General Dynamics Annual Report 2020

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FY2020 Annual Report · General Dynamics

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Annual Report | 2020

D e a r F e l l o w
S h a r e h o l d e r

Your company faced a very challenging 2020 with very good performance
under the circumstances. Our Aerospace markets were dramatically impacted
by COVID-19 and the resultant economic disruptions and travel restrictions.
Our defense markets did not have the same problem, but productivity was
directly and immediately impacted by the shutdown of numerous government
agencies and by disruptions to our workforce. Nevertheless, your company
demonstrated its resilience and adaptability.

As a critical national infrastructure company, we remained open and fully
operational. We took immediate action to protect our people, supply chain and
operations. And, as you would expect, our management team was on-site, at
their posts, throughout.

We were also called upon by the government to help our communities. We
responded by providing over 200,000 items of PPE to ﬁrst responders in
hard-hit areas. We repurposed machinery to produce shields and testing
swab packaging. We also increased donations to hospitals and food banks.

Despite the foregoing, we achieved most of our operational and ﬁnancial
goals. We had solid cash performance and added to our backlog in important
ways. Our total backlog rose 3% to $89.5 billion and our total estimated
contract value rose to a record $134.7 billion. The total company book-to-
bill was 1.1 to 1 for the year, led by particularly strong order performance at
Electric Boat. This bodes well for the business going forward.

On the cash front, we had free cash ﬂow of $2.9 billion, a very respectable
91% of net earnings. We expect our cash generation from operations in the
near and intermediate time frames to be even better. It follows quite naturally
that we improved our ﬁnancial ﬂexibility with an $854 million reduction in net
debt. We also increased our dividend by 8%, marking the 23rd consecutive
year of annual increases.

As I am sure you are aware, the entire Aerospace industry was enormously
impacted by the economic and social consequences of COVID-19. Some

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commentators called it a worldwide collapse of both
the commercial and business jet markets. Early in the
crisis, we sought to be a good cyclical. In that regard,
we lowered our aircraft production rate to better align
production with demand, adjusted stafﬁ ng levels, and
implemented other strong cost control measures. As a
result, your company’s Aerospace operating earnings
were an industry-leading $1.08 billion on revenue of $8.1
billion, an operating margin of 13.4%. This, of course,
was down from 2019, a record year. However, this
performance compared to all others in the industry is
more than compelling.

The Marine Systems segment had another very good
year. Revenue of $10 billion was up almost $800 million,
or 8.7%, driven primarily by increased submarine
construction. Operating earnings were $854 million, up
8.8%, the highest ever for Marine Systems. Backlog
rose to $50 billion, up 13.1% on the award of a $9.5
billion contract for the construction of the ﬁ rst two of 12
Columbia-class ballistic missile submarines. To support the
increase in submarine production this year and beyond, we
continued to invest capital expenditures at Electric Boat.
We expect solid year-over-year increases in production,
revenue and earnings in the Marine Systems segment.

Demand, while lower than pre-COVID levels, remained
solid with a dollar-denominated book-to-bill for the year
at 0.88 to 1. The sales pipeline remains active for us,
and we believe it will improve further as international
travel restrictions are lifted and the economy more
fully recovers.

Our product development program proceeds at the
predicted pace at Gulfstream. Flight testing of the G700
began in February 2020, and by year end, the ﬁ ve ﬂ ight-
test airplanes had accumulated more than 1,000 ﬂ ight
hours. Entry into service for this magniﬁ cent aircraft is
targeted for the ﬁ nal quarter of 2022.

The G500/600 family of aircraft has almost 100 aircraft
in service as I write this letter. Our manufacturing
productivity continues to improve, resulting in better
margins. Our quality has been superb. These two
products have been well received by the market as solid
replacements for the venerable G450 and G550.

We are very proud of the accomplishments of the
men and women of Gulfstream and Jet Aviation in
this environment.

We asked our defense units to try to make up the
shortfall caused by the tough environment in
Aerospace. They tried but didn’t quite get there.

At Combat Systems, our revenue was up 3.1% to $7.2
billion, and operating earnings were up 4.5% to slightly
more than $1 billion. Our U.S. Army customer is
providing steady demand as it modernizes the force. As
a result, total estimated contract value was up to $24.3
billion, driven by orders for the newly updated Abrams
main battle tank, new versions of the Stryker combat
vehicle and increased international orders. This was,
once again, strong performance from Combat Systems,
the world’s leading integrator of armored combat vehicles.

Our newly designated Technologies segment combines
for reporting purposes our IT services business and
Mission Systems, reﬂ ecting their strategy to increasingly
go to market as a team. This group was the most
impacted of our defense businesses by COVID-19 with
the most remote participation from employees and
the most difﬁ culty accessing customer locations. As
a result, revenue of $12.6 billion was off $711 million,
and operating earnings were $1.2 billion, or 7.6% lower,
generating an operating margin of 9.6%. Nonetheless,
they demonstrated outstanding cash performance,
generating cash ﬂ ow in excess of 150% of imputed net
earnings, the strongest performance within the company.

Because of strong order activity, particularly at GDIT, total
estimated contract value reached over $41 billion, the
highest in the segment’s history on a combined basis.
Order activity continues to remain strong, again positioning
this segment for good growth.

In March 2021, the board of directors raised the dividend
by 8.2% to a quarterly rate of $1.19 per share. This marks
the 24th consecutive year of dividend increases.

All in all, despite the challenges of COVID-19, we
continued to serve our customers and our communities.
We took care of our people and continued our
commitment to building a cohesive, diverse workforce.
Our commitment to creating long-term value remains our
focus as we continue to navigate through the pandemic.

PHEBE N. NOVAKOVIC
Chairman and CEO
March 9, 2021

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A e r o s p a c e

We design, manufacture and

for Gulfstream aircraft as well

as aircraft produced by other

manufacturers.

service the most advanced, capable

We also lead the industry in

and reliable family of business jets

sustainability, designing aircraft

in the world. Gulfstream has earned

that achieve unparalleled fuel

its powerful brand recognition

by remaining at the forefront of

innovation, introducing six new

aircraft models since 2008 that

consistently raise the bar on

safety, performance, comfort

and efﬁ ciency.

With Jet Aviation, we have a

global footprint that enables us

to provide a full range of services

efﬁ ciency and noise and emissions

reductions, and we participate in an

industrywide effort to cut carbon

emissions in half by 2050. As the

business aviation market grows, we

are poised to remain the product

and service provider of choice for

the most discerning customers.

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The Aerospace segment achieved remarkable performance in 2020,
producing solid ﬁnancial results despite the pandemic’s devastating
impact on the industry. Signiﬁcant accomplishments include:

– Delivered to customers a total of 127 aircraft, of which 105 were

large-cabin aircraft

– Received type certiﬁcate approval from the European Union Aviation
Safety Agency (EASA) for the Gulfstream G600, delivering the ﬁrst
aircraft to a European customer in the fourth quarter

– Flew the ﬁrst ﬁve ultra-long-range Gulfstream G700 ﬂight-test aircraft,
which offer superior performance and the industry’s most spacious
cabin, with deliveries on track to begin in fourth-quarter 2022

– Grew our global service footprint, opening or expanding new facilities

in Scottsdale, Arizona; Farnborough, U.K.; Palm Beach, Florida;
Atlanta, Georgia; Bozeman, Montana; and Fort Worth, Texas

– Introduced a new plasma ionization air puriﬁcation system, available
for retroﬁt on existing aircraft models, to complement Gulfstream’s
already 100% fresh-air environment, addressing customer concern
about wellness during the pandemic

– Increased the availability of sustainable aviation fuel (SAF) for
customers and continued its use to power Gulfstream’s own
aircraft, achieving a total of 1.3 million nautical miles ﬂown on
SAF by the company

– Delivered the 200th super-midsize Gulfstream G280 business jet

since it entered service in 2012

– Sold the last commercially available Gulfstream G550, which entered

service in 2003, with more than 750 in the GV, GV-SP and G550 series
remaining in service

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In response to the nation’s

unprecedented increase in demand,

particularly for submarines, we are

making substantial investments

in our facilities, growing our

workforce, and strengthening our

supply chains. We also provide

maintenance, modernization and

lifecycle support services for nearly

all of the Navy’s ship classes in both

U.S. and overseas ports.

M a r i n e
S y s t e m s

Our Marine Systems segment is

the leading designer and builder

of nuclear-powered submarines

and a major producer of surface

combatants and auxiliary ships for

the U.S. Navy, as well as Jones Act

ships for commercial customers.

We operate through three business

units: Electric Boat, headquartered

in Groton, Connecticut; Bath Iron

Works in Bath, Maine; and NASSCO

in San Diego, California. Each has

outlying facilities spanning the

East and West Coasts of the

United States.

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In 2020 we focused on executing against our current contracts while
building capacity to perform on our record $50 billion backlog in the

coming years. Highlights include:

– Awarded construction contract for the ﬁrst two Columbia-class
ballistic missile submarines and formally began USS Columbia
(SSBN 826) construction

– Delivered USS Vermont (SSN 792) to the U.S. Navy, the 19th

submarine of the Virginia class, with 18 ships remaining in backlog to
deliver through 2029

– Continued the $1.8 billion expansion and modernization of our

facilities to support the increased pace of submarine construction,
with expenditures peaking in 2020

– Continued to execute on our backlog of 11 Arleigh Burke-class guided-
missile destroyers extending through 2027, to include completion of
builder’s sea trials of the future USS Daniel K. Inouye (DDG-118),
with delivery planned in early 2021

– Accomplished $1 billion in post-delivery lifecycle services for both
surface ships and submarines, providing repair, maintenance and
service-life extension in our shipyards as well as at Navy
facilities and overseas ports

– Laid the keel for the future USNS Harvey Milk (T-AO-206), the second
of six contracted John Lewis-class ﬂeet replenishment oilers, and
started construction of the future Expeditionary Sea Base USS
John Canley (ESB-6)

– Delivered to a commercial customer the second Kanaloa-class vessel,
the largest combination container/roll-on, roll-off (ConRo) ship ever
built in the United States

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C o m b a t
S y s t e m s

We design, manufacture and

sustain the world’s most lethal,

mobile and survivable land combat

platforms and munitions for our

U.S. and international customers

through our three business units:

Land Systems, European Land

Systems and Ordnance and

Tactical Systems.

Our installed base of more than

24,000 vehicles across more than

25 countries worldwide positions

us well for modernization programs,

support and sustainment services

and future development. We are

the sole-source producer of two

foundational platforms central

to the U.S. Army’s warﬁghting

capabilities: the Abrams main

battle tank and the Stryker wheeled

combat vehicle, both of which are

undergoing signiﬁcant upgrades.

We also produce market-leading

light armored vehicles (LAVs),

the Piranha 8x8 armored combat

vehicle, the AJAX and ASCOD

family of medium-weight tracked

combat vehicles, the Duro and

Eagle classes of wheeled tactical

vehicles, as well as mobile bridge

systems able to support payloads

up to 100 tons.

We produce armaments and

munitions that support nearly all

kinetic military systems in today’s

U.S. arsenal. We remain closely

aligned with our customers

to meet their future needs,

including working directly with

the Army’s cross-functional teams

to design solutions that fulﬁll its

modernization objectives.

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In 2020 our products continued to demonstrate their versatility and
desirability among multiple customers worldwide. Highlights include:

– Awarded a $4.3 billion maximum potential value contract from
the U.S. Army to upgrade Abrams tanks to the M1A2 System
Enhancement Package Version 3 (SEPv3) conﬁguration

– Awarded a $3.4 billion maximum potential value contract from

the U.S. Army to produce Hydra-70 rockets

– Awarded a $2.5 billion maximum potential value contract from

the U.S. Army to upgrade Stryker vehicles to the double-V-hull A1
conﬁguration and an additional $1.2 billion maximum potential
value contract to produce Initial Maneuver Short-Range Air
Defense (IM-SHORAD) conﬁgured Stryker vehicles

– Awarded an $870 million contract from the Spanish Ministry of

Defense to produce, deliver, maintain and provide lifecycle support
for 348 Piranha 5 8x8 wheeled combat vehicles

– Awarded contracts to build and deliver 80 Eagle 6x6 vehicles to
the German Army’s ambulance corps, 56 Eagle 4x4 patrol and
reconnaissance vehicles to the Danish Ministry of Defense and
30 Pandur 6x6 “Evolution” wheeled armored vehicles to the
Austrian armed forces

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Te c h n o l o g i e s

Our Technologies segment offers

a full spectrum of end-to-end

solutions that meld specialized

hardware, software and services.

Consisting of General Dynamics

Information Technology and General

Dynamics Mission Systems, this

segment addresses the growing

demand from customers that

increasingly prioritize technology

solutions as a critical element of

their missions.

Our 40,000 technologists,

engineers, mission experts and

other professionals, who often

possess top security clearances,

are embedded across the defense,

intelligence and federal civilian

markets. They enable customers to

leverage cloud, high-performance

computing, analytics and artiﬁcial

intelligence to secure the nation’s

most sensitive information, improve

government services, and inform

critical decision-making.

As an original equipment

manufacturer, we are uniquely

positioned to provide purpose-

built products that bring these

capabilities reliably and securely

to the most rugged or inhospitable

locations, from the battleﬁeld

to the undersea domain to

deep space.

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In 2020 our position as a market leader in providing technology
services and solutions drove signiﬁcant new business, the majority
of which was awarded through indeﬁnite delivery, indeﬁnite quantity
contracts. The year’s highlights included these awards:

– A $4.4 billion maximum potential value contract for the Defense
Enterprise Ofﬁce Solutions (DEOS) program to stand up cloud
environments and support the migration of over 3.2 million existing
Department of Defense users to the cloud

– One of three companies selected for a $3.3 billion maximum potential

value contract to support the U.S. State Department’s Bureau of
Consular Affairs with visa application and issuance at U.S. embassies
and consulates overseas

– An $885 million maximum potential value contract from the U.S.

Army to modernize its training programs

– A $760 million maximum potential value contract to provide enterprise

IT and cybersecurity services and solutions for the DoD

– A combined maximum potential value of $400 million for contracts

from the Centers for Medicare and Medicaid Services to provide cloud
services and software tools and to support the agency’s Healthcare
Integrated General Ledger Accounting System application

– $335 million in ﬁrm orders from the Army for computing and

communications equipment under the Common Hardware Systems-5
(CHS-5) program

– A $305 million maximum potential value contract from the Veterans

Administration to modernize beneﬁts claims processing

– A $105 million contract to support the design and development of ﬁre-
control systems for the U.S. Navy’s Columbia-class and the U.K. Royal
Navy’s Dreadnought-class submarines

– Multiple subcontracts for the engineering and manufacturing

development phase of the U.S. Air Force’s Ground-Based Strategic
Deterrent (GBSD) program

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Years Ended December 31

2018

2019

2020

Revenue

$36,193

$39,350

$37,925

Operating Earnings

4,394

4,570

4,133

Diluted EPS from
Continuing Operations

11.22

11.98

11.00

Net Cash from

Operating Activities

3,148

2,981

3,858

Backlog

67,871

86,945

89,489

Total Estimated
Contract Value

103,366

126,194

134,666

Dollars in millions, except per-share amounts

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2020

[☐] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 1-3671

GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware

13-1673581

State or other jurisdiction of incorporation or organization

I.R.S. Employer Identification No.

11011 Sunset Hills Road

Reston, Virginia

Address of principal executive offices

20190

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

Common Stock

Trading Symbol(s)

Name of each exchange on which registered

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes _ü_ No ___

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ___ No _ü_

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes _ü_ ☑ No ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No _ü_☐☑

The aggregate market value of the voting common equity held by non-affiliates of the registrant was $36,917,915,083 as of June 28, 2020 (based on the closing price of the shares on the New York Stock
Exchange).

286,264,679 shares of the registrant’s common stock, $1 par value per share, were outstanding on January 31, 2021.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III incorporates by reference information from certain portions of the registrant’s definitive proxy statement for the 2021 annual meeting of shareholders to be filed with the
Securities and Exchange Commission within 120 days after the close of the fiscal year.

INDEX

PART I

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

Executive Officers of the Company

PART II

Item 5.

Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Item 6.

Selected Financial Data

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Item 11.

Executive Compensation

PART I

PAGE

ITEM 1. BUSINESS

104

107

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 108

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accountant Fees and Services

PART IV

Item 15.

Index to Exhibits

Item 16.

Form 10-K Summary

Signatures

108

113

114

(Dollars in millions, except per-share amounts or unless otherwise noted)

BUSINESS OVERVIEW

General Dynamics is a global aerospace and defense company that specializes in high-end design,

engineering and manufacturing to deliver state-of-the-art solutions to our customers. We offer a broad

portfolio of products and services in business aviation; ship construction and repair; land combat

vehicles, weapons systems and munitions; and technology products and services. Our leadership

positions in attractive business aviation and defense markets enable us to deliver superior and enduring

shareholder returns.

Our company consists of 10 business units, which are organized into four operating segments:

Aerospace, Marine Systems, Combat Systems and Technologies. We refer to the latter three collectively

as our defense segments. To optimize its market focus, customer intimacy, agility and operating

expertise, each business unit is responsible for the development and execution of its strategy and

operating results. This structure allows for a lean corporate function, which sets the overall strategy and

governance for the company and is responsible for allocating and deploying capital.

Our business units seek to deliver superior operating results by endeavoring to build industry-leading

franchises. To achieve this goal, we invest in advanced technologies, pursue a culture of continuous

improvement, and strive to be the low-cost, high-quality provider in each of our markets. The result is

long-term value creation measured by strong earnings and cash flow and an attractive return on capital.

Over the past eight years, we have invested nearly $20 billion to create, renew or expand our

portfolio of products and services across our businesses to drive long-term growth and shareholder value

creation. This includes product development investments in Aerospace to bring to market an all-new

lineup of business jet aircraft, capital investments in Marine Systems to support significant growth in

U.S. Navy ship and submarine construction plans over the next two decades, development of next-

generation platforms and technologies to meet customers’ emerging requirements in Combat Systems,

and strategic acquisitions to achieve critical mass and build out a complete spectrum of solutions for our

Technologies customers.

Following is additional information on each of our operating segments. For a supplemental

discussion of segment performance and backlog, see Management’s Discussion and Analysis of

Financial Condition and Results of Operations in Item 7.

AEROSPACE

Our Aerospace segment is recognized as a leading producer of business jets and the standard bearer in

aircraft repair, support and completion services. The segment consists of our Gulfstream and Jet

Aviation business units. We have earned our reputation through:

•

superior aircraft design, quality, performance, safety and reliability;

technologically advanced flight deck and cabin systems; and

industry-leading customer support.

INDEX

PART I

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

Executive Officers of the Company

PART II

Item 5.

Equity Securities

Item 6.

Selected Financial Data

Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 108

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accountant Fees and Services

PART IV

Item 15.

Index to Exhibits

Item 16.

Form 10-K Summary

Signatures

104

107

108

113

114

PART I

PAGE

ITEM 1. BUSINESS

(Dollars in millions, except per-share amounts or unless otherwise noted)

BUSINESS OVERVIEW

General Dynamics is a global aerospace and defense company that specializes in high-end design,
engineering and manufacturing to deliver state-of-the-art solutions to our customers. We offer a broad
portfolio of products and services in business aviation; ship construction and repair; land combat
vehicles, weapons systems and munitions; and technology products and services. Our leadership
positions in attractive business aviation and defense markets enable us to deliver superior and enduring
shareholder returns.

Our company consists of 10 business units, which are organized into four operating segments:
Aerospace, Marine Systems, Combat Systems and Technologies. We refer to the latter three collectively
as our defense segments. To optimize its market focus, customer intimacy, agility and operating
expertise, each business unit is responsible for the development and execution of its strategy and
operating results. This structure allows for a lean corporate function, which sets the overall strategy and
governance for the company and is responsible for allocating and deploying capital.

Our business units seek to deliver superior operating results by endeavoring to build industry-leading
franchises. To achieve this goal, we invest in advanced technologies, pursue a culture of continuous
improvement, and strive to be the low-cost, high-quality provider in each of our markets. The result is
long-term value creation measured by strong earnings and cash flow and an attractive return on capital.

Over the past eight years, we have invested nearly $20 billion to create, renew or expand our
portfolio of products and services across our businesses to drive long-term growth and shareholder value
creation. This includes product development investments in Aerospace to bring to market an all-new
lineup of business jet aircraft, capital investments in Marine Systems to support significant growth in
U.S. Navy ship and submarine construction plans over the next two decades, development of next-
generation platforms and technologies to meet customers’ emerging requirements in Combat Systems,
and strategic acquisitions to achieve critical mass and build out a complete spectrum of solutions for our
Technologies customers.

Following is additional information on each of our operating segments. For a supplemental
discussion of segment performance and backlog, see Management’s Discussion and Analysis of
Financial Condition and Results of Operations in Item 7.

AEROSPACE

Our Aerospace segment is recognized as a leading producer of business jets and the standard bearer in
aircraft repair, support and completion services. The segment consists of our Gulfstream and Jet
Aviation business units. We have earned our reputation through:

•
•
•

superior aircraft design, quality, performance, safety and reliability;
technologically advanced flight deck and cabin systems; and
industry-leading customer support.

We believe the key to long-term value creation in the business jet industry is steady investment in
new aircraft models and technologies and in customer service capabilities. As a result, since we acquired
Gulfstream over 20 years ago, we have made significant investments in research and development
(R&D), state-of-the-art manufacturing facilities, and maintenance and support through a combination of
product development efforts, capital expansion and the acquisition of Jet Aviation’s global support
network.

We are committed to continual investment in R&D to create new aircraft that consistently broaden
customer offerings while raising the bar for safety and performance. The result is the unprecedented
development of an all-new lineup of the most technologically advanced business jet aircraft in the world.
These aircraft offer industry-leading cabin, cockpit and safety technologies and the longest ranges at the
fastest speeds in their respective classes.

The following represents Gulfstream’s current product line, along with the maximum range,

maximum speed and cabin length (excluding baggage) for each aircraft:

0 7,500 nautical miles
0
7
Mach 0.925
G
56 feet, 11 inches

R 7,500 nautical miles
E
Mach 0.925
0
5
6
46 feet, 10 inches
G

0 7,000 nautical miles
5
6
Mach 0.925
G
46 feet, 10 inches

0 6,600 nautical miles
0
6
Mach 0.925
G
45 feet, 2 inches

0 5,300 nautical miles
0
5
Mach 0.925
G
41 feet, 6 inches

0 3,600 nautical miles
8
2
Mach 0.85
G
25 feet, 10 inches

Note: Range subject to multiple variables

The most recent additions to the Gulfstream fleet are two new large-cabin aircraft, the G500 and
G600, which entered service in 2018 and 2019, respectively. These clean-sheet (i.e., all-new) aircraft
replace the G450 and G550 models, which have a combined installed base of more than 1,650 aircraft
around the world. Our investment included development of a new wing, new avionics, new fuselage and
new ergonomically designed larger interiors, as well as systems and technologies to improve the
manufacturing process and quality of the platform. As a result, the G500 and G600 are faster, more fuel
efficient and have greater cabin volume, more range and improved flight controls compared with the
aircraft they are replacing. At year-end 2020, cumulative deliveries for the two new aircraft totaled
almost 100.

The next model to join the Gulfstream lineup is the ultra-long-range, ultra-large-cabin G700. It
combines our most spacious cabin with our advanced Symmetry Flight Deck and the superior high-

speed performance of all-new engines to create best-in-class capabilities. Gulfstream is in the process of

flight testing and certification of the G700, which we expect to enter service in the fourth quarter of

2022.

The ultra-long-range, ultra-large-cabin G650 and G650ER continue to generate significant customer

interest, with more than 430 aircraft of this family currently operating in 50 countries. Since the first

G650 entered service in 2012, its capabilities and reliability have led to significant sales and expansion

of our installed base around the globe. Gulfstream’s current product line holds more than 300 city-pair

speed records, more than any other business jet manufacturer, led by the G650ER, which holds the

National Aeronautic Association’s polar and westbound around-the-world speed records.

Our disciplined and consistent approach to new product development allows us to repeatedly

introduce first-to-market capabilities that set industry standards for safety, performance, quality, speed

and comfort. Product enhancement and development efforts include initiatives in advanced avionics,

composites, flight-control and vision systems, acoustics, and cabin technologies.

Gulfstream designs, develops and manufactures aircraft in Savannah, Georgia, including all large-

cabin models. The mid-cabin G280 is assembled by a non-U.S. partner. All models are outfitted in

Gulfstream’s U.S. facilities. In support of Gulfstream’s growing aircraft portfolio and customer base, we

have invested in our facilities and operations. At our Savannah campus, we added new purpose-built

manufacturing facilities, increased aircraft service capacity, and opened a customer-support distribution

center and a dedicated R&D campus.

We offer comprehensive support for the more than 2,900 Gulfstream aircraft in service around the

world and operate the largest factory-owned service network in the industry. We continue to invest in

these maintenance, repair and overhaul (MRO) facilities and inventory to accommodate fleet growth.

We also operate a 24/7 year-round customer support center and offer on-call Gulfstream aircraft

technicians ready to deploy around the world for customer service requirements under our Field and

Airborne Support Team (FAST) rapid-response unit.

In addition to expanding the reach of Gulfstream’s aircraft maintenance network outside the United

States, Jet Aviation provides a comprehensive suite of innovative aircraft services for aircraft owners

and operators around the world. With approximately 50 locations throughout North America, Europe,

the Middle East and the Asia-Pacific region, our offerings include maintenance, aircraft management,

charter, staffing and fixed-base operator (FBO) services.

Jet Aviation manages nearly 300 business aircraft globally on behalf of individuals and corporate

owners. We operate a leading global FBO network and support all aircraft types with the full-range of

maintenance services, including 24/7 global aircraft-on-ground support. We also operate one of the

world’s largest custom completion and refurbishment centers for both narrow- and wide-body aircraft

and perform modifications, upgrades and lifecycle sustainment support for various government fleets.

We continue to grow our global footprint through acquisitions, expansions and significant renovations in

key business-aviation markets.

We believe the key to long-term value creation in the business jet industry is steady investment in

new aircraft models and technologies and in customer service capabilities. As a result, since we acquired

Gulfstream over 20 years ago, we have made significant investments in research and development

(R&D), state-of-the-art manufacturing facilities, and maintenance and support through a combination of

product development efforts, capital expansion and the acquisition of Jet Aviation’s global support

network.

We are committed to continual investment in R&D to create new aircraft that consistently broaden

customer offerings while raising the bar for safety and performance. The result is the unprecedented

development of an all-new lineup of the most technologically advanced business jet aircraft in the world.

These aircraft offer industry-leading cabin, cockpit and safety technologies and the longest ranges at the

fastest speeds in their respective classes.

The following represents Gulfstream’s current product line, along with the maximum range,

maximum speed and cabin length (excluding baggage) for each aircraft:

The most recent additions to the Gulfstream fleet are two new large-cabin aircraft, the G500 and

G600, which entered service in 2018 and 2019, respectively. These clean-sheet (i.e., all-new) aircraft

replace the G450 and G550 models, which have a combined installed base of more than 1,650 aircraft

around the world. Our investment included development of a new wing, new avionics, new fuselage and

new ergonomically designed larger interiors, as well as systems and technologies to improve the

manufacturing process and quality of the platform. As a result, the G500 and G600 are faster, more fuel

efficient and have greater cabin volume, more range and improved flight controls compared with the

aircraft they are replacing. At year-end 2020, cumulative deliveries for the two new aircraft totaled

almost 100.

The next model to join the Gulfstream lineup is the ultra-long-range, ultra-large-cabin G700. It

combines our most spacious cabin with our advanced Symmetry Flight Deck and the superior high-

speed performance of all-new engines to create best-in-class capabilities. Gulfstream is in the process of
flight testing and certification of the G700, which we expect to enter service in the fourth quarter of
2022.

The ultra-long-range, ultra-large-cabin G650 and G650ER continue to generate significant customer
interest, with more than 430 aircraft of this family currently operating in 50 countries. Since the first
G650 entered service in 2012, its capabilities and reliability have led to significant sales and expansion
of our installed base around the globe. Gulfstream’s current product line holds more than 300 city-pair
speed records, more than any other business jet manufacturer, led by the G650ER, which holds the
National Aeronautic Association’s polar and westbound around-the-world speed records.

Our disciplined and consistent approach to new product development allows us to repeatedly
introduce first-to-market capabilities that set industry standards for safety, performance, quality, speed
and comfort. Product enhancement and development efforts include initiatives in advanced avionics,
composites, flight-control and vision systems, acoustics, and cabin technologies.

Gulfstream designs, develops and manufactures aircraft in Savannah, Georgia, including all large-
cabin models. The mid-cabin G280 is assembled by a non-U.S. partner. All models are outfitted in
Gulfstream’s U.S. facilities. In support of Gulfstream’s growing aircraft portfolio and customer base, we
have invested in our facilities and operations. At our Savannah campus, we added new purpose-built
manufacturing facilities, increased aircraft service capacity, and opened a customer-support distribution
center and a dedicated R&D campus.

We offer comprehensive support for the more than 2,900 Gulfstream aircraft in service around the
world and operate the largest factory-owned service network in the industry. We continue to invest in
these maintenance, repair and overhaul (MRO) facilities and inventory to accommodate fleet growth.
We also operate a 24/7 year-round customer support center and offer on-call Gulfstream aircraft
technicians ready to deploy around the world for customer service requirements under our Field and
Airborne Support Team (FAST) rapid-response unit.

In addition to expanding the reach of Gulfstream’s aircraft maintenance network outside the United
States, Jet Aviation provides a comprehensive suite of innovative aircraft services for aircraft owners
and operators around the world. With approximately 50 locations throughout North America, Europe,
the Middle East and the Asia-Pacific region, our offerings include maintenance, aircraft management,
charter, staffing and fixed-base operator (FBO) services.

Jet Aviation manages nearly 300 business aircraft globally on behalf of individuals and corporate
owners. We operate a leading global FBO network and support all aircraft types with the full-range of
maintenance services, including 24/7 global aircraft-on-ground support. We also operate one of the
world’s largest custom completion and refurbishment centers for both narrow- and wide-body aircraft
and perform modifications, upgrades and lifecycle sustainment support for various government fleets.
We continue to grow our global footprint through acquisitions, expansions and significant renovations in
key business-aviation markets.

The following map demonstrates the broad reach of our combined Gulfstream and Jet Aviation

Act ships for commercial customers. Marine Systems consists of three business units — Electric Boat,

services network, including authorized service centers:

Bath Iron Works and NASSCO.

In support of our Navy customer’s significant increase in demand for submarines and surface ships,

we are making substantial investments to expand our facilities, grow and train our workforce, and

support our supply chain, particularly in our submarine business. The resulting increase in capacity and

capabilities will support the unprecedented growth expected in our shipbuilding business, especially

submarines, for the next two decades.

Electric Boat is the prime contractor and lead shipyard on all Navy nuclear-powered submarine

programs. The business is responsible for all aspects of design and engineering and leads the

construction of both the Virginia-class attack submarine and the Columbia-class ballistic-missile

submarine.

The Navy procures Virginia-class submarines in multi-boat blocks, currently at a two-per-year

construction rate. We are currently working on Blocks IV and V in the program, with 18 Virginia-class

submarines in our backlog scheduled for delivery through 2029. Eight of the boats in Block V include

the Virginia Payload Module (VPM), an 84-foot Electric Boat-designed-and-built hull section that adds

four additional payload tubes, more than tripling the strike capacity of these submarines and providing

unique capabilities to support special missions.

The Navy’s Columbia-class ballistic-missile submarine is a 12-boat program that the Navy considers

its top priority. These submarines will provide strategic deterrent capabilities for decades, with the first

boat delivering in 2027 to begin replacement of the current Ohio-class ballistic-missile submarine fleet

as it reaches the end of its service life. Construction is scheduled to continue for two decades, and the

value of the Navy’s program of record is in excess of $110 billion. To mitigate risk, the submarine’s

design was more than 80% complete at the time we began construction of the first boat, nearly twice as

mature as any other Navy submarine program at the start of construction.

