 1, 2018
$
482

 
$
2,865

 
$
28,115

 
$
(15,910
)
 
$
(3,558
)
 
$
11,994

 
Six Months Ended
 
Common Stock
 
Retained
 
Treasury
 
Accumulated
Other 
Comprehensive
 
Total
Shareholders’    
(Dollars in millions)
Par
 
Surplus
 
Earnings
 
Stock
 
Loss
 
Equity
December 31, 2018
$
482

 
$
2,946

 
$
29,326

 
$
(17,244
)
 
$
(3,778
)
 
$
11,732

Net earnings

 

 
1,551

 

 

 
1,551

Cash dividends declared

 

 
(586
)
 

 

 
(586
)
Equity-based awards

 
13

 

 
49

 

 
62

Shares purchased

 

 

 
(184
)
 

 
(184
)
Other comprehensive income

 

 

 

 
302

 
302

June 30, 2019
$
482

 
$
2,959

 
$
30,291

 
$
(17,379
)
 
$
(3,476
)
 
$
12,877

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
$
482

 
$
2,872

 
$
26,444

 
$
(15,543
)
 
$
(2,820
)
 
$
11,435

Cumulative-effect adjustments*

 

 
638

 

 
(638
)
 

Net earnings

 

 
1,585

 

 

 
1,585

Cash dividends declared

 

 
(552
)
 

 

 
(552
)
Equity-based awards

 
(7
)
 

 
69

 

 
62

Shares purchased

 

 

 
(436
)
 

 
(436
)
Other comprehensive loss

 

 

 

 
(100
)
 
(100
)
July 1, 2018
$
482

 
$
2,865

 
$
28,115

 
$
(15,910
)
 
$
(3,558
)
 
$
11,994

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of these financial statements.

* Reflects the cumulative effects of Accounting Standards Update (ASU) 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which we adopted on January 1, 2018.


8



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; combat vehicles, weapons systems and munitions; information technology (IT) services; command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) solutions; and shipbuilding and ship repair.
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. 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 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 June 30, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
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 June 30, 2019, and July 1, 2018.
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, 2018.
Accounting Standards Updates. Effective January 1, 2019, we adopted Accounting Standards Codification (ASC) Topic 842, Leases. ASC Topic 842 requires the recognition of lease rights and obligations as assets and liabilities on the balance sheet. Previously, lessees were not required to recognize on the balance sheet assets and liabilities arising from operating leases. As we elected the cumulative-effect adoption method, prior-period information has not been restated.
The standard provided several optional practical expedients for use in transition. We elected to use what the Financial Accounting Standards Board (FASB) has deemed the “package of practical expedients,” which allowed us not to reassess our previous conclusions about lease identification, lease classification and the

9



accounting treatment for initial direct costs. We did not elect the practical expedient pertaining to the use of hindsight.
The most significant effects of the standard on our Consolidated Financial Statements are (1) the recognition of new right-of-use assets and lease liabilities on our Consolidated Balance Sheet for our operating leases, and (2) significant new disclosures about our leasing activities (see Note N). On January 1, 2019, we recognized operating lease liabilities and right-of-use assets of $1.4 billion based on the present value of the remaining lease payments over the lease term. The adoption did not result in a cumulative-effect adjustment to retained earnings. The new standard did not have a material impact on our results of operations, financial condition or cash flows.
There are several other accounting standards that have been issued by the FASB but are not yet effective, including Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 significantly changes how entities account for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, that are not measured at fair value through net income. The ASU requires a number of changes to the assessment of credit losses, including the utilization of an expected credit loss model, which requires consideration of a broader range of information to estimate expected credit losses over the entire lifetime of the asset, including losses where probability is considered remote. Additionally, the standard requires the estimation of lifetime expected losses for trade receivables and contract assets that are classified as current. We intend to adopt the standard on the effective date of January 1, 2020. We have not yet determined the effect of the ASU on our results of operations, financial condition or cash flows.

B. ACQUISITIONS AND DIVESTITURES, GOODWILL, AND INTANGIBLE ASSETS
CSRA Acquisition
On April 3, 2018, we acquired 100% of the outstanding shares of CSRA Inc. (CSRA) for $41.25 per share in cash plus the assumption of outstanding net debt. CSRA is a provider of IT solutions to the defense, intelligence and federal civilian markets and is included in our Information Technology segment.

10



Fair Value of Net Assets Acquired. The following table summarizes the allocation of the $9.7 billion cash purchase price to the estimated fair values of the assets acquired and liabilities assumed on the acquisition date, with the excess recorded as goodwill:
Cash and equivalents
$
45

Accounts receivable
155

Unbilled receivables
415

Other current assets
303

Property, plant and equipment, net
326

Intangible assets, net
2,066

Goodwill
7,935

Other noncurrent assets
369

Total assets
$
11,614

Accounts payable
$
(135
)
Customer advances and deposits
(151
)
Current lease obligation
(51
)
Other current liabilities
(434
)
Noncurrent lease obligation
(207
)
Noncurrent deferred tax liability
(355
)
Other noncurrent liabilities
(532
)
Total liabilities
$
(1,865
)
Net assets acquired
$
9,749


Pro Forma Information. The following pro forma information presents our consolidated revenue and net earnings as if the acquisition of CSRA and the related financing transactions had occurred on January 1, 2017:
 
Three Months Ended
 
Six Months Ended
 
July 1, 2018
 
July 1, 2018
Revenue
$
9,225

 
$
18,062

Net Earnings
854

 
1,598

Diluted earnings per share
$
2.85

 
$
5.32


The pro forma information was prepared by combining our reported historical results with the historical results of CSRA for the pre-acquisition periods. In addition, the reported historical amounts were adjusted for the following items, net of associated tax effects:
The impact of acquisition financing.
The removal of certain CSRA operations we were required by a government customer to dispose of to address an organizational conflict of interest with respect to services provided to the customer. We completed the sale of these operations in the third quarter of 2018.
The removal of CSRA’s historical pre-acquisition intangible asset amortization expense and debt-related interest expense.
The impact of intangible asset amortization expense assuming our estimate of fair value was applied on January 1, 2017.
The payment of acquisition-related costs assuming they were incurred on January 1, 2017.

11



The pro forma information does not reflect the realization of expected cost savings or synergies from the acquisition, and does not reflect what our combined results of operations would have been had the acquisition occurred on January 1, 2017.
Other Acquisitions and Divestitures
In the first six months of 2019, we acquired a business in each of our Aerospace and Missions Systems segments for a total of $17. In 2018, we acquired five businesses in addition to the acquisition of CSRA for approximately $400: Hawker Pacific, a leading provider of integrated aviation solutions across Asia Pacific and the Middle East, and two fixed-base operation (FBO) businesses in our Aerospace segment; a maintenance and service provider for the German Army and other international customers in our Combat Systems segment; and a provider of specialized transmitters and receivers in our Mission Systems segment.
The operating results of these acquisitions have been included with our reported results since the respective closing dates. The purchase prices of the acquisitions have been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.
In the first six months of 2019, we completed the sale of a business in our Information Technology segment that was classified as held for sale on the Consolidated Balance Sheet on December 31, 2018. In 2018, we completed the sale of a commercial health products business during the first quarter and the sale of a public-facing contact-center business during the fourth quarter in our Information Technology segment. For the six-month periods ended June 30, 2019, and July 1, 2018, the proceeds from the sale of businesses were not material and are included in other investing activities, net, in the unaudited Consolidated Statement of Cash Flows.
Goodwill
The changes in the carrying amount of goodwill by reporting unit were as follows:
 
Aerospace
 
Combat Systems
 
Information Technology
 
Mission Systems
 
Marine Systems
 
Total
Goodwill
December 31, 2018 (a)
$
2,813

 
$
2,633

 
$
9,622

 
$
4,229

 
$
297

 
$
19,594

Acquisitions/divestitures (b)
2

 
7

 
77

 
6

 

 
92

Other (c)
13

 
32

 
1

 
(70
)
 

 
(24
)
June 30, 2019 (a)
$
2,828

 
$
2,672

 
$
9,700

 
$
4,165

 
$
297


$
19,662


(a)Goodwill in the Information Technology and Mission Systems reporting units is net of $536 and $1.3 billion of accumulated impairment losses, respectively.
(b)Includes adjustments during the purchase price allocation period.
(c)Consists primarily of adjustments for foreign currency translation. Also includes an estimated allocation of goodwill in our Mission Systems reporting unit associated with a non-core operation classified as held for sale on the unaudited Consolidated Balance Sheet on June 30, 2019. As we expect this operation to be divested within the next 12 months, the assets and liabilities held for sale are included in other current assets and liabilities on the unaudited Consolidated Balance Sheet.

12



Intangible Assets
Intangible assets consisted of the following:
 
Gross Carrying Amount (a)
Accumulated Amortization
Net Carrying Amount
 
Gross Carrying Amount (a)
Accumulated Amortization
Net Carrying Amount
 
June 30, 2019
 
December 31, 2018
Contract and program
    intangible assets (b)
$
3,777

$
(1,656
)
$
2,121

 
$
3,771

$
(1,531
)
$
2,240

Trade names and trademarks
472

(186
)
286

 
469

(177
)
292

Technology and software
170

(122
)
48

 
165

(116
)
49

Other intangible assets
159

(157
)
2

 
159

(155
)
4

Total intangible assets
$
4,578

$
(2,121
)
$
2,457

 
$
4,564

$
(1,979
)
$
2,585

(a)
Change in gross carrying amounts consists primarily of adjustments for acquired intangible assets and foreign currency translation.
(b)
Consists of acquired backlog and probable follow-on work and associated customer relationships.
Amortization expense for intangible assets was $70 and $140 for the three- and six-month periods ended June 30, 2019, and $84 and $104 for the three- and six-month periods ended July 1, 2018, respectively.

C. 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 lifecycle (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% of our revenue for the three- and six-month periods ended June 30, 2019, and 78% and 76% of our revenue for the three- and six-month periods ended July 1, 2018, 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% of our revenue for the three- and six-month periods ended June 30, 2019, and 22% and 24% of our revenue for the three- and six-month periods ended July 1, 2018, respectively. The majority of our revenue recognized

13



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 June 30, 2019, we had $67.7 billion of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 60% of our remaining performance obligations as revenue by year-end 2020, an additional 25% by year-end 2022 and the balance thereafter. On December 31, 2018, we had $67.9 billion of remaining performance obligations, at which time we expected to recognize approximately 45% of these remaining performance obligations as revenue in 2019, an additional 35% by year-end 2021 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 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 Ended
Six Months Ended
 
June 30, 2019
 
July 1, 2018
June 30, 2019
 
July 1, 2018
Revenue
$
72

 
$
91

$
168

 
$
206

Operating earnings
71

 
83

139

 
180

Diluted earnings per share
$
0.19

 
$
0.22

$
0.38

 
$
0.47



14



No adjustment on any one contract was material to the unaudited Consolidated Financial Statements for the three- and six-month periods ended June 30, 2019, or July 1, 2018.
Revenue by Category. Our portfolio of products and services consists of approximately 11,000 active contracts. The following series of tables presents our revenue disaggregated by several categories.
Revenue by major products and services was as follows:
 