We are investing $1.8 billion of capital in expanded and modernized facilities at Electric Boat to

support the growth in submarine construction. Our expenditures peaked in 2020, and we will have

completed a majority of these investments by the end of 2021. Equal to the commitment of capital is our

commitment to our workforce, which is on track to grow approximately 30% over the next decade,

particularly in support of Columbia-class production. To reach our objective, we continue to invest in

the training and tools necessary for our employees to be prepared to deliver these next-generation

submarines to the Navy on time and on budget. We are also working with our network of more than

3,000 suppliers — mostly small businesses — to provide for concurrent production of the two

submarine programs.

Bath Iron Works builds the Arleigh Burke-class (DDG-51) guided-missile destroyers and manages

modernization and lifecycle support for the class. We have a total of 11 ships in backlog scheduled for

delivery through 2027. Bath Iron Works is also the hull, mechanical and electrical (HM&E) prime

contractor and lifecycle support provider for the Zumwalt-class (DDG-1000) guided-missile destroyer

program. We expect to complete our work on the third and final ship of this class in 2021.

NASSCO specializes in Navy auxiliary and support ships and is currently building the Expeditionary

Sea Base (ESB), which serves as a forward-staging base, and the John Lewis-class (T-AO-205) fleet

replenishment oiler. Work on the two ESBs in backlog will continue into 2024, while the initial ships in

the T-AO-205 program have deliveries planned into 2025. NASSCO has also designed and built crude

The Aerospace segment is committed to sustainability and the reduction of aviation’s carbon
footprint. In support of this strategy, Gulfstream and Jet Aviation offer sustainable aviation fuel through
our combined services network and lead the industry in total gallons supplied to the business jet market.
Furthermore, we offer carbon offset credits to our customers, enabling them to operate aircraft on a
carbon-neutral basis.

Revenue for the Aerospace segment was 21% of our consolidated revenue in 2020, 25% in 2019 and

23% in 2018. Revenue by major products and services was as follows:

Year Ended December 31
Aircraft manufacturing
Aircraft services and completions
Total Aerospace

MARINE SYSTEMS

2020

2019

2018

6,115 $
1,960
8,075 $

7,541 $
2,260
9,801 $

6,262
2,193
8,455

Our Marine Systems segment is the leading designer and builder of nuclear-powered submarines and a
leader in surface combatants and auxiliary ship design and construction for the U.S. Navy. We also
provide maintenance, modernization and lifecycle support services for Navy ships and maintain the most
sophisticated marine engineering expertise in the world to support future capabilities. Our ability to
design, build and maintain our nation’s most technologically sophisticated warships is a critical element
of the U.S. defense industrial base. In addition to Navy ships, we design and build ocean-going Jones

The following map demonstrates the broad reach of our combined Gulfstream and Jet Aviation

services network, including authorized service centers:

Act ships for commercial customers. Marine Systems consists of three business units — Electric Boat,
Bath Iron Works and NASSCO.

In support of our Navy customer’s significant increase in demand for submarines and surface ships,
we are making substantial investments to expand our facilities, grow and train our workforce, and
support our supply chain, particularly in our submarine business. The resulting increase in capacity and
capabilities will support the unprecedented growth expected in our shipbuilding business, especially
submarines, for the next two decades.

Electric Boat is the prime contractor and lead shipyard on all Navy nuclear-powered submarine
programs. The business is responsible for all aspects of design and engineering and leads the
construction of both the Virginia-class attack submarine and the Columbia-class ballistic-missile
submarine.

The Navy procures Virginia-class submarines in multi-boat blocks, currently at a two-per-year
construction rate. We are currently working on Blocks IV and V in the program, with 18 Virginia-class
submarines in our backlog scheduled for delivery through 2029. Eight of the boats in Block V include
the Virginia Payload Module (VPM), an 84-foot Electric Boat-designed-and-built hull section that adds
four additional payload tubes, more than tripling the strike capacity of these submarines and providing
unique capabilities to support special missions.

The Navy’s Columbia-class ballistic-missile submarine is a 12-boat program that the Navy considers
its top priority. These submarines will provide strategic deterrent capabilities for decades, with the first
boat delivering in 2027 to begin replacement of the current Ohio-class ballistic-missile submarine fleet
as it reaches the end of its service life. Construction is scheduled to continue for two decades, and the
value of the Navy’s program of record is in excess of $110 billion. To mitigate risk, the submarine’s
design was more than 80% complete at the time we began construction of the first boat, nearly twice as
mature as any other Navy submarine program at the start of construction.

We are investing $1.8 billion of capital in expanded and modernized facilities at Electric Boat to
support the growth in submarine construction. Our expenditures peaked in 2020, and we will have
completed a majority of these investments by the end of 2021. Equal to the commitment of capital is our
commitment to our workforce, which is on track to grow approximately 30% over the next decade,
particularly in support of Columbia-class production. To reach our objective, we continue to invest in
the training and tools necessary for our employees to be prepared to deliver these next-generation
submarines to the Navy on time and on budget. We are also working with our network of more than
3,000 suppliers — mostly small businesses — to provide for concurrent production of the two
submarine programs.

Bath Iron Works builds the Arleigh Burke-class (DDG-51) guided-missile destroyers and manages
modernization and lifecycle support for the class. We have a total of 11 ships in backlog scheduled for
delivery through 2027. Bath Iron Works is also the hull, mechanical and electrical (HM&E) prime
contractor and lifecycle support provider for the Zumwalt-class (DDG-1000) guided-missile destroyer
program. We expect to complete our work on the third and final ship of this class in 2021.

NASSCO specializes in Navy auxiliary and support ships and is currently building the Expeditionary
Sea Base (ESB), which serves as a forward-staging base, and the John Lewis-class (T-AO-205) fleet
replenishment oiler. Work on the two ESBs in backlog will continue into 2024, while the initial ships in
the T-AO-205 program have deliveries planned into 2025. NASSCO has also designed and built crude

The Aerospace segment is committed to sustainability and the reduction of aviation’s carbon

footprint. In support of this strategy, Gulfstream and Jet Aviation offer sustainable aviation fuel through

our combined services network and lead the industry in total gallons supplied to the business jet market.

Furthermore, we offer carbon offset credits to our customers, enabling them to operate aircraft on a

carbon-neutral basis.

Revenue for the Aerospace segment was 21% of our consolidated revenue in 2020, 25% in 2019 and

23% in 2018. Revenue by major products and services was as follows:

Year Ended December 31

Aircraft manufacturing

Aircraft services and completions

Total Aerospace

MARINE SYSTEMS

2020

2019

2018

6,115 $

7,541 $

1,960

2,260

8,075 $

9,801 $

6,262

2,193

8,455

Our Marine Systems segment is the leading designer and builder of nuclear-powered submarines and a

leader in surface combatants and auxiliary ship design and construction for the U.S. Navy. We also

provide maintenance, modernization and lifecycle support services for Navy ships and maintain the most

sophisticated marine engineering expertise in the world to support future capabilities. Our ability to

design, build and maintain our nation’s most technologically sophisticated warships is a critical element

of the U.S. defense industrial base. In addition to Navy ships, we design and build ocean-going Jones

oil and product tankers and container and cargo ships for commercial customers, satisfying Jones Act
requirements that ships carrying cargo between U.S. ports be built in U.S. shipyards.

COMBAT SYSTEMS

On December 31, 2020, backlog for our major ship construction programs and the scheduled final

delivery date of ships currently in backlog were as follows:

Virginia-class submarine

$23.2 billion (18 ships)

2029

Columbia-class submarine

$14.7 billion* (first 2 ships)

2029

Arleigh Burke-class (DDG-51) destroyer

$6.5 billion (11 ships)

2027

John Lewis-class (T-AO-205) fleet replenishment oiler

$1.9 billion (6 ships)

2025

Expeditionary Sea Base (ESB) auxiliary support ship

$0.8 billion (2 ships)

2024

*Includes both engineering and construction

In addition to design and construction activities, our Marine Systems segment provides
comprehensive post-delivery services to extend the service life of these and other Navy ships. NASSCO
conducts full-service maintenance and surface-ship repair operations in Navy fleet concentration areas in
San Diego, California; Norfolk, Virginia; Mayport, Florida; and Bremerton, Washington. Electric Boat
provides submarine maintenance and modernization services in a variety of U.S. locations, and Bath
Iron Works provides lifecycle support services for Navy surface ships in both U.S. and overseas ports. In
support of allied navies, we offer program management, planning, engineering and design support for
submarine and surface-ship construction programs.

Revenue for the Marine Systems segment was 26% of our consolidated revenue in 2020, 23% in

2019 and 24% in 2018. Revenue by major products and services was as follows:

Year Ended December 31
Nuclear-powered submarines
Surface ships
Repair and other services
Total Marine Systems

2020

2019

2018

6,938 $
2,055
986
9,979 $

6,254 $
1,912
1,017
9,183 $

5,712
1,872
918
8,502

Our Combat Systems segment is a premier manufacturer and integrator of land combat solutions

worldwide, including wheeled and tracked combat vehicles, weapons systems and munitions. The

segment consists of three business units — Land Systems, European Land Systems (ELS), and

Ordnance and Tactical Systems (OTS).

Combat Systems creates long-term value through operational excellence — high-quality, on-

schedule and on-budget performance — combined with investments in innovative technologies that

modernize existing platforms and develop next-generation capabilities to meet our customers’ rapidly

evolving requirements. We maintain our market-leading position by focusing on innovation,

affordability and speed to market to deliver increased survivability, performance and lethality on the

battlefield. Our large installed base of wheeled and tracked vehicles around the world and expertise

gained from research, engineering and production programs position us well for modernization

programs, support and sustainment services, and future development programs.

Land Systems is the sole-source producer of two foundational products central to the U.S. Army’s

warfighting capabilities — the M1A2 Abrams main battle tank and Stryker wheeled combat vehicle.

Both of these platforms are critical to the multi-domain, joint war fight envisioned on the battlefield of

the future.

We are maximizing the effectiveness and lethality of the Army’s tank fleet with next-generation

Abrams upgrades, providing technological advancements in communications, power generation, fuel

efficiency, optics and armor. Even as we are delivering this modernized platform, we are developing

additional advanced capabilities for the Abrams tank, including incorporating next-generation electronic

architecture technology that will allow this platform to adapt and incorporate transformative capabilities

into the future. We are also upgrading Abrams tanks for several non-U.S. partners.

The Stryker is an eight-wheeled, medium-weight combat vehicle that combines lethality, mobility,

survivability and stealth. Land Systems continues to develop upgrades and enhancements to this highly

versatile and combat-proven platform to address the Army’s evolving operational needs. We are fielding

a new generation Stryker that includes the double-V-hull (DVH) for survivability, increased power,

improved cross-country mobility and an advanced digital, in-vehicle network. The first of nine brigades

began fielding the A-1 platform upgrade during 2020, and we are coordinating with the Army for next-

generation upgrades to this platform. Leveraging our rapid prototyping expertise and customer intimacy,

we continue to expand the mission capabilities of this platform, including a 30mm weapon system, an

air defense mission package (M-SHORAD), state-of-the-art electronic warfare suite, and high-energy

laser and command post options.

Combat Systems provides similar capabilities for U.S. allies through export opportunities and

through our operations in several countries around the world, including Canada, the United Kingdom,

Spain, Switzerland, Austria and Germany. As a result, we have a market-leading position in light

armored vehicles (LAVs) with approximately 14,000 of the high-mobility, versatile Pandur, Piranha and

other LAVs in service worldwide.

Land Systems is producing the British Army’s AJAX armored fighting vehicle, a next-generation,

medium-weight tracked combat vehicle. With six variants, the AJAX family of vehicles offers advanced

electronic architecture and proven technology for an unparalleled balance of survivability, lethality and

mobility, along with high reliability for a vehicle in its weight class. In addition, Land Systems is

oil and product tankers and container and cargo ships for commercial customers, satisfying Jones Act

COMBAT SYSTEMS

requirements that ships carrying cargo between U.S. ports be built in U.S. shipyards.

On December 31, 2020, backlog for our major ship construction programs and the scheduled final

delivery date of ships currently in backlog were as follows:

In addition to design and construction activities, our Marine Systems segment provides

comprehensive post-delivery services to extend the service life of these and other Navy ships. NASSCO

conducts full-service maintenance and surface-ship repair operations in Navy fleet concentration areas in

San Diego, California; Norfolk, Virginia; Mayport, Florida; and Bremerton, Washington. Electric Boat

provides submarine maintenance and modernization services in a variety of U.S. locations, and Bath

Iron Works provides lifecycle support services for Navy surface ships in both U.S. and overseas ports. In

support of allied navies, we offer program management, planning, engineering and design support for

submarine and surface-ship construction programs.

Revenue for the Marine Systems segment was 26% of our consolidated revenue in 2020, 23% in

2019 and 24% in 2018. Revenue by major products and services was as follows:

Year Ended December 31

Nuclear-powered submarines

Surface ships

Repair and other services

Total Marine Systems

2020

2019

2018

6,938 $

6,254 $

2,055

986

1,912

1,017

9,979 $

9,183 $

5,712

1,872

918

8,502

Our Combat Systems segment is a premier manufacturer and integrator of land combat solutions
worldwide, including wheeled and tracked combat vehicles, weapons systems and munitions. The
segment consists of three business units — Land Systems, European Land Systems (ELS), and
Ordnance and Tactical Systems (OTS).

Combat Systems creates long-term value through operational excellence — high-quality, on-
schedule and on-budget performance — combined with investments in innovative technologies that
modernize existing platforms and develop next-generation capabilities to meet our customers’ rapidly
evolving requirements. We maintain our market-leading position by focusing on innovation,
affordability and speed to market to deliver increased survivability, performance and lethality on the
battlefield. Our large installed base of wheeled and tracked vehicles around the world and expertise
gained from research, engineering and production programs position us well for modernization
programs, support and sustainment services, and future development programs.

Land Systems is the sole-source producer of two foundational products central to the U.S. Army’s
warfighting capabilities — the M1A2 Abrams main battle tank and Stryker wheeled combat vehicle.
Both of these platforms are critical to the multi-domain, joint war fight envisioned on the battlefield of
the future.

We are maximizing the effectiveness and lethality of the Army’s tank fleet with next-generation
Abrams upgrades, providing technological advancements in communications, power generation, fuel
efficiency, optics and armor. Even as we are delivering this modernized platform, we are developing
additional advanced capabilities for the Abrams tank, including incorporating next-generation electronic
architecture technology that will allow this platform to adapt and incorporate transformative capabilities
into the future. We are also upgrading Abrams tanks for several non-U.S. partners.

The Stryker is an eight-wheeled, medium-weight combat vehicle that combines lethality, mobility,
survivability and stealth. Land Systems continues to develop upgrades and enhancements to this highly
versatile and combat-proven platform to address the Army’s evolving operational needs. We are fielding
a new generation Stryker that includes the double-V-hull (DVH) for survivability, increased power,
improved cross-country mobility and an advanced digital, in-vehicle network. The first of nine brigades
began fielding the A-1 platform upgrade during 2020, and we are coordinating with the Army for next-
generation upgrades to this platform. Leveraging our rapid prototyping expertise and customer intimacy,
we continue to expand the mission capabilities of this platform, including a 30mm weapon system, an
air defense mission package (M-SHORAD), state-of-the-art electronic warfare suite, and high-energy
laser and command post options.

Combat Systems provides similar capabilities for U.S. allies through export opportunities and
through our operations in several countries around the world, including Canada, the United Kingdom,
Spain, Switzerland, Austria and Germany. As a result, we have a market-leading position in light
armored vehicles (LAVs) with approximately 14,000 of the high-mobility, versatile Pandur, Piranha and
other LAVs in service worldwide.

Land Systems is producing the British Army’s AJAX armored fighting vehicle, a next-generation,
medium-weight tracked combat vehicle. With six variants, the AJAX family of vehicles offers advanced
electronic architecture and proven technology for an unparalleled balance of survivability, lethality and
mobility, along with high reliability for a vehicle in its weight class. In addition, Land Systems is

producing 360 new LAVs in eight variants for the Canadian Army, as well as upgrading its existing
fleet.

ELS is producing and upgrading Piranha vehicles, a premier 8x8 armored combat vehicle, around
the world. We are currently providing Piranha V vehicles for several countries, including Denmark,
Romania and most recently Spain. Additionally, we provide mobile bridge systems with payloads
ranging from 100 kilograms to 100 tons to customers worldwide. We offer the ASCOD, a highly
versatile tracked combat vehicle with multiple versions, including the Spanish Pizarro and the Austrian
Ulan. ELS also offers Duro and Eagle tactical vehicles in a range of options and weight classes and is
currently producing these vehicles for Denmark, Switzerland and Germany, while providing a full range
of product support for the German armed forces.

On December 31, 2020, the installed base for our major vehicle programs, as well as the quantity

and scheduled final delivery date of vehicles and vehicle upgrades currently in backlog were as follows:

Vehicle

Installed Base

Vehicle Backlog

Model

Vehicle
Quantity

Countries

Vehicle
Quantity

Final
Delivery

ABRAMS
Main Battle Tank

STRYKER
Armored Vehicle

Light Armored
Vehicle (LAV)

AJAX / ASCOD
Tracked Vehicle

PANDUR / PIRANHA
Armored Vehicle

DURO / EAGLE
Wheeled Vehicle

4,389

3,362

6,425

367

725

2023

208

2022

809

2025

616

2024

7,332

646

2027

2,136

1,982

2024

connectivity and added urgency to required technology investments.

Complementing

these military-vehicle offerings, OTS designs, develops and produces a
comprehensive array of sophisticated weapons systems. For ground forces, we manufacture M2/M2-A1
heavy machine guns and MK19/MK47 grenade launchers. We also produce next-generation weapons
systems for shipboard and airborne applications, including high-speed Gatling guns for all U.S. fighter
aircraft, including the F-35 Joint Strike Fighter.

OTS’s munitions portfolio covers the full breadth of naval, air and ground forces applications across
all calibers and weapons platforms for the U.S. government and its non-U.S. partners. Globally, we
maintain a market-leading position in the supply of Hydra-70 rockets, general purpose bombs and bomb

bodies, large-caliber tank ammunition, medium-caliber ammunition, military propellants, mortar, and

artillery projectiles. OTS is also the systems integrator for the next generation of artillery solutions in

support of the Army’s Indirect Fire Modernization objectives. Additionally, OTS maintains a leading

position providing missile subsystems in support of U.S. tactical and strategic missiles, provisioning

both legacy and next-generation missiles with critical aerostructures, control actuators, high-

performance warheads and cutting-edge hypersonic rocket cases.

Revenue for the Combat Systems segment was 19% of our consolidated revenue in 2020, 18% in

2019 and 17% in 2018. Revenue by major products and services was as follows:

Year Ended December 31

Military vehicles

Weapons systems, armament and munitions

Engineering and other services

Total Combat Systems

TECHNOLOGIES

2020

2019

2018

4,687 $

4,620 $

1,991

545

1,906

481

7,223 $

7,007 $

4,027

1,798

416

6,241

Our Technologies segment provides a full spectrum of services, technologies and products to an

expanding market that increasingly seeks solutions combining leading-edge electronic hardware with

specialized software. The segment is organized into two business units — Information Technology

(GDIT) and Mission Systems. Together they serve a wide range of military, intelligence and federal

civilian customers with a diverse portfolio that includes:

information technology (IT) solutions and mission-support services;

• mobile communication, computers and command-and-control (C4) mission systems; and

intelligence, surveillance and reconnaissance (ISR) solutions.

•

This market has experienced a series of structural shifts in recent years, and our response to those

trends has further solidified our position as a market leader. Over the past decade, the Department of

Defense (DoD), the intelligence community and federal civilian agencies have increasingly prioritized

technology solutions as a critical element of their missions. Cloud computing capabilities, cyber security

threats, and advancements in artificial intelligence have transformed technology resources from short-

cycle back-office support functions to a strategic priority for this customer community. The result is a

significant increase in federal IT modernization and technology investments in recent years and a shift to

large-scale, end-to-end, highly engineered solutions that require critical mass and a broad array of

technology services and hardware offerings to meet these customer demands. The recent Coronavirus

(COVID-19) pandemic has only accelerated these trends, which have included an expansion of remote

These market shifts have resulted in significant consolidation in the industry in recognition of the

scale and breadth of capabilities required to meet this growing demand. In response to these market

dynamics, in 2015 we combined our C4 and ISR operations into a single Mission Systems business unit,

and in 2018 we acquired CSRA, Inc. (CSRA), which doubled the size of our IT services business,

brought critical capabilities and repositioned the segment as a leader in this market.

During the three years following the acquisition of CSRA, GDIT and Mission Systems have

undergone considerable portfolio shaping and realignment. At the top level, the two businesses share the

same defense, intelligence and federal civilian customer base and increasingly go to market together to

meet the ever-changing information-systems and mission-support needs of these customers. In addition,

producing 360 new LAVs in eight variants for the Canadian Army, as well as upgrading its existing

fleet.

ELS is producing and upgrading Piranha vehicles, a premier 8x8 armored combat vehicle, around

the world. We are currently providing Piranha V vehicles for several countries, including Denmark,

Romania and most recently Spain. Additionally, we provide mobile bridge systems with payloads

ranging from 100 kilograms to 100 tons to customers worldwide. We offer the ASCOD, a highly

versatile tracked combat vehicle with multiple versions, including the Spanish Pizarro and the Austrian

Ulan. ELS also offers Duro and Eagle tactical vehicles in a range of options and weight classes and is

currently producing these vehicles for Denmark, Switzerland and Germany, while providing a full range

of product support for the German armed forces.

On December 31, 2020, the installed base for our major vehicle programs, as well as the quantity

and scheduled final delivery date of vehicles and vehicle upgrades currently in backlog were as follows:

bodies, large-caliber tank ammunition, medium-caliber ammunition, military propellants, mortar, and
artillery projectiles. OTS is also the systems integrator for the next generation of artillery solutions in
support of the Army’s Indirect Fire Modernization objectives. Additionally, OTS maintains a leading
position providing missile subsystems in support of U.S. tactical and strategic missiles, provisioning
both legacy and next-generation missiles with critical aerostructures, control actuators, high-
performance warheads and cutting-edge hypersonic rocket cases.

Revenue for the Combat Systems segment was 19% of our consolidated revenue in 2020, 18% in

2019 and 17% in 2018. Revenue by major products and services was as follows:

Year Ended December 31
Military vehicles
Weapons systems, armament and munitions
Engineering and other services
Total Combat Systems

TECHNOLOGIES

2020

2019

2018

4,687 $
1,991
545
7,223 $

4,620 $
1,906
481
7,007 $

4,027
1,798
416
6,241

Our Technologies segment provides a full spectrum of services, technologies and products to an
expanding market that increasingly seeks solutions combining leading-edge electronic hardware with
specialized software. The segment is organized into two business units — Information Technology
(GDIT) and Mission Systems. Together they serve a wide range of military, intelligence and federal
civilian customers with a diverse portfolio that includes:

information technology (IT) solutions and mission-support services;

•
• mobile communication, computers and command-and-control (C4) mission systems; and
•

intelligence, surveillance and reconnaissance (ISR) solutions.

This market has experienced a series of structural shifts in recent years, and our response to those
trends has further solidified our position as a market leader. Over the past decade, the Department of
Defense (DoD), the intelligence community and federal civilian agencies have increasingly prioritized
technology solutions as a critical element of their missions. Cloud computing capabilities, cyber security
threats, and advancements in artificial intelligence have transformed technology resources from short-
cycle back-office support functions to a strategic priority for this customer community. The result is a
significant increase in federal IT modernization and technology investments in recent years and a shift to
large-scale, end-to-end, highly engineered solutions that require critical mass and a broad array of
technology services and hardware offerings to meet these customer demands. The recent Coronavirus
(COVID-19) pandemic has only accelerated these trends, which have included an expansion of remote
connectivity and added urgency to required technology investments.

These market shifts have resulted in significant consolidation in the industry in recognition of the
scale and breadth of capabilities required to meet this growing demand. In response to these market
dynamics, in 2015 we combined our C4 and ISR operations into a single Mission Systems business unit,
and in 2018 we acquired CSRA, Inc. (CSRA), which doubled the size of our IT services business,
brought critical capabilities and repositioned the segment as a leader in this market.

During the three years following the acquisition of CSRA, GDIT and Mission Systems have
undergone considerable portfolio shaping and realignment. At the top level, the two businesses share the
same defense, intelligence and federal civilian customer base and increasingly go to market together to
meet the ever-changing information-systems and mission-support needs of these customers. In addition,

Complementing

these military-vehicle offerings, OTS designs, develops and produces a

comprehensive array of sophisticated weapons systems. For ground forces, we manufacture M2/M2-A1

heavy machine guns and MK19/MK47 grenade launchers. We also produce next-generation weapons

systems for shipboard and airborne applications, including high-speed Gatling guns for all U.S. fighter

aircraft, including the F-35 Joint Strike Fighter.

OTS’s munitions portfolio covers the full breadth of naval, air and ground forces applications across

all calibers and weapons platforms for the U.S. government and its non-U.S. partners. Globally, we

maintain a market-leading position in the supply of Hydra-70 rockets, general purpose bombs and bomb

with the convergence of digital technologies, we are now seeing considerable commonality and
significant complementary pull-through in their core offerings and solution sets, particularly in the areas
of cloud computing; artificial intelligence and machine learning (AI/ML); big data analytics;
development, security and operations (DevSecOps); software-defined networks; and everything as-a-
Service (XaaS). Consequently, we have reorganized these two business units into a single operating
segment to reflect the evolving strategic focus and the way we are running the business.

With a network of more than 90 global partners, the segment develops solutions that keep its
customers at the leading edge of technology in support of their missions. The segment’s highly skilled
workforce is one of its key differentiators and comprises approximately 40,000 employees, including
technologists, engineers, mission experts and cleared personnel dedicated to solving the toughest
security and technology challenges facing the United States and its allies.

GDIT modernizes large-scale IT enterprises and deploys the latest technologies to optimize and
protect customer networks, data and information. Operating hundreds of complex digital modernization
programs across the federal government, GDIT’s expansive portfolio includes cloud strategy and
services, cybersecurity, network modernization, managed services, AI, application development and
high-performance computing.

Mission Systems offers solutions across all domains and produces a unique combination of products
and capabilities that are purpose-built for essential C4ISR and cybersecurity applications. Our
technology and products are often built into platforms and integrated systems on which our customers
rely. The business’s portfolio includes prime contract programs to provide innovative defense-
electronics solutions as well as subcontract efforts that enhance the capabilities of large-scale land, air,
sea and space platforms.

The Technologies segment leverages its scale, partnerships and deep knowledge of its customers’
missions and challenges to bring innovation to those customers across a portfolio of thousands of
contracts. While no individual contract is material to the segment’s results, the following highlights
provide a sampling of the value of this combined business. GDIT has significantly expanded its cloud
footprint and now holds leading positions on two of the three pillars of the Pentagon’s enterprise cloud
migration strategy: milCloud 2.0, which provides defense agencies and military commands secure on-
government-premise hybrid cloud services, and Defense Enterprise Office Systems (DEOS), which
secures and streamlines email and collaborative tools across the DoD enterprise.

We apply AI to expand the human capacity to make better decisions and implement smarter actions
as we automate, secure and enhance our customer’s operations. For the Department of Veterans Affairs
(VA), GDIT leverages managed services and AI to accelerate veteran benefits claims processing,
develops applications and software to improve the veteran user experience, and provides on-demand
24/7/365 IT support to more than 500,000 VA personnel nationwide. In the federal civilian sector, GDIT
supports some of the fastest supercomputers in the world, responsible for biomedical research, weather
forecasting and climate modeling.

To adapt to a constantly evolving threat landscape, GDIT embeds cyber solutions into every aspect
of digital modernization. More than 3,000 cyber professionals support cyber projects across 30 agencies
in the federal government.

Mission Systems develops and manufactures combat-proven global positioning systems (GPS) for
the U.S. Army. This includes capabilities to ensure reliable satellite connectivity in any location and a
suite of Assured Position, Navigation and Timing capabilities, which provide military forces the ability

to synchronize communications utilizing trusted data, even when GPS signals are degraded or denied.

We are working with our Army customer to adapt elements of 5G technology to address battlefield

realities such as jamming, spoofing, cyberattacks and lack of ground connectivity. We also provide

similar capabilities to non-U.S. customers, including Canada and the United Kingdom.

On the platform side, we have a more than 60-year legacy of providing advanced fire-control

systems for the Navy’s submarine programs. We are developing and integrating commercial off-the-

shelf software and hardware upgrades to improve the tactical control capabilities for several submarine

classes, including the Columbia and U.K. Dreadnought ballistic-missile submarines.

Revenue for the Technologies segment was 34% of our consolidated revenue in 2020 and 2019 and

36% in 2018. Revenue by major products and services was as follows:

2020

2019

2018

7,892 $

4,756

8,422 $

4,937

12,648 $

13,359 $

8,269

4,726

12,995

In 2020, 69% of our consolidated revenue was from the U.S. government, 13% was from U.S.

commercial customers, 9% was from non-U.S. commercial customers and the remaining 9% was from

Our primary customer is the DoD. We also contract with other U.S. government customers, including

the intelligence community and the Departments of Homeland Security and Health and Human Services.

Our revenue from the U.S. government was as follows:

2020

2019

2018

$ 20,840

$ 19,864

17,674

4,726

737

5,254

689

5,306

626

$ 26,303

$ 25,807

23,606

69 %

66 %

65 %

In addition to our direct non-U.S. sales, we sell to non-U.S. governments through the FMS program. Under the FMS program, we contract with and are

paid by the U.S. government, and the U.S. government assumes the risk of collection from the non-U.S. government customer.

Our U.S. government revenue is derived from 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.

Year Ended December 31

IT services

C4ISR solutions

Total Technologies

CUSTOMERS

non-U.S. government customers.

U.S. GOVERNMENT

Year Ended December 31

DoD

Non-DoD

Foreign Military Sales (FMS)*

Total U.S. government

% of total revenue

with the convergence of digital technologies, we are now seeing considerable commonality and

significant complementary pull-through in their core offerings and solution sets, particularly in the areas

of cloud computing; artificial intelligence and machine learning (AI/ML); big data analytics;

development, security and operations (DevSecOps); software-defined networks; and everything as-a-

Service (XaaS). Consequently, we have reorganized these two business units into a single operating

segment to reflect the evolving strategic focus and the way we are running the business.

With a network of more than 90 global partners, the segment develops solutions that keep its

customers at the leading edge of technology in support of their missions. The segment’s highly skilled

workforce is one of its key differentiators and comprises approximately 40,000 employees, including

technologists, engineers, mission experts and cleared personnel dedicated to solving the toughest

security and technology challenges facing the United States and its allies.

GDIT modernizes large-scale IT enterprises and deploys the latest technologies to optimize and

protect customer networks, data and information. Operating hundreds of complex digital modernization

programs across the federal government, GDIT’s expansive portfolio includes cloud strategy and

services, cybersecurity, network modernization, managed services, AI, application development and

high-performance computing.

Mission Systems offers solutions across all domains and produces a unique combination of products

and capabilities that are purpose-built for essential C4ISR and cybersecurity applications. Our

technology and products are often built into platforms and integrated systems on which our customers

rely. The business’s portfolio includes prime contract programs to provide innovative defense-

electronics solutions as well as subcontract efforts that enhance the capabilities of large-scale land, air,

sea and space platforms.