Three Months Ended
Six Months Ended
 
June 30, 2019
 
July 1, 2018
June 30, 2019
 
July 1, 2018
Aircraft manufacturing and
    completions
$
1,597

 
$
1,362

$
3,288

 
$
2,728

Aircraft services
537

 
531

1,044

 
982

Pre-owned aircraft
2

 
2

44

 
10

Total Aerospace
2,136


1,895

4,376

 
3,720

Military vehicles
1,090

 
990

2,224

 
1,946

Weapons systems, armament and
    munitions
461

 
443

862

 
826

Engineering and other services
108

 
101

209

 
202

Total Combat Systems
1,659


1,534

3,295

 
2,974

IT services
2,158

 
2,442

4,327

 
3,580

Total Information Technology
2,158


2,442

4,327

 
3,580

C4ISR solutions
1,277

 
1,147

2,435

 
2,245

Total Mission Systems
1,277


1,147

2,435

 
2,245

Nuclear-powered submarines
1,538

 
1,438

2,915

 
2,734

Surface ships
528

 
473

974

 
956

Repair and other services
259

 
257

494

 
512

Total Marine Systems
2,325


2,168

4,383

 
4,202

Total revenue
$
9,555


$
9,186

$
18,816

 
$
16,721




15



Revenue by contract type was as follows:
Three Months Ended June 30, 2019
Aerospace
 
Combat Systems
 
Information Technology
 
Mission Systems
 
Marine Systems
 
Total
Revenue
Fixed-price
$
1,925

 
$
1,427

 
$
875

 
$
752

 
$
1,575

 
$
6,554

Cost-reimbursement

 
221

 
858

 
484

 
745

 
2,308

Time-and-materials
211

 
11

 
425

 
41

 
5

 
693

Total revenue
$
2,136


$
1,659


$
2,158


$
1,277


$
2,325


$
9,555

Three Months Ended July 1, 2018
 
 
 
 
 
 
 
 
 
 
 
Fixed-price
$
1,696

 
$
1,330

 
$
1,059

 
$
658

 
$
1,372

 
$
6,115

Cost-reimbursement

 
197

 
930

 
451

 
795

 
2,373

Time-and-materials
199

 
7

 
453

 
38

 
1

 
698

Total revenue
$
1,895


$
1,534


$
2,442


$
1,147


$
2,168


$
9,186

Six Months Ended June 30, 2019
Aerospace
 
Combat Systems
 
Information Technology
 
Mission Systems
 
Marine Systems
 
Total
Revenue
Fixed-price
$
3,965

 
$
2,843

 
$
1,796

 
$
1,403

 
$
2,991

 
$
12,998

Cost-reimbursement

 
432

 
1,699

 
947

 
1,385

 
4,463

Time-and-materials
411

 
20

 
832

 
85

 
7

 
1,355

Total revenue
$
4,376

 
$
3,295

 
$
4,327

 
$
2,435

 
$
4,383

 
$
18,816

Six Months Ended July 1, 2018
 
 
 
 
 
 
 
 
 
 
 
Fixed-price
$
3,364

 
$
2,583

 
$
1,446

 
$
1,278

 
$
2,677

 
$
11,348

Cost-reimbursement

 
376

 
1,507

 
891

 
1,523

 
4,297

Time-and-materials
356

 
15

 
627

 
76

 
2

 
1,076

Total revenue
$
3,720

 
$
2,974

 
$
3,580

 
$
2,245

 
$
4,202

 
$
16,721

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.

16



Revenue by customer was as follows:
Three Months Ended June 30, 2019
Aerospace
 
Combat Systems
 
Information Technology
 
Mission Systems
 
Marine Systems
 
Total
Revenue
U.S. government:
 
 
 
 
 
 
 
 
 
 
 
Department of Defense (DoD)
$
52

 
$
910

 
$
926

 
$
884

 
$
2,243

 
$
5,015

Non-DoD

 
3

 
1,178

 
133

 
1

 
1,315

Foreign Military Sales (FMS)
14

 
90

 
4

 
12

 
47

 
167

Total U.S. government
66


1,003


2,108


1,029


2,291


6,497

U.S. commercial
1,242

 
59

 
45

 
39

 
30

 
1,415

Non-U.S. government
141

 
587

 
5

 
181

 
2

 
916

Non-U.S. commercial
687

 
10

 

 
28

 
2

 
727

Total revenue
$
2,136


$
1,659


$
2,158


$
1,277


$
2,325


$
9,555

Three Months Ended July 1, 2018
 
 
 
 
 
 
 
 
 
 
 
U.S. government:
 
 
 
 
 
 
 
 
 
 
 
DoD
$
89

 
$
660

 
$
1,024

 
$
764

 
$
2,032

 
$
4,569

Non-DoD

 
3

 
1,339

 
130

 
1

 
1,473

FMS
19

 
83

 
7

 
14

 
39

 
162

Total U.S. government
108


746


2,370


908


2,072


6,204

U.S. commercial
917

 
58

 
41

 
36

 
91

 
1,143

Non-U.S. government
143

 
712

 
31

 
161

 
4

 
1,051

Non-U.S. commercial
727

 
18

 

 
42

 
1

 
788

Total revenue
$
1,895

 
$
1,534

 
$
2,442

 
$
1,147

 
$
2,168

 
$
9,186


17



Six Months Ended June 30, 2019
Aerospace
 
Combat Systems
 
Information Technology
 
Mission Systems
 
Marine Systems
 
Total
Revenue
U.S. government:
 
 
 
 
 
 
 
 
 
 
 
DoD
$
175

 
$
1,703

 
$
1,850

 
$
1,668

 
$
4,218

 
$
9,614

Non-DoD

 
6

 
2,370

 
268

 
1

 
2,645

FMS
29

 
169

 
9

 
21

 
91

 
319

Total U.S. government
204

 
1,878

 
4,229

 
1,957

 
4,310

 
12,578

U.S. commercial
2,571

 
109

 
85

 
74

 
66

 
2,905

Non-U.S. government
200

 
1,288

 
13

 
347

 
4

 
1,852

Non-U.S. commercial
1,401

 
20

 

 
57

 
3

 
1,481

Total revenue
$
4,376

 
$
3,295

 
$
4,327

 
$
2,435

 
$
4,383

 
$
18,816

Six Months Ended July 1, 2018
 
 
 
 
 
 
 
 
 
 
 
U.S. government:
 
 
 
 
 
 
 
 
 
 
 
DoD
$
130

 
$
1,267

 
$
1,457

 
$
1,506

 
$
3,982

 
$
8,342

Non-DoD

 
4

 
1,976

 
248

 
1

 
2,229

FMS
35

 
152

 
15

 
21

 
68

 
291

Total U.S. government
165

 
1,423

 
3,448

 
1,775

 
4,051

 
10,862

U.S. commercial
1,759

 
116

 
81

 
63

 
144

 
2,163

Non-U.S. government
153

 
1,409

 
51

 
333

 
6

 
1,952

Non-U.S. commercial
1,643

 
26

 

 
74

 
1

 
1,744

Total revenue
$
3,720

 
$
2,974

 
$
3,580

 
$
2,245

 
$
4,202

 
$
16,721

Contract Balances. 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 Sheet. In our defense segments, 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, particularly on our international contracts, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period. In our Aerospace segment, we generally receive deposits from customers upon contract execution and upon achievement of contractual milestones. These deposits are liquidated when revenue is recognized. Changes in the contract asset and liability balances during the six-month period ended June 30, 2019, were not materially impacted by any other factors except for the delays in payment on an international wheeled armored vehicle contract in our Combat Systems segment, which contributed to growth in contract assets as further discussed in Note G.
Revenue recognized for the three- and six-month periods ended June 30, 2019, and July 1, 2018, that was included in the contract liability balance at the beginning of each year was $1.2 billion and $2.9 billion, and $1.1 billion and $2.6 billion, respectively. This revenue represented primarily the sale of business-jet aircraft.


18



D. EARNINGS PER SHARE
We compute basic earnings per share (EPS) using net earnings for the period and the weighted average number of common shares outstanding during the period. Basic weighted average shares outstanding have decreased in 2019 and 2018 due to share repurchases. See Note K for further discussion of our share repurchases. Diluted EPS incorporates the additional shares issuable upon the assumed exercise of stock options and the release of restricted stock and restricted stock units (RSUs).
Basic and diluted weighted average shares outstanding were as follows (in thousands):
 
Three Months Ended
Six Months Ended
 
June 30, 2019
 
July 1, 2018
June 30, 2019
 
July 1, 2018
Basic weighted average shares
    outstanding
288,099

 
296,153

288,008

 
296,276

Dilutive effect of stock options and
    restricted stock/RSUs*
2,716

 
3,986

2,816

 
4,318

 Diluted weighted average shares
    outstanding
290,815

 
300,139

290,824

 
300,594


* Excludes outstanding options to purchase shares of common stock that had exercise prices in excess of the average market price of our common stock during the period and, therefore, the effect of including these options would be antidilutive. These options totaled 5,396 and 4,685 for the three- and six-month periods ended June 30, 2019, and 3,511 and 2,851 for the three- and six-month periods ended July 1, 2018, respectively.

E. FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants. Various valuation approaches can be used to determine fair value, each requiring different valuation inputs. The following hierarchy classifies the inputs used to determine fair value into three levels:
Level 1 - quoted prices in active markets for identical assets or liabilities;
Level 2 - inputs, other than quoted prices, observable by a marketplace participant either directly or indirectly; and
Level 3 - unobservable inputs significant to the fair value measurement.
We did not have any significant non-financial assets or liabilities measured at fair value on June 30, 2019, or December 31, 2018.
Our financial instruments include cash and equivalents, accounts receivable and payable, marketable securities held in trust and other investments, short- and long-term debt, and derivative financial instruments. The carrying values of cash and equivalents and accounts receivable and payable on the unaudited Consolidated Balance Sheet approximate their fair value. The following tables present the fair values of our other financial assets and liabilities on June 30, 2019, and December 31, 2018, and the basis for determining their fair values:

19



 
Carrying
Value
 
Fair
Value
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Financial Assets (Liabilities)
June 30, 2019
Measured at fair value:
 
 
 
 
 
 
 
 
 
    Marketable securities held in trust:
 
 
 
 
 
 
 
 
 
        Cash and equivalents
$
3

 
$
3

 
$

 
$
3

 
$

        Available-for-sale debt securities
141

 
141

 

 
141

 

        Equity securities
50

 
50

 
50

 

 

    Other investments
4

 
4

 

 

 
4

    Cash flow hedges
(19
)
 
(19
)
 

 
(19
)
 

Measured at amortized cost:
 
 
 
 
 
 
 
 
 
    Short- and long-term debt principal
(14,026
)
 
(14,276
)
 

 
(14,276
)
 


 
December 31, 2018
Measured at fair value:
 
 
 
 
 
 
 
 
 
    Marketable securities held in trust:
 
 
 
 
 
 
 
 
 
        Cash and equivalents
$
29

 
$
29

 
$
23

 
$
6

 
$

        Available-for-sale debt securities
121

 
121

 

 
121

 

        Equity securities
52

 
52

 
52

 

 

    Other investments
4

 
4

 

 

 
4

    Cash flow hedges
(69
)
 
(69
)
 

 
(69
)
 

Measured at amortized cost:
 
 
 
 
 
 
 
 
 
    Short- and long-term debt principal
(12,518
)
 
(12,346
)
 

 
(12,346
)
 


Our Level 1 assets include investments in publicly traded equity securities valued using quoted prices from the market exchanges. The fair value of our Level 2 assets and liabilities is determined under a market approach using valuation models that incorporate observable inputs such as interest rates, bond yields and quoted prices for similar assets. Our Level 3 assets include direct private equity investments that are measured using inputs unobservable to a marketplace participant.

F. INCOME TAXES
Net Deferred Tax Liability. Our deferred tax assets and liabilities are included in other noncurrent assets and liabilities on the Consolidated Balance Sheet. Our net deferred tax liability consisted of the following:
 
June 30, 2019
 
December 31, 2018
Deferred tax asset
$
37

 
$
38

Deferred tax liability
(570
)
 
(577
)
Net deferred tax liability
$
(533
)
 
$
(539
)

Tax Uncertainties. For all periods open to examination by tax authorities, we periodically assess our liabilities and contingencies based on the latest available information. Where we believe there is more than a 50% chance that our tax position will not be sustained, we record our best estimate of the resulting tax liability, including interest, in the Consolidated Financial Statements. We include any interest or penalties

20



incurred in connection with income taxes as part of income tax expense. The total amount of these tax liabilities on June 30, 2019, was not material to our results of operations, financial condition or cash flows.
We participate in the Internal Revenue Service (IRS) Compliance Assurance Process (CAP), a real-time audit of our consolidated federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through 2017. We do not expect the resolution of tax matters for open years to have a material impact on our results of operations, financial condition, cash flows or effective tax rate.
Based on all known facts and circumstances and current tax law, we believe the total amount of any unrecognized tax benefits on June 30, 2019, was not material to our results of operations, financial condition or cash flows, and if recognized, would not have a material impact on our effective tax rate. In addition, there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will vary significantly over the next 12 months, producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.

G. UNBILLED RECEIVABLES
Unbilled receivables represent revenue recognized on long-term contracts (contract costs and estimated profits) less associated advances and progress billings. These amounts will be billed in accordance with the agreed-upon contractual terms. Unbilled receivables consisted of the following:
 
June 30, 2019
 
December 31, 2018
Unbilled revenue
$
31,643

 
$
27,908

Advances and progress billings
(24,089
)
 
(21,332
)
Net unbilled receivables
$
7,554


$
6,576


The increase in net unbilled receivables during the six-month period ended June 30, 2019, was due primarily to an international wheeled armored vehicle contract in our Combat Systems segment. At June 30, 2019, the net unbilled receivable related to this contract was $2.4 billion. Our contract is with the Canadian government, who is selling the vehicles to an international customer. We have experienced delays in payment under the contract. We continue to meet our obligations under the contract and are entitled to payment for work performed. Therefore, we expect to collect the full amount currently outstanding.

H. INVENTORIES
The majority of our inventories are for business-jet aircraft. Our inventories are stated at the lower of cost or net realizable value. Work in process represents largely labor, material and overhead costs associated with aircraft in the manufacturing process and is based primarily on the estimated average unit cost in a production lot. Raw materials are valued primarily on the first-in, first-out method. We record pre-owned aircraft acquired in connection with the sale of new aircraft at the lower of the trade-in value or the estimated net realizable value.

21



Inventories consisted of the following:
 
June 30, 2019
 
December 31, 2018
Work in process
$
4,749

 
$
4,357

Raw materials
1,587

 
1,504

Finished goods
25

 
33

Pre-owned aircraft
119

 
83

Total inventories
$
6,480

 
$
5,977


The increase in total inventories during the six-month period ended June 30, 2019, was due primarily to the ramp-up in production of the new G600 aircraft in our Aerospace segment. We received both type and production certification from the U.S. Federal Aviation Administration (FAA) for the G600 aircraft in June 2019, and we are anticipating deliveries of the newly-certified aircraft to begin in the third quarter of 2019.

I. DEBT
Debt consisted of the following:
 
 
June 30, 2019
 
December 31, 2018
Fixed-rate notes due:
Interest rate:
 
 
 
May 2020
2.875%
$
2,000

 
$
2,000

May 2021
3.000%
2,000

 
2,000

July 2021
3.875%
500

 
500

November 2022
2.250%
1,000

 
1,000

May 2023
3.375%
750

 
750

August 2023
1.875%
500

 
500

November 2024
2.375%
500

 
500

May 2025
3.500%
750

 
750

August 2026
2.125%
500

 
500

November 2027
2.625%
500

 
500

May 2028
3.750%
1,000

 
1,000

November 2042
3.600%
500

 
500

Floating-rate notes due:
 
 
 
 
May 2020
3-month LIBOR + 0.29%
500

 
500

May 2021
3-month LIBOR + 0.38%
500

 
500

Commercial paper
2.482%
2,250

 
850

Other
Various
276

 
168

Total debt principal
 
14,026

 
12,518

Less unamortized debt issuance costs
    and discounts
 
91

 
101

Total debt
 
13,935

 
12,417

Less current portion
 
4,960

 
973

Long-term debt
 
$
8,975

 
$
11,444


Our fixed- and floating-rate notes are fully and unconditionally guaranteed by several of our 100%-owned subsidiaries. See Note Q for condensed consolidating financial statements. We have the option to redeem the fixed-rate notes prior to their maturity in whole or in part for the principal plus any accrued but unpaid interest and applicable make-whole amounts.
On June 30, 2019, we had $2.3 billion of commercial paper outstanding with a dollar-weighted average interest rate of 2.482%. We have $5 billion in committed bank credit facilities to support our commercial paper issuances and for general corporate purposes and working capital needs. These credit facilities include a $2 billion 364-day facility expiring in March 2020, a $1 billion multi-year facility expiring in November 2020 and a $2 billion multi-year facility expiring in March 2023. We may renew or replace these credit facilities in whole or in part at or prior to their expiration dates. Our credit facilities are guaranteed by several of our 100%-owned subsidiaries. We also have an effective shelf registration on file with the Securities and Exchange Commission that allows us to access the debt markets.
Our financing arrangements contain a number of customary covenants and restrictions. We were in compliance with all covenants and restrictions on June 30, 2019.

J. OTHER LIABILITIES
A summary of significant other liabilities by balance sheet caption follows:
 
June 30, 2019
 
December 31, 2018
 
 
 
 
Salaries and wages
$
897

 
$
952

Workers’ compensation
267

 
244

Retirement benefits
265

 
272

Operating lease liabilities
240

 

Fair value of cash flow hedges
79

 
141

Other (a)
1,732

 
1,708

Total other current liabilities
$
3,480

 
$
3,317

 
 
 
 
Retirement benefits
$
4,241

 
$
4,422

Operating lease liabilities
1,112

 

Customer deposits on commercial contracts
630

 
726

Deferred income taxes
570

 
577

Other (b)
1,655

 
1,768

Total other liabilities
$
8,208

 
$
7,493

(a)Consists primarily of dividends payable, taxes payable, environmental remediation reserves, warranty reserves, deferred revenue and supplier contributions in the Aerospace segment, liabilities of discontinued operations, finance lease liabilities and insurance-related costs.
(b)Consists primarily of warranty reserves, workers’ compensation liabilities, finance lease liabilities and liabilities of discontinued operations.


22



K. SHAREHOLDERS EQUITY
Share Repurchases. Our board of directors from time to time authorizes management’s repurchase of outstanding shares of our common stock on the open market. On December 5, 2018, the board of directors authorized management to repurchase up to 10 million additional shares of the company’s outstanding stock. In the six-month period ended June 30, 2019, we repurchased 1.1 million of our outstanding shares for $184. On June 30, 2019, 6.4 million shares remained authorized by our board of directors for repurchase, approximately 2% of our total shares outstanding. We repurchased 2.1 million shares for $436 in the six-month period ended July 1, 2018.
Dividends per Share. Our board of directors declared dividends of $1.02 and $2.04 per share for the three- and six-month periods ended June 30, 2019, and $0.93 and $1.86 per share for the three- and six-month periods ended July 1, 2018, respectively. We paid cash dividends of $295 and $563 for the three- and six-month periods ended June 30, 2019, and $276 and $526 for the three- and six-month periods ended July 1, 2018, respectively.
Accumulated Other Comprehensive Loss. The changes, pretax and net of tax, in each component of accumulated other comprehensive loss (AOCL) consisted of the following:
 
Losses on Cash Flow Hedges
Unrealized Gains on Marketable Securities
Foreign Currency Translation Adjustments
Changes in Retirement Plans’ Funded Status
AOCL
December 31, 2018
$
(71
)
$

$
102

$
(3,809
)
$
(3,778
)
Other comprehensive income, pretax
68


156

122

346

Provision for income tax, net
(16
)


(28
)
(44
)
Other comprehensive income, net of tax
52


156

94

302

June 30, 2019
$
(19
)
$

$
258

$
(3,715
)
$
(3,476
)

December 31, 2017
$
(94
)
$
19

$
402

$
(3,147
)
$
(2,820
)
Cumulative-effect adjustments*
(4
)
(19
)

(615
)
(638
)
Other comprehensive loss, pretax
(21
)

(215
)
163

(73
)
Provision for income tax, net
7



(34
)
(27
)
Other comprehensive loss, net of tax
(14
)

(215
)
129

(100
)
July 1, 2018
$
(112
)
$

$
187

$
(3,633
)
$
(3,558
)

* Reflects the cumulative effects of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which we adopted on January 1, 2018.
Current-period amounts reclassified out of AOCL related primarily to changes in our retirement plans’ funded status and consisted of pretax recognized net actuarial losses of $136 and $187 for the six-month periods ended June 30, 2019, and July 1, 2018, respectively. This was offset partially by pretax amortization of prior service credit of $11 and $24 for the six-month periods ended June 30, 2019, and July 1, 2018, respectively. These AOCL components are included in our net periodic pension and other post-retirement benefit cost. See Note O for additional details.


23



L. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to market risk, primarily from foreign currency exchange rates, interest rates, commodity prices and investments. We may use derivative financial instruments to hedge some of these risks as described below. We do not use derivative financial instruments for trading or speculative purposes.
Foreign Currency Risk. Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and inter-company transactions denominated in foreign currencies. To the extent possible, we include terms in our contracts that are designed to protect us from this risk. Otherwise, we enter into derivative financial instruments, principally foreign currency forward purchase and sale contracts, designed to offset and minimize our risk. The dollar-weighted two-year average maturity of these instruments generally matches the duration of the activities that are at risk.
Interest Rate Risk. Our financial instruments subject to interest rate risk include variable-rate commercial paper and fixed- and floating-rate long-term debt obligations. We entered into derivative financial instruments, specifically interest rate swap contracts, to eliminate our floating-rate interest risk. The interest rate risk associated with our financial instruments is not material.
Commodity Price Risk. We are subject to rising labor and commodity price risk, primarily on long-term, fixed-price contracts. To the extent possible, we include terms in our contracts that are designed to protect us from these risks. Some of the protective terms included in our contracts are considered derivative financial instruments but are not accounted for separately, because they are clearly and closely related to the host contract. We have not entered into any material commodity hedging contracts but may do so as circumstances warrant. We do not believe that changes in labor or commodity prices will have a material impact on our results of operations or cash flows.
Investment Risk. Our investment policy allows for purchases of fixed-income securities with an investment-grade rating and a maximum maturity of up to five years. On June 30, 2019, and December 31, 2018, we held $702 and $963 in cash and equivalents, respectively, but held no marketable securities other than those held in trust to meet some of our obligations under workers’ compensation and non-qualified supplemental executive retirement plans. On June 30, 2019, and December 31, 2018, these marketable securities totaled $194 and $202, respectively, and were reflected at fair value on the Consolidated Balance Sheet in other current and noncurrent assets. See Note E for additional details.
Hedging Activities. We had notional forward exchange and interest rate swap contracts outstanding of $4.8 billion and $5.8 billion on June 30, 2019, and December 31, 2018, respectively. These derivative financial instruments are cash flow hedges, and are reflected at fair value on the Consolidated Balance Sheet in other current assets and liabilities. See Note E for additional details.
Changes in fair value (gains and losses) related to derivative financial instruments that qualify as cash flow hedges are deferred in AOCL until the underlying transaction is reflected in earnings. Alternatively, gains and losses on derivative financial instruments that do not qualify for hedge accounting are recorded each period in earnings. All gains and losses from derivative financial instruments recognized in the Consolidated Statement of Earnings are presented in the same line item as the underlying transaction, either operating costs and expenses or interest expense.
Net gains and losses recognized in earnings on derivative financial instruments that do not qualify for hedge accounting were not material to our results of operations for the three- and six-month periods ended June 30, 2019, and July 1, 2018. Net gains and losses reclassified to earnings from AOCL related to qualified hedges also were not material to our results of operations for the three- and six-month periods ended June 30,

24



2019, and July 1, 2018, and we do not expect the amount of these gains and losses that will be reclassified to earnings during the next 12 months to be material.
We had no material derivative financial instruments designated as fair value or net investment hedges on June 30, 2019, or December 31, 2018.
Foreign Currency Financial Statement Translation. We translate foreign currency balance sheets from our international businesses’ functional currency (generally the respective local currency) to U.S. dollars at the end-of-period exchange rates, and statements of earnings at the average exchange rates for each period. The resulting foreign currency translation adjustments are a component of AOCL.
We do not hedge the fluctuation in reported revenue and earnings resulting from the translation of these international operations’ results into U.S. dollars. The impact of translating our non-U.S. operations’ revenue into U.S. dollars was not material to our results of operations for the three- and six-month periods ended June 30, 2019, or July 1, 2018. In addition, the effect of changes in foreign exchange rates on non-U.S. cash balances was not material for the six-month periods ended June 30, 2019, and July 1, 2018.