The Technologies segment leverages its scale, partnerships and deep knowledge of its customers’

missions and challenges to bring innovation to those customers across a portfolio of thousands of

contracts. While no individual contract is material to the segment’s results, the following highlights

provide a sampling of the value of this combined business. GDIT has significantly expanded its cloud

footprint and now holds leading positions on two of the three pillars of the Pentagon’s enterprise cloud

migration strategy: milCloud 2.0, which provides defense agencies and military commands secure on-

government-premise hybrid cloud services, and Defense Enterprise Office Systems (DEOS), which

secures and streamlines email and collaborative tools across the DoD enterprise.

We apply AI to expand the human capacity to make better decisions and implement smarter actions

as we automate, secure and enhance our customer’s operations. For the Department of Veterans Affairs

(VA), GDIT leverages managed services and AI to accelerate veteran benefits claims processing,

develops applications and software to improve the veteran user experience, and provides on-demand

24/7/365 IT support to more than 500,000 VA personnel nationwide. In the federal civilian sector, GDIT

supports some of the fastest supercomputers in the world, responsible for biomedical research, weather

forecasting and climate modeling.

To adapt to a constantly evolving threat landscape, GDIT embeds cyber solutions into every aspect

of digital modernization. More than 3,000 cyber professionals support cyber projects across 30 agencies

in the federal government.

Mission Systems develops and manufactures combat-proven global positioning systems (GPS) for

the U.S. Army. This includes capabilities to ensure reliable satellite connectivity in any location and a

suite of Assured Position, Navigation and Timing capabilities, which provide military forces the ability

to synchronize communications utilizing trusted data, even when GPS signals are degraded or denied.
We are working with our Army customer to adapt elements of 5G technology to address battlefield
realities such as jamming, spoofing, cyberattacks and lack of ground connectivity. We also provide
similar capabilities to non-U.S. customers, including Canada and the United Kingdom.

On the platform side, we have a more than 60-year legacy of providing advanced fire-control
systems for the Navy’s submarine programs. We are developing and integrating commercial off-the-
shelf software and hardware upgrades to improve the tactical control capabilities for several submarine
classes, including the Columbia and U.K. Dreadnought ballistic-missile submarines.

Revenue for the Technologies segment was 34% of our consolidated revenue in 2020 and 2019 and

36% in 2018. Revenue by major products and services was as follows:

Year Ended December 31
IT services
C4ISR solutions
Total Technologies

CUSTOMERS

2020

2019

2018

7,892 $
4,756
12,648 $

8,422 $
4,937
13,359 $

8,269
4,726
12,995

In 2020, 69% of our consolidated revenue was from the U.S. government, 13% was from U.S.
commercial customers, 9% was from non-U.S. commercial customers and the remaining 9% was from
non-U.S. government customers.

U.S. GOVERNMENT

Our primary customer is the DoD. We also contract with other U.S. government customers, including
the intelligence community and the Departments of Homeland Security and Health and Human Services.
Our revenue from the U.S. government was as follows:

Year Ended December 31
DoD
Non-DoD
Foreign Military Sales (FMS)*
Total U.S. government
% of total revenue
*

2020
$ 20,840
4,726
737
$ 26,303

2019
$ 19,864
5,254
689
$ 25,807

2018
17,674
5,306
626
23,606

65 %
In addition to our direct non-U.S. sales, we sell to non-U.S. governments through the FMS program. Under the FMS program, we contract with and are
paid by the U.S. government, and the U.S. government assumes the risk of collection from the non-U.S. government customer.

66 %

69 %

Our U.S. government revenue is derived from 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.

Of our U.S. government revenue, fixed-price contracts accounted for 59% in 2020 and 2019 and
56% in 2018; cost-reimbursement contracts accounted for 35% in 2020 and 2019 and 38% in 2018; and
time-and-materials contracts accounted for 6% in 2020, 2019 and 2018.

government contracting and commercial technology companies to small niche competitors with

specialized technologies or expertise. The operating cycle of many of our major programs can result in

sustained periods of program continuity when we perform successfully.

For information on the advantages and disadvantages of each of these contract types, see Note B to

the Consolidated Financial Statements in Item 8.

U.S. COMMERCIAL

Our U.S. commercial revenue was $4.9 billion in 2020, $6 billion in 2019 and $4.8 billion in 2018,
which represented 13%, 15% and 13% of our consolidated revenue in each of the respective years. The
majority of this revenue was for business jet aircraft and related services where our customer base
consists of individuals and public and privately held companies across a wide range of industries.

NON-U.S.

Our revenue from non-U.S. government and commercial customers was $6.7 billion in 2020, $7.6
billion in 2019 and $7.8 billion in 2018, which represented 18%, 19% and 22% of our consolidated
revenue in each of the respective years.

We conduct business with customers around the world. Our non-U.S. defense subsidiaries maintain
long-term relationships with their customers and have established themselves as principal regional
suppliers and employers, providing a broad portfolio of products and services.

Our non-U.S. commercial revenue consists primarily of business jet aircraft exports and worldwide
aircraft services. While the installed base of aircraft is concentrated in North America, orders from
customers outside North America represent a significant portion of our aircraft business with
approximately 60% of the Aerospace segment’s aircraft backlog on December 31, 2020.

COMPETITION

Several factors determine our ability to compete successfully in the defense and business-aviation
markets. While customers’ evaluation criteria vary, the principal competitive elements include:

•
•

•
•
•
•

the technical excellence, reliability, safety and cost competitiveness of our products and services;
our ability to innovate and develop new products and technologies that improve mission
performance and adapt to dynamic threats;
successful program execution and on-time delivery of complex, integrated systems;
our global footprint and accessibility to customers;
the reputation and customer confidence derived from past performance; and
the successful management of customer relationships.

DEFENSE MARKET COMPETITION

The U.S. government contracts with numerous domestic and non-U.S. companies for products and
services. We compete against other contractors as well as smaller companies that specialize in a
particular technology or capability. Outside the United States, we compete with global defense
contractors’ exports and the offerings of private and state-owned defense manufacturers. Our Marine
Systems segment has one primary competitor with which it also partners on the Virginia-class and
Columbia-class submarine programs. Our Combat Systems segment competes with a large number of
U.S. and non-U.S. businesses. Our Technologies segment competes with many companies, from large

We are involved in teaming and subcontracting relationships with some of our competitors.

Competitions for major defense and other government contracting programs often require companies to

form teams to bring together a spectrum of capabilities to meet the customer’s requirements.

Opportunities associated with these programs include roles as the program’s integrator, overseeing and

coordinating the efforts of all participants on a team, or as a provider of a specific component or

subsystem.

BUSINESS JET AIRCRAFT MARKET COMPETITION

The Aerospace segment has several competitors for each of its Gulfstream products. Key competitive

factors include aircraft safety, reliability and performance; comfort and in-flight productivity; service

quality, global footprint and responsiveness; technological and new-product innovation; and price. We

believe that Gulfstream competes effectively in all of these areas.

The Aerospace segment competes worldwide in the business jet aircraft services market primarily on

the basis of quality, price and timeliness. While competition for each type of service varies somewhat,

the segment faces a number of competitors of varying sizes for each of its offerings.

INTELLECTUAL PROPERTY

We develop technology, manufacturing processes and systems-integration practices. In addition to

owning a large portfolio of proprietary intellectual property, we license some intellectual property rights

to and from others. The U.S. government holds licenses to many of our patents developed in the

performance of U.S. government contracts, and it may use or authorize others to use the inventions

covered by these patents. Although these intellectual property rights are important to the operation of

our business, no existing patent, license or other intellectual property right is of such importance that its

loss or termination would have a material impact on our business.

HUMAN CAPITAL MANAGEMENT

Our more than 100,000 employees are a community dedicated to our ethos of transparency, trust,

honesty and alignment. Every day, these four values drive how we operate our business; govern how we

interact with each other and our customers, partners, and suppliers; guide the way that we treat our

workforce; and determine how we connect with our communities. Our commitment to ethical business

practices is outlined in our Standards of Business Ethics and Conduct, commonly known as our Blue

Book. Each employee is asked to acknowledge receipt, understanding of and compliance with our

standards.

Due to the highly specialized nature of our business, we are required to hire and train skilled and

qualified personnel to design and build the products and perform the services required by our customers.

We recognize that our success as a company depends on our ability to attract, develop and retain our

workforce. As such, we promote the health, welfare and safety of our employees. Part of our

responsibility includes treating all employees with dignity and respect and providing them with fair,

market-based, competitive and equitable compensation. We recognize and reward the performance of

Of our U.S. government revenue, fixed-price contracts accounted for 59% in 2020 and 2019 and

56% in 2018; cost-reimbursement contracts accounted for 35% in 2020 and 2019 and 38% in 2018; and

time-and-materials contracts accounted for 6% in 2020, 2019 and 2018.

government contracting and commercial technology companies to small niche competitors with
specialized technologies or expertise. The operating cycle of many of our major programs can result in
sustained periods of program continuity when we perform successfully.

We are involved in teaming and subcontracting relationships with some of our competitors.
Competitions for major defense and other government contracting programs often require companies to
form teams to bring together a spectrum of capabilities to meet the customer’s requirements.
Opportunities associated with these programs include roles as the program’s integrator, overseeing and
coordinating the efforts of all participants on a team, or as a provider of a specific component or
subsystem.

BUSINESS JET AIRCRAFT MARKET COMPETITION

The Aerospace segment has several competitors for each of its Gulfstream products. Key competitive
factors include aircraft safety, reliability and performance; comfort and in-flight productivity; service
quality, global footprint and responsiveness; technological and new-product innovation; and price. We
believe that Gulfstream competes effectively in all of these areas.

The Aerospace segment competes worldwide in the business jet aircraft services market primarily on
the basis of quality, price and timeliness. While competition for each type of service varies somewhat,
the segment faces a number of competitors of varying sizes for each of its offerings.

INTELLECTUAL PROPERTY

We develop technology, manufacturing processes and systems-integration practices. In addition to
owning a large portfolio of proprietary intellectual property, we license some intellectual property rights
to and from others. The U.S. government holds licenses to many of our patents developed in the
performance of U.S. government contracts, and it may use or authorize others to use the inventions
covered by these patents. Although these intellectual property rights are important to the operation of
our business, no existing patent, license or other intellectual property right is of such importance that its
loss or termination would have a material impact on our business.

the technical excellence, reliability, safety and cost competitiveness of our products and services;

our ability to innovate and develop new products and technologies that improve mission

HUMAN CAPITAL MANAGEMENT

Our more than 100,000 employees are a community dedicated to our ethos of transparency, trust,
honesty and alignment. Every day, these four values drive how we operate our business; govern how we
interact with each other and our customers, partners, and suppliers; guide the way that we treat our
workforce; and determine how we connect with our communities. Our commitment to ethical business
practices is outlined in our Standards of Business Ethics and Conduct, commonly known as our Blue
Book. Each employee is asked to acknowledge receipt, understanding of and compliance with our
standards.

Due to the highly specialized nature of our business, we are required to hire and train skilled and
qualified personnel to design and build the products and perform the services required by our customers.
We recognize that our success as a company depends on our ability to attract, develop and retain our
workforce. As such, we promote the health, welfare and safety of our employees. Part of our
responsibility includes treating all employees with dignity and respect and providing them with fair,
market-based, competitive and equitable compensation. We recognize and reward the performance of

For information on the advantages and disadvantages of each of these contract types, see Note B to

the Consolidated Financial Statements in Item 8.

U.S. COMMERCIAL

Our U.S. commercial revenue was $4.9 billion in 2020, $6 billion in 2019 and $4.8 billion in 2018,

which represented 13%, 15% and 13% of our consolidated revenue in each of the respective years. The

majority of this revenue was for business jet aircraft and related services where our customer base

consists of individuals and public and privately held companies across a wide range of industries.

NON-U.S.

Our revenue from non-U.S. government and commercial customers was $6.7 billion in 2020, $7.6

billion in 2019 and $7.8 billion in 2018, which represented 18%, 19% and 22% of our consolidated

revenue in each of the respective years.

We conduct business with customers around the world. Our non-U.S. defense subsidiaries maintain

long-term relationships with their customers and have established themselves as principal regional

suppliers and employers, providing a broad portfolio of products and services.

Our non-U.S. commercial revenue consists primarily of business jet aircraft exports and worldwide

aircraft services. While the installed base of aircraft is concentrated in North America, orders from

customers outside North America represent a significant portion of our aircraft business with

approximately 60% of the Aerospace segment’s aircraft backlog on December 31, 2020.

COMPETITION

Several factors determine our ability to compete successfully in the defense and business-aviation

markets. While customers’ evaluation criteria vary, the principal competitive elements include:

•

performance and adapt to dynamic threats;

successful program execution and on-time delivery of complex, integrated systems;

our global footprint and accessibility to customers;

the reputation and customer confidence derived from past performance; and

the successful management of customer relationships.

DEFENSE MARKET COMPETITION

The U.S. government contracts with numerous domestic and non-U.S. companies for products and

services. We compete against other contractors as well as smaller companies that specialize in a

particular technology or capability. Outside the United States, we compete with global defense

contractors’ exports and the offerings of private and state-owned defense manufacturers. Our Marine

Systems segment has one primary competitor with which it also partners on the Virginia-class and

Columbia-class submarine programs. Our Combat Systems segment competes with a large number of

U.S. and non-U.S. businesses. Our Technologies segment competes with many companies, from large

our employees in line with our pay-for-performance philosophy and provide a comprehensive suite of
benefit options that enables our employees and their dependents to live healthy and productive lives.

operations.

significant difficulties in obtaining the materials, components or supplies necessary for our business

Safety in our workplaces is paramount. Across our businesses, we take measures to prevent
workplace hazards, encourage safe behaviors and enforce a culture of continuous improvement to ensure
our processes help reduce incidents and illnesses and comply with governing health and safety laws.
This was never more important than in 2020 given the challenges presented by the COVID-19
pandemic.

We are committed to promoting diversity of thought, experience, perspectives, backgrounds and
capabilities to drive innovation and strengthen the solutions we deliver to our customers because we
believe the results lead to a better outcome. We proudly support a culture of inclusion and encourage a
work environment that respects diverse opinions, values individual skills and celebrates the unique
experiences our employees bring. We are dedicated to equal employment opportunity that fosters and
supports diversity in a principled, productive and inclusive work environment. We stand for basic
universal human rights, including that employment must be voluntary. We track, measure and analyze
our workforce trends to establish accountability for continuing to cultivate diverse and inclusive
environments across our businesses and at every level of our company.

Our values motivate us to promote strong workplace practices with opportunities for development
and training. Our training and development efforts focus on ensuring that the workforce is appropriately
trained on critical job skills as well as leadership behaviors that are consistent with our ethos. We
conduct rigorous succession planning exercises to ensure that key positions have the appropriate level of
bench strength to provide for future key positions and leadership transitions. We listen to our workforce
to assess areas of concern and levels of engagement.

2020 WORKFORCE STATISTICS

• Approximately 85% of our employees are based in the United States, of which roughly 70% are
white, 30% are people of color and 20% are veterans of the U.S. armed forces. The remaining 15%
of our workforce is based internationally in over 65 countries with the primary concentrations in
North America and Europe.

• Our global workforce is approximately 77% male and 23% female with our senior leadership teams
across the business represented by 75% males and 25% females. During 2020, the diversity profile
of our workforce continued to improve across our businesses as we hired approximately 15,000
individuals of which 72% were male and 28% were female. For our 2020 U.S.-based hires,
approximately 62% were white and 38% were people of color.

RAW MATERIALS AND SUPPLIERS

We depend on suppliers and subcontractors for raw materials, components and subsystems. Our U.S.
government customer is a supplier on some of our programs. These supply networks can experience
price fluctuations and capacity constraints, which can put pressure on our costs. Effective management
and oversight of suppliers and subcontractors is an important element of our successful performance. We
sometimes rely on only one or two sources of supply that, if disrupted, could impact our ability to meet
our customer commitments. We attempt to mitigate risks with our suppliers by entering into long-term
agreements and leveraging company-wide agreements to achieve economies of scale and by negotiating
flexible pricing terms in our customer contracts. We have not experienced, and do not foresee,

REGULATORY MATTERS

U.S. GOVERNMENT CONTRACTS

U.S. government contracts are subject to procurement laws and regulations. The Federal Acquisition

Regulation (FAR) and the Cost Accounting Standards (CAS) govern the majority of our contracts. The

FAR mandates uniform policies and procedures for U.S. government acquisitions and purchased

services. Also, individual agencies can have acquisition regulations that provide implementing language

for the FAR or that supplement the FAR. For example, the DoD implements the FAR through the

Defense Federal Acquisition Regulation Supplement (DFARS). For all federal government entities, the

FAR regulates the phases of any product or service acquisition, including:

•

acquisition planning;

competition requirements;

contractor qualifications;

acquisition procedures.

protection of source selection and supplier information; and

In addition, the FAR addresses the allowability of our costs, while the CAS addresses the allocation

of those costs to contracts. The FAR and CAS subject us to audits and other government reviews

covering issues such as cost, performance, internal controls and accounting practices relating to our

contracts.

NON-U.S. REGULATORY

BUSINESS JET AIRCRAFT

Our non-U.S. operations are subject to the applicable government regulations and procurement policies

and practices, as well as U.S. policies and regulations. We are also subject to regulations governing

investments, exchange controls, repatriation of earnings and import-export control.

The Aerospace segment is subject to Federal Aviation Administration (FAA) regulation in the United

States and other similar aviation regulatory authorities internationally, including the Civil Aviation

Administration of Israel (CAAI), the European Aviation Safety Agency (EASA) and the Civil Aviation

Administration of China (CAAC). For an aircraft to be manufactured and sold, the model must receive a

type certificate from the appropriate aviation authority, and each aircraft must receive a certificate of

airworthiness. Aircraft outfitting and completions also require approval by the appropriate aviation

authority, which is often accomplished through a supplemental type certificate. Aviation authorities can

require changes to a specific aircraft or model type before granting approval. Maintenance facilities and

charter operations must be licensed by aviation authorities as well.

ENVIRONMENTAL

We are subject to a variety of federal, state, local and foreign environmental laws and regulations. These

laws and regulations cover the discharge, treatment, storage, disposal, investigation and remediation of

materials, substances and wastes identified in the laws and regulations. We are directly or indirectly

involved in environmental investigations or remediation at some of our current and former facilities and

at third-party sites that we do not own but where we have been designated a potentially responsible party

our employees in line with our pay-for-performance philosophy and provide a comprehensive suite of

benefit options that enables our employees and their dependents to live healthy and productive lives.

significant difficulties in obtaining the materials, components or supplies necessary for our business
operations.

Safety in our workplaces is paramount. Across our businesses, we take measures to prevent

workplace hazards, encourage safe behaviors and enforce a culture of continuous improvement to ensure

our processes help reduce incidents and illnesses and comply with governing health and safety laws.

This was never more important than in 2020 given the challenges presented by the COVID-19

pandemic.

We are committed to promoting diversity of thought, experience, perspectives, backgrounds and

capabilities to drive innovation and strengthen the solutions we deliver to our customers because we

believe the results lead to a better outcome. We proudly support a culture of inclusion and encourage a

work environment that respects diverse opinions, values individual skills and celebrates the unique

experiences our employees bring. We are dedicated to equal employment opportunity that fosters and

supports diversity in a principled, productive and inclusive work environment. We stand for basic

universal human rights, including that employment must be voluntary. We track, measure and analyze

our workforce trends to establish accountability for continuing to cultivate diverse and inclusive

environments across our businesses and at every level of our company.

Our values motivate us to promote strong workplace practices with opportunities for development

and training. Our training and development efforts focus on ensuring that the workforce is appropriately

trained on critical job skills as well as leadership behaviors that are consistent with our ethos. We

conduct rigorous succession planning exercises to ensure that key positions have the appropriate level of

bench strength to provide for future key positions and leadership transitions. We listen to our workforce

to assess areas of concern and levels of engagement.

2020 WORKFORCE STATISTICS

• Approximately 85% of our employees are based in the United States, of which roughly 70% are

white, 30% are people of color and 20% are veterans of the U.S. armed forces. The remaining 15%

of our workforce is based internationally in over 65 countries with the primary concentrations in

North America and Europe.

• Our global workforce is approximately 77% male and 23% female with our senior leadership teams

across the business represented by 75% males and 25% females. During 2020, the diversity profile

of our workforce continued to improve across our businesses as we hired approximately 15,000

individuals of which 72% were male and 28% were female. For our 2020 U.S.-based hires,

approximately 62% were white and 38% were people of color.

RAW MATERIALS AND SUPPLIERS

We depend on suppliers and subcontractors for raw materials, components and subsystems. Our U.S.

government customer is a supplier on some of our programs. These supply networks can experience

price fluctuations and capacity constraints, which can put pressure on our costs. Effective management

and oversight of suppliers and subcontractors is an important element of our successful performance. We

sometimes rely on only one or two sources of supply that, if disrupted, could impact our ability to meet

our customer commitments. We attempt to mitigate risks with our suppliers by entering into long-term

agreements and leveraging company-wide agreements to achieve economies of scale and by negotiating

flexible pricing terms in our customer contracts. We have not experienced, and do not foresee,

REGULATORY MATTERS

U.S. GOVERNMENT CONTRACTS

U.S. government contracts are subject to procurement laws and regulations. The Federal Acquisition
Regulation (FAR) and the Cost Accounting Standards (CAS) govern the majority of our contracts. The
FAR mandates uniform policies and procedures for U.S. government acquisitions and purchased
services. Also, individual agencies can have acquisition regulations that provide implementing language
for the FAR or that supplement the FAR. For example, the DoD implements the FAR through the
Defense Federal Acquisition Regulation Supplement (DFARS). For all federal government entities, the
FAR regulates the phases of any product or service acquisition, including:

•
•
•
•
•

acquisition planning;
competition requirements;
contractor qualifications;
protection of source selection and supplier information; and
acquisition procedures.

In addition, the FAR addresses the allowability of our costs, while the CAS addresses the allocation
of those costs to contracts. The FAR and CAS subject us to audits and other government reviews
covering issues such as cost, performance, internal controls and accounting practices relating to our
contracts.

NON-U.S. REGULATORY

Our non-U.S. operations are subject to the applicable government regulations and procurement policies
and practices, as well as U.S. policies and regulations. We are also subject to regulations governing
investments, exchange controls, repatriation of earnings and import-export control.

BUSINESS JET AIRCRAFT

The Aerospace segment is subject to Federal Aviation Administration (FAA) regulation in the United
States and other similar aviation regulatory authorities internationally, including the Civil Aviation
Administration of Israel (CAAI), the European Aviation Safety Agency (EASA) and the Civil Aviation
Administration of China (CAAC). For an aircraft to be manufactured and sold, the model must receive a
type certificate from the appropriate aviation authority, and each aircraft must receive a certificate of
airworthiness. Aircraft outfitting and completions also require approval by the appropriate aviation
authority, which is often accomplished through a supplemental type certificate. Aviation authorities can
require changes to a specific aircraft or model type before granting approval. Maintenance facilities and
charter operations must be licensed by aviation authorities as well.

ENVIRONMENTAL

We are subject to a variety of federal, state, local and foreign environmental laws and regulations. These
laws and regulations cover the discharge, treatment, storage, disposal, investigation and remediation of
materials, substances and wastes identified in the laws and regulations. We are directly or indirectly
involved in environmental investigations or remediation at some of our current and former facilities and
at 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. As a PRP, we are
potentially liable to the government or third parties for the cost of remediating contamination. In cases
where we have been designated a PRP, we generally seek to mitigate these environmental liabilities
through available insurance coverage and by pursuing appropriate cost-recovery actions. In the unlikely
event that we are required to fully fund the remediation of a site, the current statutory framework would
allow us to pursue contributions from other PRPs. We regularly assess our compliance status and
management of environmental matters.

Operating and maintenance costs associated with environmental compliance and management of
contaminated sites are a normal, recurring part of our operations. Historically, these costs have not been
material. Environmental costs are often recoverable under our contracts with the U.S. government.
Based on information currently available and current U.S. government policies relating to cost recovery,
we do not expect continued compliance with environmental regulations to have a material impact on our
results of operations, financial condition or cash flows. For additional information relating to the impact
of environmental matters, see Note O to the Consolidated Financial Statements in Item 8.

AVAILABLE INFORMATION

We file reports and other information with the Securities and Exchange Commission (SEC) pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. These reports and
information include an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and proxy statements. Free copies of these items are made available on our website
(www.gd.com) as soon as practicable. The SEC maintains a website (www.sec.gov) that contains
reports, proxy and information statements, and other information.

In addition to the information contained in this Form 10-K, information about the company can be
found on our website and our Investor Relations website (investorrelations.gd.com). Our Investor
Relations website contains a significant amount of information about the company, including financial
information, our corporate governance principles and practices, and other information for investors. We
encourage investors to visit our website, as we frequently update and post new information about our
company, and it is possible that this information could be deemed to be material information.

References to our website and the SEC’s website in this Form 10-K do not constitute, and should not
be viewed as, incorporation by reference of the information contained on, or available through, the
websites. The information should not be considered a part of this Form 10-K, unless otherwise expressly
incorporated by reference.

ITEM 1A. RISK FACTORS

An investment in our common stock or debt securities is subject to risks and uncertainties. Investors
should consider the following factors, in addition to the other information contained in this Annual
Report on Form 10-K, before deciding whether to purchase our securities.

Investment risks can be market-wide as well as unique to a specific industry or company. The market
risks faced by an investor in our stock are similar to the uncertainties faced by investors in a broad range
of industries. There are some risks that apply more specifically to our business.

Our revenue is concentrated with the U.S. government. This customer relationship involves some
specific risks. In addition, our sales to non-U.S. customers expose us to different financial and legal

risks. Despite the varying nature of our government and commercial operations and the markets they

serve, each segment shares some common risks, such as the ongoing development of high-technology

products and the price, availability and quality of commodities and subsystems.

Risks Relating to Our Business and Industry

The U.S. government provides a significant portion of our revenue. In 2020, approximately 70% of

our consolidated revenue was from the U.S. government. Levels of U.S. defense spending are driven by

threats to national security. Competing demands for federal funds can pressure various areas of

spending. Decreases in U.S. government defense and other spending or changes in spending allocation

or priorities could result in one or more of our programs being reduced, delayed or terminated, which

could impact our financial performance.

For additional information relating to U.S. budget matters, see the Business Environment section of

Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

U.S. government contracts are not always fully funded at inception, and any funding is subject

to disruption or delay. Our U.S. government revenue is funded by agency budgets that operate on an

October-to-September fiscal year. Early each calendar year, the President of the United States presents

to the Congress the budget for the upcoming fiscal year. This budget proposes funding levels for every

federal agency and is the result of months of policy and program reviews throughout the executive

branch. For the remainder of the year, the Appropriations and Authorization Committees of the

Congress review the President’s budget proposals and establish the funding levels for the upcoming

fiscal year. Once these levels are enacted into law, the Executive Office of the President administers the

funds to the agencies.

There are two primary risks associated with the U.S. government budget cycle. First, the annual

process may be delayed or disrupted. If the annual budget is not approved by the beginning of the

government fiscal year, portions of the U.S. government can shut down or operate under a continuing

resolution that maintains spending at prior-year levels, which can impact funding for our programs and

timing of new awards. Second, the Congress typically appropriates funds on a fiscal-year basis, even

though contract performance may extend over many years. Future revenue under existing multi-year

contracts is conditioned on the continuing availability of congressional appropriations. Changes in

appropriations in subsequent years may impact the funding available for these programs. Delays or

changes in funding can impact the timing of available funds or lead to changes in program content.

Our U.S. government contracts are subject to termination rights by the customer. U.S.

government contracts generally permit the government to terminate a contract, in whole or in part, for

convenience. If a contract is terminated for convenience, a contractor usually is entitled to receive

payments for its allowable costs incurred and the proportionate share of fees or earnings for the work

performed. The government may also terminate a contract for default in the event of a breach by the

contractor. If a contract is terminated for default, the government in most cases pays only for the work it

has accepted. The termination of multiple or large programs could have a material adverse effect on our

future revenue and earnings.

Government contractors operate in a highly regulated environment and are subject to audit by

the U.S. government. Numerous U.S. government agencies routinely audit and review government

contractors. These agencies review a contractor’s performance under its contracts and compliance with

applicable laws, regulations and standards. The U.S. government also reviews the adequacy of, and

compliance with, internal control systems and policies, including the contractor’s purchasing, property,

(PRP) by the U.S. Environmental Protection Agency or a state environmental agency. As a PRP, we are

potentially liable to the government or third parties for the cost of remediating contamination. In cases

where we have been designated a PRP, we generally seek to mitigate these environmental liabilities

through available insurance coverage and by pursuing appropriate cost-recovery actions. In the unlikely

event that we are required to fully fund the remediation of a site, the current statutory framework would

allow us to pursue contributions from other PRPs. We regularly assess our compliance status and

management of environmental matters.

Operating and maintenance costs associated with environmental compliance and management of

contaminated sites are a normal, recurring part of our operations. Historically, these costs have not been

material. Environmental costs are often recoverable under our contracts with the U.S. government.

Based on information currently available and current U.S. government policies relating to cost recovery,

we do not expect continued compliance with environmental regulations to have a material impact on our

results of operations, financial condition or cash flows. For additional information relating to the impact

of environmental matters, see Note O to the Consolidated Financial Statements in Item 8.

AVAILABLE INFORMATION

We file reports and other information with the Securities and Exchange Commission (SEC) pursuant to

Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. These reports and

information include an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on

Form 8-K and proxy statements. Free copies of these items are made available on our website

(www.gd.com) as soon as practicable. The SEC maintains a website (www.sec.gov) that contains

reports, proxy and information statements, and other information.

In addition to the information contained in this Form 10-K, information about the company can be

found on our website and our Investor Relations website (investorrelations.gd.com). Our Investor

Relations website contains a significant amount of information about the company, including financial

information, our corporate governance principles and practices, and other information for investors. We

encourage investors to visit our website, as we frequently update and post new information about our

company, and it is possible that this information could be deemed to be material information.

References to our website and the SEC’s website in this Form 10-K do not constitute, and should not

be viewed as, incorporation by reference of the information contained on, or available through, the

websites. The information should not be considered a part of this Form 10-K, unless otherwise expressly

incorporated by reference.

ITEM 1A. RISK FACTORS

An investment in our common stock or debt securities is subject to risks and uncertainties. Investors

should consider the following factors, in addition to the other information contained in this Annual

Report on Form 10-K, before deciding whether to purchase our securities.

Investment risks can be market-wide as well as unique to a specific industry or company. The market

risks faced by an investor in our stock are similar to the uncertainties faced by investors in a broad range

of industries. There are some risks that apply more specifically to our business.

Our revenue is concentrated with the U.S. government. This customer relationship involves some

specific risks. In addition, our sales to non-U.S. customers expose us to different financial and legal

risks. Despite the varying nature of our government and commercial operations and the markets they
serve, each segment shares some common risks, such as the ongoing development of high-technology
products and the price, availability and quality of commodities and subsystems.

Risks Relating to Our Business and Industry

The U.S. government provides a significant portion of our revenue. In 2020, approximately 70% of
our consolidated revenue was from the U.S. government. Levels of U.S. defense spending are driven by
threats to national security. Competing demands for federal funds can pressure various areas of
spending. Decreases in U.S. government defense and other spending or changes in spending allocation
or priorities could result in one or more of our programs being reduced, delayed or terminated, which
could impact our financial performance.

For additional information relating to U.S. budget matters, see the Business Environment section of

Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

U.S. government contracts are not always fully funded at inception, and any funding is subject
to disruption or delay. Our U.S. government revenue is funded by agency budgets that operate on an
October-to-September fiscal year. Early each calendar year, the President of the United States presents
to the Congress the budget for the upcoming fiscal year. This budget proposes funding levels for every
federal agency and is the result of months of policy and program reviews throughout the executive
branch. For the remainder of the year, the Appropriations and Authorization Committees of the
Congress review the President’s budget proposals and establish the funding levels for the upcoming
fiscal year. Once these levels are enacted into law, the Executive Office of the President administers the
funds to the agencies.