M. COMMITMENTS AND CONTINGENCIES
Litigation
In 2015, Electric Boat Corporation, a subsidiary of General Dynamics Corporation, received a Civil Investigative Demand from the U.S. Department of Justice regarding an investigation of potential False Claims Act violations relating to alleged failures of Electric Boat’s quality system with respect to allegedly non-conforming parts purchased from a supplier. In 2016, Electric Boat was made aware that it is a defendant in a lawsuit related to this matter filed under seal in U.S. district court. Also in 2016, the Suspending and Debarring Official for the U.S. Department of the Navy issued a Show Cause Letter to Electric Boat requesting that Electric Boat respond to the official’s concerns regarding Electric Boat’s oversight and management with respect to its quality assurance systems for subcontractors and suppliers. Electric Boat responded to the Show Cause Letter and has been engaged in discussions with the U.S. government. Given the current status of these matters, we are unable to express a view regarding the ultimate outcome or, if the outcome is adverse, to estimate an amount or range of reasonably possible loss. Depending on the outcome of these matters, there could be a material impact on our results of operations, financial condition and cash flows.
Additionally, various other claims and legal proceedings incidental to the normal course of business are pending or threatened against us. These other matters relate to such issues as government investigations and claims, the protection of the environment, asbestos-related claims and employee-related matters. The nature of litigation is such that we cannot predict the outcome of these other matters. However, based on information currently available, we believe any potential liabilities in these other proceedings, individually or in the aggregate, will not have a material impact on our results of operations, financial condition or cash flows.
Environmental
We are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. We are directly or indirectly involved in environmental investigations or remediation at some of our current and former facilities and third-party sites that we do not own but where we have been designated a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency. Based on historical experience, we expect that a significant percentage of the total remediation and compliance costs associated with these facilities will continue to be allowable contract costs and, therefore, recoverable under U.S. government contracts.

25



As required, we provide financial assurance for certain sites undergoing or subject to investigation or remediation. We accrue environmental costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. Where applicable, we seek insurance recovery for costs related to environmental liabilities. We do not record insurance recoveries before collection is considered probable. Based on all known facts and analyses, we do not believe that our liability at any individual site, or in the aggregate, arising from such environmental conditions will be material to our results of operations, financial condition or cash flows. We also do not believe that the range of reasonably possible additional loss beyond what has been recorded would be material to our results of operations, financial condition or cash flows.
Other
Government Contracts. As a government contractor, we are subject to U.S. government audits and investigations relating to our operations, including claims for fines, penalties, and compensatory and treble damages. We believe the outcome of such ongoing government audits and investigations will not have a material impact on our results of operations, financial condition or cash flows.
In the performance of our contracts, we routinely request contract modifications that require additional funding from the customer. Most often, these requests are due to customer-directed changes in the scope of work. While we are entitled to recovery of these costs under our contracts, the administrative process with our customer may be protracted. Based on the circumstances, we periodically file requests for equitable adjustment (REAs) that are sometimes converted into claims. In some cases, these requests are disputed by our customer. We believe our outstanding modifications, REAs and other claims will be resolved without material impact to our results of operations, financial condition or cash flows.
Letters of Credit and Guarantees. In the ordinary course of business, we have entered into letters of credit, bank guarantees, surety bonds and other similar arrangements with financial institutions and insurance carriers totaling approximately $1.3 billion on June 30, 2019. In addition, from time to time and in the ordinary course of business, we contractually guarantee the payment or performance of our subsidiaries arising under certain contracts.
Aircraft Trade-ins. In connection with orders for new aircraft in contract backlog, our Aerospace segment has outstanding options with some customers to trade in aircraft as partial consideration in their new-aircraft transaction. These trade-in commitments are generally structured to establish the fair market value of the trade-in aircraft at a date generally 45 or fewer days preceding delivery of the new aircraft to the customer. At that time, the customer is required to either exercise the option or allow its expiration. Other trade-in commitments are structured to guarantee a pre-determined trade-in value. These commitments present more risk in the event of an adverse change in market conditions. In either case, any excess of the pre-established trade-in price above the fair market value at the time the new aircraft is delivered is treated as a reduction of revenue in the new-aircraft sales transaction. As of June 30, 2019, the estimated change in fair market values from the date of the commitments was not material.
Product Warranties. We provide warranties to our customers associated with certain product sales. We record estimated warranty costs in the period in which the related products are delivered. The warranty liability recorded at each balance sheet date is based generally on the number of months of warranty coverage remaining for the products delivered and the average historical monthly warranty payments. Warranty obligations incurred in connection with long-term production contracts are accounted for within the contract estimates at completion. Our other warranty obligations, primarily for business-jet aircraft, are included in other current and noncurrent liabilities on the Consolidated Balance Sheet.

26



The changes in the carrying amount of warranty liabilities for the six-month periods ended June 30, 2019, and July 1, 2018, were as follows:
Six Months Ended
June 30, 2019
 
July 1, 2018
Beginning balance
$
480

 
$
467

Warranty expense
50

 
60

Payments
(37
)
 
(54
)
Adjustments
(11
)
 
(15
)
Ending balance
$
482

 
$
458




27



N. LEASES
We determine at its inception whether an arrangement that provides us control over the use of an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. We have elected not to recognize an ROU asset and lease liability for leases with terms of 12 months or less. Certain of our leases include options to extend the term of the lease for up to 30 years or to terminate the lease within 1 year. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining total future lease payments. As most of our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate on the commencement date to calculate the present value of future payments.
Our leases commonly include payments that are based on the Consumer Price Index (CPI) or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability. Other variable lease payments, such as usage-based amounts, are excluded from the ROU asset and lease liability, and are expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease, such as commissions.
In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. For all other types of leases, non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.
Our leases are for office space, manufacturing facilities, and machinery and equipment. Real estate represents over 75% of our lease obligations.
The components of lease costs were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2019
Finance lease cost:

 
 
    Amortization of right-of-use assets
$
22

 
$
43

    Interest on lease liabilities
7

 
12

Operating lease cost
78

 
164

Short-term lease cost
19

 
32

Variable lease cost
1

 
2

Sublease income
(4
)
 
(8
)
Total lease costs, net
$
123

 
$
245



28



Additional information related to leases was as follows:
Six Months Ended
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
166

Operating cash flows from finance leases
12

Financing cash flows from finance leases
29

Right-of-use assets obtained in exchange for lease liabilities:
 
Operating leases
95

Finance leases
4

Additional quantitative lease information was as follows:
 
June 30, 2019
Weighted-average remaining lease term:
 
Operating leases
10.8 years

Finance leases
5.4 years

Weighted-average discount rate:
 
Operating leases
4
%
Finance leases
9
%
The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on the unaudited Consolidated Balance Sheet on June 30, 2019:
Year Ended December 31
Operating Leases
 
Finance Leases
2019 (excluding the six months ended June 30, 2019)
$
155

 
$
44

2020
259

 
81

2021
214

 
75

2022
169

 
74

2023
126

 
28

Thereafter
762

 
66

Total future lease payments
1,685

 
368

Less imputed interest
333

 
72

Present value of future lease payments
1,352

 
296

Less current portion of lease liabilities
240

 
64

Long-term lease liabilities
$
1,112

 
$
232

ROU assets
$
1,280

 
$
338


Lease liabilities are included on the Consolidated Balance Sheet in current and noncurrent other liabilities, while ROU assets are included in noncurrent other assets.
On June 30, 2019, we had additional future payments on leases that had not yet commenced of $218. These leases will commence between 2019 and 2020, and have lease terms of 1 to 20 years.

29



As we have not restated prior-year information for our adoption of ASC Topic 842, the following presents our future minimum lease payments for operating leases and capital leases under ASC Topic 840 on December 31, 2018:
Year Ended December 31
Operating Leases
Capital Leases
2019
$
297

$
92

2020
234

84

2021
196

78

2022
154

79

2023
110

30

Thereafter
698

70

Total future minimum lease payments
$
1,689

433

Less amount representing interest
*

95

Less amount representing executory costs
*

19

Present value of net minimum lease payments
*

319

Less current maturities of capital lease liabilities
*

64

Noncurrent capital lease liabilities
*

$
255

* Not applicable for operating leases.

O. RETIREMENT PLANS
We provide defined-contribution benefits to eligible employees, as well as some remaining defined-benefit pension and other post-retirement benefits.
Net periodic defined-benefit pension and other post-retirement benefit cost (credit) for the three- and six-month periods ended June 30, 2019, and July 1, 2018, consisted of the following:
 
Pension Benefits
Other Post-retirement Benefits
Three Months Ended
June 30, 2019
 
July 1, 2018
June 30, 2019
 
July 1, 2018
Service cost
$
28

 
$
44

$
2

 
$
2

Interest cost
150

 
140

9

 
8

Expected return on plan assets
(228
)
 
(228
)
(9
)
 
(10
)
Recognized net actuarial loss (gain)
70

 
93

(2
)
 
(1
)
Amortization of prior service credit
(5
)
 
(11
)
(1
)
 
(1
)
Net periodic benefit cost (credit)
$
15

 
$
38

$
(1
)
 
$
(2
)
Six Months Ended
 
 
 
 
 
 
Service cost
$
56

 
$
90

$
4

 
$
5

Interest cost
300

 
254

18

 
16

Expected return on plan assets
(456
)
 
(407
)
(18
)
 
(19
)
Recognized net actuarial loss (gain)
140

 
189

(4
)
 
(2
)
Amortization of prior service credit
(9
)
 
(22
)
(2
)
 
(2
)
Net periodic benefit cost (credit)
$
31

 
$
104

$
(2
)
 
$
(2
)

Our contractual arrangements with the U.S. government provide for the recovery of contributions to our pension and other post-retirement benefit plans covering employees working in our defense segments.

30



For non-funded plans, our government contracts allow us to recover claims paid. Following payment, these recoverable amounts are allocated to contracts and billed to the customer in accordance with the Cost Accounting Standards (CAS) and specific contractual terms. For some of these plans, the cumulative pension and other post-retirement benefit cost exceeds the amount currently allocable to contracts. To the extent we consider recovery of the cost to be probable based on our backlog and probable follow-on contracts, we defer the excess in other contract costs in other current assets on the Consolidated Balance Sheet until the cost is allocable to contracts. For other plans, the amount allocated to contracts and included in revenue has exceeded the plans’ cumulative benefit cost. We have similarly deferred recognition of these excess earnings on the Consolidated Balance Sheet.

P. SEGMENT INFORMATION
We have five operating segments: Aerospace, Combat Systems, Information Technology, Mission Systems and Marine Systems. We organize our segments in accordance with the nature of products and services offered. We measure each segment’s profitability based on operating earnings. As a result, we do not allocate net interest, other income and expense items, and income taxes to our segments.
Summary financial information for each of our segments follows:
 
Revenue
Operating Earnings
Three Months Ended
June 30, 2019
July 1, 2018
June 30, 2019
July 1, 2018
Aerospace
$
2,136

$
1,895

$
331

$
386

Combat Systems
1,659

1,534

242

236

Information Technology
2,158

2,442

154

156

Mission Systems
1,277

1,147

162

153

Marine Systems
2,325

2,168

197

195

Corporate


4

(38
)
Total
$
9,555

$
9,186

$
1,090

$
1,088

Six Months Ended
 
 
 
 
Aerospace
$
4,376

$
3,720

$
659

$
732

Combat Systems
3,295

2,974

448

460

Information Technology
4,327

3,580

310

257

Mission Systems
2,435

2,245

310

299

Marine Systems
4,383

4,202

377

379

Corporate



(31
)
Total
$
18,816

$
16,721

$
2,104

$
2,096


Corporate operating results have two primary components: pension and other post-retirement benefit income, and stock option expense. We are required to report the non-service cost components of pension and other post-retirement benefit cost (e.g., interest cost) in other income (expense) in the Consolidated Statement of Earnings. As described in Note O, in our defense segments, pension and other post-retirement

31



benefit costs are recoverable contract costs. Therefore, the non-service cost components are included in the operating results of these segments, but an offset is reported in Corporate.

Q. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The fixed- and floating-rate notes described in Note I are fully and unconditionally guaranteed on an unsecured, joint and several basis by several of our 100%-owned subsidiaries (the guarantors). The following condensed consolidating financial statements illustrate the composition of the parent, the guarantors on a combined basis (each guarantor together with its majority-owned subsidiaries) and all other subsidiaries on a combined basis.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (UNAUDITED)

Three Months Ended June 30, 2019
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Revenue
$

$
7,437

$
2,118

$

$
9,555

Cost of sales
21

(6,111
)
(1,779
)

(7,869
)
G&A
(19
)
(428
)
(149
)

(596
)
Operating earnings
2

898

190


1,090

Interest, net
(110
)
1

(10
)

(119
)
Other, net
(10
)
3

19


12

Earnings before income tax
(118
)
902

199


983

Provision for income tax, net
40

(173
)
(44
)

(177
)
Equity in net earnings of subsidiaries
884



(884
)

Net earnings
$
806

$
729

$
155

$
(884
)
$
806

Comprehensive income
$
1,013

$
733

$
315

$
(1,048
)
$
1,013

Three Months Ended July 1, 2018
 
 
 
 

Revenue
$

$
6,793

$
2,393

$

$
9,186

Cost of sales
9

(5,475
)
(2,020
)

(7,486
)
G&A
(45
)
(418
)
(149
)

(612
)
Operating earnings
(36
)
900

224


1,088

Interest, net
(94
)
(1
)
(8
)

(103
)
Other, net
(38
)
4

19


(15
)
Earnings before income tax
(168
)
903

235


970

Provision for income tax, net
43

(178
)
(49
)

(184
)
Equity in net earnings of subsidiaries
911



(911
)

Net earnings
$
786

$
725

$
186

$
(911
)
$
786

Comprehensive income
$
619

$
740

$
(41
)
$
(699
)
$
619




32



CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (UNAUDITED)
Six Months Ended June 30, 2019
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Revenue
$

$
14,382

$
4,434

$

$
18,816

Cost of sales
39

(11,837
)
(3,704
)

(15,502
)
G&A
(41
)
(847
)
(322
)

(1,210
)
Operating earnings
(2
)
1,698

408


2,104

Interest, net
(217
)
1

(20
)

(236
)
Other, net
(18
)
7

41


30

Earnings before income tax
(237
)
1,706

429


1,898

Provision for income tax, net
71

(328
)
(90
)

(347
)
Equity in net earnings of subsidiaries
1,717



(1,717
)

Net earnings
$
1,551

$
1,378

$
339

$
(1,717
)
$
1,551

Comprehensive income
$
1,853

$
1,385

$
552

$
(1,937
)
$
1,853

Six Months Ended July 1, 2018
 
 
 
 

Revenue
$

$
13,277

$
3,444

$

$
16,721

Cost of sales
28

(10,677
)
(2,827
)

(13,476
)
G&A
(58
)
(854
)
(237
)

(1,149
)
Operating earnings
(30
)
1,746

380


2,096

Interest, net
(120
)
(1
)
(9
)

(130
)
Other, net
(62
)
5

21


(36
)
Earnings before income tax
(212
)
1,750

392


1,930

Provision for income tax, net
85

(343
)
(87
)

(345
)
Equity in net earnings of subsidiaries
1,712



(1,712
)

Net earnings
$
1,585

$
1,407

$
305

$
(1,712
)
$
1,585

Comprehensive income
$
1,485

$
1,425

$
96

$
(1,521
)
$
1,485





33



CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

June 30, 2019
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
 
 
 
 
 
 
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and equivalents
$
243

$

$
459

$

$
702

Accounts receivable

1,260

2,413


3,673

Unbilled receivables

2,864

4,690


7,554

Inventories

6,350

130


6,480

Other current assets
(59
)
648

559


1,148

Total current assets
184

11,122

8,251


19,557

Noncurrent assets:
 
 
 
 
 
Property, plant and equipment (PP&E)
302

7,327

1,609


9,238

Accumulated depreciation of PP&E
(87
)
(4,175
)
(885
)

(5,147
)
Intangible assets, net

230

2,227


2,457

Goodwill

7,960

11,702


19,662

Other assets
194

1,015

1,098


2,307

Net investment in subsidiaries
27,981



(27,981
)

Total noncurrent assets
28,390

12,357

15,751

(27,981
)
28,517

Total assets
$
28,574

$
23,479

$
24,002

$
(27,981
)
$
48,074

 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term debt and current portion of long-term debt
$
4,741

$

$
219

$

$
4,960

Customer advances and deposits

4,194

2,520


6,714

Other current liabilities
564

4,036

1,740


6,340

Total current liabilities
5,305

8,230

4,479


18,014

Noncurrent liabilities:
 
 
 
 
 
Long-term debt
8,918

42

15


8,975

Other liabilities
1,474

4,583

2,151


8,208

Total noncurrent liabilities
10,392

4,625

2,166


17,183

Total shareholders’ equity
12,877

10,624

17,357

(27,981
)
12,877

Total liabilities and shareholders’ equity
$
28,574

$
23,479

$
24,002

$
(27,981
)
$
48,074




34



CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2018
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
 
 
 
 
 
 
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and equivalents
$
460

$

$
503

$

$
963

Accounts receivable

1,171

2,588


3,759

Unbilled receivables

2,758

3,818


6,576

Inventories

5,855

122


5,977

Other current assets
(45
)
441

518


914

Total current assets
415

10,225

7,549


18,189

Noncurrent assets:
 
 
 
 
 
PP&E

273

7,177

1,522


8,972

Accumulated depreciation of PP&E
(83
)
(4,071
)
(840
)

(4,994
)
Intangible assets, net

251

2,334


2,585

Goodwill

8,031

11,563


19,594

Other assets
195

274

593


1,062

Net investment in subsidiaries
25,313



(25,313
)

Total noncurrent assets
25,698

11,662

15,172

(25,313
)
27,219

Total assets
$
26,113

$
21,887

$
22,721

$
(25,313
)
$
45,408

 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term debt and current portion of long-term debt
$
850

$

$
123

$

$
973

Customer advances and deposits

4,541

2,729


7,270

Other current liabilities
552

3,944

2,000


6,496

Total current liabilities
1,402

8,485

4,852


14,739

Noncurrent liabilities:
 
 
 
 
 
Long-term debt
11,398

39

7


11,444

Other liabilities
1,581

4,073

1,839


7,493

Total noncurrent liabilities
12,979

4,112

1,846


18,937

Total shareholders’ equity
11,732

9,290

16,023

(25,313
)
11,732

Total liabilities and shareholders’ equity
$
26,113

$
21,887

$
22,721

$
(25,313
)
$
45,408




35



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30, 2019
Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Net cash used by operating activities*
$
64

$
166

$
(734
)
$

$
(504
)
Cash flows from investing activities:
 
 
 
 
 
Capital expenditures
(27
)
(238
)
(97
)

(362
)
Other, net
5

18

(24
)

(1
)
Net cash used by investing activities
(22
)
(220
)
(121
)

(363
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from commercial paper, net
1,394




1,394

Dividends paid
(563
)



(563
)
Purchases of common stock
(231
)



(231
)
Other, net
(19
)

49


30

Net cash provided by financing activities
581


49


630

Net cash used by discontinued operations
(24
)



(24
)
Cash sweep/funding by parent
(816
)
54

762



Net decrease in cash and equivalents
(217
)

(44
)

(261
)
Cash and equivalents at beginning of period
460


503


963

Cash and equivalents at end of period
$
243

$

$
459

$

$
702

Six Months Ended July 1, 2018
 
 
 
 

Net cash provided by operating activities*
$
41

$
468

$
(218
)
$

$
291

Cash flows from investing activities:
 
 
 
 

Business acquisitions, net of cash acquired
(9,749
)
(74
)
(216
)

(10,039
)
Capital expenditures
(22
)
(215
)
(42
)

(279
)
Other, net
2

72



74

Net cash used by investing activities
(9,769
)
(217
)
(258
)

(10,244
)
Cash flows from financing activities:
 
 
 
 

Proceeds from fixed-rate notes
6,461




6,461

Proceeds from commercial paper, net
2,786




2,786

Proceeds from floating-rate notes
1,000




1,000

Dividends paid
(526
)



(526
)
Repayment of CSRA accounts receivable purchase
    agreement


(450
)

(450
)
Purchases of common stock
(436
)



(436
)
Other, net
(45
)

48


3

Net cash provided by financing activities
9,240


(402
)

8,838

Net cash used by discontinued operations
(6
)



(6
)
Cash sweep/funding by parent
(107
)
(251
)
358



Net decrease in cash and equivalents
(601
)

(520
)

(1,121
)
Cash and equivalents at beginning of period
1,930


1,053


2,983

Cash and equivalents at end of period
$
1,329

$

$
533

$

$
1,862


* Continuing operations only.

36



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in millions, except per-share amounts or unless otherwise noted)

BUSINESS OVERVIEW
General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services; command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) solutions; and shipbuilding and ship repair.
Our company is organized into five operating segments: Aerospace, Combat Systems, Information Technology, Mission Systems and Marine Systems. We refer to the latter four segments collectively as our defense segments. Our primary customer is the U.S. government, including the Department of Defense (DoD), the intelligence community and other U.S. government customers. We also have significant business with non-U.S. governments and a diverse base of corporate and individual buyers of business-jet aircraft. The following discussion should be read in conjunction with our 2018 Annual Report on Form 10-K and with the unaudited Consolidated Financial Statements included in this Form 10-Q.