There are two primary risks associated with the U.S. government budget cycle. First, the annual
process may be delayed or disrupted. If the annual budget is not approved by the beginning of the
government fiscal year, portions of the U.S. government can shut down or operate under a continuing
resolution that maintains spending at prior-year levels, which can impact funding for our programs and
timing of new awards. Second, the Congress typically appropriates funds on a fiscal-year basis, even
though contract performance may extend over many years. Future revenue under existing multi-year
contracts is conditioned on the continuing availability of congressional appropriations. Changes in
appropriations in subsequent years may impact the funding available for these programs. Delays or
changes in funding can impact the timing of available funds or lead to changes in program content.

Our U.S. government contracts are subject to termination rights by the customer. U.S.
government contracts generally permit the government to terminate a contract, in whole or in part, for
convenience. If a contract is terminated for convenience, a contractor usually is entitled to receive
payments for its allowable costs incurred and the proportionate share of fees or earnings for the work
performed. The government may also terminate a contract for default in the event of a breach by the
contractor. If a contract is terminated for default, the government in most cases pays only for the work it
has accepted. The termination of multiple or large programs could have a material adverse effect on our
future revenue and earnings.

Government contractors operate in a highly regulated environment and are subject to audit by
the U.S. government. Numerous U.S. government agencies routinely audit and review government
contractors. These agencies review a contractor’s performance under its contracts and compliance with
applicable laws, regulations and standards. The U.S. government also reviews the adequacy of, and
compliance with, internal control systems and policies, including the contractor’s purchasing, property,

estimating, material, earned value management and accounting systems. In some cases, audits may result
in delayed payments or contractor costs not being reimbursed or subject to repayment. If an audit or
investigation were to result in allegations against a contractor of improper or illegal activities, civil or
criminal penalties and administrative sanctions could result, including termination of contracts,
forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business
with the U.S. government. In addition, reputational harm could result if allegations of impropriety were
made. In some cases, audits may result in disputes with the respective government agency that can result
in negotiated settlements, arbitration or litigation. Moreover, new laws, regulations or standards, or
changes to existing ones, can increase our performance and compliance costs and reduce our
profitability.

Our Aerospace segment is subject to changing customer demand for business aircraft. The
business jet market is driven by the demand for business-aviation products and services by corporate,
individual and government customers in the United States and around the world. The Aerospace
segment’s results also depend on other factors, including general economic conditions, the availability of
credit, pricing pressures and trends in capital goods markets. In addition, if customers default on existing
contracts and the contracts are not replaced, the segment’s anticipated revenue and profitability could be
reduced materially.

Earnings and margin depend on our ability to perform on our contracts. When agreeing to
contractual terms, our management team makes assumptions and projections about future conditions and
events. The accounting for our contracts and programs requires assumptions and estimates about these
conditions and events. These projections and estimates assess:

•
•
•
•

the productivity and availability of labor;
the complexity of the work to be performed;
the cost and availability of materials and components; and
schedule requirements.

If there is a significant change in one or more of these circumstances, estimates or assumptions, or if
the risks under our contracts are not managed adequately, the profitability of contracts could be
adversely affected. This could affect earnings and margin materially.

Earnings and margin depend in part on subcontractor and supplier performance. We rely on
other companies to provide materials, components and subsystems for our products. Subcontractors also
perform some of the services that we provide to our customers. We depend on these subcontractors and
suppliers to meet our contractual obligations in full compliance with customer requirements and
applicable law. Misconduct by subcontractors, such as a failure to comply with procurement regulations
or engaging in unauthorized activities, may harm our future revenue and earnings. We manage our
supplier base carefully to avoid or minimize customer issues. We sometimes rely on only one or two
sources of supply that, if disrupted, could have an adverse effect on our ability to meet our customer
commitments. Our ability to perform our obligations may be materially adversely affected if one or
more of these suppliers is unable to provide the agreed-upon materials, perform the agreed-upon services
in a timely and cost-effective manner, or engages in misconduct or other improper activities.

Our future success depends in part on our ability to develop new products and technologies
and maintain a qualified workforce to meet the needs of our customers. Many of the products and
services we provide involve sophisticated technologies and engineering, with related complex
manufacturing and system-integration processes. Our customers’ requirements change and evolve
regularly. Accordingly, our future performance depends in part on our ability to continue to develop,

manufacture and provide innovative products and services and bring those offerings to market quickly at

cost-effective prices. Some new products, particularly in our Aerospace segment, must meet extensive

and time-consuming regulatory requirements that are often outside our control and may result in

unanticipated delays. Additionally, due to the highly specialized nature of our business, we must hire

and retain the skilled and qualified personnel necessary to perform the services required by our

customers. To the extent that the demand for skilled personnel exceeds supply, we could experience

higher labor, recruiting or training costs in order to attract and retain such employees. If we were unable

to develop new products that meet customers’ changing needs and satisfy regulatory requirements in a

timely manner or successfully attract and retain qualified personnel, our future revenue and earnings

may be materially adversely affected.

Risks Relating to Our International Operations

Sales and operations outside the United States are subject to different risks that may be associated

with doing business in foreign countries. In some countries there is increased chance for economic,

legal or political changes, and procurement procedures may be less robust or mature, which may

complicate the contracting process. Our non-U.S. operations may be sensitive to and impacted by

changes in a foreign government’s national policies and priorities, political leadership and budgets,

which may be influenced by changes in threat environments, geopolitical uncertainties, volatility in

economic conditions and other economic and political factors. Changes and developments in any of

these matters or factors may occur suddenly and could impact funding for programs or delay purchasing

decisions or customer payments. Non-U.S. transactions can involve increased financial and legal risks

arising from foreign exchange rate variability and differing legal systems. Our non-U.S. operations are

subject to U.S. and foreign laws and regulations, including laws and regulations relating to import-

export controls, technology transfers, the Foreign Corrupt Practices Act (FCPA) and other anti-

corruption laws, and the International Traffic in Arms Regulations (ITAR). An unfavorable event or

trend in any one or more of these factors or a failure to comply with U.S. or foreign laws could result in

administrative, civil or criminal liabilities, including suspension or debarment from government

contracts or suspension of our export privileges, and could materially adversely affect revenue and

earnings associated with our non-U.S. operations.

In addition, some non-U.S. government customers require contractors to enter into letters of credit,

performance or surety bonds, bank guarantees and other similar financial arrangements. We may also be

required to agree to specific in-country purchases, manufacturing agreements or financial support

arrangements, known as offsets, that require us to satisfy investment or other requirements or face

penalties. Offset requirements may extend over several years and could require us to team with local

companies to fulfill these requirements. If we do not satisfy these financial or offset requirements, our

future revenue and earnings may be materially adversely affected.

Risks Relating to Our Acquisitions and Similar Investment Activities

We have made and expect to continue to make investments, including acquisitions and joint

ventures, that involve risks and uncertainties. When evaluating potential acquisitions and joint

ventures, we make judgments regarding the value of business opportunities, technologies, and other

assets and the risks and costs of potential liabilities based on information available to us at the time of

the transaction. Whether we realize the anticipated benefits from these transactions depends on multiple

factors, including our integration of the businesses involved; the performance of the underlying

products, capabilities or technologies; market conditions following the acquisition; and acquired

liabilities, including some that may not have been identified prior to the acquisition. These factors could

materially adversely affect our financial results.

estimating, material, earned value management and accounting systems. In some cases, audits may result

in delayed payments or contractor costs not being reimbursed or subject to repayment. If an audit or

investigation were to result in allegations against a contractor of improper or illegal activities, civil or

criminal penalties and administrative sanctions could result, including termination of contracts,

forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business

with the U.S. government. In addition, reputational harm could result if allegations of impropriety were

made. In some cases, audits may result in disputes with the respective government agency that can result

in negotiated settlements, arbitration or litigation. Moreover, new laws, regulations or standards, or

changes to existing ones, can increase our performance and compliance costs and reduce our

profitability.

business jet market is driven by the demand for business-aviation products and services by corporate,

individual and government customers in the United States and around the world. The Aerospace

segment’s results also depend on other factors, including general economic conditions, the availability of

credit, pricing pressures and trends in capital goods markets. In addition, if customers default on existing

contracts and the contracts are not replaced, the segment’s anticipated revenue and profitability could be

reduced materially.

Earnings and margin depend on our ability to perform on our contracts. When agreeing to

contractual terms, our management team makes assumptions and projections about future conditions and

events. The accounting for our contracts and programs requires assumptions and estimates about these

conditions and events. These projections and estimates assess:

•

the productivity and availability of labor;

the complexity of the work to be performed;

the cost and availability of materials and components; and

schedule requirements.

If there is a significant change in one or more of these circumstances, estimates or assumptions, or if

the risks under our contracts are not managed adequately, the profitability of contracts could be

adversely affected. This could affect earnings and margin materially.

Earnings and margin depend in part on subcontractor and supplier performance. We rely on

other companies to provide materials, components and subsystems for our products. Subcontractors also

perform some of the services that we provide to our customers. We depend on these subcontractors and

suppliers to meet our contractual obligations in full compliance with customer requirements and

applicable law. Misconduct by subcontractors, such as a failure to comply with procurement regulations

or engaging in unauthorized activities, may harm our future revenue and earnings. We manage our

supplier base carefully to avoid or minimize customer issues. We sometimes rely on only one or two

sources of supply that, if disrupted, could have an adverse effect on our ability to meet our customer

commitments. Our ability to perform our obligations may be materially adversely affected if one or

more of these suppliers is unable to provide the agreed-upon materials, perform the agreed-upon services

in a timely and cost-effective manner, or engages in misconduct or other improper activities.

Our future success depends in part on our ability to develop new products and technologies

and maintain a qualified workforce to meet the needs of our customers. Many of the products and

services we provide involve sophisticated technologies and engineering, with related complex

manufacturing and system-integration processes. Our customers’ requirements change and evolve

regularly. Accordingly, our future performance depends in part on our ability to continue to develop,

Our Aerospace segment is subject to changing customer demand for business aircraft. The

Risks Relating to Our International Operations

manufacture and provide innovative products and services and bring those offerings to market quickly at
cost-effective prices. Some new products, particularly in our Aerospace segment, must meet extensive
and time-consuming regulatory requirements that are often outside our control and may result in
unanticipated delays. Additionally, due to the highly specialized nature of our business, we must hire
and retain the skilled and qualified personnel necessary to perform the services required by our
customers. To the extent that the demand for skilled personnel exceeds supply, we could experience
higher labor, recruiting or training costs in order to attract and retain such employees. If we were unable
to develop new products that meet customers’ changing needs and satisfy regulatory requirements in a
timely manner or successfully attract and retain qualified personnel, our future revenue and earnings
may be materially adversely affected.

Sales and operations outside the United States are subject to different risks that may be associated
with doing business in foreign countries. In some countries there is increased chance for economic,
legal or political changes, and procurement procedures may be less robust or mature, which may
complicate the contracting process. Our non-U.S. operations may be sensitive to and impacted by
changes in a foreign government’s national policies and priorities, political leadership and budgets,
which may be influenced by changes in threat environments, geopolitical uncertainties, volatility in
economic conditions and other economic and political factors. Changes and developments in any of
these matters or factors may occur suddenly and could impact funding for programs or delay purchasing
decisions or customer payments. Non-U.S. transactions can involve increased financial and legal risks
arising from foreign exchange rate variability and differing legal systems. Our non-U.S. operations are
subject to U.S. and foreign laws and regulations, including laws and regulations relating to import-
export controls, technology transfers, the Foreign Corrupt Practices Act (FCPA) and other anti-
corruption laws, and the International Traffic in Arms Regulations (ITAR). An unfavorable event or
trend in any one or more of these factors or a failure to comply with U.S. or foreign laws could result in
administrative, civil or criminal liabilities, including suspension or debarment from government
contracts or suspension of our export privileges, and could materially adversely affect revenue and
earnings associated with our non-U.S. operations.

In addition, some non-U.S. government customers require contractors to enter into letters of credit,
performance or surety bonds, bank guarantees and other similar financial arrangements. We may also be
required to agree to specific in-country purchases, manufacturing agreements or financial support
arrangements, known as offsets, that require us to satisfy investment or other requirements or face
penalties. Offset requirements may extend over several years and could require us to team with local
companies to fulfill these requirements. If we do not satisfy these financial or offset requirements, our
future revenue and earnings may be materially adversely affected.

Risks Relating to Our Acquisitions and Similar Investment Activities

We have made and expect to continue to make investments, including acquisitions and joint
ventures, that involve risks and uncertainties. When evaluating potential acquisitions and joint
ventures, we make judgments regarding the value of business opportunities, technologies, and other
assets and the risks and costs of potential liabilities based on information available to us at the time of
the transaction. Whether we realize the anticipated benefits from these transactions depends on multiple
factors, including our integration of the businesses involved; the performance of the underlying
products, capabilities or technologies; market conditions following the acquisition; and acquired
liabilities, including some that may not have been identified prior to the acquisition. These factors could
materially adversely affect our financial results.

Changes in business conditions may cause goodwill and other intangible assets to become
impaired. Goodwill represents the purchase price paid in excess of the fair value of net tangible and
intangible assets acquired in a business combination. Goodwill is not amortized and remains on our
balance sheet indefinitely unless there is an impairment or a sale of a portion of the business. Goodwill
is subject to an impairment test on an annual basis or when circumstances indicate that the likelihood of
an impairment is greater than 50%. Such circumstances include a significant adverse change in the
business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant
portion of a reporting unit. We face some uncertainty in our business environment due to a variety of
challenges, including changes in government spending. We may experience unforeseen circumstances
that adversely affect the value of our goodwill or intangible assets and trigger an evaluation of the
amount of the recorded goodwill and intangible assets. Future write-offs of goodwill or other intangible
assets as a result of an impairment in the business could materially adversely affect our results of
operations and financial condition.

Other Business and Operational Risks

Our business could be negatively impacted by cybersecurity events and other disruptions. We face
various cybersecurity threats, including threats to our IT infrastructure and attempts to gain access to our
proprietary or classified information, denial-of-service attacks, as well as threats to the physical security
of our facilities and employees, and threats from terrorist acts. We also design and manage IT systems
and products that contain IT systems for various customers. We generally face the same security threats
for these systems as for our own internal systems. In addition, we face cyber threats from entities that
may seek to target us through our customers, suppliers, subcontractors and other third parties with whom
we do business. Accordingly, we maintain information security staff, policies and procedures for
managing risk to our information systems, and conduct employee training on cybersecurity to mitigate
persistent and continuously evolving cybersecurity threats. However, there can be no assurance that any
such actions will be sufficient to prevent cybersecurity breaches, disruptions, unauthorized release of
sensitive information or corruption of data.

We have experienced cybersecurity threats such as viruses and attacks targeting our IT systems.
Such prior events have not had a material impact on our financial condition, results of operations or
liquidity. However, future threats could, among other things, cause harm to our business and our
reputation; disrupt our operations; expose us to potential liability, regulatory actions and loss of
business; challenge our eligibility for future work on sensitive or classified systems for government
customers; and impact our results of operations materially. Due to the evolving nature of these security
threats, the potential impact of any future incident cannot be predicted. Our insurance coverage may not
be adequate to cover all the costs related to cybersecurity attacks or disruptions resulting from such
events.

Our business may continue to be negatively impacted by the Coronavirus (COVID-19)
pandemic or other similar outbreaks. The COVID-19 pandemic has had, and could continue to have,
a negative effect on our business, results of operations and financial condition. Effects include
disruptions or restrictions on our employees’ ability to work effectively, as well as temporary closures of
our facilities or the facilities of our customers or suppliers, which can affect our ability to perform on our
contracts. Resulting cost increases may not be fully recoverable on our contracts or adequately covered
by insurance, which could impact our profitability. In addition, the COVID-19 pandemic has resulted in
a widespread health crisis that is adversely affecting the economies and financial markets of many
countries, which could result in a prolonged economic downturn that may negatively affect demand for
our products and services. The imposition of quarantine and travel restrictions has affected and may

continue to negatively affect portions of our business, particularly our Aerospace and Technologies

segments. The extent to which COVID-19 continues to impact our business, results of operations and

financial condition is highly uncertain and will depend on future developments. Such developments may

include the geographic spread and duration of the virus, the severity of the disease and the actions that

may be taken by various governmental authorities and other third parties in response to the pandemic.

Other outbreaks of contagious diseases or other adverse public health developments in countries where

we operate or our customers are located could similarly affect our business in the future.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 this Form 10-K.

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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We operate in a number of offices, manufacturing plants, laboratories, warehouses and other facilities in

the United States and abroad. We believe our facilities are adequate for our present needs and, given

planned improvements and construction, expect them to remain adequate for the foreseeable future.

On December 31, 2020, our segments had material operations at the following locations:

• Aerospace – Van Nuys, California; West Palm Beach, Florida; Brunswick and Savannah, Georgia;

Cahokia, Illinois; Westfield, Massachusetts; Teterboro, New Jersey; New York, New York; Tulsa,

Changes in business conditions may cause goodwill and other intangible assets to become

impaired. Goodwill represents the purchase price paid in excess of the fair value of net tangible and

intangible assets acquired in a business combination. Goodwill is not amortized and remains on our

balance sheet indefinitely unless there is an impairment or a sale of a portion of the business. Goodwill

is subject to an impairment test on an annual basis or when circumstances indicate that the likelihood of

an impairment is greater than 50%. Such circumstances include a significant adverse change in the

business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant

portion of a reporting unit. We face some uncertainty in our business environment due to a variety of

challenges, including changes in government spending. We may experience unforeseen circumstances

that adversely affect the value of our goodwill or intangible assets and trigger an evaluation of the

amount of the recorded goodwill and intangible assets. Future write-offs of goodwill or other intangible

assets as a result of an impairment in the business could materially adversely affect our results of

operations and financial condition.

Other Business and Operational Risks

Our business could be negatively impacted by cybersecurity events and other disruptions. We face

various cybersecurity threats, including threats to our IT infrastructure and attempts to gain access to our

proprietary or classified information, denial-of-service attacks, as well as threats to the physical security

of our facilities and employees, and threats from terrorist acts. We also design and manage IT systems

and products that contain IT systems for various customers. We generally face the same security threats

for these systems as for our own internal systems. In addition, we face cyber threats from entities that

may seek to target us through our customers, suppliers, subcontractors and other third parties with whom

we do business. Accordingly, we maintain information security staff, policies and procedures for

managing risk to our information systems, and conduct employee training on cybersecurity to mitigate

persistent and continuously evolving cybersecurity threats. However, there can be no assurance that any

such actions will be sufficient to prevent cybersecurity breaches, disruptions, unauthorized release of

sensitive information or corruption of data.

We have experienced cybersecurity threats such as viruses and attacks targeting our IT systems.

Such prior events have not had a material impact on our financial condition, results of operations or

liquidity. However, future threats could, among other things, cause harm to our business and our

reputation; disrupt our operations; expose us to potential liability, regulatory actions and loss of

business; challenge our eligibility for future work on sensitive or classified systems for government

customers; and impact our results of operations materially. Due to the evolving nature of these security

threats, the potential impact of any future incident cannot be predicted. Our insurance coverage may not

be adequate to cover all the costs related to cybersecurity attacks or disruptions resulting from such

events.

Our business may continue to be negatively impacted by the Coronavirus (COVID-19)

pandemic or other similar outbreaks. The COVID-19 pandemic has had, and could continue to have,

a negative effect on our business, results of operations and financial condition. Effects include

disruptions or restrictions on our employees’ ability to work effectively, as well as temporary closures of

our facilities or the facilities of our customers or suppliers, which can affect our ability to perform on our

contracts. Resulting cost increases may not be fully recoverable on our contracts or adequately covered

by insurance, which could impact our profitability. In addition, the COVID-19 pandemic has resulted in

a widespread health crisis that is adversely affecting the economies and financial markets of many

countries, which could result in a prolonged economic downturn that may negatively affect demand for

our products and services. The imposition of quarantine and travel restrictions has affected and may

continue to negatively affect portions of our business, particularly our Aerospace and Technologies
segments. The extent to which COVID-19 continues to impact our business, results of operations and
financial condition is highly uncertain and will depend on future developments. Such developments may
include the geographic spread and duration of the virus, the severity of the disease and the actions that
may be taken by various governmental authorities and other third parties in response to the pandemic.
Other outbreaks of contagious diseases or other adverse public health developments in countries where
we operate or our customers are located could similarly affect our business in the future.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 this Form 10-K.

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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We operate in a number of offices, manufacturing plants, laboratories, warehouses and other facilities in
the United States and abroad. We believe our facilities are adequate for our present needs and, given
planned improvements and construction, expect them to remain adequate for the foreseeable future.

On December 31, 2020, our segments had material operations at the following locations:

• Aerospace – Van Nuys, California; West Palm Beach, Florida; Brunswick and Savannah, Georgia;
Cahokia, Illinois; Westfield, Massachusetts; Teterboro, New Jersey; New York, New York; Tulsa,

Oklahoma; Dallas, Texas; Dulles, Virginia; Appleton, Wisconsin; Sydney, Australia; Beijing and
Shanghai, China; Mexicali, Mexico; Singapore; Basel, Switzerland; Farnborough, United Kingdom.

• Marine Systems – San Diego, California; Groton and New London, Connecticut; Jacksonville,
Florida; Honolulu, Hawaii; Bath and Brunswick, Maine; Middletown and North Kingstown, Rhode
Island; Norfolk and Portsmouth, Virginia; Bremerton, Washington; Mexicali, Mexico.

• Combat Systems – Anniston, Alabama; East Camden, Arkansas; Healdsburg, California;
Crawfordsville, St. Petersburg and Tallahassee, Florida; Marion, Illinois; Saco, Maine; Sterling
Heights, Michigan; Lima, Ohio; Eynon and Scranton, Pennsylvania; Garland, Texas; Joint Base
Lewis-McChord, Washington; Vienna, Austria; La Gardeur, London and Valleyfield, Canada;
Kaiserslautern, Germany; Madrid, Sevilla and Trubia, Spain; Kreuzlingen and Tägerwilen,
Switzerland; Merthyr Tydfil, United Kingdom.

• Technologies – Daleville, Alabama; Scottsdale, Arizona; Orlando, Florida; Bossier City, Louisiana;
Annapolis Junction, Maryland; Dedham, Pittsfield and Taunton, Massachusetts; Bloomington,
Minnesota; Rensselaer, New York; Greensboro, North Carolina; Chesapeake and Marion, Virginia;
multiple locations in Northern Virginia; Ottawa, Canada; Oakdale and St. Leonards, United
Kingdom.

A summary of floor space by segment on December 31, 2020, follows:

(Square feet in millions)
Aerospace
Marine Systems
Combat Systems
Technologies
Total square feet

Company-
owned
Facilities

Leased
Facilities

Government-
owned
Facilities

Total

6.6
8.3
6.5
3.1
24.5

8.9
4.3
4.6
7.8
25.6

0.5
—
5.2
0.9
6.6

16.0
12.6
16.3
11.8
56.7

ITEM 3. LEGAL PROCEEDINGS

For information relating to legal proceedings, see Note O to the Consolidated Financial Statements in
Item 8.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

All of our executive officers are appointed annually. None of our executive officers were selected

pursuant to any arrangement or understanding between the officer and any other person. The name, age,

offices and positions of our executives held for at least the past five years as of February 9, 2021, were

as follows (references are to positions with General Dynamics Corporation, unless otherwise noted):

Name, Position and Office

Jason W. Aiken - Senior Vice President and Chief Financial Officer since January 2014; Vice

President of the company and Chief Financial Officer of Gulfstream Aerospace Corporation,

September 2011 - December 2013; Vice President and Controller, April 2010 - August 2011;

Staff Vice President, Accounting, July 2006 - March 2010

Christopher J. Brady - Vice President of the company and President of General Dynamics

Mission Systems since January 2019; Vice President, Engineering of General Dynamics

Mission Systems, January 2015 - December 2018; Vice President, Engineering of General

Dynamics C4 Systems, May 2013

- December 2014; Vice President, Assured

Communications Systems of General Dynamics C4 Systems, August 2004 - May 2013

Mark L. Burns - Vice President of the company and President of Gulfstream Aerospace

Corporation since July 2015; Vice President of the company since February 2014; President,

Product Support of Gulfstream Aerospace Corporation, June 2008 - June 2015

Danny Deep - Vice President of the company and President of General Dynamics Land

Systems since April 2020; Chief Operating Officer of General Dynamics Land Systems,

September 2018 - April 2020; Vice President of General Dynamics Land Systems – Canada,

January 2011 - September 2018

Gregory S. Gallopoulos - Senior Vice President, General Counsel and Secretary since January

2010; Vice President and Deputy General Counsel, July 2008 - January 2010; Managing

Partner of Jenner & Block LLP, January 2005 - June 2008

M. Amy Gilliland - Senior Vice President of the company since April 2015; President of

General Dynamics Information Technology since September 2017; Deputy for Operations of

General Dynamics Information Technology, April 2017 - September 2017; Senior Vice

President, Human Resources and Administration, April 2015 - March 2017; Vice President,

Human Resources, February 2014 - March 2015; Staff Vice President, Strategic Planning,

January 2013 - February 2014; Staff Vice President, Investor Relations, June 2008 - January

Kevin M. Graney - Vice President of the company and President of Electric Boat Corporation

since October 2019; Vice President of the company and President of NASSCO, January 2017 -

October 2019; Vice President and General Manager of NASSCO, November 2013 - January

Kimberly A. Kuryea - Senior Vice President, Human Resources and Administration since

April 2017; Vice President and Controller, September 2011 - March 2017; Chief Financial

Officer of General Dynamics Advanced Information Systems, November 2007 - August 2011;

Staff Vice President, Internal Audit, March 2004 - October 2007

Christopher Marzilli - Executive Vice President, Technologies since December 2020;

Executive Vice President, Information Technology and Mission Systems, January 2019 -

December 2020; Vice President of the company and President of General Dynamics Mission

Systems, January 2015 - December 2018; Vice President of the company and President of

General Dynamics C4 Systems, January 2006 - December 2014; Senior Vice President and

Deputy General Manager of General Dynamics C4 Systems, November 2003 - January 2006

William A. Moss - Vice President and Controller since April 2017; Staff Vice President,

Internal Audit, May 2015 - March 2017; Staff Vice President, Accounting, August 2010 - May

Age

2013

2017

2015

Oklahoma; Dallas, Texas; Dulles, Virginia; Appleton, Wisconsin; Sydney, Australia; Beijing and

Shanghai, China; Mexicali, Mexico; Singapore; Basel, Switzerland; Farnborough, United Kingdom.

• Marine Systems – San Diego, California; Groton and New London, Connecticut; Jacksonville,

Florida; Honolulu, Hawaii; Bath and Brunswick, Maine; Middletown and North Kingstown, Rhode

Island; Norfolk and Portsmouth, Virginia; Bremerton, Washington; Mexicali, Mexico.

• Combat Systems – Anniston, Alabama; East Camden, Arkansas; Healdsburg, California;

Crawfordsville, St. Petersburg and Tallahassee, Florida; Marion, Illinois; Saco, Maine; Sterling

Heights, Michigan; Lima, Ohio; Eynon and Scranton, Pennsylvania; Garland, Texas; Joint Base

Lewis-McChord, Washington; Vienna, Austria; La Gardeur, London and Valleyfield, Canada;

Kaiserslautern, Germany; Madrid, Sevilla and Trubia, Spain; Kreuzlingen and Tägerwilen,

Switzerland; Merthyr Tydfil, United Kingdom.

• Technologies – Daleville, Alabama; Scottsdale, Arizona; Orlando, Florida; Bossier City, Louisiana;

Annapolis Junction, Maryland; Dedham, Pittsfield and Taunton, Massachusetts; Bloomington,

Minnesota; Rensselaer, New York; Greensboro, North Carolina; Chesapeake and Marion, Virginia;

multiple locations in Northern Virginia; Ottawa, Canada; Oakdale and St. Leonards, United

A summary of floor space by segment on December 31, 2020, follows:

Company-

owned

Facilities

Leased

Facilities

Government-

owned

Facilities

Total

6.6

8.3

6.5

3.1

24.5

8.9

4.3

4.6

7.8

25.6

0.5

—

5.2

0.9

6.6

16.0

12.6

16.3

11.8

56.7

Kingdom.

(Square feet in millions)

Aerospace

Marine Systems

Combat Systems

Technologies

Total square feet

ITEM 3. LEGAL PROCEEDINGS

Item 8.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

For information relating to legal proceedings, see Note O to the Consolidated Financial Statements in

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

All of our executive officers are appointed annually. None of our executive officers were selected
pursuant to any arrangement or understanding between the officer and any other person. The name, age,
offices and positions of our executives held for at least the past five years as of February 9, 2021, were
as follows (references are to positions with General Dynamics Corporation, unless otherwise noted):

Name, Position and Office

Jason W. Aiken - Senior Vice President and Chief Financial Officer since January 2014; Vice
President of the company and Chief Financial Officer of Gulfstream Aerospace Corporation,
September 2011 - December 2013; Vice President and Controller, April 2010 - August 2011;
Staff Vice President, Accounting, July 2006 - March 2010

Christopher J. Brady - Vice President of the company and President of General Dynamics
Mission Systems since January 2019; Vice President, Engineering of General Dynamics
Mission Systems, January 2015 - December 2018; Vice President, Engineering of General
Dynamics C4 Systems, May 2013
- December 2014; Vice President, Assured
Communications Systems of General Dynamics C4 Systems, August 2004 - May 2013

Mark L. Burns - Vice President of the company and President of Gulfstream Aerospace
Corporation since July 2015; Vice President of the company since February 2014; President,
Product Support of Gulfstream Aerospace Corporation, June 2008 - June 2015

Danny Deep - Vice President of the company and President of General Dynamics Land
Systems since April 2020; Chief Operating Officer of General Dynamics Land Systems,
September 2018 - April 2020; Vice President of General Dynamics Land Systems – Canada,
January 2011 - September 2018

Gregory S. Gallopoulos - Senior Vice President, General Counsel and Secretary since January
2010; Vice President and Deputy General Counsel, July 2008 - January 2010; Managing
Partner of Jenner & Block LLP, January 2005 - June 2008
M. Amy Gilliland - Senior Vice President of the company since April 2015; President of
General Dynamics Information Technology since September 2017; Deputy for Operations of
General Dynamics Information Technology, April 2017 - September 2017; Senior Vice
President, Human Resources and Administration, April 2015 - March 2017; Vice President,
Human Resources, February 2014 - March 2015; Staff Vice President, Strategic Planning,
January 2013 - February 2014; Staff Vice President, Investor Relations, June 2008 - January
2013

Kevin M. Graney - Vice President of the company and President of Electric Boat Corporation
since October 2019; Vice President of the company and President of NASSCO, January 2017 -
October 2019; Vice President and General Manager of NASSCO, November 2013 - January
2017
Kimberly A. Kuryea - Senior Vice President, Human Resources and Administration since
April 2017; Vice President and Controller, September 2011 - March 2017; Chief Financial
Officer of General Dynamics Advanced Information Systems, November 2007 - August 2011;
Staff Vice President, Internal Audit, March 2004 - October 2007
Christopher Marzilli - Executive Vice President, Technologies since December 2020;
Executive Vice President, Information Technology and Mission Systems, January 2019 -
December 2020; Vice President of the company and President of General Dynamics Mission
Systems, January 2015 - December 2018; Vice President of the company and President of
General Dynamics C4 Systems, January 2006 - December 2014; Senior Vice President and
Deputy General Manager of General Dynamics C4 Systems, November 2003 - January 2006
William A. Moss - Vice President and Controller since April 2017; Staff Vice President,
Internal Audit, May 2015 - March 2017; Staff Vice President, Accounting, August 2010 - May
2015

Age

Phebe N. Novakovic - Chairman and Chief Executive Officer since January 2013; President
and Chief Operating Officer, May 2012 - December 2012; Executive Vice President, Marine
Systems, May 2010 - May 2012; Senior Vice President, Planning and Development, July 2005
- May 2010; Vice President, Strategic Planning, October 2002 - July 2005

Mark C. Roualet - Executive Vice President, Combat Systems, since March 2013; Vice
President of the company and President of General Dynamics Land Systems, October 2008 -
March 2013; Senior Vice President and Chief Operating Officer of General Dynamics Land
Systems, July 2007 - October 2008
Robert E. Smith - Executive Vice President, Marine Systems, since July 2019; Vice President
of the company and President of Jet Aviation, January 2014 - July 2019; Vice President and
Chief Financial Officer of Jet Aviation, July 2012 - January 2014

For additional information relating to our purchases of common stock during the past three years, see

Note M to the Consolidated Financial Statements in Item 8.