RESULTS OF OPERATIONS
INTRODUCTION
An understanding of our accounting practices is necessary in the evaluation of our financial statements and operating results. The following paragraphs explain how we recognize revenue and operating costs in our operating segments.
In the Aerospace segment, we record revenue on contracts for new aircraft when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft. Revenue associated with the segment’s custom completions of narrow-body and wide-body aircraft and the segment’s services businesses is recognized as work progresses or upon delivery of services. Fluctuations in revenue from period to period result from the number and mix of new aircraft deliveries, progress on aircraft completions, and the level and type of aircraft services performed during the period.
The majority of the Aerospace segment’s operating costs relates to new aircraft production on firm orders and consists of labor, material, subcontractor and overhead costs. The costs are accumulated in production lots, recorded in inventory and recognized as operating costs at aircraft delivery based on the estimated average unit cost in a production lot. While changes in the estimated average unit cost for a production lot impact the level of operating costs, the amount of operating costs reported in a given period is based largely on the number and type of aircraft delivered. Operating costs in the Aerospace segment’s completions and services businesses are recognized generally as incurred.
For new aircraft, operating earnings and margin are a function of the prices of our aircraft, our operational efficiency in manufacturing and outfitting the aircraft, and the mix of ultra-large-cabin, large-cabin and mid-cabin aircraft deliveries. Additional factors affecting the segment’s earnings and margin include the volume, mix and profitability of completions and services work performed, the volume of and market for pre-owned aircraft, and the level of general and administrative (G&A) and net research and development (R&D) costs incurred by the segment.

37



In the defense segments, revenue on long-term government contracts is recognized generally over time as the work progresses, either as products are produced or as services are rendered. 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. Variances in costs recognized from period to period reflect primarily increases and decreases in production or activity levels on individual contracts. Because costs are used as a measure of progress, year-over-year variances in cost result in corresponding variances in revenue, which we generally refer to as volume.
Operating earnings and margin in the defense segments are driven by changes in volume, performance or contract mix. Performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract or both. Therefore, changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. Higher or lower margins can result from a number of factors, including contract type (e.g., fixed-price/cost-reimbursable) and type of work (e.g., development/production).

CONSOLIDATED OVERVIEW
Three Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
9,555

 
$
9,186

 
$
369

 
4.0
%
Operating costs and expenses
(8,465
)
 
(8,098
)
 
(367
)
 
4.5
%
Operating earnings
1,090

 
1,088

 
2

 
0.2
%
Operating margin
11.4
%
 
11.8
%
 
 
 
 
Six Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
18,816

 
$
16,721

 
$
2,095

 
12.5
%
Operating costs and expenses
(16,712
)
 
(14,625
)
 
(2,087
)
 
14.3
%
Operating earnings
2,104

 
2,096

 
8

 
0.4
%
Operating margin
11.2
%
 
12.5
%
 
 
 
 
Our consolidated revenue increased in the second quarter and first six months of 2019 driven by additional aircraft deliveries in our Aerospace segment and organic growth in our defense segments. In the first six months of 2019, the increase in revenue was also driven by the acquisition of CSRA Inc. (CSRA) in our Information Technology segment, which we acquired on April 3, 2018. See Note B to the unaudited Consolidated Financial Statements in Part I, Item 1, for further discussion of the acquisition.
Operating costs and expenses increased at a greater rate than revenue in the second quarter and first six months of 2019, resulting in a lower operating margin, due primarily to a less favorable aircraft delivery mix in our Aerospace segment.


38



REVIEW OF OPERATING SEGMENTS
Following is a discussion of operating results and outlook for each of our operating segments. For the Aerospace segment, results are analyzed by specific types of products and services, consistent with how the segment is managed. For the defense segments, the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results. Additional information regarding our segments can be found in Note P to the unaudited Consolidated Financial Statements in Part I, Item 1.
AEROSPACE
Three Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
2,136

 
$
1,895

 
$
241

 
12.7
 %
Operating earnings
331

 
386

 
(55
)
 
(14.2
)%
Operating margin
15.5
%
 
20.4
%
 
 
 
 
Gulfstream aircraft deliveries (in units)

31

 
26

 
5

 
19.2
 %
Six Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
4,376

 
$
3,720

 
$
656

 
17.6
 %
Operating earnings
659

 
732

 
(73
)
 
(10.0
)%
Operating margin
15.1
%
 
19.7
%
 
 
 
 
Gulfstream aircraft deliveries (in units)
65

 
52

 
13

 
25.0
 %
Operating Results
The increase in the Aerospace segment’s revenue in the second quarter and first six months of 2019 consisted of the following:
 
Second Quarter
 
Six Months
Aircraft manufacturing and completions
$
235

 
$
560

Aircraft services
6

 
62

Pre-owned aircraft

 
34

Total increase
$
241

 
$
656

Aircraft manufacturing and completions revenue increased due primarily to additional deliveries of the new large-cabin G500 aircraft, which entered into service in the third quarter of 2018. The increase in aircraft services revenue was driven by higher demand for maintenance work and the acquisition in the second quarter of 2018 of Hawker Pacific, a leading provider of integrated aviation solutions across the Asia-Pacific region and the Middle East. We had one pre-owned aircraft sale in each of the second-quarter periods and five in the first six months of 2019 compared with two in the first six months of 2018.

39



The change in the segment’s operating earnings in the second quarter and first six months of 2019 consisted of the following:
 
Second Quarter
 
Six Months
Aircraft manufacturing and completions
$
(6
)
 
$
(36
)
Aircraft services
(7
)
 
(7
)
Pre-owned aircraft
(5
)
 
(7
)
G&A/other expenses
(37
)
 
(23
)
Total decrease
$
(55
)
 
$
(73
)
Aircraft manufacturing and completions operating earnings were down due to a shift in the mix of Gulfstream aircraft deliveries to include the G500 aircraft and the typical lower margin associated with initial units of a new aircraft model. Net R&D expenses were higher in 2019 as a result of the receipt in the second quarter of 2018 of milestone payments from suppliers under our cost sharing arrangements. Excluding the impact of these supplier offsets, R&D expenses were down in 2019 with the completion of the G500 and G600 aircraft test programs. The G600 received both type and production certification from the U.S. Federal Aviation Administration (FAA) in June 2019, and we are anticipating deliveries of the newly-certified aircraft to begin in the third quarter of 2019. Overall, the Aerospace segment’s operating margin decreased 490 basis points in the second quarter and 460 basis points in the first six months of 2019 compared with the prior-year periods.
2019 Outlook
We expect 2019 revenue in the Aerospace segment to be $9.95 billion and operating earnings to be $1.525 billion.
COMBAT SYSTEMS
Three Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
1,659

 
$
1,534

 
$
125

 
8.1
 %
Operating earnings
242

 
236

 
6

 
2.5
 %
Operating margin
14.6
%
 
15.4
%
 
 
 
 
Six Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
3,295

 
$
2,974

 
$
321

 
10.8
 %
Operating earnings
448

 
460

 
(12
)
 
(2.6
)%
Operating margin
13.6
%
 
15.5
%
 
 
 
 
Operating Results
The increase in the Combat Systems segment’s revenue in the second quarter and first six months of 2019 consisted of the following:
 
Second Quarter
 
Six Months
U.S. military vehicles
$
153

 
$
258

Weapons systems and munitions
61

 
101

International military vehicles
(89
)
 
(38
)
Total increase
$
125

 
$
321


40



Revenue from U.S. military vehicles increased due primarily to higher volume on the U.S. Army’s Abrams M1A2 System Enhancement Package Version 3 (SEPv3) tanks and new Mobile Protected Firepower (MPF) vehicle. Weapons systems and munitions revenue was up due to increased volume on several products, including missiles and Hydra-70 rockets for the U.S. government. Revenue from international military vehicles decreased due to lower volume on various wheeled armored vehicle programs and reduced volume on the British Army’s AJAX armoured fighting vehicle program as it transitions from engineering to production.
The Combat Systems segment’s operating margin decreased 80 basis points in the second quarter and 190 basis points in the first six months of 2019 driven by contract mix in our U.S. military vehicles business and an unfavorable settlement in the first quarter of 2019 relating to a lease at a former operating site outside the United States.
2019 Outlook
We expect the Combat Systems segment’s 2019 revenue to be approximately $6.8 billion with operating earnings of approximately $1 billion.
INFORMATION TECHNOLOGY
Three Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
2,158

 
$
2,442

 
$
(284
)
 
(11.6
)%
Operating earnings
154

 
156

 
(2
)
 
(1.3
)%
Operating margin
7.1
%
 
6.4
%
 
 
 
 
Six Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
4,327

 
$
3,580

 
$
747

 
20.9
 %
Operating earnings
310

 
257

 
53

 
20.6
 %
Operating margin
7.2
%
 
7.2
%
 
 
 
 
Operating Results
The change in the Information Technology segment’s revenue in the second quarter and first six months of 2019 consisted of the following:
 
Second Quarter
 
Six Months
Defense
$
(122
)
 
$
373

Intelligence and homeland security
(29
)
 
195

Federal civilian
(133
)
 
179

Total (decrease) increase
$
(284
)
 
$
747

Defense revenue decreased in the second quarter of 2019 driven by the completion of several legacy CSRA programs in 2018, offset partially by the ramp up of new programs. Federal civilian revenue in the second quarter and first six months of 2019 were impacted by the sale of the segment’s public-facing contact-center business in the fourth quarter of 2018. In the first six months of 2019, revenue increased across all three businesses due to the CSRA acquisition in the second quarter of 2018.
The Information Technology segment’s operating margin was up 70 basis points in the second quarter of 2019 compared with the prior-year period due to favorable program mix and lower intangible asset amortization expense from the CSRA acquisition. Operating margin remained steady in the first six months

41



of 2019 compared with the prior-year period due to favorable program mix and acquisition-related synergies offsetting higher intangible asset amortization expense.
2019 Outlook
We expect the Information Technology segment’s 2019 revenue to be approximately $8.5 billion, a slight increase from 2018, reflecting a full year of CSRA’s results, offset partially by divestiture activities. We expect the segment’s operating margin to be around 7.4%.
MISSION SYSTEMS
Three Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
1,277

 
$
1,147

 
$
130

 
11.3
%
Operating earnings
162

 
153

 
9

 
5.9
%
Operating margin
12.7
%
 
13.3
%
 
 
 
 
Six Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
2,435

 
$
2,245

 
$
190

 
8.5
%
Operating earnings
310

 
299

 
11

 
3.7
%
Operating margin
12.7
%
 
13.3
%
 
 
 
 
Operating Results
The increase in the Mission Systems segment’s revenue in the second quarter and first six months of 2019 consisted of the following:
 
Second Quarter
 
Six Months
Naval, air and electronic systems
$
68

 
$
85

Ground systems and products
23

 
83

Space, intelligence and cyber systems
39

 
22

Total increase
$
130

 
$
190

Revenue in the Mission Systems segment was up driven by increased volume on combat and seaframe control systems for the U.S. Navy’s Independence-variant Littoral Combat Ships and fire-control systems for the Navy’s submarine programs in the naval, air and electronic systems business. Higher demand for computing and communications equipment drove revenue growth in the ground systems and products business. Space, intelligence and cyber systems revenue was up due primarily to increased demand for our portfolio of encryption products.
The Mission Systems segment’s operating margin decreased 60 basis points in the second quarter and first six months of 2019 compared with prior-year periods due to program mix.
2019 Outlook
We expect the Mission Systems segment’s 2019 revenue to be approximately $5 billion with operating margin around 13.8%.