The following performance graph compares the cumulative total return to shareholders on our

common stock, assuming reinvestment of dividends, with similar returns for the Standard & Poor’s® 500

Index and the Standard & Poor’s® Aerospace & Defense Index, both of which include General

Dynamics.

Cumulative Total Return

Based on Investments of $100 Beginning December 31, 2015

(Assumes Reinvestment of Dividends)

PART II

ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange under the trading symbol “GD.”

On January 31, 2021, there were approximately 10,000 holders of record of our common stock.

For information regarding securities authorized for issuance under our equity compensation plans,

see Note Q to the Consolidated Financial Statements contained in Item 8.

We did not make any unregistered sales of equity securities in 2020.

The following table provides information about our fourth-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

Average Price 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

$240

$220

$200

$180

$160

$140

$120

$100

$80

2015

2016

2017

2018

2019

2020

General Dynamics

S&P Aerospace & Defense

S&P 500

Shares Purchased Pursuant to Share Buyback Program
9/28/20-10/25/20
10/26/20-11/22/20
11/23/20-12/31/20

450,000
250,000

— $

—
141.31
148.27

—
450,000
250,000

13,022,968
12,572,968
12,322,968

Shares Delivered or Withheld Pursuant to Restricted Stock Vesting*
9/28/20-10/25/20
10/26/20-11/22/20
11/23/20-12/31/20

—
1,018
90
701,108 $

—
134.55
151.38
143.79

Represents shares withheld by, or delivered to, us pursuant to provisions in agreements with recipients of restricted stock granted under our equity
compensation plans that allow us to withhold, or the recipient to deliver to us, the number of shares with a fair value equal to the statutory tax
withholding due upon vesting of the restricted shares.

On March 4, 2020, the board of directors authorized management to repurchase up to 10 million
additional shares of the company’s outstanding common stock on the open market. On December 31,
2020, 12.3 million shares remained authorized by our board of directors for repurchase.

Phebe N. Novakovic - Chairman and Chief Executive Officer since January 2013; President

and Chief Operating Officer, May 2012 - December 2012; Executive Vice President, Marine

Systems, May 2010 - May 2012; Senior Vice President, Planning and Development, July 2005

- May 2010; Vice President, Strategic Planning, October 2002 - July 2005

Mark C. Roualet - Executive Vice President, Combat Systems, since March 2013; Vice

President of the company and President of General Dynamics Land Systems, October 2008 -

March 2013; Senior Vice President and Chief Operating Officer of General Dynamics Land

Systems, July 2007 - October 2008

Robert E. Smith - Executive Vice President, Marine Systems, since July 2019; Vice President

of the company and President of Jet Aviation, January 2014 - July 2019; Vice President and

Chief Financial Officer of Jet Aviation, July 2012 - January 2014

For additional information relating to our purchases of common stock during the past three years, see

Note M to the Consolidated Financial Statements in Item 8.

The following performance graph compares the cumulative total return to shareholders on our
common stock, assuming reinvestment of dividends, with similar returns for the Standard & Poor’s® 500
Index and the Standard & Poor’s® Aerospace & Defense Index, both of which include General
Dynamics.

Cumulative Total Return
Based on Investments of $100 Beginning December 31, 2015
(Assumes Reinvestment of Dividends)

PART II

ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange under the trading symbol “GD.”

On January 31, 2021, there were approximately 10,000 holders of record of our common stock.

For information regarding securities authorized for issuance under our equity compensation plans,

see Note Q to the Consolidated Financial Statements contained in Item 8.

We did not make any unregistered sales of equity securities in 2020.

The following table provides information about our fourth-quarter purchases of equity securities that

are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

Period

Announced Program

Program

Total Number of

Average Price per

Shares Purchased Pursuant to Share Buyback Program

Total Number of

Maximum Number of

Shares Purchased as

Shares That May Yet Be

Part of Publicly

Purchased Under the

—

450,000

250,000

13,022,968

12,572,968

12,322,968

Shares Delivered or Withheld Pursuant to Restricted Stock Vesting*

9/28/20-10/25/20

10/26/20-11/22/20

11/23/20-12/31/20

9/28/20-10/25/20

10/26/20-11/22/20

11/23/20-12/31/20

— $

450,000

250,000

—

1,018

701,108 $

Represents shares withheld by, or delivered to, us pursuant to provisions in agreements with recipients of restricted stock granted under our equity

compensation plans that allow us to withhold, or the recipient to deliver to us, the number of shares with a fair value equal to the statutory tax

withholding due upon vesting of the restricted shares.

On March 4, 2020, the board of directors authorized management to repurchase up to 10 million

additional shares of the company’s outstanding common stock on the open market. On December 31,

2020, 12.3 million shares remained authorized by our board of directors for repurchase.

—

141.31

148.27

—

134.55

151.38

143.79

$240

$220

$200

$180

$160

$140

$120

$100

$80

2015

2016

2017

2018

2019

2020

General Dynamics

S&P Aerospace & Defense

S&P 500

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

The following table presents selected historical financial data derived from the Consolidated Financial
Statements and other company information for each of the five years presented. This information should
be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results
of Operations in Item 7 and the Consolidated Financial Statements and the Notes thereto in Item 8.

(Dollars and shares in millions, except per-share and employee amounts)
Summary of Operations
Revenue
Operating earnings
Operating margin
Interest, net
Provision for income tax, net
Earnings from continuing operations
Return on sales (a)
Discontinued operations, net of tax
Net earnings
Diluted earnings per share:
Continuing operations
Net earnings

Cash Flows
Net cash provided by operating activities
Net cash used by investing activities
Net cash (used) provided by financing activities
Net cash used by discontinued operations
Cash dividends declared per common share
Financial Position
Cash and equivalents
Total assets
Short- and long-term debt
Shareholders’ equity
Debt-to-equity (b)
Debt-to-capital (c)
Book value per share (d)
Other Information
Free cash flow from operations (e)
Return on equity (f)
Return on invested capital (e)
Funded backlog
Total backlog
Shares outstanding
Weighted average shares outstanding:

2020

2019

2018

2017

2016

$ 37,925
4,133

10.9%
(477)
(571)
3,167

8.4%
—
3,167

$ 39,350
4,570

11.6%
(460)
(718)
3,484

8.9%
—
3,484

$ 36,193
4,394

12.1%
(356)
(727)
3,358

9.3%
(13)
3,345

$ 30,973
4,168

13.5%
(103)
(1,100)
2,977

9.6%
—
2,977

$ 30,561
3,725

12.2%
(91)
(977)
2,679

8.8%

(107)
2,572

11.00
11.00

11.98
11.98

11.22
11.18

9.77
9.77

8.64
8.29

$ 3,858
(974)
(903)
(59)
4.40

$ 2,824
51,308
12,998
15,661

$ 2,981
(994)
(1,997)
(51)
4.08

$
902
49,349
11,930
13,978

$ 3,148
(10,234)
5,086
(20)
3.72

$
963
45,887
12,417
12,110

$ 3,876
(788)
(2,399)
(40)
3.36

$ 2,983
35,469
3,982
11,801

$ 2,163
(391)
(2,169)
(54)
3.04

$ 2,334
33,380
3,888
10,509

83.0%
45.4%

85.3%
46.0%

102.5%
50.6%

33.7%
25.2%

37.0%
27.0%

54.67

48.26

41.95

39.75

34.75

$ 2,891

$ 1,994

$ 2,458

$ 3,448

$ 1,771

21.8%
11.8%

26.4%
14.0%

27.3%
15.4%

26.5%
16.8%

25.1%
16.3%

58,783
89,489
286.5

57,530
86,945
289.6

55,826
67,871
288.7

52,031
63,175
296.9

51,783
62,206
302.4

RESULTS OF OPERATIONS

(Dollars in millions, except per-share amounts or unless otherwise noted)

For an overview of our operating segments, including a discussion of our major products and services

and the reorganization of our Information Technology and Mission Systems operating segments into a

single Technologies segment, see the Business discussion contained in Item 1. Prior-period segment

information has been restated for the reorganization.

A discussion of our financial condition and results of operations for 2020 compared with 2019 is

presented below and should be read in conjunction with our Consolidated Financial Statements included

in Item 8, while a discussion of 2019 compared with 2018 can be found in Item 7 of our Annual Report

on Form 10-K for the year ended December 31, 2019. The Technologies segment’s results of operations

for 2019 compared with 2018 can be obtained from the discussions of the former Information

Technology and Mission Systems operating segments.

BUSINESS ENVIRONMENT

GLOBAL PANDEMIC

•

The Coronavirus (COVID-19) pandemic has caused significant disruptions to national and global

economies and government activities. Our businesses have been designated as critical infrastructure by

the U.S. government and many non-U.S. governments and, as such, are required to stay open. During

this time, we have continued to conduct our operations to the fullest extent possible, while responding to

the pandemic with actions that include:

implementing measures to protect the health and safety of our employees.

• modifying employee work locations and schedules where possible and permitted under our contracts.

coordinating closely with our suppliers and customers.

• managing our cost structure in the context of current business activity.

instituting various aspects of our business continuity programs.

planning for and working aggressively to mitigate disruptions that may occur.

supporting our communities and the U.S. government in addressing the challenges of the pandemic,

such as the production of medical supplies and donation of personal protective equipment.

While we expect this situation to be temporary, any longer-term impact to our business is currently

unknown due to the uncertainty around the pandemic’s duration and its broader impact. See the Risk

Factors in Item 1A, regarding the COVID-19 pandemic, as well as additional risks facing our business,

which may be affected by the COVID-19 pandemic.

The United States and some other governments have taken steps to respond to the pandemic and to

support economic activity and liquidity in the capital markets. In the United States, the adoption of the

Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) provides various forms of relief.

The CARES Act includes provisions that allow agencies to reimburse contractors for payments to

covered workers who are prevented from working due to COVID-19 facility closures or other

restrictions; however, such reimbursement is subject to the availability of funds. These provisions of the

CARES Act have been extended through March 31, 2021. The CARES Act also allows for loans to

companies. To date, we have not sought or accepted CARES Act loans. In addition, the U.S. Department

of Defense (DoD) increased progress payment rates and reduced retention rates on certain contracts to

(a) Return on sales is calculated as earnings from continuing operations divided by revenue.
(b) Debt-to-equity ratio is calculated as total debt divided by total equity as of year end.
(c) Debt-to-capital ratio is calculated as total debt divided by the sum of total debt plus total equity as of year end.
(d) Book value per share is calculated as total equity divided by total outstanding shares as of year end.
(e)

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a reconciliation of net cash provided by
operating activities to free cash flow from operations and the calculation of return on invested capital (ROIC), both of which are non-GAAP
management metrics.

(f) Return on equity is calculated by dividing earnings from continuing operations by our average equity during the year.

Basic
Diluted
Employees
Note: Prior-period information has been restated for the retrospective application of a change in accounting principle related to the amortization of actuarial
gains and losses for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020. For further discussion of this change in
accounting principle, see Note T to the Consolidated Financial Statements in Item 8.

288.3
290.8
102,900

304.7
310.4
98,800

295.3
299.2
105,600

299.2
304.6
98,600

286.9
287.9
100,700

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected historical financial data derived from the Consolidated Financial

Statements and other company information for each of the five years presented. This information should

be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results

of Operations in Item 7 and the Consolidated Financial Statements and the Notes thereto in Item 8.

(Dollars and shares in millions, except per-share and employee amounts)

2020

2019

2018

2017

2016

Summary of Operations

Revenue

Operating earnings

Operating margin

Interest, net

Provision for income tax, net

Earnings from continuing operations

Return on sales (a)

Discontinued operations, net of tax

Net earnings

Diluted earnings per share:

Continuing operations

Net earnings

Cash Flows

Net cash provided by operating activities

Net cash used by investing activities

Net cash (used) provided by financing activities

Net cash used by discontinued operations

Cash dividends declared per common share

Financial Position

Cash and equivalents

Total assets

Short- and long-term debt

Shareholders’ equity

Debt-to-equity (b)

Debt-to-capital (c)

Book value per share (d)

Other Information

Free cash flow from operations (e)

Return on equity (f)

Return on invested capital (e)

Funded backlog

Total backlog

Shares outstanding

Basic

Diluted

Employees

Weighted average shares outstanding:

$ 37,925

4,133

$ 39,350

4,570

$ 36,193

4,394

$ 30,973

4,168

$ 30,561

3,725

10.9%

(477)

(571)

8.4%

—

11.6%

(460)

(718)

8.9%

—

12.1%

(356)

(727)

9.3%

(13)

13.5%

(103)

(1,100)

2,977

9.6%

—

12.2%

(91)

(977)

8.8%

(107)

2,679

3,167

3,484

3,358

3,167

3,484

3,345

2,977

2,572

11.00

11.98

11.22

11.18

9.77

8.64

8.29

$ 3,858

$ 2,981

(974)

(903)

(59)

4.40

(994)

(1,997)

(51)

4.08

$ 2,824

51,308

12,998

15,661

902

49,349

11,930

13,978

$ 3,148

(10,234)

5,086

(20)

3.72

963

45,887

12,417

12,110

$ 3,876

$ 2,163

(788)

(391)

(2,399)

(2,169)

(40)

3.36

(54)

3.04

$ 2,983

35,469

3,982

11,801

$ 2,334

33,380

3,888

10,509

83.0%

45.4%

85.3%

46.0%

102.5%

50.6%

33.7%

25.2%

37.0%

27.0%

54.67

48.26

41.95

39.75

34.75

$ 2,891

$ 1,994

$ 2,458

$ 3,448

$ 1,771

21.8%

11.8%

26.4%

14.0%

27.3%

15.4%

26.5%

16.8%

25.1%

16.3%

58,783

89,489

286.5

286.9

287.9

100,700

57,530

86,945

289.6

288.3

290.8

102,900

55,826

67,871

288.7

295.3

299.2

105,600

52,031

63,175

296.9

299.2

304.6

98,600

51,783

62,206

302.4

304.7

310.4

98,800

Note: Prior-period information has been restated for the retrospective application of a change in accounting principle related to the amortization of actuarial

gains and losses for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020. For further discussion of this change in

accounting principle, see Note T to the Consolidated Financial Statements in Item 8.

(a) Return on sales is calculated as earnings from continuing operations divided by revenue.

(b) Debt-to-equity ratio is calculated as total debt divided by total equity as of year end.

(d) Book value per share is calculated as total equity divided by total outstanding shares as of year end.

(e)

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a reconciliation of net cash provided by

operating activities to free cash flow from operations and the calculation of return on invested capital (ROIC), both of which are non-GAAP

management metrics.

(f) Return on equity is calculated by dividing earnings from continuing operations by our average equity during the year.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Dollars in millions, except per-share amounts or unless otherwise noted)

For an overview of our operating segments, including a discussion of our major products and services
and the reorganization of our Information Technology and Mission Systems operating segments into a
single Technologies segment, see the Business discussion contained in Item 1. Prior-period segment
information has been restated for the reorganization.

A discussion of our financial condition and results of operations for 2020 compared with 2019 is
presented below and should be read in conjunction with our Consolidated Financial Statements included
in Item 8, while a discussion of 2019 compared with 2018 can be found in Item 7 of our Annual Report
on Form 10-K for the year ended December 31, 2019. The Technologies segment’s results of operations
for 2019 compared with 2018 can be obtained from the discussions of the former Information
Technology and Mission Systems operating segments.

BUSINESS ENVIRONMENT

GLOBAL PANDEMIC

The Coronavirus (COVID-19) pandemic has caused significant disruptions to national and global
economies and government activities. Our businesses have been designated as critical infrastructure by
the U.S. government and many non-U.S. governments and, as such, are required to stay open. During
this time, we have continued to conduct our operations to the fullest extent possible, while responding to
the pandemic with actions that include:

coordinating closely with our suppliers and customers.

implementing measures to protect the health and safety of our employees.

•
• modifying employee work locations and schedules where possible and permitted under our contracts.
•
• managing our cost structure in the context of current business activity.
•
•
•

instituting various aspects of our business continuity programs.
planning for and working aggressively to mitigate disruptions that may occur.
supporting our communities and the U.S. government in addressing the challenges of the pandemic,
such as the production of medical supplies and donation of personal protective equipment.

While we expect this situation to be temporary, any longer-term impact to our business is currently
unknown due to the uncertainty around the pandemic’s duration and its broader impact. See the Risk
Factors in Item 1A, regarding the COVID-19 pandemic, as well as additional risks facing our business,
which may be affected by the COVID-19 pandemic.

The United States and some other governments have taken steps to respond to the pandemic and to
support economic activity and liquidity in the capital markets. In the United States, the adoption of the
Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) provides various forms of relief.
The CARES Act includes provisions that allow agencies to reimburse contractors for payments to
covered workers who are prevented from working due to COVID-19 facility closures or other
restrictions; however, such reimbursement is subject to the availability of funds. These provisions of the
CARES Act have been extended through March 31, 2021. The CARES Act also allows for loans to
companies. To date, we have not sought or accepted CARES Act loans. In addition, the U.S. Department
of Defense (DoD) increased progress payment rates and reduced retention rates on certain contracts to

provide liquidity to federal contractors and their suppliers. We in turn advanced payments across our
supplier base to help maintain the health and liquidity of our supply chain. Outside of the United States,
other governments have established various government workforce programs, which can support
business continuity for our foreign operations. We continue to assess the benefits and limitations of the
actions taken by the United States and other governments. See Note A to the Consolidated Financial
Statements in Item 8 for additional information about our use of estimates and other uncertainties.

Our U.S. government business experienced some disruption from the COVID-19 pandemic,
including reduced activities due to select customer site closures and limited access to some customer
sites, travel restrictions, slowdowns in the provision of materials from suppliers, and lower man-hours at
some manufacturing sites. Internationally, while government actions shut down some of our facilities in
the second quarter, our defense business has largely returned to normal operations. Within our
Aerospace segment, pandemic-related travel limitations resulted in lower demand for aircraft services
due to reduced flight activity, and disrupted the aircraft sales process by limiting our ability to arrange
demonstration flights and coordinate in-person access to customers. To de-risk elements of the supply
chain and better align production with demand, we have reduced our aircraft production rate until such
time that the marketplace supports future increases. Accordingly, we have adjusted staffing levels and
taken other cost control measures. The Review of Operating Segments includes additional information
on the full-year results for each of our segments.

We expect COVID-19 to continue to negatively impact our businesses, particularly Aerospace, until
the large economies of the world recover from the effects of the pandemic. As air travel resumes, we
expect aircraft services volume to increase, but we could see some future aircraft deliveries delayed to
the extent customers have difficulty traveling to take possession of their aircraft. In addition, should the
global economy experience a significant extended downturn from the pandemic, demand for our
aerospace products and services would likely be impacted. We believe the support by the DoD, and the
U.S. government generally, of the defense industrial base has helped and will continue to help mitigate
the effects of disruptions on our U.S. defense business. Our non-U.S. defense business will be impacted
to varying degrees based on the response of the countries in which they operate. We will continue to
assess further potential consequences to our employees, business, supply chain and customers, and take
actions to mitigate adverse outcomes.

We took actions in 2020 to strengthen our liquidity and financial condition. In March 2020, we
issued $4 billion of fixed-rate notes to repay $2.5 billion of fixed- and floating-rate notes that matured in
May 2020 and for general corporate purposes, including the repayment of a portion of our borrowings
under our commercial paper program. In addition to this long-term borrowing, we renewed our access to
$5 billion of credit facilities. While part of our pre-COVID-19 planning, this liquidity preserves our
financial flexibility during the pandemic. We believe that our cash flows from operations and borrowing
capacity are sufficient to support our short- and long-term liquidity needs.

OUR MARKETS

With approximately 70% of our revenue from the U.S. government, government spending levels —
particularly defense spending — influence our financial performance. On December 27, 2020, the fiscal
year (FY) 2021 defense appropriations bill was signed into law. It totaled $696 billion, a modest
increase over FY 2020, and included $627 billion in the base budget in compliance with the previously
established spending caps and $69 billion for overseas contingency operations.

The long-term outlook for our U.S. defense business is influenced by the U.S. military’s funding

priorities, the diversity of our programs and customers, our insight into customer requirements stemming

from our incumbency on core programs, our ability to evolve our products to address a fast-changing

threat environment and our proven track record of successful contract execution.

International demand for military equipment and technologies presents opportunities for our non-

U.S. operations and exports from our North American businesses. While the revenue potential can be

significant, there are risks to doing business in foreign countries, including changing budget priorities

and overall spending pressures unique to each country.

In our Aerospace segment, we expect our investment in the development of new aircraft products

and technologies to support the segment’s long-term growth. Similarly, we believe the aircraft services

business will be a source of steady revenue growth as the global business jet fleet continues to grow and

the impact of the pandemic subsides.

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 and the terminology we use to describe our operating results.

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. Aircraft mix can also refer to the stage of program

maturity for our aircraft models. A new aircraft model typically has lower margins in its initial

production lots, and then margins generally increase as we realize efficiencies in the production process.

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.

provide liquidity to federal contractors and their suppliers. We in turn advanced payments across our

supplier base to help maintain the health and liquidity of our supply chain. Outside of the United States,

other governments have established various government workforce programs, which can support

business continuity for our foreign operations. We continue to assess the benefits and limitations of the

actions taken by the United States and other governments. See Note A to the Consolidated Financial

Statements in Item 8 for additional information about our use of estimates and other uncertainties.

Our U.S. government business experienced some disruption from the COVID-19 pandemic,

including reduced activities due to select customer site closures and limited access to some customer

sites, travel restrictions, slowdowns in the provision of materials from suppliers, and lower man-hours at

some manufacturing sites. Internationally, while government actions shut down some of our facilities in

the second quarter, our defense business has largely returned to normal operations. Within our

Aerospace segment, pandemic-related travel limitations resulted in lower demand for aircraft services

due to reduced flight activity, and disrupted the aircraft sales process by limiting our ability to arrange

demonstration flights and coordinate in-person access to customers. To de-risk elements of the supply

chain and better align production with demand, we have reduced our aircraft production rate until such

time that the marketplace supports future increases. Accordingly, we have adjusted staffing levels and

taken other cost control measures. The Review of Operating Segments includes additional information

on the full-year results for each of our segments.

We expect COVID-19 to continue to negatively impact our businesses, particularly Aerospace, until

the large economies of the world recover from the effects of the pandemic. As air travel resumes, we

expect aircraft services volume to increase, but we could see some future aircraft deliveries delayed to

the extent customers have difficulty traveling to take possession of their aircraft. In addition, should the

global economy experience a significant extended downturn from the pandemic, demand for our

aerospace products and services would likely be impacted. We believe the support by the DoD, and the

U.S. government generally, of the defense industrial base has helped and will continue to help mitigate

the effects of disruptions on our U.S. defense business. Our non-U.S. defense business will be impacted

to varying degrees based on the response of the countries in which they operate. We will continue to

assess further potential consequences to our employees, business, supply chain and customers, and take

actions to mitigate adverse outcomes.

We took actions in 2020 to strengthen our liquidity and financial condition. In March 2020, we

issued $4 billion of fixed-rate notes to repay $2.5 billion of fixed- and floating-rate notes that matured in

May 2020 and for general corporate purposes, including the repayment of a portion of our borrowings

under our commercial paper program. In addition to this long-term borrowing, we renewed our access to

$5 billion of credit facilities. While part of our pre-COVID-19 planning, this liquidity preserves our

financial flexibility during the pandemic. We believe that our cash flows from operations and borrowing

capacity are sufficient to support our short- and long-term liquidity needs.

OUR MARKETS

With approximately 70% of our revenue from the U.S. government, government spending levels —

particularly defense spending — influence our financial performance. On December 27, 2020, the fiscal

year (FY) 2021 defense appropriations bill was signed into law. It totaled $696 billion, a modest

increase over FY 2020, and included $627 billion in the base budget in compliance with the previously

established spending caps and $69 billion for overseas contingency operations.

The long-term outlook for our U.S. defense business is influenced by the U.S. military’s funding
priorities, the diversity of our programs and customers, our insight into customer requirements stemming
from our incumbency on core programs, our ability to evolve our products to address a fast-changing
threat environment and our proven track record of successful contract execution.

International demand for military equipment and technologies presents opportunities for our non-
U.S. operations and exports from our North American businesses. While the revenue potential can be
significant, there are risks to doing business in foreign countries, including changing budget priorities
and overall spending pressures unique to each country.

In our Aerospace segment, we expect our investment in the development of new aircraft products
and technologies to support the segment’s long-term growth. Similarly, we believe the aircraft services
business will be a source of steady revenue growth as the global business jet fleet continues to grow and
the impact of the pandemic subsides.

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 and the terminology we use to describe our operating results.

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. Aircraft mix can also refer to the stage of program
maturity for our aircraft models. A new aircraft model typically has lower margins in its initial
production lots, and then margins generally increase as we realize efficiencies in the production process.
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.

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 (or vice versa) 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). Contract mix can also refer to the stage
of program maturity for our long-term production contracts. New long-term production contracts
typically have lower margins initially, and then margins generally increase as we achieve learning curve
improvements or realize other cost reductions.

In the discussion that follows, prior-period information has been restated for the retrospective
application of a change in accounting principle related to the amortization of actuarial gains and losses
for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020 as
discussed in Note T to the Consolidated Financial Statements in Item 8.

CONSOLIDATED OVERVIEW

2020 IN REVIEW

• Outstanding operating performance in the face of a challenging business environment:

◦ Revenue of $37.9 billion with sequential growth throughout the year.

◦ Cash from operating activities of $3.9 billion, or 122% percent of net earnings.

• Record-high backlog of $89.5 billion increased $2.5 billion, or 2.9%, from 2019, supporting our

long-term growth expectations:

◦

Several significant contract awards received in 2020 in our defense segments, including $9.5
billion from the U.S. Navy for the construction of the first two Columbia-class submarines.

Year Ended December 31
Revenue
Operating costs and expenses
Operating earnings
Operating margin

2020

37,925
(33,792)
4,133
10.9%

2019

39,350
(34,780)
4,570
11.6%

Variance

$ (1,425)
988
(437)

(3.6) %
(2.8) %
(9.6) %

Our consolidated revenue decreased in 2020 due to fewer aircraft deliveries and lower aircraft service

activity in our Aerospace segment. Also in 2020, revenue was impacted by lower information

technology (IT) services volume in our Technologies segment. These decreases were driven by the

impact of the COVID-19 pandemic. Higher volume on the Virginia-class and Columbia-class submarine

programs in our Marine Systems segment helped offset some of these decreases. The combined revenue

in our defense businesses was up approximately $300 compared with 2019.

Operating margin decreased in 2020 due primarily to reduced aircraft deliveries and related

restructuring charges in our Aerospace segment. Operating margin was also negatively impacted by

COVID-related disruptions in our Technologies segment, including a loss on a contract with a non-U.S.

customer and non-fee bearing cost reimbursements by the U.S. government authorized under Section

3610 of the CARES Act.

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 S to the

Consolidated Financial Statements in Item 8.

2020

8,075

1,083

13.4 %

127

2019

Variance

9,801

1,532

(1,726)

(449)

(17.6) %

(29.3) %

15.6%

147

(20)

(13.6) %

AEROSPACE

Year Ended December 31

Revenue

Operating earnings

Operating margin

Operating Results

Gulfstream aircraft deliveries (in units)

Aircraft manufacturing

Aircraft services and completions

Total decrease

The change in the Aerospace segment’s revenue in 2020 consisted of the following:

(1,426)

(300)

(1,726)

In 2020, quarantine and travel restrictions resulting from the COVID-19 pandemic had a significant

impact on the segment’s results. In an effort to de-risk elements of the supply chain and better align

production with demand, in April we reduced our aircraft production and delivery rates for the year. As

a result, aircraft manufacturing revenue decreased in 2020 due primarily to fewer deliveries of the ultra-

large-cabin G650 aircraft, offset partially by additional deliveries of the large-cabin G600 and G500

aircraft. In addition, decreased flight activity due to the pandemic resulted in lower demand for

maintenance work and reduced volume at our fixed-base operator (FBO) facilities in 2020.

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 (or vice versa) 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). Contract mix can also refer to the stage

of program maturity for our long-term production contracts. New long-term production contracts

typically have lower margins initially, and then margins generally increase as we achieve learning curve

improvements or realize other cost reductions.

In the discussion that follows, prior-period information has been restated for the retrospective

application of a change in accounting principle related to the amortization of actuarial gains and losses

for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020 as

discussed in Note T to the Consolidated Financial Statements in Item 8.

CONSOLIDATED OVERVIEW

2020 IN REVIEW

• Outstanding operating performance in the face of a challenging business environment:

◦ Revenue of $37.9 billion with sequential growth throughout the year.

◦ Cash from operating activities of $3.9 billion, or 122% percent of net earnings.

• Record-high backlog of $89.5 billion increased $2.5 billion, or 2.9%, from 2019, supporting our

long-term growth expectations:

◦

Several significant contract awards received in 2020 in our defense segments, including $9.5

billion from the U.S. Navy for the construction of the first two Columbia-class submarines.

Year Ended December 31

Revenue

Operating costs and expenses

Operating earnings

Operating margin

2020

2019

Variance

37,925

39,350

$ (1,425)

988

(437)

(3.6) %

(2.8) %

(9.6) %

(34,780)

4,570

11.6%

(33,792)

4,133

10.9%

Our consolidated revenue decreased in 2020 due to fewer aircraft deliveries and lower aircraft service
activity in our Aerospace segment. Also in 2020, revenue was impacted by lower information
technology (IT) services volume in our Technologies segment. These decreases were driven by the
impact of the COVID-19 pandemic. Higher volume on the Virginia-class and Columbia-class submarine
programs in our Marine Systems segment helped offset some of these decreases. The combined revenue
in our defense businesses was up approximately $300 compared with 2019.

Operating margin decreased in 2020 due primarily to reduced aircraft deliveries and related
restructuring charges in our Aerospace segment. Operating margin was also negatively impacted by
COVID-related disruptions in our Technologies segment, including a loss on a contract with a non-U.S.
customer and non-fee bearing cost reimbursements by the U.S. government authorized under Section
3610 of the CARES Act.

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 S to the
Consolidated Financial Statements in Item 8.

AEROSPACE

Year Ended December 31
Revenue
Operating earnings
Operating margin
Gulfstream aircraft deliveries (in units)

2020

2019

Variance

8,075
1,083
13.4 %
127

9,801
1,532
15.6%
147

(1,726)
(449)

(17.6) %
(29.3) %

(20)

(13.6) %

Operating Results

The change in the Aerospace segment’s revenue in 2020 consisted of the following:

Aircraft manufacturing
Aircraft services and completions
Total decrease

(1,426)
(300)
(1,726)

In 2020, quarantine and travel restrictions resulting from the COVID-19 pandemic had a significant
impact on the segment’s results. In an effort to de-risk elements of the supply chain and better align
production with demand, in April we reduced our aircraft production and delivery rates for the year. As
a result, aircraft manufacturing revenue decreased in 2020 due primarily to fewer deliveries of the ultra-
large-cabin G650 aircraft, offset partially by additional deliveries of the large-cabin G600 and G500
aircraft. In addition, decreased flight activity due to the pandemic resulted in lower demand for
maintenance work and reduced volume at our fixed-base operator (FBO) facilities in 2020.

The change in the segment’s operating earnings in 2020 consisted of the following:

Aircraft manufacturing
Aircraft services and completions
Restructuring charges
G&A/other expenses
Total decrease

(590)
(39)
(59)
239
(449)

employees and support the supply chain to keep these critical programs on track during the pandemic.

The Marine Systems segment’s operating margin increased 10 basis points in 2020 despite the impact of

the pandemic and a workforce strike at our Bath Iron Works shipyard.

We expect the Marine Systems segment’s 2021 revenue to be approximately $10.3 billion. Operating

margin is expected to be approximately 8.3%, down from 2020 due to increased work on the first two

Columbia-class submarines, which carry a lower margin consistent with lead boats in a new class.

Aircraft manufacturing operating earnings were down in 2020 due to reduced aircraft production and
delivery rates and a somewhat less favorable mix in aircraft deliveries. In 2020, operating earnings were
also down in aircraft services and completions due to lower volume. Full-year results were negatively
impacted by restructuring actions taken to adjust the workforce size to the revised 2020 production
levels. These decreases were offset partially by lower net G&A/other expenses, including reduced R&D
expenses. Overall, R&D expenses have been trending downward with the completion of the G500 and
G600 test programs. In total, the Aerospace segment’s operating margin decreased 220 basis points to
13.4%.

The Aerospace segment’s operating results progressively improved during 2020 following the initial
disruption from the pandemic in the second quarter. Fourth quarter revenue grew 23% over third quarter
and operating earnings grew 42% on increased deliveries of all large-cabin models, as well as increased
aircraft services activity. As a result, the segment’s operating margin increased 220 basis points in the
fourth quarter compared with the third quarter and exceeded the fourth quarter of 2019.

2021 Outlook

We expect the Aerospace segment’s 2021 revenue to be around $8 billion. Operating margin is expected
to be approximately 12.5%, down from 2020 as a result of fewer anticipated aircraft deliveries as the
segment completed production of the G550 aircraft, offset by higher anticipated aircraft services volume
that carries lower margins.

MARINE SYSTEMS

Year Ended December 31
Revenue
Operating earnings
Operating margin

Operating Results

2020

2019

Variance

9,979
854
8.6%

9,183
785
8.5%

796
69

8.7 %
8.8 %

The increase in the Marine Systems segment’s revenue in 2020 consisted of the following:

U.S. Navy ship construction
U.S. Navy ship engineering, repair and other services
Commercial ship construction
Total increase

668
176
(48)
796

Revenue from U.S. Navy ship construction and engineering work was up in 2020 due to increased
volume on the Columbia-class submarine program. Revenue from U.S. Navy ship construction also
increased due to higher volume on the Virginia-class submarine and Expeditionary Sea Base (ESB)
auxiliary support ship programs. This revenue growth was achieved as management worked to protect

2020

2019

Variance

7,007

7,223

1,041

14.4%

996

14.2%

216

3.1 %

4.5 %

The increase in the Combat Systems segment’s revenue in 2020 consisted of the following:

125

216

Revenue was up across the Combat Systems segment in 2020 as the business overcame disruptions

caused by the pandemic in the first half of the year. Weapons systems and munitions revenue was up

driven by increased production of artillery and missile subcomponents. Revenue from international

military vehicles increased due to higher volume on a contract to produce armored combat support

vehicles (ACSVs) for the Canadian government and the British Army’s AJAX armored fighting vehicle

program, offset partially by lower volume on Piranha wheeled armored vehicle programs. Revenue from

U.S. military vehicles increased due primarily to higher volume on the U.S. Army’s Abrams main battle

tank program. The Combat Systems segment’s operating margin increased 20 basis points compared

with 2019 driven by favorable contract mix and strong operating performance.

We expect the Combat Systems segment’s 2021 revenue to be about $7.3 billion with operating margin

2021 Outlook

COMBAT SYSTEMS

Year Ended December 31

Revenue

Operating earnings

Operating margin

Operating Results

Weapons systems and munitions

International military vehicles

U.S. military vehicles

Total increase

2021 Outlook

of approximately 14.5%.

TECHNOLOGIES

Year Ended December 31

Revenue

Operating earnings

Operating margin

2020

12,648

1,211

2019

13,359

1,311

Variance

(711)

(100)

(5.3) %

(7.6) %

9.6%

9.8%

The change in the segment’s operating earnings in 2020 consisted of the following:

Aircraft manufacturing

Aircraft services and completions

Restructuring charges

G&A/other expenses

Total decrease

(590)

(39)

(59)

239

(449)

employees and support the supply chain to keep these critical programs on track during the pandemic.
The Marine Systems segment’s operating margin increased 10 basis points in 2020 despite the impact of
the pandemic and a workforce strike at our Bath Iron Works shipyard.

2021 Outlook

We expect the Marine Systems segment’s 2021 revenue to be approximately $10.3 billion. Operating
margin is expected to be approximately 8.3%, down from 2020 due to increased work on the first two
Columbia-class submarines, which carry a lower margin consistent with lead boats in a new class.

Aircraft manufacturing operating earnings were down in 2020 due to reduced aircraft production and

delivery rates and a somewhat less favorable mix in aircraft deliveries. In 2020, operating earnings were

also down in aircraft services and completions due to lower volume. Full-year results were negatively

impacted by restructuring actions taken to adjust the workforce size to the revised 2020 production

levels. These decreases were offset partially by lower net G&A/other expenses, including reduced R&D

expenses. Overall, R&D expenses have been trending downward with the completion of the G500 and

G600 test programs. In total, the Aerospace segment’s operating margin decreased 220 basis points to

The Aerospace segment’s operating results progressively improved during 2020 following the initial

disruption from the pandemic in the second quarter. Fourth quarter revenue grew 23% over third quarter

and operating earnings grew 42% on increased deliveries of all large-cabin models, as well as increased

aircraft services activity. As a result, the segment’s operating margin increased 220 basis points in the

fourth quarter compared with the third quarter and exceeded the fourth quarter of 2019.

13.4%.

2021 Outlook

We expect the Aerospace segment’s 2021 revenue to be around $8 billion. Operating margin is expected

to be approximately 12.5%, down from 2020 as a result of fewer anticipated aircraft deliveries as the

segment completed production of the G550 aircraft, offset by higher anticipated aircraft services volume

that carries lower margins.

MARINE SYSTEMS

Year Ended December 31

Revenue

Operating earnings

Operating margin

Operating Results

2020

2019

Variance

9,979

9,183

796

8.7 %

8.8 %

854

8.6%

785

8.5%

The increase in the Marine Systems segment’s revenue in 2020 consisted of the following:

U.S. Navy ship construction

U.S. Navy ship engineering, repair and other services

Commercial ship construction

Total increase

668

176

(48)

796

Revenue from U.S. Navy ship construction and engineering work was up in 2020 due to increased

volume on the Columbia-class submarine program. Revenue from U.S. Navy ship construction also

increased due to higher volume on the Virginia-class submarine and Expeditionary Sea Base (ESB)

auxiliary support ship programs. This revenue growth was achieved as management worked to protect

COMBAT SYSTEMS

Year Ended December 31
Revenue
Operating earnings
Operating margin

Operating Results

2020

2019

Variance

7,223
1,041
14.4%

7,007
996
14.2%

216
45

3.1 %
4.5 %

The increase in the Combat Systems segment’s revenue in 2020 consisted of the following:

Weapons systems and munitions
International military vehicles
U.S. military vehicles
Total increase

125
54
37
216

Revenue was up across the Combat Systems segment in 2020 as the business overcame disruptions
caused by the pandemic in the first half of the year. Weapons systems and munitions revenue was up
driven by increased production of artillery and missile subcomponents. Revenue from international
military vehicles increased due to higher volume on a contract to produce armored combat support
vehicles (ACSVs) for the Canadian government and the British Army’s AJAX armored fighting vehicle
program, offset partially by lower volume on Piranha wheeled armored vehicle programs. Revenue from
U.S. military vehicles increased due primarily to higher volume on the U.S. Army’s Abrams main battle
tank program. The Combat Systems segment’s operating margin increased 20 basis points compared
with 2019 driven by favorable contract mix and strong operating performance.

2021 Outlook

We expect the Combat Systems segment’s 2021 revenue to be about $7.3 billion with operating margin
of approximately 14.5%.

TECHNOLOGIES

Year Ended December 31
Revenue
Operating earnings
Operating margin

2020

12,648
1,211

2019

13,359
1,311

Variance

(711)
(100)

(5.3) %
(7.6) %

9.6%

9.8%

Operating Results

The change in product revenue in 2020 consisted of the following:

The change in the Technologies segment’s revenue in 2020 consisted of the following:

IT services
C4ISR* solutions
Total decrease
*

Command, control, communications, computers, intelligence, surveillance and reconnaissance

(530)
(181)
(711)

IT services revenue decreased due to the partial closure of some customer sites to all but mission
critical personnel and a lower level of customer and program activity as a result of the COVID-19
pandemic. IT services revenue was also lower due to the exit of non-core lines of business in 2019.
C4ISR revenue decreased due to the sale of a satellite communications business in the second quarter
and volume timing on several programs, including a mobile communications network program. These
decreases were offset partially by increased volume on programs supporting Navy platforms.

The Technologies segment’s operating margin decreased 20 basis points compared with 2019 due to
COVID-related disruptions in our IT services business, including customer reimbursement of idle
workforce cost at zero fee and a loss recognized on a contract with a non-U.S. customer from schedule
delays caused by COVID travel restrictions. The Technologies segment’s operating performance
steadily improved in the second half of 2020 with a reduced impact from the pandemic. Operating
margin increased 120 basis points in the fourth quarter compared with the third quarter, returning to the
same level of performance as fourth quarter of 2019.

2021 Outlook

We expect the Technologies segment’s 2021 revenue to be approximately $13.2 billion with operating
margin of around 9.5%.

CORPORATE

Corporate operating results consisted primarily of equity-based compensation expense and totaled $56 in
2020 and $54 in 2019. Corporate operating costs are expected to be approximately $85 in 2021.

OTHER INFORMATION

PRODUCT AND SERVICE REVENUE AND OPERATING COSTS

Year Ended December 31
Revenue:
Products
Services
Operating Costs:
Products
Services

2020

2019

Variance

22,188 $
15,737

23,130 $
16,220

(942)
(483)

(18,192) $
(13,408)

(18,611) $
(13,752)

419
344

(4.1) %
(3.0) %

(2.3) %
(2.5) %

(1,426)

620

(136)

(942)

(530)

(483)

Aircraft manufacturing

Ship construction

Other, net

Total decrease

IT services

Other, net

Total decrease

G&A EXPENSES

INTEREST, NET

In 2020, aircraft manufacturing revenue decreased due to the reduced production and delivery rates

caused by the COVID-19 pandemic. This decrease was offset partially by increased volume on the

Virginia-class and Columbia-class submarine programs. In 2020, product operating costs decreased at a

lower rate than revenue due primarily to the mix of Gulfstream aircraft deliveries.

The change in service revenue in 2020 consisted of the following:

In 2020, IT services revenue decreased due to the partial closure of some customer sites to all but

mission critical personnel and a lower level of customer and program activity as a result of the

COVID-19 pandemic. In 2020, the primary driver of the decrease in service operating costs was the

change in volume of IT services described above.

As a percentage of revenue, G&A expenses were 5.8% in 2020 and 6.1% in 2019. We expect G&A

expenses as a percentage of revenue in 2021 to be generally consistent with 2020.

Net interest expense was $477 in 2020 and $460 in 2019. See Note K to the Consolidated Financial

Statements in Item 8 for additional information regarding our debt obligations, including interest rates.

We expect 2021 net interest expense to be approximately $420, reflecting repayment of our scheduled

debt maturities of $3 billion in 2021.

OTHER, NET

Net other income was $82 in 2020 and $92 in 2019. Other represents primarily the non-service

components of pension and other post-retirement benefits, which were income in both periods. In 2021,

we expect net other income to be approximately $90.

PROVISION FOR INCOME TAX, NET

Our effective tax rate was 15.3% in 2020 and 17.1% in 2019. The decrease is due to a variety of factors,

including higher research tax credits. For further discussion, including a reconciliation of our effective

tax rate from the statutory federal rate, see Note F to the Consolidated Financial Statements in Item 8.

For 2021, we anticipate a full-year effective tax rate of approximately 16%.

The change in the Technologies segment’s revenue in 2020 consisted of the following:

Operating Results

IT services

C4ISR* solutions

Total decrease

The change in product revenue in 2020 consisted of the following:

(530)

(181)

(711)

Aircraft manufacturing
Ship construction
Other, net
Total decrease

(1,426)
620
(136)
(942)

Command, control, communications, computers, intelligence, surveillance and reconnaissance

IT services revenue decreased due to the partial closure of some customer sites to all but mission

critical personnel and a lower level of customer and program activity as a result of the COVID-19

pandemic. IT services revenue was also lower due to the exit of non-core lines of business in 2019.

C4ISR revenue decreased due to the sale of a satellite communications business in the second quarter

and volume timing on several programs, including a mobile communications network program. These

decreases were offset partially by increased volume on programs supporting Navy platforms.

The Technologies segment’s operating margin decreased 20 basis points compared with 2019 due to

COVID-related disruptions in our IT services business, including customer reimbursement of idle

workforce cost at zero fee and a loss recognized on a contract with a non-U.S. customer from schedule

delays caused by COVID travel restrictions. The Technologies segment’s operating performance

steadily improved in the second half of 2020 with a reduced impact from the pandemic. Operating

margin increased 120 basis points in the fourth quarter compared with the third quarter, returning to the

same level of performance as fourth quarter of 2019.

In 2020, aircraft manufacturing revenue decreased due to the reduced production and delivery rates
caused by the COVID-19 pandemic. This decrease was offset partially by increased volume on the
Virginia-class and Columbia-class submarine programs. In 2020, product operating costs decreased at a
lower rate than revenue due primarily to the mix of Gulfstream aircraft deliveries.

The change in service revenue in 2020 consisted of the following:

IT services
Other, net
Total decrease

(530)
47
(483)

In 2020, IT services revenue decreased due to the partial closure of some customer sites to all but
mission critical personnel and a lower level of customer and program activity as a result of the
COVID-19 pandemic. In 2020, the primary driver of the decrease in service operating costs was the
change in volume of IT services described above.

G&A EXPENSES

We expect the Technologies segment’s 2021 revenue to be approximately $13.2 billion with operating

As a percentage of revenue, G&A expenses were 5.8% in 2020 and 6.1% in 2019. We expect G&A
expenses as a percentage of revenue in 2021 to be generally consistent with 2020.

INTEREST, NET

Net interest expense was $477 in 2020 and $460 in 2019. See Note K to the Consolidated Financial
Statements in Item 8 for additional information regarding our debt obligations, including interest rates.
We expect 2021 net interest expense to be approximately $420, reflecting repayment of our scheduled
debt maturities of $3 billion in 2021.

OTHER, NET

Net other income was $82 in 2020 and $92 in 2019. Other represents primarily the non-service
components of pension and other post-retirement benefits, which were income in both periods. In 2021,
we expect net other income to be approximately $90.

PROVISION FOR INCOME TAX, NET

Our effective tax rate was 15.3% in 2020 and 17.1% in 2019. The decrease is due to a variety of factors,
including higher research tax credits. For further discussion, including a reconciliation of our effective
tax rate from the statutory federal rate, see Note F to the Consolidated Financial Statements in Item 8.
For 2021, we anticipate a full-year effective tax rate of approximately 16%.

2021 Outlook

margin of around 9.5%.

CORPORATE

Corporate operating results consisted primarily of equity-based compensation expense and totaled $56 in

2020 and $54 in 2019. Corporate operating costs are expected to be approximately $85 in 2021.

OTHER INFORMATION

PRODUCT AND SERVICE REVENUE AND OPERATING COSTS

Year Ended December 31

2020

2019

Variance

Revenue:

Products

Services

Products

Services

Operating Costs:

22,188 $

15,737

23,130 $

16,220

(942)

(483)

(18,192) $

(13,408)

(18,611) $

(13,752)

419

344

(4.1) %

(3.0) %

(2.3) %

(2.5) %

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

41% of the segment’s backlog on December 31, 2020, demonstrating continued strong domestic

Our total backlog, including funded and unfunded portions, was $89.5 billion on December 31, 2020, up
2.9% from $86.9 billion at the end of 2019. Our total backlog is equal to our remaining performance
obligations under contracts with customers as discussed in Note B to the Consolidated Financial
Statements in Item 8. Our total estimated contract value, which combines total backlog with estimated
potential contract value, was $134.7 billion on December 31, 2020, up 6.7% from $126.2 billion at the
end of 2019.

The following table details the backlog and estimated potential contract value of each segment at the

end of 2020 and 2019:

Funded

Unfunded

Total Backlog
December 31, 2020

Estimated
Potential
Contract Value

Total
Estimated
Contract Value

11,308 $
23,646
14,341
9,488
58,783 $

13,168 $
20,012
14,474
9,876
57,530 $

318 $

26,336
226
3,826
30,706 $

11,626 $
49,982
14,567
13,314
89,489 $

December 31, 2019

181 $

24,175
439
4,620
29,415 $

13,349 $
44,187
14,913
14,496
86,945 $

2,800 $
4,876
9,774
27,727
45,177 $

2,989 $
5,453
4,322
26,485
39,249 $

14,426
54,858
24,341
41,041
134,666

16,338
49,640
19,235
40,981
126,194

Aerospace
Marine Systems
Combat Systems
Technologies
Total

For additional information about our major products and services in backlog see the Business

discussion contained in Item 1.

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. 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.

Following reduced order activity in the first half of 2020 due to the COVID-19 pandemic, orders in
the second half of 2020 reflected improved demand for Gulfstream aircraft. We received orders for all
models of Gulfstream aircraft, including strong order activity for the new G700 aircraft, which is
scheduled to enter service in the fourth quarter of 2022. Despite the impact of the COVID-19 pandemic,
the segment achieved a book-to-bill ratio (orders divided by revenue) of 0.9-to-1 in 2020.

Demand for Gulfstream aircraft remains strong across customer types and geographic regions,
generating orders from public and privately held companies, individuals, and governments around the
world. Geographically, U.S. customers represented more than 55% of the segment’s orders in 2020 and

demand.

The following represents Gulfstream aircraft (in units) in backlog by region on December 31, 2020:

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 total 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 of total backlog includes the amounts 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 unfunded work on indefinite delivery, indefinite quantity (IDIQ)

contracts. Contract options 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 $77.9 billion on December 31, 2020, up 5.8% from $73.6

billion at the end of 2019 driven by the award of a contract from the U.S. Navy for the construction of

the first two Columbia-class submarines. Estimated potential contract value in our defense segments was

$42.4 billion on December 31, 2020, up 16.9% from $36.3 billion at year-end 2019 due to strong

demand from customers in our Combat Systems and Technologies segments.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

Our total backlog, including funded and unfunded portions, was $89.5 billion on December 31, 2020, up

2.9% from $86.9 billion at the end of 2019. Our total backlog is equal to our remaining performance

obligations under contracts with customers as discussed in Note B to the Consolidated Financial

Statements in Item 8. Our total estimated contract value, which combines total backlog with estimated

potential contract value, was $134.7 billion on December 31, 2020, up 6.7% from $126.2 billion at the

The following table details the backlog and estimated potential contract value of each segment at the

end of 2019.

end of 2020 and 2019:

Aerospace

Marine Systems

Combat Systems

Technologies

Total

Aerospace

Marine Systems

Combat Systems

Technologies

Total

discussion contained in Item 1.

AEROSPACE

Funded

Unfunded

Total Backlog

Contract Value

Estimated

Potential

Total

Estimated

December 31, 2020

11,308 $

318 $

11,626 $

2,800 $

23,646

14,341

9,488

26,336

226

3,826

49,982

14,567

13,314

4,876

9,774

27,727

58,783 $

30,706 $

89,489 $

45,177 $

134,666

December 31, 2019

13,168 $

181 $

13,349 $

2,989 $

20,012

14,474

9,876

24,175

439

4,620

44,187

14,913

14,496

5,453

4,322

26,485

57,530 $

29,415 $

86,945 $

39,249 $

126,194

14,426

54,858

24,341

41,041

16,338

49,640

19,235

40,981

For additional information about our major products and services in backlog see the Business

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. 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.

Following reduced order activity in the first half of 2020 due to the COVID-19 pandemic, orders in

the second half of 2020 reflected improved demand for Gulfstream aircraft. We received orders for all

models of Gulfstream aircraft, including strong order activity for the new G700 aircraft, which is

scheduled to enter service in the fourth quarter of 2022. Despite the impact of the COVID-19 pandemic,

the segment achieved a book-to-bill ratio (orders divided by revenue) of 0.9-to-1 in 2020.

Demand for Gulfstream aircraft remains strong across customer types and geographic regions,

generating orders from public and privately held companies, individuals, and governments around the

world. Geographically, U.S. customers represented more than 55% of the segment’s orders in 2020 and

41% of the segment’s backlog on December 31, 2020, demonstrating continued strong domestic
demand.

The following represents Gulfstream aircraft (in units) in backlog by region on December 31, 2020:

Asia Pacific

Other

17%

Middle East
and Africa

18%

19%

Europe

United States

41%

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 total 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 of total backlog includes the amounts 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 unfunded work on indefinite delivery, indefinite quantity (IDIQ)
contracts. Contract options 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 $77.9 billion on December 31, 2020, up 5.8% from $73.6
billion at the end of 2019 driven by the award of a contract from the U.S. Navy for the construction of
the first two Columbia-class submarines. Estimated potential contract value in our defense segments was
$42.4 billion on December 31, 2020, up 16.9% from $36.3 billion at year-end 2019 due to strong
demand from customers in our Combat Systems and Technologies segments.

MARINE SYSTEMS

The Marine Systems segment’s backlog consists of very long-term submarine and surface ship
construction programs, as well as numerous engineering and repair contracts. The segment’s book-to-
bill ratio was 1.6-to-1 in 2020, resulting in backlog growth of 13.1% from year-end 2019. The increase
in backlog is due primarily to the award of a $9.5 billion contract for the construction of the first two
Columbia-class ballistic-missile submarines, as well as associated design and engineering support. Other
significant contract awards received in the Marine Systems segment during 2020 include:

•

$990 from the U.S. Navy for the John Lewis-class (T-AO-205) fleet replenishment oiler program,
including the construction of two additional ships.

$575 from the Navy to provide maintenance and repair services for the Arleigh Burke-class
(DDG-51) guided-missile destroyer, Independence-class Littoral Combat Ship (LCS), San Antonio-
class amphibious transport dock, Ticonderoga-class guided-missile cruiser, Wasp-class amphibious
assault ship and Whidbey Island-class dock landing ship programs.

$310 from the Navy for Virginia-class submarine construction. The Virginia-class submarine
program was the company’s largest defense program in 2020 and the largest program in the
company’s backlog.

The following represents the Marine Systems segment’s total estimated contract value by major

program on December 31, 2020:

Maintenance,
repair and
other services

Auxiliary and
support ships

Destroyers

12%

Columbia-class
submarine

30%

Virginia-class
submarine

46%

COMBAT SYSTEMS

The Combat Systems segment’s backlog consists of a mix of U.S. and international combat vehicles,
weapons systems and munitions programs. The vehicle programs are generally long-term, franchise
programs, while the weapons systems and munitions programs tend to be shorter-term in nature. The
segment’s total estimated contract value at the end of 2020 was up 26.5% from year-end 2019, driven by
awards from the U.S. Army related to Abrams main battle tanks and Stryker wheeled combat vehicles
described below.

We received the following significant contract awards in the Combat Systems segment during 2020:

$405 from the U.S. Army to upgrade Abrams tanks to the M1A2 System Enhancement Package

Version 3 (SEPv3) configuration. The contract has a maximum potential value of $4.3 billion.

$320 from the Army to upgrade Stryker vehicles to the double-V-hull A1 configuration. The contract

has a maximum potential value of $2.5 billion.

$230 from the Army to produce Stryker Initial Maneuver Short-Range Air Defense (IM-SHORAD)

vehicles. The contract has a maximum potential value of $1.2 billion.

$215 from the Army for the production of Hydra-70 rockets. The contract has a maximum potential

$870 to deliver 8x8 wheeled combat vehicles, maintenance and lifecycle support to the Spanish

•

The following represents the Combat Systems segment’s total estimated contract value by market on

value of $3.4 billion.

Ministry of Defense.

December 31, 2020:

TECHNOLOGIES

The Technologies segment’s backlog consists of thousands of contracts and task orders across a mix of

U.S. and non-U.S. government and commercial customers. These contracts can be shorter-cycle or span

multiple years, but commonly include a small, initially funded order. Therefore, our estimated potential

contract value of $27.7 billion is an important indicator of future orders and revenue. In 2020,

approximately 60% of the segment’s orders were from additional work on IDIQ contracts or the exercise

of options. Our total estimated contract value remained stable in 2020 despite the impact of reduced new

business opportunities caused by COVID-19.

MARINE SYSTEMS

The Marine Systems segment’s backlog consists of very long-term submarine and surface ship

construction programs, as well as numerous engineering and repair contracts. The segment’s book-to-

bill ratio was 1.6-to-1 in 2020, resulting in backlog growth of 13.1% from year-end 2019. The increase

in backlog is due primarily to the award of a $9.5 billion contract for the construction of the first two

Columbia-class ballistic-missile submarines, as well as associated design and engineering support. Other

significant contract awards received in the Marine Systems segment during 2020 include:

•

$990 from the U.S. Navy for the John Lewis-class (T-AO-205) fleet replenishment oiler program,

including the construction of two additional ships.

$575 from the Navy to provide maintenance and repair services for the Arleigh Burke-class

(DDG-51) guided-missile destroyer, Independence-class Littoral Combat Ship (LCS), San Antonio-

class amphibious transport dock, Ticonderoga-class guided-missile cruiser, Wasp-class amphibious

assault ship and Whidbey Island-class dock landing ship programs.

•

$310 from the Navy for Virginia-class submarine construction. The Virginia-class submarine

program was the company’s largest defense program in 2020 and the largest program in the

company’s backlog.

program on December 31, 2020:

The following represents the Marine Systems segment’s total estimated contract value by major

COMBAT SYSTEMS

The Combat Systems segment’s backlog consists of a mix of U.S. and international combat vehicles,

weapons systems and munitions programs. The vehicle programs are generally long-term, franchise

programs, while the weapons systems and munitions programs tend to be shorter-term in nature. The

segment’s total estimated contract value at the end of 2020 was up 26.5% from year-end 2019, driven by

awards from the U.S. Army related to Abrams main battle tanks and Stryker wheeled combat vehicles

described below.

We received the following significant contract awards in the Combat Systems segment during 2020:

•

$405 from the U.S. Army to upgrade Abrams tanks to the M1A2 System Enhancement Package
Version 3 (SEPv3) configuration. The contract has a maximum potential value of $4.3 billion.

$320 from the Army to upgrade Stryker vehicles to the double-V-hull A1 configuration. The contract
has a maximum potential value of $2.5 billion.

$230 from the Army to produce Stryker Initial Maneuver Short-Range Air Defense (IM-SHORAD)
vehicles. The contract has a maximum potential value of $1.2 billion.

$215 from the Army for the production of Hydra-70 rockets. The contract has a maximum potential
value of $3.4 billion.

$870 to deliver 8x8 wheeled combat vehicles, maintenance and lifecycle support to the Spanish
Ministry of Defense.

The following represents the Combat Systems segment’s total estimated contract value by market on

December 31, 2020:

Weapons
systems and
munitions

27%

U.S. military
vehicles

35%

International
military
vehicles

38%

TECHNOLOGIES

The Technologies segment’s backlog consists of thousands of contracts and task orders across a mix of
U.S. and non-U.S. government and commercial customers. These contracts can be shorter-cycle or span
multiple years, but commonly include a small, initially funded order. Therefore, our estimated potential
contract value of $27.7 billion is an important indicator of future orders and revenue. In 2020,
approximately 60% of the segment’s orders were from additional work on IDIQ contracts or the exercise
of options. Our total estimated contract value remained stable in 2020 despite the impact of reduced new
business opportunities caused by COVID-19.

We received the following significant contract awards in the Technologies segment during 2020:

generated by operating activities in 2020 and 2019 was deployed to pay dividends, fund capital

• The Defense Enterprise Office Solutions (DEOS) contract from the General Services Administration
in partnership with the DoD and Defense Information Systems Agency (DISA) to stand up cloud
environments and support the migration of over 3.2 million existing DoD Office 365 users to the
cloud. The contract has a maximum potential value of $4.4 billion.

• An IDIQ award from the U.S. Department of State to provide overseas consular services to support
visa processing and other functions for U.S. embassies and consultants under the Global Support
Strategy (GSS) program. The program has a maximum potential contract value of $3.3 billion
among three awardees.

• An IDIQ contract to modernize the Army’s training programs. The contract has a maximum

potential value of $885.

• A contract to provide enterprise IT and cybersecurity services and solutions for the DoD. The

contract has a maximum potential value of $760.

• A contract to provide enterprise IT, communications and mission command support services to U.S.

Army Europe. The contract has a maximum potential value of $695.

• A contract from the U.S. Air Force for the Battlefield Information Collection and Exploitation
System (BICES) program to provide intelligence information sharing capabilities for the DoD. The
contract has a maximum potential value of $620.

The following represents the Technologies segment’s total estimated contract value by customer on

activities in 2020 and 2019, as classified on the Consolidated Statement of Cash Flows in Item 8.

December 31, 2020:

Commercial
and non-U.S.
government

Intelligence

17%

Federal
and state
agencies

33%

Defense

45%

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We place a strong emphasis on cash flow generation. This focus gives us the flexibility for capital
deployment while preserving a strong balance sheet to position us for future opportunities. Cash

expenditures and business acquisitions, and repurchase our common stock.

Year Ended December 31

Net cash provided by operating activities

Net cash used by investing activities

Net cash used by financing activities

Net cash used by discontinued operations

Net increase (decrease) in cash and equivalents

Cash and equivalents at beginning of year

Cash and equivalents at end of year

Short- and long-term debt

Net debt

Debt-to-equity (a)

Debt-to-capital (b)

2020

2019

3,858

2,981

(974)

(903)

(59)

1,922

902

2,824

(994)

(1,997)

(51)

(61)

963

902

(12,998)

(11,930)

$ (10,174)

$ (11,028)

83.0%

45.4%

85.3%

46.0%

(a) Debt-to-equity ratio is calculated as total debt divided by total equity as of year end.

(b) Debt-to-capital ratio is calculated as total debt divided by the sum of total debt plus total equity as of year end.

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

OPERATING ACTIVITIES

Cash provided by operating activities was $3.9 billion in 2020 compared with $3 billion in 2019. The

primary driver of cash inflows in both periods was net earnings. However, cash flows in both years were

affected negatively by growth in operating working capital (OWC) in our Aerospace segment due to our

position in the development and production cycles of our Gulfstream aircraft models. We had

anticipated this OWC growth to begin reversing in 2020, but the impact of COVID-19 on our production

and delivery rates has delayed this recovery. Cash flows in 2019 were also affected negatively by growth

in OWC in our Combat Systems segment due to the timing of payments on a large international wheeled

armored vehicle contract. These payment timing issues have been resolved as a result of finalizing a

contract amendment with the customer, which contributed to the increase in cash flows in 2020. For

additional information about the unbilled receivables balance and activity associated with this contract,

see Note H to the Consolidated Financial Statements in Item 8.