42



MARINE SYSTEMS
Three Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
2,325

 
$
2,168

 
$
157

 
7.2
 %
Operating earnings
197

 
195

 
2

 
1.0
 %
Operating margin
8.5
%
 
9.0
%
 
 
 
 
Six Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
4,383

 
$
4,202

 
$
181

 
4.3
 %
Operating earnings
377

 
379

 
(2
)
 
(0.5
)%
Operating margin
8.6
%
 
9.0
%
 
 
 
 
Operating Results
The increase in the Marine Systems segment’s revenue in the second quarter and first six months of 2019 consisted of the following:
 
Second Quarter
 
Six Months
U.S. Navy ship construction
$
202

 
$
285

Commercial ship construction
(61
)
 
(77
)
U.S. Navy ship engineering, repair and other services
16

 
(27
)
Total increase
$
157

 
$
181

Revenue from U.S. Navy ship construction was up due to higher volume on Block V of the Virginia-class submarine program, the Columbia-class submarine program and the John Lewis-class (T-AO-205) fleet replenishment oiler contract. This increase was offset partially by lower commercial ship construction.
The Marine Systems segment’s operating margin decreased 50 basis points in the second quarter of 2019 and 40 basis points in the first six months of 2019 compared with the prior-year periods driven by mix shift, particularly in our submarine and auxiliary ship workloads.
2019 Outlook
We expect the Marine Systems segment’s 2019 revenue to be approximately $9 billion, and operating margin is expected to be around 8.5%.
CORPORATE
Corporate operating results consisted of the following:
 
Three Months Ended
Six Months Ended
 
June 30, 2019
 
July 1, 2018
June 30, 2019
 
July 1, 2018
Operating income (expense)
$
4

 
$
(38
)
$

 
$
(31
)
Corporate operating results in the second quarter and first six months of 2018 included one-time transaction-related charges of approximately $45 associated with the costs to complete the CSRA acquisition. Excluding these charges, Corporate operating results have two primary components: pension and other post-retirement benefit income, and stock option expense.

43



We are required to report the non-service cost components of pension and other post-retirement benefit cost (e.g., interest cost) in other income (expense) in the Consolidated Statement of Earnings. In our defense segments, pension and other post-retirement benefit costs are recoverable contract costs. Therefore, the non-service cost components are included in the operating results of these segments, but an offset is reported in Corporate. This amount decreased in the first six months of 2019 compared with the first six months of 2018, resulting in a lower offset to Corporate costs.
In 2019, we expect the primary components of Corporate operating activity to offset, resulting in no net operating income/(expense).

OTHER INFORMATION
PRODUCT REVENUE AND OPERATING COSTS
Three Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
5,401

 
$
4,754

 
$
647

 
13.6
%
Operating costs
(4,342
)
 
(3,702
)
 
(640
)
 
17.3
%
Six Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
10,652

 
$
9,330

 
$
1,322

 
14.2
%
Operating costs
(8,577
)
 
(7,248
)
 
(1,329
)
 
18.3
%
The increase in product revenue in the second quarter and first six months of 2019 consisted of the following:
 
Second Quarter
 
Six Months
Aircraft manufacturing and completions
$
235

 
$
560

C4ISR products
159

 
230

Ship construction
141

 
208

Military vehicle production
35

 
177

Other, net
77

 
147

Total increase
$
647

 
$
1,322

Aircraft manufacturing and completions revenue increased due to the introduction of the new large-cabin G500 aircraft. C4ISR products revenue was up due to higher demand for computing and communications equipment and encryption products, and increased volume on combat and seaframe control systems. Ship construction revenue increased due to higher volume on Block V of the Virginia-class submarine program, the Columbia-class submarine program and the John Lewis-class fleet replenishment oiler contract, offset partially by lower commercial ship construction. Military vehicle production revenue was up due to higher volume on the U.S. Army’s Abrams tank and MPF programs. Product operating costs increased at a higher rate than revenue due primarily to the shift in mix of Gulfstream aircraft deliveries.

44



SERVICE REVENUE AND OPERATING COSTS
Three Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
4,154

 
$
4,432

 
$
(278
)
 
(6.3
)%
Operating costs
(3,527
)
 
(3,784
)
 
257

 
(6.8
)%
Six Months Ended
June 30, 2019
 
July 1, 2018
 
Variance
Revenue
$
8,164

 
$
7,391

 
$
773

 
10.5
 %
Operating costs
(6,925
)
 
(6,228
)
 
(697
)
 
11.2
 %
The change in service revenue in the second quarter and first six months of 2019 consisted of the following:
 
Second Quarter
 
Six Months
IT services
$
(284
)
 
$
747

Other, net
6

 
26

Total (decrease) increase
$
(278
)
 
$
773

IT services revenue decreased in the second quarter of 2019 due to the completion of several legacy CSRA programs in 2018 and the sale of a public-facing contact-center business in the fourth quarter of 2018. In the first six months of 2019, IT services revenue increased due to the CSRA acquisition in the second quarter of 2018. In the first six months of 2019, service operating costs increased at a higher rate than revenue due primarily to intangible asset amortization expense from the CSRA acquisition, offset partially by favorable IT services program mix.
OTHER FINANCIAL INFORMATION
G&A Expenses
As a percentage of revenue, G&A expenses were 6.4% in the first six months of 2019 compared with 6.9% in the first six months of 2018. We expect G&A expenses as a percentage of revenue in 2019 to be generally consistent with 2018.
Interest, Net
Net interest expense was $236 in the first six months of 2019 compared with $130 in the prior-year period. The increase was due primarily to the impact of financing the CSRA acquisition, including the issuance of $7.5 billion of fixed- and floating-rate notes in the second quarter of 2018. See Note I to the unaudited Consolidated Financial Statements in Part I, Item 1, for additional information regarding our debt obligations, including interest rates. We expect 2019 net interest expense to be approximately $460, an increase from 2018, reflecting a full year of financing for the CSRA acquisition and additional commercial paper issuances.
Other, Net
Net other income was $30 in the first six months of 2019 compared with expense of $36 in the first six months of 2018. These amounts represent primarily the non-service cost components of pension and other post-retirement benefits, which became a net income item in the first six months of 2019 versus a net expense in the prior-year period. The first six months of 2018 also included approximately $30 of transaction costs associated with the CSRA acquisition. In 2019, we expect net other income to be approximately $60 due primarily to the investment income from our commercial pension plans.

45



Provision for Income Tax, Net
Our effective tax rate was 18.3% in the first six months of 2019 compared with 17.9% in the prior-year period. The increase was due primarily to a slightly reduced favorable effect of tax benefits associated with equity-based compensation in the first six months of 2019 compared with the prior-year period. For 2019, we anticipate a full-year effective tax rate between 18 and 18.5%.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE
Our total backlog, including funded and unfunded portions, was $67.7 billion at the end of the second quarter of 2019, down 2.2% from $69.2 billion on March 31, 2019. Our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in Note C to the unaudited Consolidated Financial Statements in Part I, Item 1. Our total estimated contract value, which combines total backlog with estimated potential contract value, was $101.9 billion on June 30, 2019, compared with $103.2 billion on March 31, 2019.
The following table details the backlog and estimated potential contract value of each segment at the end of the second and first quarters of 2019:
 
Funded
 
Unfunded
 
Total Backlog
 
Estimated Potential Contract Value
 
Total
Estimated Contract Value
 
June 30, 2019
Aerospace
$
11,932

 
$
213

 
$
12,145

 
$
2,079

 
$
14,224

Combat Systems
14,794

 
438

 
15,232

 
4,113

 
19,345

Information Technology
4,446

 
4,405

 
8,851

 
17,983

 
26,834

Mission Systems
4,925

 
258

 
5,183

 
6,847

 
12,030

Marine Systems
18,344

 
7,899

 
26,243

 
3,223

 
29,466

Total
$
54,441

 
$
13,213

 
$
67,654

 
$
34,245

 
$
101,899

 
 
 
 
 
 
 
 
 
 
 
March 31, 2019
Aerospace
$
11,924

 
$
244

 
$
12,168

 
$
2,080

 
$
14,248

Combat Systems
15,475

 
515

 
15,990

 
4,185

 
20,175

Information Technology
4,770

 
3,584

 
8,354

 
16,666

 
25,020

Mission Systems
5,081

 
234

 
5,315

 
7,186

 
12,501

Marine Systems
19,935

 
7,446

 
27,381

 
3,831

 
31,212

Total
$
57,185

 
$
12,023

 
$
69,208

 
$
33,948

 
$
103,156


AEROSPACE
Aerospace funded backlog represents new aircraft and custom completion orders for which we have definitive purchase contracts and deposits from customers. Unfunded backlog consists of agreements to provide future aircraft maintenance and support services. The Aerospace segment ended the second quarter of 2019 with backlog of $12.15 billion compared with $12.17 billion on March 31, 2019.
Orders in the second quarter of 2019 reflected demand across our product and services portfolio including orders for all models of Gulfstream aircraft. The segment’s book-to-bill ratio (orders divided by revenue) was 1-to-1 in the second quarter of 2019 and over the trailing 12 months.

46



Beyond total backlog, estimated potential contract value represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements. On June 30, 2019, estimated potential contract value in the Aerospace segment was $2.1 billion, consistent with March 31, 2019.

DEFENSE SEGMENTS
The total backlog in our defense segments represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of this backlog includes items that have been authorized and appropriated by the U.S. Congress and funded by customers, as well as commitments by international customers that are approved and funded similarly by their governments. The unfunded portion includes the amounts that we believe are likely to be funded, but there is no guarantee that future budgets and appropriations will provide the same funding level currently anticipated for a given program.
Estimated potential contract value in our defense segments includes unexercised options associated with existing firm contracts and work awarded on unfunded indefinite delivery, indefinite quantity (IDIQ) contracts. Contract options in our defense business represent agreements to perform additional work under existing contracts at the election of the customer. We recognize options in backlog when the customer exercises the option and establishes a firm order. For IDIQ contracts, we evaluate the amount of funding we expect to receive and include this amount in our estimated potential contract value. This amount is often less than the total IDIQ contract value, particularly when the contract has multiple awardees. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value.
Total backlog in our defense segments was $55.5 billion on June 30, 2019, compared with $57 billion on March 31, 2019. The decrease was due primarily to continued performance on significant multi-year contracts in the Marine Systems segment. The Information Technology segment achieved a book-to-bill ratio of 1.24-to-1 in the second quarter of 2019. Estimated potential contract value in our defense segments was $32.2 billion on June 30, 2019, compared with $31.9 billion on March 31, 2019. We received the following significant contract awards during the second quarter of 2019:
Combat Systems:
$260 from the U.S. Army for munitions production. The program has a maximum potential contract value of $1.6 billion.
$100 for the production of various high-performance warheads.
$60 for the production of control actuator systems for the Excalibur artillery system.
$35 from the Army for various rounds of medium-caliber ammunition.
$25 from the Army to provide systems technical support for Abrams main battle tanks.
Information Technology:
$1 billion from the U.S. Department of State to provide global security engineering and supply chain management services. The program has a maximum potential contract value of over $2 billion.
$360 for several key contracts to provide intelligence services to classified customers.