INVESTING ACTIVITIES

Cash used by investing activities was $974 in 2020 and $994 in 2019. Our investing activities include

cash paid for capital expenditures and business acquisitions; purchases, sales and maturities of

marketable securities; and proceeds from asset sales.

Capital Expenditures. The primary use of cash for investing activities in both years was capital

expenditures. Capital expenditures were $967 in 2020 and $987 in 2019. Capital expenditures have been

at an elevated level the past two years as we continue to invest in our shipyards, particularly for the

planned growth in submarine construction. We expect capital expenditures to be approximately 2.5% of

revenue in 2021.

We received the following significant contract awards in the Technologies segment during 2020:

• The Defense Enterprise Office Solutions (DEOS) contract from the General Services Administration

in partnership with the DoD and Defense Information Systems Agency (DISA) to stand up cloud

environments and support the migration of over 3.2 million existing DoD Office 365 users to the

cloud. The contract has a maximum potential value of $4.4 billion.

• An IDIQ award from the U.S. Department of State to provide overseas consular services to support

visa processing and other functions for U.S. embassies and consultants under the Global Support

Strategy (GSS) program. The program has a maximum potential contract value of $3.3 billion

• An IDIQ contract to modernize the Army’s training programs. The contract has a maximum

among three awardees.

potential value of $885.

• A contract to provide enterprise IT and cybersecurity services and solutions for the DoD. The

contract has a maximum potential value of $760.

• A contract to provide enterprise IT, communications and mission command support services to U.S.

Army Europe. The contract has a maximum potential value of $695.

• A contract from the U.S. Air Force for the Battlefield Information Collection and Exploitation

System (BICES) program to provide intelligence information sharing capabilities for the DoD. The

contract has a maximum potential value of $620.

The following represents the Technologies segment’s total estimated contract value by customer on

December 31, 2020:

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We place a strong emphasis on cash flow generation. This focus gives us the flexibility for capital

deployment while preserving a strong balance sheet to position us for future opportunities. Cash

generated by operating activities in 2020 and 2019 was deployed to pay dividends, fund capital
expenditures and business acquisitions, and repurchase our common stock.

Year Ended December 31
Net cash provided by operating activities
Net cash used by investing activities
Net cash used by financing activities
Net cash used by discontinued operations
Net increase (decrease) in cash and equivalents
Cash and equivalents at beginning of year
Cash and equivalents at end of year
Short- and long-term debt
Net debt
Debt-to-equity (a)
Debt-to-capital (b)

2020
3,858
(974)
(903)
(59)
1,922
902
2,824
(12,998)
$ (10,174)

2019
2,981
(994)
(1,997)
(51)
(61)
963
902
(11,930)
$ (11,028)

83.0%
45.4%

85.3%
46.0%

(a) Debt-to-equity ratio is calculated as total debt divided by total equity as of year end.
(b) Debt-to-capital ratio is calculated as total debt divided by the sum of total debt plus total equity as of year end.

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 2020 and 2019, as classified on the Consolidated Statement of Cash Flows in Item 8.

OPERATING ACTIVITIES

Cash provided by operating activities was $3.9 billion in 2020 compared with $3 billion in 2019. The
primary driver of cash inflows in both periods was net earnings. However, cash flows in both years were
affected negatively by growth in operating working capital (OWC) in our Aerospace segment due to our
position in the development and production cycles of our Gulfstream aircraft models. We had
anticipated this OWC growth to begin reversing in 2020, but the impact of COVID-19 on our production
and delivery rates has delayed this recovery. Cash flows in 2019 were also affected negatively by growth
in OWC in our Combat Systems segment due to the timing of payments on a large international wheeled
armored vehicle contract. These payment timing issues have been resolved as a result of finalizing a
contract amendment with the customer, which contributed to the increase in cash flows in 2020. For
additional information about the unbilled receivables balance and activity associated with this contract,
see Note H to the Consolidated Financial Statements in Item 8.

INVESTING ACTIVITIES

Cash used by investing activities was $974 in 2020 and $994 in 2019. Our investing activities include
cash paid for capital expenditures and business acquisitions; purchases, sales and maturities of
marketable securities; and proceeds from asset sales.

Capital Expenditures. The primary use of cash for investing activities in both years was capital
expenditures. Capital expenditures were $967 in 2020 and $987 in 2019. Capital expenditures have been
at an elevated level the past two years as we continue to invest in our shipyards, particularly for the
planned growth in submarine construction. We expect capital expenditures to be approximately 2.5% of
revenue in 2021.

Business Acquisitions. In 2020, we acquired five businesses for an aggregate of approximately

$205. In 2019, we acquired three businesses for an aggregate of approximately $20.

FINANCING ACTIVITIES

Cash used by financing activities was $903 in 2020 and $2 billion in 2019. Net cash from financing
activities includes proceeds received from debt and commercial paper issuances and employee stock
options exercises. Our financing activities also include repurchases of common stock, payment of
dividends and debt repayments.

Dividends. On March 4, 2020, our board of directors declared an increased quarterly dividend of
$1.10 per share, the 23rd consecutive annual increase. Previously, the board had increased the quarterly
dividend to $1.02 per share in March 2019. Cash dividends paid were $1.2 billion in 2020 and 2019.

Share Repurchases. Our board of directors from time to time authorizes management to repurchase
outstanding shares of our common stock on the open market. We paid $587 and $231 in 2020 and 2019,
respectively, to repurchase our outstanding shares. On December 31, 2020, 12.3 million shares remained
authorized by our board of directors for repurchase, representing 4.3% of our total shares outstanding.

Debt and Commercial Paper Issuances and Repayments. In March 2020, we issued $4 billion of
fixed-rate notes. The proceeds were used to repay $2.5 billion of fixed- and floating-rate notes that
matured in May 2020 and for general corporate purposes, including the repayment of a portion of the
borrowings under our commercial paper program.

Fixed- and floating-rate notes totaling $2.5 billion mature in May 2021, and an additional $500 of
fixed-rate notes mature in July 2021. We currently 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 maturities and interest rates, see Note K to the Consolidated
Financial Statements in Item 8.

NON-GAAP FINANCIAL MEASURES

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 and return on
invested capital (ROIC) to measure our performance in these areas. While we believe these metrics
provide useful information, they are not defined operating measures under U.S. generally accepted
accounting principles (GAAP), and there are limitations associated with their use. Our calculation of
these metrics 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 these metrics should not be
considered in isolation from, or as a substitute for, other GAAP measures.

Free Cash Flow. 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 Consolidated Statement of

Cash Flows in Item 8:

Year Ended December 31

2020

2019

2018

2017

2016

Net cash provided by operating activities

$ 3,858

$ 2,981

$ 3,148

$ 3,876

$ 2,163

Capital expenditures

(967)

(987)

(690)

(428)

(392)

Free cash flow from operations

$ 2,891

$ 1,994

$ 2,458

$ 3,448

$ 1,771

Cash flows as a percentage of earnings

from continuing operations:

Net cash provided by operating activities

Free cash flow from operations

122 %

91 %

86%

57%

94%

73%

133%

118%

81%

66%

Return on Invested Capital. We believe ROIC is a useful measure for investors because it reflects

our ability to generate returns from the capital we have deployed in our operations. We use ROIC to

evaluate investment decisions and as a performance measure in evaluating management. We define

ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after

taxes is defined as earnings from continuing operations plus after-tax interest and amortization expense,

calculated using the statutory federal income tax rate. Average invested capital is defined as the sum of

the average debt and shareholders’ equity excluding accumulated other comprehensive loss. ROIC

excludes goodwill impairments and non-economic accounting changes as they are not reflective of

company performance.

ROIC is calculated as follows:

Year Ended December 31

2020

2019

2018

2017

2016

Earnings from continuing operations

$ 3,167

$ 3,484

$ 3,358

$ 2,912

$ 2,679

After-tax interest expense

After-tax amortization expense

Net operating profit after taxes

Average invested capital

Return on invested capital

386

280

373

287

295

258

$ 3,833

$ 32,431

$ 4,144

$ 29,620

$ 3,911

$ 25,367

$ 3,039

$ 18,099

$ 2,800

$ 17,168

11.8 %

14.0%

15.4%

16.8%

16.3%

2017 earnings from continuing operations and 2017 and 2018 average invested capital have not been restated for the retrospective application of a

change in accounting principle related to the amortization of actuarial gains and losses for our qualified U.S. government pension plans, which we

adopted in the fourth quarter of 2020 as discussed in Note T to the Consolidated Financial Statements in Item 8.

ADDITIONAL FINANCIAL INFORMATION

OFF-BALANCE SHEET ARRANGEMENTS

On December 31, 2020, we had no material off-balance sheet arrangements.

Business Acquisitions. In 2020, we acquired five businesses for an aggregate of approximately

$205. In 2019, we acquired three businesses for an aggregate of approximately $20.

FINANCING ACTIVITIES

Cash used by financing activities was $903 in 2020 and $2 billion in 2019. Net cash from financing

activities includes proceeds received from debt and commercial paper issuances and employee stock

options exercises. Our financing activities also include repurchases of common stock, payment of

dividends and debt repayments.

Dividends. On March 4, 2020, our board of directors declared an increased quarterly dividend of

$1.10 per share, the 23rd consecutive annual increase. Previously, the board had increased the quarterly

dividend to $1.02 per share in March 2019. Cash dividends paid were $1.2 billion in 2020 and 2019.

Share Repurchases. Our board of directors from time to time authorizes management to repurchase

outstanding shares of our common stock on the open market. We paid $587 and $231 in 2020 and 2019,

respectively, to repurchase our outstanding shares. On December 31, 2020, 12.3 million shares remained

authorized by our board of directors for repurchase, representing 4.3% of our total shares outstanding.

Debt and Commercial Paper Issuances and Repayments. In March 2020, we issued $4 billion of

fixed-rate notes. The proceeds were used to repay $2.5 billion of fixed- and floating-rate notes that

matured in May 2020 and for general corporate purposes, including the repayment of a portion of the

borrowings under our commercial paper program.

Fixed- and floating-rate notes totaling $2.5 billion mature in May 2021, and an additional $500 of

fixed-rate notes mature in July 2021. We currently 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 maturities and interest rates, see Note K to the Consolidated

Financial Statements in Item 8.

On December 31, 2020, we had no commercial paper outstanding, but we maintain the ability to

access the commercial paper market in the future. Separately, we have $5 billion in committed bank

credit facilities for general corporate purposes and working capital needs and to support our commercial

paper issuances. We also have an effective shelf registration on file with the Securities and Exchange

Commission that allows us to access the debt markets.

NON-GAAP FINANCIAL MEASURES

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 and return on

invested capital (ROIC) to measure our performance in these areas. While we believe these metrics

provide useful information, they are not defined operating measures under U.S. generally accepted

accounting principles (GAAP), and there are limitations associated with their use. Our calculation of

these metrics 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 these metrics should not be

considered in isolation from, or as a substitute for, other GAAP measures.

Free Cash Flow. 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 Consolidated Statement of
Cash Flows in Item 8:

Year Ended December 31
Net cash provided by operating activities
Capital expenditures
Free cash flow from operations
Cash flows as a percentage of earnings
from continuing operations:
Net cash provided by operating activities
Free cash flow from operations

2020
$ 3,858
(967)
$ 2,891

2019
$ 2,981
(987)
$ 1,994

2018
$ 3,148
(690)
$ 2,458

2017
$ 3,876
(428)
$ 3,448

2016
$ 2,163
(392)
$ 1,771

122 %
91 %

86%
57%

94%
73%

133%
118%

81%
66%

Return on Invested Capital. We believe ROIC is a useful measure for investors because it reflects
our ability to generate returns from the capital we have deployed in our operations. We use ROIC to
evaluate investment decisions and as a performance measure in evaluating management. We define
ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after
taxes is defined as earnings from continuing operations plus after-tax interest and amortization expense,
calculated using the statutory federal income tax rate. Average invested capital is defined as the sum of
the average debt and shareholders’ equity excluding accumulated other comprehensive loss. ROIC
excludes goodwill impairments and non-economic accounting changes as they are not reflective of
company performance.

ROIC is calculated as follows:

Year Ended December 31
Earnings from continuing operations
After-tax interest expense
After-tax amortization expense
Net operating profit after taxes
Average invested capital
Return on invested capital

2020
$ 3,167
386
280
$ 3,833
$ 32,431

2019
$ 3,484
373
287
$ 4,144
$ 29,620

2018
$ 3,358
295
258
$ 3,911
$ 25,367

2017
$ 2,912
76
51
$ 3,039
$ 18,099

2016
$ 2,679
64
57
$ 2,800
$ 17,168

16.3%
2017 earnings from continuing operations and 2017 and 2018 average invested capital have not been restated for the retrospective application of a
change in accounting principle related to the amortization of actuarial gains and losses for our qualified U.S. government pension plans, which we
adopted in the fourth quarter of 2020 as discussed in Note T to the Consolidated Financial Statements in Item 8.

11.8 %

14.0%

15.4%

16.8%

ADDITIONAL FINANCIAL INFORMATION

OFF-BALANCE SHEET ARRANGEMENTS

On December 31, 2020, we had no material off-balance sheet arrangements.

2,508 $
263
40
4,655
2,596

3,389 $
298
87
17,019
4,188

Total Amount
Committed

Less Than 1
Year

Payments Due by Period

1-3 Years

4-5 Years

More Than 5
Years

Contractual Obligations
Debt (a)
Operating leases
Finance leases
Purchase obligations (b)
Other long-term liabilities (c)

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

In our opinion, the following policies are critical and require the use of significant judgment in their

The following tables present information about our contractual obligations and commercial
commitments on December 31, 2020:

application:

7,720
2,884 $
16,501 $
705
444
1,710
145
124
396
1,305
15,111
38,090
26,892
16,629
3,479
83,589 $ 24,981 $ 22,042 $ 10,062 $ 26,504

(a)
(b)

Includes scheduled interest payments. See Note K to the Consolidated Financial Statements in Item 8 for a discussion of long-term debt.
Includes amounts committed under legally enforceable agreements for goods and services with defined terms as to quantity, price and timing of
delivery. This amount includes $36.2 billion of purchase obligations for products and services to be delivered under firm government contracts under
which we would expect full recourse under normal contract termination clauses.

(c) Represents other long-term liabilities on our Consolidated Balance Sheet, including the current portion of these liabilities. The projected timing of cash
flows associated with these obligations is based on management’s estimates, which are based largely on historical experience. This amount also
includes all liabilities under our defined benefit retirement plans. See Note R to the Consolidated Financial Statements in Item 8 for information
regarding these liabilities and the plan assets available to satisfy them.

Commercial Commitments
Letters of credit and guarantees*
Aircraft trade-in options*

Amount of Commitment Expiration by Period

Total Amount
Committed

Less Than 1
Year

1-3 Years

4-5 Years

More Than 5
Years

1,402 $
339
1,741 $

771 $
16
787 $

336 $
236
572 $

199 $
87
286 $

96
—
96

See Note O to the Consolidated Financial Statements in Item 8 for a discussion of letters of credit and aircraft trade-in options.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on
the Consolidated Financial Statements, which have been prepared in accordance with 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. On an ongoing basis, we evaluate our estimates including
most pervasively those related to various assumptions and projections for our long-term contracts and
programs. 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 contingencies. 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 of assets and liabilities that are not readily available from other sources. Actual results
may differ from these estimates. We believe our judgment is applied consistently and produces financial
information that fairly depicts the results of operations for all periods presented.

Revenue. 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. Our performance obligations are satisfied over time as work

progresses or at a point in time.

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.

Most of our revenue recognized at a point in time is for the manufacture of business jet aircraft in

our Aerospace segment. Revenue on these contracts is recognized when the customer obtains control of

the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.

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. Our estimates at the end of the

year included impacts from the disruptions caused by COVID-19. Given the uncertainties around the

pandemic, including its duration and potential future disruptions to our supply chain or workforce, it is

reasonably possible that the actual impact of the pandemic on contract costs could be materially different

than our current estimates. The United States and some other governments have taken steps to provide

relief. Where our customer has agreed to reimburse certain costs, such as provided for by the

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

In our opinion, the following policies are critical and require the use of significant judgment in their

The following tables present information about our contractual obligations and commercial

commitments on December 31, 2020:

Payments Due by Period

Contractual Obligations

Committed

Year

1-3 Years

4-5 Years

Total Amount

Less Than 1

More Than 5

Years

Debt (a)

Operating leases

Finance leases

Purchase obligations (b)

Other long-term liabilities (c)

16,501 $

3,389 $

2,884 $

2,508 $

7,720

1,710

396

38,090

26,892

298

17,019

4,188

444

124

15,111

3,479

263

4,655

2,596

705

145

1,305

16,629

83,589 $ 24,981 $ 22,042 $ 10,062 $ 26,504

(a)

(b)

Includes scheduled interest payments. See Note K to the Consolidated Financial Statements in Item 8 for a discussion of long-term debt.

Includes amounts committed under legally enforceable agreements for goods and services with defined terms as to quantity, price and timing of

delivery. This amount includes $36.2 billion of purchase obligations for products and services to be delivered under firm government contracts under

which we would expect full recourse under normal contract termination clauses.

(c) Represents other long-term liabilities on our Consolidated Balance Sheet, including the current portion of these liabilities. The projected timing of cash

flows associated with these obligations is based on management’s estimates, which are based largely on historical experience. This amount also

includes all liabilities under our defined benefit retirement plans. See Note R to the Consolidated Financial Statements in Item 8 for information

regarding these liabilities and the plan assets available to satisfy them.

Commercial Commitments

Letters of credit and guarantees*

Aircraft trade-in options*

Amount of Commitment Expiration by Period

Total Amount

Less Than 1

Committed

Year

1-3 Years

4-5 Years

More Than 5

Years

1,402 $

771 $

336 $

199 $

339

236

1,741 $

787 $

572 $

286 $

—

See Note O to the Consolidated Financial Statements in Item 8 for a discussion of letters of credit and aircraft trade-in options.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on

the Consolidated Financial Statements, which have been prepared in accordance with 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. On an ongoing basis, we evaluate our estimates including

most pervasively those related to various assumptions and projections for our long-term contracts and

programs. 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 contingencies. 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 of assets and liabilities that are not readily available from other sources. Actual results

may differ from these estimates. We believe our judgment is applied consistently and produces financial

information that fairly depicts the results of operations for all periods presented.

application:

Revenue. 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. Our performance obligations are satisfied over time as work
progresses or at a point in time.

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.

Most of our revenue recognized at a point in time is for the manufacture of business jet aircraft in
our Aerospace segment. Revenue on these contracts is recognized when the customer obtains control of
the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.

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. Our estimates at the end of the
year included impacts from the disruptions caused by COVID-19. Given the uncertainties around the
pandemic, including its duration and potential future disruptions to our supply chain or workforce, it is
reasonably possible that the actual impact of the pandemic on contract costs could be materially different
than our current estimates. The United States and some other governments have taken steps to provide
relief. Where our customer has agreed to reimburse certain costs, such as provided for by the

Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), we have included those
recoveries in our estimates of revenue. To the extent the U.S. government provides for reimbursement of
additional costs through legislation and the DoD has available funds, we will seek reimbursement as
appropriate.

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. The aggregate impact of adjustments in contract estimates
increased our operating earnings (and diluted earnings per share) by $283 ($0.78) in 2020 and $271
($0.74) in 2019. No adjustment on any one contract was material to the Consolidated Financial
Statements in 2020 or 2019.

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. 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. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-
contract basis at the end of each reporting period.

Reorganization of Operating Segments and Composition of Reporting Units. Effective
December 31, 2020, for segment reporting purposes, we reorganized our Information Technology and
Mission Systems operating segments into a single segment: Technologies. This reorganization reflects
our evolving strategic focus on the combined capabilities of the businesses to meet the customer demand
for large-scale, end-to-end highly engineered solutions. Our company now has four operating segments:
Aerospace, Marine Systems, Combat Systems and Technologies. We refer to the latter three collectively
as our defense segments.

This reorganization similarly changed the composition of our reporting units. Accordingly, goodwill
of the Information Technology and Mission Systems reporting units was combined and assigned to the
Technologies reporting unit. We performed goodwill impairment assessments immediately prior to and
following the change. The results indicated that no impairment existed at the former Information
Technology and Mission Systems reporting units prior to the change and the Technologies reporting unit
following the change.

Long-lived Assets and Goodwill. We review long-lived assets, including intangible assets subject
to amortization, for impairment whenever events or changes in circumstances indicate that the carrying
value of the assets may not be recoverable. We assess the recoverability of the carrying value of assets
held for use based on a review of undiscounted projected cash flows. Impairment losses, where
identified, are measured as the excess of the carrying value of the long-lived assets over the estimated
fair value as determined by discounted cash flows.

The COVID-19 pandemic has caused significant disruptions to national and global economies and
government activities, which has impacted our businesses. As of the end of the year, we have not
identified a triggering event requiring an impairment test for our goodwill, intangibles or other long-
lived assets. In our Aerospace segment, which has experienced a more significant impact from the
pandemic, we do not believe the impact represents a longer-term change that would indicate that the
carrying value of the segment’s intangibles and long-lived assets may not be recoverable or that the
Aerospace reporting unit’s estimated fair value has been significantly affected.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible

assets acquired in a business combination. We review goodwill for impairment annually at each of our

reporting units or when circumstances indicate that the likelihood of an impairment is greater than 50%.

Such circumstances include a significant adverse change in the business climate for one of our reporting

units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. Our reporting

units are consistent with our operating segments in Note S to the Consolidated Financial Statements in

Item 8. We use both qualitative and quantitative approaches when testing goodwill for impairment.

When determining the approach to be used, we consider the current facts and circumstances of each

reporting unit as well as the excess of each reporting unit’s estimated fair value over its carrying value

based on our most recent quantitative assessments. Our qualitative approach evaluates the business

environment and various events impacting the reporting unit including, but not limited to,

macroeconomic conditions, changes in the business environment and reporting unit-specific events. If,

based on the qualitative assessment, we determine that it is more likely than not that the fair value of a

reporting unit is greater than its carrying value, then a quantitative assessment is not necessary.

However, if a quantitative assessment is determined to be necessary, we compare the fair value of a

reporting unit to its carrying value and, if necessary, recognize an impairment loss for the amount by

which the carrying value exceeds the reporting unit’s fair value.

Our estimate of fair value is based primarily on the discounted cash flows of the underlying

operations and requires the use of judgment by management. The process requires numerous

assumptions, including the timing of work embedded in our backlog, our performance and profitability

under our contracts, our success in securing future business, the appropriate risk-adjusted interest rate

used to discount the projected cash flows, and terminal value growth rates applied to the final year of

projected cash flows. Due to the variables inherent in our estimates of fair value, differences in

assumptions may have a material effect on the result of our impairment analysis. To assess the

reasonableness of our discounted cash flows, we compare the sum of our reporting units’ fair value to

our market capitalization. Additionally, we evaluate the reasonableness of each reporting unit’s fair

value by comparing the fair value to comparable peer companies and recent comparable market

transactions.

As of December 31, 2020, we completed qualitative assessments for our Aerospace, Marine Systems

and Combat Systems reporting units as the estimated fair values of each of these reporting units

significantly exceeded the respective carrying values based on our most recent quantitative assessments,

which were performed as of December 31, 2018. Our qualitative assessments, including consideration of

the impact of the COVID-19 pandemic, did not present indicators of impairment for these reporting

units. As of December 31, 2020, we completed a quantitative assessment for our Technologies reporting

unit, and the fair value was well in excess of its carrying value.

Commitments and Contingencies. We are subject to litigation and other legal proceedings arising

either from the normal course of business or under provisions relating to the protection of the

environment. Estimating liabilities and costs associated with these matters requires the use of judgment.

We record a charge against earnings when a liability associated with claims or pending or threatened

litigation is probable and when our exposure is reasonably estimable. The ultimate resolution of our

exposure related to these matters may change as further facts and circumstances become known.

Retirement Plans. Our pension and other post-retirement benefit costs and obligations depend on

several assumptions and estimates. The key assumption is the interest rates used to discount estimated

future liabilities. We base the discount rates on a current yield curve developed from a portfolio of high-

quality, fixed-income investments with maturities consistent with the projected benefit payout period.

Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), we have included those

recoveries in our estimates of revenue. To the extent the U.S. government provides for reimbursement of

additional costs through legislation and the DoD has available funds, we will seek reimbursement as

appropriate.

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. The aggregate impact of adjustments in contract estimates

increased our operating earnings (and diluted earnings per share) by $283 ($0.78) in 2020 and $271

($0.74) in 2019. No adjustment on any one contract was material to the Consolidated Financial

Statements in 2020 or 2019.

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. 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. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-

contract basis at the end of each reporting period.

Reorganization of Operating Segments and Composition of Reporting Units. Effective

December 31, 2020, for segment reporting purposes, we reorganized our Information Technology and

Mission Systems operating segments into a single segment: Technologies. This reorganization reflects

our evolving strategic focus on the combined capabilities of the businesses to meet the customer demand

for large-scale, end-to-end highly engineered solutions. Our company now has four operating segments:

Aerospace, Marine Systems, Combat Systems and Technologies. We refer to the latter three collectively

as our defense segments.

This reorganization similarly changed the composition of our reporting units. Accordingly, goodwill

of the Information Technology and Mission Systems reporting units was combined and assigned to the

Technologies reporting unit. We performed goodwill impairment assessments immediately prior to and

following the change. The results indicated that no impairment existed at the former Information

Technology and Mission Systems reporting units prior to the change and the Technologies reporting unit

following the change.

Long-lived Assets and Goodwill. We review long-lived assets, including intangible assets subject

to amortization, for impairment whenever events or changes in circumstances indicate that the carrying

value of the assets may not be recoverable. We assess the recoverability of the carrying value of assets

held for use based on a review of undiscounted projected cash flows. Impairment losses, where

identified, are measured as the excess of the carrying value of the long-lived assets over the estimated

fair value as determined by discounted cash flows.

The COVID-19 pandemic has caused significant disruptions to national and global economies and

government activities, which has impacted our businesses. As of the end of the year, we have not

identified a triggering event requiring an impairment test for our goodwill, intangibles or other long-

lived assets. In our Aerospace segment, which has experienced a more significant impact from the

pandemic, we do not believe the impact represents a longer-term change that would indicate that the

carrying value of the segment’s intangibles and long-lived assets may not be recoverable or that the

Aerospace reporting unit’s estimated fair value has been significantly affected.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible
assets acquired in a business combination. We review goodwill for impairment annually at each of our
reporting units or when circumstances indicate that the likelihood of an impairment is greater than 50%.
Such circumstances include a significant adverse change in the business climate for one of our reporting
units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. Our reporting
units are consistent with our operating segments in Note S to the Consolidated Financial Statements in
Item 8. We use both qualitative and quantitative approaches when testing goodwill for impairment.
When determining the approach to be used, we consider the current facts and circumstances of each
reporting unit as well as the excess of each reporting unit’s estimated fair value over its carrying value
based on our most recent quantitative assessments. Our qualitative approach evaluates the business
environment and various events impacting the reporting unit including, but not limited to,
macroeconomic conditions, changes in the business environment and reporting unit-specific events. If,
based on the qualitative assessment, we determine that it is more likely than not that the fair value of a
reporting unit is greater than its carrying value, then a quantitative assessment is not necessary.
However, if a quantitative assessment is determined to be necessary, we compare the fair value of a
reporting unit to its carrying value and, if necessary, recognize an impairment loss for the amount by
which the carrying value exceeds the reporting unit’s fair value.

Our estimate of fair value is based primarily on the discounted cash flows of the underlying
operations and requires the use of judgment by management. The process requires numerous
assumptions, including the timing of work embedded in our backlog, our performance and profitability
under our contracts, our success in securing future business, the appropriate risk-adjusted interest rate
used to discount the projected cash flows, and terminal value growth rates applied to the final year of
projected cash flows. Due to the variables inherent in our estimates of fair value, differences in
assumptions may have a material effect on the result of our impairment analysis. To assess the
reasonableness of our discounted cash flows, we compare the sum of our reporting units’ fair value to
our market capitalization. Additionally, we evaluate the reasonableness of each reporting unit’s fair
value by comparing the fair value to comparable peer companies and recent comparable market
transactions.

As of December 31, 2020, we completed qualitative assessments for our Aerospace, Marine Systems
and Combat Systems reporting units as the estimated fair values of each of these reporting units
significantly exceeded the respective carrying values based on our most recent quantitative assessments,
which were performed as of December 31, 2018. Our qualitative assessments, including consideration of
the impact of the COVID-19 pandemic, did not present indicators of impairment for these reporting
units. As of December 31, 2020, we completed a quantitative assessment for our Technologies reporting
unit, and the fair value was well in excess of its carrying value.

Commitments and Contingencies. We are subject to litigation and other legal proceedings arising
either from the normal course of business or under provisions relating to the protection of the
environment. Estimating liabilities and costs associated with these matters requires the use of judgment.
We record a charge against earnings when a liability associated with claims or pending or threatened
litigation is probable and when our exposure is reasonably estimable. The ultimate resolution of our
exposure related to these matters may change as further facts and circumstances become known.

Retirement Plans. Our pension and other post-retirement benefit costs and obligations depend on
several assumptions and estimates. The key assumption is the interest rates used to discount estimated
future liabilities. We base the discount rates on a current yield curve developed from a portfolio of high-
quality, fixed-income investments with maturities consistent with the projected benefit payout period.

Retirement plan assumptions, including the discount rates, are based on our best judgment, including
consideration of current and future market conditions. In the event any of the assumptions change,
pension and other post-retirement benefit cost could increase or decrease. For further discussion about
our retirement plan assumptions, see Note R to the Consolidated Financial Statements in Item 8.

As described under Other Contract Costs in Note A to the Consolidated Financial Statements in Item
8, our contractual arrangements with the U.S. government provide for the recovery of benefit costs for
our government retirement plans. We have elected to defer recognition of the benefit costs until such
costs can be allocated to contracts. Therefore, the impact of annual changes in financial reporting
assumptions on the retirement benefit cost for these plans does not immediately affect our operating
results.

Accounting Standards Updates. See Note A to the Consolidated Financial Statements in Item 8 for
information regarding the accounting standard we adopted in 2020 and other new accounting standards
that have been issued by the Financial Accounting Standards Board (FASB) but are not effective until
after December 31, 2020.

GUARANTOR FINANCIAL INFORMATION

The fixed- and floating-rate notes described in Note K to the Consolidated Financial Statements in Item
8, issued by General Dynamics Corporation (the parent), are fully and unconditionally guaranteed on an
unsecured, joint and several basis by several of the parent’s 100%-owned subsidiaries (the guarantors).
The guarantee of each guarantor ranks equally in right of payment with all other existing and future
senior unsecured indebtedness of such guarantor. A listing of the guarantors is included in an exhibit to
this Form 10-K.

Because the parent is a holding company, its cash flow and ability to service its debt, including the
fixed- and floating-rate notes, depends on the performance of its subsidiaries and the ability of those
subsidiaries to distribute cash to the parent, whether by dividends, loans or otherwise. Holders of the
fixed- and floating-rate notes have a direct claim only against the parent and the guarantors.

Under the relevant indenture, the guarantee of each guarantor is limited to the maximum amount that
can be guaranteed without rendering the guarantee voidable under applicable laws relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each
indenture also provides that, in the event (1) of a merger, consolidation or sale or disposition of all or
substantially all of the assets of a guarantor (other than a transaction with the parent or any of its
subsidiaries) or (2) there occurs a transfer, sale or other disposition of the voting stock of a guarantor so
that the guarantor is no longer a subsidiary of the parent, then the guarantor or the entity acquiring the
assets (in the event of the sale or other disposition of all or substantially all of the assets of a guarantor)
will be released and relieved of any obligations under the guarantee.