47



A contract to provide network monitoring, network engineering and system administration services for the U.S. Air Force. The program has a maximum potential value of approximately $215.
$85 from the Centers for Medicare and Medicaid Services (CMS) for cloud hosting support services.
$70 from the CMS to provide hosting, operations and maintenance services for the agency’s Healthcare Integrated General Ledger Accounting System (HIGLAS) application.
$50 from the U.S. Navy to provide training and training-related program support.
$45 from the CMS for benefits recovery services. The program has a maximum potential contract value of $275.
Mission Systems:
$90 to provide maintenance and support services for the United Kingdom’s Bowman tactical communications system.
$80 from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.
$80 to provide engineering and support services for the Army’s mobile communications network.
$45 to support the engineering and manufacturing of the Navy’s Air and Missile Defense Radar (AMDR) program.
$35 to build space encryption units for the Air Force.
$25 from the Air Force for continued modernization of the global positioning system.
Marine Systems:
$495 from the Navy for submarine industrial base development and expansion in support of the Columbia-class ballistic missile submarine program and the nuclear shipbuilding enterprise.
$270 from the Navy to support the Common Missile Compartment work under joint development for the Navy and the U.K. Royal Navy.
$85 from the Navy for planning yard, engineering and technical support services for in-service nuclear submarines.
$55 from the Navy to provide ongoing lead yard services for the Arleigh Burke-class (DDG-51) guided-missile destroyer program.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We ended the second quarter of 2019 with a cash balance of $702, down $261 from the end of 2018. Our net debt position, defined as debt less cash and equivalents and marketable securities, was $13.2 billion at the end of the second quarter of 2019 compared with $11.5 billion at the end of 2018.
We expect to continue to generate funds in excess of our short- and long-term liquidity needs. We believe we have adequate funds on hand and sufficient borrowing capacity to execute our financial and operating strategy. The following is a discussion of our major operating, investing and financing activities in the first six months of 2019 and 2018, as classified on the unaudited Consolidated Statement of Cash Flows in Part I, Item 1.

48



OPERATING ACTIVITIES
Cash used for operating activities was $504 in the first six months of 2019 compared with cash provided by operating activities of $291 in the same period in 2018. The primary driver of cash inflows in both periods was net earnings. However, cash flows in both periods were affected negatively by growth in operating working capital, particularly the timing of payments on international armored vehicle contracts in our Combat Systems segment. For additional information about the growth in our unbilled receivables balance, see Note G to the unaudited Consolidated Financial Statements in Part I, Item 1. Additionally, cash flows in the first six months of 2019 were affected negatively by growth in inventory in our Aerospace segment driven by production of the new G600 aircraft. We received both type and production certification from the FAA for the G600 aircraft in June 2019, and we are anticipating deliveries of the newly-certified aircraft to begin in the third quarter of 2019.
INVESTING ACTIVITIES
Cash used for investing activities was $363 in the first six months of 2019 compared with $10.2 billion in the same period in 2018. Our investing activities include cash paid for capital expenditures and business acquisitions; proceeds from asset sales; and purchases, sales and maturities of marketable securities. In the first six months of 2018, we acquired three businesses for an aggregate of $10 billion, including $9.7 billion for CSRA. Capital expenditures were $362 in the first six months of 2019 compared with $279 in the same period in 2018. The increase reflects ongoing investments to support growth at our shipyards.
FINANCING ACTIVITIES
Cash provided by financing activities was $630 in the first six months of 2019 compared with $8.8 billion in the same period in 2018. Net cash from financing activities includes proceeds received from debt and commercial paper issuances and payment of dividends. Our financing activities also include repurchases of common stock, debt repayments and employee stock option exercises.
On December 5, 2018, our board of directors authorized management to repurchase up to 10 million additional shares of the company’s outstanding stock. In the first six months of 2019, we repurchased 1.1 million of our outstanding shares for $184. On June 30, 2019, 6.4 million shares remained authorized by our board of directors for repurchase, approximately 2% of our total shares outstanding. We repurchased 2.1 million shares for $436 in the first six months of 2018.
On March 6, 2019, our board of directors declared an increased quarterly dividend of $1.02 per share, the 22nd consecutive annual increase. Previously, the board had increased the quarterly dividend to $0.93 per share in March 2018. Cash dividends paid were $563 in the first six months of 2019 compared with $526 in the same period in 2018.
We received net proceeds of $1.4 billion from commercial paper in the first six months of 2019, resulting in $2.3 billion outstanding on June 30, 2019. We have $5 billion in committed bank credit facilities to support our commercial paper issuances and for general corporate purposes and working capital needs. We also have an effective shelf registration on file with the Securities and Exchange Commission that allows us to access the debt markets.
In the first six months of 2018, we issued $7.5 billion of fixed- and floating-rate notes to finance the acquisition of CSRA. Additionally, in the first six months of 2018, we paid $450 to satisfy obligations under CSRA’s accounts receivable purchase agreement.
Fixed- and floating-rate notes totaling $2.5 billion mature in May 2020. As we approach the maturity date of this debt, we plan to repay these notes using a combination of cash on hand and the issuance of commercial paper. For additional information regarding our debt obligations, including scheduled debt

49



maturities and interest rates, and our credit facilities, see Note I to the unaudited Consolidated Financial Statements in Part I, Item 1.
NON-GAAP FINANCIAL MEASURE – FREE CASH FLOW
We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow from operations to measure our performance in these areas. While we believe this metric provides useful information, it is not a defined operating measure under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with its use. Our calculation of this metric may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of this metric should not be considered in isolation from, or as a substitute for, other GAAP measures.
We define free cash flow from operations as net cash provided by operating activities less capital expenditures. We believe free cash flow from operations is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a key performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities, as classified on the unaudited Consolidated Statement of Cash Flows in Part I, Item 1:
Six Months Ended
June 30, 2019
 
July 1, 2018
Net cash (used) provided by operating activities
$
(504
)
 
$
291

Capital expenditures
(362
)
 
(279
)
Free cash flow from operations
$
(866
)
 
$
12

Cash flows as a percentage of earnings from continuing operations:
 
 
 
Net cash (used) provided by operating activities
(32
)%
 
18
%
Free cash flow from operations
(56
)%
 
1
%

ADDITIONAL FINANCIAL INFORMATION
ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES
For a discussion of environmental matters and other contingencies, see Note M to the unaudited Consolidated Financial Statements in Part I, Item 1. Except as otherwise noted in Note M, we do not expect our aggregate liability with respect to these matters to have a material impact on our results of operations, financial condition or cash flows.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on the unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We employ judgment in making our estimates, but they are based on historical experience, currently available information and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values

50



of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.
Revenue. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. Contract estimates are based on various assumptions to project the outcome of future events that often span several years. 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. The aggregate impact of adjustments in contract estimates increased our operating earnings (and diluted earnings per share) by $71 ($0.19) and $139 ($0.38) for the three- and six-month periods ended June 30, 2019, and $83 ($0.22) and $180 ($0.47) for the three- and six-month periods ended July 1, 2018, respectively. No adjustment on any one contract was material to the unaudited Consolidated Financial Statements for the three- and six-month periods ended June 30, 2019, or July 1, 2018.
Leases. Effective January 1, 2019, we adopted ASC Topic 842, Leases. ASC Topic 842 requires the recognition of lease rights and obligations as assets and liabilities on the balance sheet. Previously, lessees were not required to recognize on the balance sheet assets and liabilities arising from operating leases. As we elected the cumulative-effect adoption method, prior-period information has not been restated. The most significant effects of the standard on our Consolidated Financial Statements are (1) the recognition of new right-of-use assets and lease liabilities on our Consolidated Balance Sheet associated with our operating leases, and (2) significant new disclosures about our leasing activities (see Note N to the unaudited Consolidated Financial Statements in Part I, Item1). On January 1, 2019, we recognized operating lease liabilities and right-of-use assets of $1.4 billion based on the present value of the remaining lease payments over the lease term. The adoption did not result in a cumulative-effect adjustment to retained earnings. The new standard did not have a material impact on our results of operations or cash flows.
CSRA Acquisition. We are required to estimate the fair value of the assets acquired and liabilities assumed in business combinations on the acquisition date, including identified intangible assets. The amount of purchase price paid in excess of the net assets acquired is recorded as goodwill. The fair values are estimated in accordance with the principles of ASC Topic 820, Fair Value Measurement, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair values of the net assets acquired are determined primarily using Level 3 inputs (inputs that are unobservable to the market place participant).
The most significant of the fair value estimates is related to long-lived assets, specifically intangible assets subject to amortization. We have valued $2.1 billion of acquired intangible assets in connection with the CSRA acquisition. This amount was determined based primarily on CSRA’s projected cash flows. The projected cash flows include various assumptions, including the timing of work embedded in backlog, success in securing future business, profitability of work, and the appropriate risk-adjusted interest rate used to discount the projected cash flows.
Other. Other significant estimates include those related to goodwill and intangible assets, income taxes, pension and other post-retirement benefits, workers’ compensation, warranty obligations, and litigation and other contingencies. We believe our judgment is applied consistently and produces financial information that fairly depicts our results of operations for all periods presented. For a full discussion of our critical accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2018. For a discussion of new accounting standards that have been issued by the FASB but are not yet effective, see Note A to the unaudited Consolidated Financial Statements in Part I, Item 1.

51




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes with respect to this item from the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 4. CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2019. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, on June 30, 2019, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The certifications of the company’s Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to this report.

FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “outlook,” “estimates,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements. Examples include projections of revenue, earnings, operating margin, segment performance, cash flows, contract awards, aircraft production, deliveries and backlog. In making these statements we rely on assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe our estimates and judgments are reasonable based on information available to us at the time. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including, without limitation, the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018. These factors include:
general U.S. and international political and economic conditions;
decreases in U.S. government defense spending or changing priorities within the defense budget;
termination or restructuring of government contracts due to unilateral government action;
differences in anticipated and actual program performance, including the ability to perform under long-term, fixed-price contracts within estimated costs, and performance issues with key suppliers and subcontractors;
expected recovery on contract claims and requests for equitable adjustment;
changing customer demand or preferences for business aircraft, including the effects of economic conditions on the business-aircraft market;
potential for changing prices for energy and raw materials;
the status or outcome of legal and/or regulatory proceedings;

52



potential effects of audits and reviews by government agencies of our government contract performance, compliance and internal control systems and policies;
risks and uncertainties relating to our acquisitions and joint ventures; and
potential for cybersecurity events and other disruptions.
All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to General Dynamics or any person acting on our behalf are qualified by the cautionary statements in this section. We do not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report. These factors may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
For information relating to legal proceedings, see Note M to the unaudited Consolidated Financial Statements in Part I, Item 1.

ITEM 1A. RISK FACTORS
There have been no material changes with respect to this item from the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about our second-quarter purchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Program
 
Maximum Number of Shares That May Yet Be Purchased Under the Program
Pursuant to Share Buyback Program
 
 
 
 
4/1/19-4/28/19
 

 
$

 

 
6,955,168

4/29/19-5/26/19
 
475,000

 
170.82

 
475,000

 
6,480,168

5/27/19-6/30/19
 
100,000

 
163.46

 
100,000

 
6,380,168

 
 
575,000

 
$
169.54

 
 
 
 
We did not make any unregistered sales of equity securities in the second quarter of 2019.

ITEM 6. EXHIBITS
31.1
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2
Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS
eXtensible Business Reporting Language (XBRL) Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document*


* Filed or furnished electronically herewith.

53



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
GENERAL DYNAMICS CORPORATION

 
by
mosssignature20190331a01.gif
 
 
William A. Moss
 
 
Vice President and Controller
 
 
(Authorized Officer and Chief Accounting Officer)
Dated: July 24, 2019
 
 


54