The following summarized financial information presents the parent and guarantors (collectively, the
combined obligor group) on a combined basis. The summarized financial information of the combined
obligor group excludes net investment in and earnings of subsidiaries related to interests held by the
combined obligor group in subsidiaries that are not guarantors of the notes.

STATEMENT OF EARNINGS INFORMATION

Year Ended December 31

Revenue

Net Earnings

Operating costs and expenses, excluding G&A

BALANCE SHEET INFORMATION

Cash and equivalents

Other current assets

Noncurrent assets

Total assets

Other current liabilities

Long-term debt

Other noncurrent liabilities

Total liabilities

Short-term debt and current portion of long-term debt

2020

13,065

(11,190)

738

December 31, 2020 December 31, 2019

1,952 $

2,894

3,082

7,928 $

2,998 $

2,944

9,922

5,645

606

2,875

2,549

6,030

2,497

2,642

8,965

5,772

21,509 $

19,876

The summarized balance sheet information presented above includes the funded status of the

company’s primary qualified U.S. government pension plans as the parent has the ultimate obligation for

the plans.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, primarily from foreign currency exchange rates, interest rates,

commodity prices and investments. See Note N to the Consolidated Financial Statements in Item 8 for a

discussion of these risks. The following quantifies the market risk exposure arising from hypothetical

changes in foreign currency exchange rates and interest rates.

We had notional forward exchange and interest rate swap contracts outstanding of $9.4 billion and

$5 billion on December 31, 2020 and 2019, respectively. A 10% unfavorable rate movement in our

portfolio of forward exchange and interest rate swap contracts would have resulted in the following

hypothetical, incremental pretax gains (losses):

(Dollars in millions)

Recognized

Unrecognized

2020

2019

44 $

(344)

(161)

Foreign Currency Risk. Our exchange-rate sensitivity relates primarily to changes in the Canadian

dollar, euro and Swiss franc exchange rates. While the hypothetical, incremental pretax losses in the

table above have increased significantly from 2019, we do not believe this represents a meaningful

increase in our risk profile as these losses and gains would be offset by corresponding gains and losses

in the remeasurement of the underlying transactions being hedged. We believe these foreign currency

forward exchange contracts and the offsetting underlying commitments, when taken together, do not

create material market risk.

consideration of current and future market conditions. In the event any of the assumptions change,

pension and other post-retirement benefit cost could increase or decrease. For further discussion about

our retirement plan assumptions, see Note R to the Consolidated Financial Statements in Item 8.

As described under Other Contract Costs in Note A to the Consolidated Financial Statements in Item

8, our contractual arrangements with the U.S. government provide for the recovery of benefit costs for

our government retirement plans. We have elected to defer recognition of the benefit costs until such

costs can be allocated to contracts. Therefore, the impact of annual changes in financial reporting

assumptions on the retirement benefit cost for these plans does not immediately affect our operating

results.

Accounting Standards Updates. See Note A to the Consolidated Financial Statements in Item 8 for

information regarding the accounting standard we adopted in 2020 and other new accounting standards

that have been issued by the Financial Accounting Standards Board (FASB) but are not effective until

after December 31, 2020.

GUARANTOR FINANCIAL INFORMATION

The fixed- and floating-rate notes described in Note K to the Consolidated Financial Statements in Item

8, issued by General Dynamics Corporation (the parent), are fully and unconditionally guaranteed on an

unsecured, joint and several basis by several of the parent’s 100%-owned subsidiaries (the guarantors).

The guarantee of each guarantor ranks equally in right of payment with all other existing and future

senior unsecured indebtedness of such guarantor. A listing of the guarantors is included in an exhibit to

this Form 10-K.

Because the parent is a holding company, its cash flow and ability to service its debt, including the

fixed- and floating-rate notes, depends on the performance of its subsidiaries and the ability of those

subsidiaries to distribute cash to the parent, whether by dividends, loans or otherwise. Holders of the

fixed- and floating-rate notes have a direct claim only against the parent and the guarantors.

Under the relevant indenture, the guarantee of each guarantor is limited to the maximum amount that

can be guaranteed without rendering the guarantee voidable under applicable laws relating to fraudulent

conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each

indenture also provides that, in the event (1) of a merger, consolidation or sale or disposition of all or

substantially all of the assets of a guarantor (other than a transaction with the parent or any of its

subsidiaries) or (2) there occurs a transfer, sale or other disposition of the voting stock of a guarantor so

that the guarantor is no longer a subsidiary of the parent, then the guarantor or the entity acquiring the

assets (in the event of the sale or other disposition of all or substantially all of the assets of a guarantor)

will be released and relieved of any obligations under the guarantee.

The following summarized financial information presents the parent and guarantors (collectively, the

combined obligor group) on a combined basis. The summarized financial information of the combined

obligor group excludes net investment in and earnings of subsidiaries related to interests held by the

combined obligor group in subsidiaries that are not guarantors of the notes.

Retirement plan assumptions, including the discount rates, are based on our best judgment, including

STATEMENT OF EARNINGS INFORMATION

Year Ended December 31
Revenue
Operating costs and expenses, excluding G&A
Net Earnings

BALANCE SHEET INFORMATION

Cash and equivalents
Other current assets
Noncurrent assets
Total assets

2020

13,065
(11,190)
738

December 31, 2020 December 31, 2019
606
$
2,875
2,549
6,030

1,952 $
2,894
3,082
7,928 $

Short-term debt and current portion of long-term debt
Other current liabilities
Long-term debt
Other noncurrent liabilities
Total liabilities

2,998 $
2,944
9,922
5,645
21,509 $

2,497
2,642
8,965
5,772
19,876

The summarized balance sheet information presented above includes the funded status of the
company’s primary qualified U.S. government pension plans as the parent has the ultimate obligation for
the plans.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, primarily from foreign currency exchange rates, interest rates,
commodity prices and investments. See Note N to the Consolidated Financial Statements in Item 8 for a
discussion of these risks. The following quantifies the market risk exposure arising from hypothetical
changes in foreign currency exchange rates and interest rates.

We had notional forward exchange and interest rate swap contracts outstanding of $9.4 billion and
$5 billion on December 31, 2020 and 2019, respectively. A 10% unfavorable rate movement in our
portfolio of forward exchange and interest rate swap contracts would have resulted in the following
hypothetical, incremental pretax gains (losses):

(Dollars in millions)
Recognized
Unrecognized

2020

2019

44 $
(344)

60
(161)

Foreign Currency Risk. Our exchange-rate sensitivity relates primarily to changes in the Canadian
dollar, euro and Swiss franc exchange rates. While the hypothetical, incremental pretax losses in the
table above have increased significantly from 2019, we do not believe this represents a meaningful
increase in our risk profile as these losses and gains would be offset by corresponding gains and losses
in the remeasurement of the underlying transactions being hedged. We believe these foreign currency
forward exchange contracts and the offsetting underlying commitments, when taken together, do not
create material market risk.

Interest Rate Risk. Our financial instruments subject to interest rate risk include fixed- and floating-
rate long-term debt obligations. On December 31, 2020, we had $12.5 billion par value of fixed-rate
debt and $500 of floating-rate notes. Our fixed-rate debt obligations are not putable, and we do not trade
these securities in the market. A 10% unfavorable interest rate movement would not have a material
impact on the fair value of our fixed-rate debt. As described in Note K to the Consolidated Financial
Statements in Item 8, we entered into derivative financial instruments, specifically interest rate swap
contracts, to eliminate our floating-rate interest risk.

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 December 31, 2020 and 2019,
we held $2.8 billion and $902 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 pension plans. On December 31, 2020 and 2019, we held marketable securities in trust of $211
and $207, respectively. These marketable securities are reflected at fair value on the Consolidated
Balance Sheet in other current and noncurrent assets.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENT OF EARNINGS

(Dollars in millions, except per-share amounts)

Revenue:

Products

Services

Products

Services

Operating costs and expenses:

General and administrative (G&A)

Operating earnings

Other, net

Interest, net

Net earnings

Earnings per share

Basic:

Continuing operations

Discontinued operations

Net earnings

Diluted:

Continuing operations

Discontinued operations

Net earnings

Earnings from continuing operations before income tax

Provision for income tax, net

Earnings from continuing operations

Discontinued operations, net of tax provision of $13 in 2018

Year Ended December 31

2020

2019*

2018*

22,188 $

23,130 $

15,737

37,925

16,220

39,350

20,149

16,044

36,193

(18,192)

(13,408)

(2,192)

(18,611)

(13,752)

(2,417)

(15,926)

(13,610)

(2,263)

(33,792)

(34,780)

(31,799)

4,133

(477)

3,738

(571)

3,167

—

4,570

(460)

4,202

(718)

3,484

—

3,167 $

3,484 $

11.04 $

12.09 $

—

11.04 $

12.09 $

11.00 $

11.98 $

—

11.00 $

11.98 $

4,394

(356)

4,085

(727)

3,358

(13)

3,345

11.37

(0.04)

11.33

11.22

(0.04)

11.18

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

Prior-period information has been restated for the retrospective application of a change in accounting principle related to the amortization of actuarial

gains and losses for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020. For further discussion of this change

in accounting principle, see Note T to the Consolidated Financial Statements.

Interest Rate Risk. Our financial instruments subject to interest rate risk include fixed- and floating-

rate long-term debt obligations. On December 31, 2020, we had $12.5 billion par value of fixed-rate

debt and $500 of floating-rate notes. Our fixed-rate debt obligations are not putable, and we do not trade

these securities in the market. A 10% unfavorable interest rate movement would not have a material

impact on the fair value of our fixed-rate debt. As described in Note K to the Consolidated Financial

Statements in Item 8, we entered into derivative financial instruments, specifically interest rate swap

contracts, to eliminate our floating-rate interest risk.

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 December 31, 2020 and 2019,

we held $2.8 billion and $902 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 pension plans. On December 31, 2020 and 2019, we held marketable securities in trust of $211

and $207, respectively. These marketable securities are reflected at fair value on the Consolidated

Balance Sheet in other current and noncurrent assets.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENT OF EARNINGS

(Dollars in millions, except per-share amounts)
Revenue:
Products
Services

Operating costs and expenses:
Products
Services
General and administrative (G&A)

Operating earnings
Other, net
Interest, net
Earnings from continuing operations before income tax
Provision for income tax, net
Earnings from continuing operations
Discontinued operations, net of tax provision of $13 in 2018
Net earnings

Earnings per share
Basic:

Continuing operations
Discontinued operations
Net earnings

Diluted:

Year Ended December 31
2019*

2020

2018*

22,188 $
15,737
37,925

23,130 $
16,220
39,350

20,149
16,044
36,193

(18,192)
(13,408)
(2,192)
(33,792)
4,133
82
(477)
3,738
(571)
3,167
—
3,167 $

(18,611)
(13,752)
(2,417)
(34,780)
4,570
92
(460)
4,202
(718)
3,484
—
3,484 $

11.04 $
—
11.04 $

12.09 $
—
12.09 $

(15,926)
(13,610)
(2,263)
(31,799)
4,394
47
(356)
4,085
(727)
3,358
(13)
3,345

11.37
(0.04)
11.33

11.22
(0.04)
11.18

Continuing operations
Discontinued operations
Net earnings

11.98 $
—
11.98 $
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

11.00 $
—
11.00 $

Prior-period information has been restated for the retrospective application of a change in accounting principle related to the amortization of actuarial
gains and losses for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020. For further discussion of this change
in accounting principle, see Note T to the Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

Year Ended December 31

2020

2019*

(Dollars in millions)
3,484 $
Net earnings
97
Gains on cash flow hedges
186
Foreign currency translation adjustments
(857)
Change in retirement plans’ funded status
(574)
Other comprehensive income (loss), pretax
156
Benefit for income tax, net
(418)
Other comprehensive income (loss), net of tax
3,066 $
Comprehensive income
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

3,167 $
366
353
(453)
266
2
268
3,435 $

2018*

3,345
36
(300)
(45)
(309)
1
(308)
3,037

(Dollars in millions)

ASSETS

Current assets:

Cash and equivalents

Accounts receivable

Unbilled receivables

Inventories

Other current assets

Total current assets

Noncurrent assets:

Property, plant and equipment, net

Intangible assets, net

Goodwill

Other assets

Total noncurrent assets

Total assets

Accounts payable

Customer advances and deposits

Other current liabilities

Total current liabilities

Noncurrent liabilities:

Long-term debt

Other liabilities

Total noncurrent liabilities

Shareholders’ equity:

Common stock

Surplus

Retained earnings

Treasury stock

Commitments and contingencies (see Note O)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt and current portion of long-term debt

3,003 $

51,308 $

December 31

2020

2019*

2,824 $

21,543

20,288

902

3,544

7,857

6,306

1,679

4,475

2,315

19,677

2,594

29,061

49,349

2,920

3,162

7,148

3,571

16,801

9,010

9,560

3,161

8,024

5,745

1,789

5,100

2,117

20,053

2,495

29,765

2,952

6,276

3,733

15,964

9,995

9,688

482

3,124

33,498

19,683

18,570

482

3,039

31,633

(3,818)

13,978

49,349

(17,893)

(17,358)

(3,550)

15,661

51,308 $

Accumulated other comprehensive loss

Total shareholders’ equity

Total liabilities and shareholders’ equity

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

Prior-period information has been restated for the retrospective application of a change in accounting principle related to the amortization of actuarial

gains and losses for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020. For further discussion of this change

in accounting principle, see Note T to the Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

Net earnings

Gains on cash flow hedges

Foreign currency translation adjustments

Change in retirement plans’ funded status

Other comprehensive income (loss), pretax

Benefit for income tax, net

Other comprehensive income (loss), net of tax

Comprehensive income

Year Ended December 31

2020

2019*

2018*

3,167 $

3,484 $

3,345

(453)

366

353

266

268

186

(857)

(574)

156

(418)

3,435 $

3,066 $

(300)

(45)

(309)

(308)

3,037

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

Prior-period information has been restated for the retrospective application of a change in accounting principle related to the amortization of actuarial

gains and losses for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020. For further discussion of this change

in accounting principle, see Note T to the Consolidated Financial Statements.

(Dollars in millions)

ASSETS
Current assets:
Cash and equivalents
Accounts receivable
Unbilled receivables
Inventories
Other current assets
Total current assets
Noncurrent assets:
Property, plant and equipment, net
Intangible assets, net
Goodwill
Other assets
Total noncurrent assets
Total assets

December 31

2020

2019*

2,824 $
3,161
8,024
5,745
1,789
21,543

5,100
2,117
20,053
2,495
29,765
51,308 $

902
3,544
7,857
6,306
1,679
20,288

4,475
2,315
19,677
2,594
29,061
49,349

2,920
3,162
7,148
3,571
16,801

9,010
9,560

18,570

482
3,039
31,633
(17,358)
(3,818)
13,978
49,349

3,003 $
2,952
6,276
3,733
15,964

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt
Accounts payable
Customer advances and deposits
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt
Other liabilities
Commitments and contingencies (see Note O)
Total noncurrent liabilities
Shareholders’ equity:
482
Common stock
3,124
Surplus
33,498
Retained earnings
(17,893)
Treasury stock
(3,550)
Accumulated other comprehensive loss
15,661
Total shareholders’ equity
51,308 $
Total liabilities and shareholders’ equity
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

9,995
9,688

19,683

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in millions)
Cash flows from operating activities - continuing operations:
Net earnings
Adjustments to reconcile net earnings to net cash from operating activities:

Depreciation of property, plant and equipment
Amortization of intangible and finance lease right-of-use assets
Equity-based compensation expense
Deferred income tax (benefit) provision
Discontinued operations, net of tax

(Increase) decrease in assets, net of effects of business acquisitions:

Accounts receivable
Unbilled receivables
Inventories
Other current assets

Increase (decrease) in liabilities, net of effects of business acquisitions:

Accounts payable
Customer advances and deposits

Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Business acquisitions, net of cash acquired
Proceeds from sales of assets
Other, net
Net cash used by investing activities
Cash flows from financing activities:
Proceeds from fixed-rate notes
Repayment of fixed-rate notes
Dividends paid
Purchases of common stock
Repayment of floating-rate notes
(Repayment of) proceeds from credit facility, net
Proceeds from commercial paper, gross (maturities greater than 3 months)
Repayment of commercial paper, gross (maturities greater than 3 months)
(Repayment of) proceeds from commercial paper, net
Proceeds from floating-rate notes
Repayment of CSRA accounts receivable purchase agreement
Other, net
Net cash (used) provided by financing activities
Net cash used by discontinued operations
Net increase (decrease) in cash and equivalents
Cash and equivalents at beginning of year
Cash and equivalents at end of year

Year Ended December 31

2020

2019

2018

3,167 $

3,484 $

3,345

523
355
128
(127)
—

371
(116)
502
208

(215)
(707)
(231)
3,858

(967)
(203)
171
25
(974)

3,960
(2,000)
(1,240)
(587)
(500)
(441)
420
(420)
—
—
—
(95)
(903)
(59)

1,922
902
2,824 $

466
363
133
92
—

176
(1,303)
(376)
8

6
(105)
37
2,981

(987)
(19)
14
(2)
(994)

—
—
(1,152)
(231)
—
291
—
—
(850)
—
—
(55)
(1,997)
(51)
(61)
963
902 $

436
327
140
(3)
13

417
(800)
(591)
310

(197)
36
(285)
3,148

(690)
(10,099)
562
(7)
(10,234)

6,461
—
(1,075)
(1,769)
—
122
—
—
850
1,000
(450)
(53)
5,086
(20)
(2,020)
2,983
963

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

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Common Stock

Par

Surplus

Retained

Earnings

Treasury

Comprehensive

Shareholders’

Stock

Loss

482 $ 2,872 $ 26,509 $ (15,543) $

(2,519) $ 11,801

Total

Equity

Accumulated

Other

(Dollars in millions)

December 31, 2017 (a)

Cumulative-effect adjustments (a) (b)

Net earnings

Cash dividends declared

Equity-based awards

Shares purchased

Other comprehensive loss (a)

December 31, 2018 (a)

Net earnings

Cash dividends declared

Equity-based awards

Shares purchased

Other comprehensive loss (a)

December 31, 2019 (a)

Cumulative-effect adjustment (c)

Net earnings

Cash dividends declared

Equity-based awards

Shares purchased

Other comprehensive income

—

482

2,946

29,326

(17,244)

(3,400)

12,110

573

3,345

(1,101)

—

105

(1,806)

—

3,484

(1,177)

(37)

3,167

(1,265)

—

(602)

(573)

(308)

—

268

—

3,345

(1,101)

179

(1,806)

(308)

3,484

(1,177)

163

(184)

(418)

(37)

3,167

(1,265)

152

(602)

268

482

3,039

31,633

(17,358)

(3,818)

13,978

(184)

(418)

December 31, 2020

482 $ 3,124 $ 33,498 $ (17,893) $

(3,550) $ 15,661

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

(a)

Prior-period information has been restated for the retrospective application of a change in accounting principle related to the amortization of actuarial

gains and losses for our qualified U.S. government pension plans, which we adopted in the fourth quarter of 2020. For further discussion of this change

in accounting principle, see Note T to the Consolidated Financial Statements.

(b) 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.

(c) Reflects the cumulative effect of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial

Instruments, which we adopted on January 1, 2020. See Note A for additional details.

—

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash flows from operating activities - continuing operations:

(Dollars in millions)

Net earnings

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

Depreciation of property, plant and equipment

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

Equity-based compensation expense

Deferred income tax (benefit) provision

Discontinued operations, net of tax

(Increase) decrease in assets, net of effects of business acquisitions:

Increase (decrease) in liabilities, net of effects of business acquisitions:

Accounts receivable

Unbilled receivables

Inventories

Other current assets

Accounts payable

Customer advances and deposits

Other, net

Net cash provided by operating activities

Cash flows from investing activities:

Capital expenditures

Business acquisitions, net of cash acquired

Proceeds from sales of assets

Other, net

Net cash used by investing activities

Cash flows from financing activities:

Proceeds from fixed-rate notes

Repayment of fixed-rate notes

Dividends paid

Purchases of common stock

Repayment of floating-rate notes

(Repayment of) proceeds from credit facility, net

Proceeds from commercial paper, gross (maturities greater than 3 months)

Repayment of commercial paper, gross (maturities greater than 3 months)

(Repayment of) proceeds from commercial paper, net

Proceeds from floating-rate notes

Repayment of CSRA accounts receivable purchase agreement

Other, net

Net cash (used) provided by financing activities

Net cash used by discontinued operations

Net increase (decrease) in cash and equivalents

Cash and equivalents at beginning of year

Cash and equivalents at end of year

Year Ended December 31

2020

2019

2018

3,167 $

3,484 $

3,345

523

355

128

(127)

—

371

(116)

502

208

(215)

(707)

(231)

3,858

(967)

(203)

171

3,960

(2,000)

(1,240)

(587)

(500)

(441)

420

(420)

—

(95)

(903)

(59)

1,922

902

466

363

133

—

176

(1,303)

(376)

(105)

2,981

(987)

(19)

(2)

(1,152)

(231)

—

291

—

(850)

(55)

(1,997)

(51)

(61)

963

902 $

436

327

140

(3)

417

(800)

(591)

310

(197)

(285)

3,148

(690)

(10,099)

562

(7)

6,461

—

(1,075)

(1,769)

—

122

—

850

1,000

(450)

(53)

5,086

(20)

(2,020)

2,983

963

(974)

(994)

(10,234)

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

2,824 $

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Accumulated
Other
Comprehensive
Loss

Total
Shareholders’
Equity

Surplus

Treasury
Stock

Common Stock
Par

—
—
—
105
(1,806)
—

(Dollars in millions)
December 31, 2017 (a)
$
Cumulative-effect adjustments (a) (b)
Net earnings
Cash dividends declared
Equity-based awards
Shares purchased
Other comprehensive loss (a)
December 31, 2018 (a)
Net earnings
Cash dividends declared
Equity-based awards
Shares purchased
Other comprehensive loss (a)
December 31, 2019 (a)
Cumulative-effect adjustment (c)
Net earnings
Cash dividends declared
Equity-based awards
Shares purchased
Other comprehensive income
December 31, 2020
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

Retained
Earnings
482 $ 2,872 $ 26,509 $ (15,543) $
—
—
—
—
—
—
482
—
—
—
—
—
482
—
—
—
—
—
—
482 $ 3,124 $ 33,498 $ (17,893) $

—
—
—
74
—
—
2,946
—
—
93
—
—
3,039
—
—
—
85
—
—

(2,519) $ 11,801
—
3,345
(1,101)
179
(1,806)
(308)
12,110
3,484
(1,177)
163
(184)
(418)
13,978
(37)
3,167
(1,265)
152
(602)
268
(3,550) $ 15,661

(573)
—
—
—
—
(308)
(3,400)
—
—
—
—
(418)
(3,818)
—
—
—
—
—
268

573
3,345
(1,101)
—
—
—
29,326
3,484
(1,177)
—
—
—
31,633

3,167
(1,265)
—
—
—

—
—
—
67
(602)
—

—
—
70
(184)
—

(17,244)

(17,358)

(37)

(a)

(b) 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.

(c) Reflects the cumulative effect of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial

Instruments, which we adopted on January 1, 2020. See Note A for additional details.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per-share amounts or unless otherwise noted)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization. General Dynamics is a global aerospace and defense company that offers a broad
portfolio of products and services in business aviation; ship construction and repair; land combat
vehicles, weapons systems and munitions; and technology products and services.

Effective December 31, 2020, for segment reporting purposes, we reorganized our Information
Technology and Mission Systems operating segments into a single segment: Technologies. This
reorganization reflects our evolving strategic focus on the combined capabilities of the businesses to
meet the customer demand for large-scale, end-to-end highly engineered solutions. Our company now
has four operating segments: Aerospace, Marine Systems, Combat Systems and Technologies. We refer
to the latter three collectively as our defense segments. Prior-period segment information has been
restated for this change.

Basis of Consolidation and Classification. The 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 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.

Use of Estimates and Other Uncertainties. The Coronavirus (COVID-19) pandemic has caused
significant disruptions to national and global economies and government activities. Our businesses have
been designated as critical infrastructure by the U.S. government and many non-U.S. governments and,
as such, are required to stay open. Within our Aerospace segment, quarantine and travel restrictions in
connection with the pandemic have impacted the timing of aircraft deliveries, and the economic
consequences of COVID-19 have impacted demand. Our defense business has also experienced
disruptions, such as customer site closures, travel restrictions and social distancing requirements, which
have impacted contract execution. We have instituted various initiatives throughout the company as part
of our business continuity programs, and we continue to work to mitigate risk when disruptions occur.
While we expect this situation to be temporary, any longer-term impact to our business is currently
unknown due to the uncertainty around the pandemic’s duration and its broader impact.

The nature of our business requires that we make estimates and assumptions in accordance with U.S.
generally accepted accounting principles (GAAP). These estimates and assumptions 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 base our estimates on historical experience, currently available information and various other
assumptions that we believe are reasonable under the circumstances. The COVID-19 pandemic has
impacted these estimates and assumptions and will continue to do so. The accounting for long-term
contracts requires the use of estimates (see Note B). Our estimates at the end of the year included
impacts from the disruptions caused by COVID-19. Given the uncertainties around the pandemic,

including its duration and potential future disruptions to our supply chain or workforce, it is reasonably

possible that the actual impact of the pandemic on contract costs could be materially different than our

current estimates. The United States and some other governments have taken steps to provide relief.

Where our customer has agreed to reimburse certain costs, such as provided for by the Coronavirus Aid,

Relief, and Economic Security Act (the CARES Act), we have included those recoveries in our

estimates of revenue. To the extent the U.S. government provides for reimbursement of additional costs

through legislation and the U.S. Department of Defense (DoD) has available funds, we will seek

reimbursement as appropriate.

Change in Accounting Principle. In the fourth quarter of 2020, we retrospectively changed our

accounting method related to the amortization of actuarial gains and losses for our qualified U.S.

government pension plans that impacted our prior-period financial statements. See Note T for further

discussion of this change in accounting principle.

Discontinued Operations, Net of Tax. On April 3, 2018, we completed our acquisition of CSRA,

Inc. (CSRA). See Note C for further discussion of the acquisition. In the third quarter of 2018, we

disposed of CSRA operations to address an organizational conflict of interest with respect to services

provided to a government customer. In accordance with GAAP, the sale did not result in a gain for

financial reporting purposes. However, the sale generated a taxable gain, resulting in tax expense of $13.

Research and Development Expenses. Company-sponsored research and development (R&D)

expenses, including Aerospace product-development costs, were $374 in 2020, $466 in 2019 and $502

in 2018. R&D expenses have trended downward over the three-year period with the completion of the

G500 and G600 aircraft test programs, offset partially by increased activities associated with the

development of the new G700 aircraft model. R&D expenses are included in operating costs and

expenses in the Consolidated Statement of Earnings in the period in which they are incurred. Customer-

sponsored R&D expenses are charged directly to the related contracts.

The Aerospace segment has cost-sharing arrangements with some of its suppliers that enhance the

segment’s internal development capabilities and offset a portion of the financial cost associated with the

segment’s product development efforts. These arrangements explicitly state that supplier contributions

are for reimbursement of costs we incur in the development of new aircraft models and technologies,

and we retain substantial rights in the products developed under these arrangements. We record amounts

received from these cost-sharing arrangements as a reduction of R&D expenses. We have no obligation

to refund any amounts received under the agreements regardless of the outcome of the development

efforts. Under the typical terms of an agreement, payments received from suppliers for their share of the

costs are based on milestones and are recognized as received. Our policy is to defer payments in excess

of the costs we have incurred.

Interest, Net. Net interest expense consisted of the following:

Year Ended December 31

Interest expense

Interest income

Interest expense, net

2020

2019

2018

489 $

(12)

477 $

472 $

(12)

460 $

374

(18)

356

The increase in 2019 is 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 K for

additional information regarding our debt obligations, including interest rates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per-share amounts or unless otherwise noted)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization. General Dynamics is a global aerospace and defense company that offers a broad

portfolio of products and services in business aviation; ship construction and repair; land combat

vehicles, weapons systems and munitions; and technology products and services.

Effective December 31, 2020, for segment reporting purposes, we reorganized our Information

Technology and Mission Systems operating segments into a single segment: Technologies. This

reorganization reflects our evolving strategic focus on the combined capabilities of the businesses to

meet the customer demand for large-scale, end-to-end highly engineered solutions. Our company now

has four operating segments: Aerospace, Marine Systems, Combat Systems and Technologies. We refer

to the latter three collectively as our defense segments. Prior-period segment information has been

restated for this change.

Basis of Consolidation and Classification. The 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 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.

Use of Estimates and Other Uncertainties. The Coronavirus (COVID-19) pandemic has caused

significant disruptions to national and global economies and government activities. Our businesses have

been designated as critical infrastructure by the U.S. government and many non-U.S. governments and,

as such, are required to stay open. Within our Aerospace segment, quarantine and travel restrictions in

connection with the pandemic have impacted the timing of aircraft deliveries, and the economic

consequences of COVID-19 have impacted demand. Our defense business has also experienced

disruptions, such as customer site closures, travel restrictions and social distancing requirements, which

have impacted contract execution. We have instituted various initiatives throughout the company as part

of our business continuity programs, and we continue to work to mitigate risk when disruptions occur.

While we expect this situation to be temporary, any longer-term impact to our business is currently

unknown due to the uncertainty around the pandemic’s duration and its broader impact.

The nature of our business requires that we make estimates and assumptions in accordance with U.S.

generally accepted accounting principles (GAAP). These estimates and assumptions 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 base our estimates on historical experience, currently available information and various other

assumptions that we believe are reasonable under the circumstances. The COVID-19 pandemic has

impacted these estimates and assumptions and will continue to do so. The accounting for long-term

contracts requires the use of estimates (see Note B). Our estimates at the end of the year included

impacts from the disruptions caused by COVID-19. Given the uncertainties around the pandemic,

including its duration and potential future disruptions to our supply chain or workforce, it is reasonably
possible that the actual impact of the pandemic on contract costs could be materially different than our
current estimates. The United States and some other governments have taken steps to provide relief.
Where our customer has agreed to reimburse certain costs, such as provided for by the Coronavirus Aid,
Relief, and Economic Security Act (the CARES Act), we have included those recoveries in our
estimates of revenue. To the extent the U.S. government provides for reimbursement of additional costs
through legislation and the U.S. Department of Defense (DoD) has available funds, we will seek
reimbursement as appropriate.

Change in Accounting Principle. In the fourth quarter of 2020, we retrospectively changed our
accounting method related to the amortization of actuarial gains and losses for our qualified U.S.
government pension plans that impacted our prior-period financial statements. See Note T for further
discussion of this change in accounting principle.

Discontinued Operations, Net of Tax. On April 3, 2018, we completed our acquisition of CSRA,
Inc. (CSRA). See Note C for further discussion of the acquisition. In the third quarter of 2018, we
disposed of CSRA operations to address an organizational conflict of interest with respect to services
provided to a government customer. In accordance with GAAP, the sale did not result in a gain for
financial reporting purposes. However, the sale generated a taxable gain, resulting in tax expense of $13.

Research and Development Expenses. Company-sponsored research and development (R&D)
expenses, including Aerospace product-development costs, were $374 in 2020, $466 in 2019 and $502
in 2018. R&D expenses have trended downward over the three-year period with the completion of the
G500 and G600 aircraft test programs, offset partially by increased activities associated with the
development of the new G700 aircraft model. R&D expenses are included in operating costs and
expenses in the Consolidated Statement of Earnings in the period in which they are incurred. Customer-
sponsored R&D expenses are charged directly to the related contracts.

The Aerospace segment has cost-sharing arrangements with some of its suppliers that enhance the
segment’s internal development capabilities and offset a portion of the financial cost associated with the
segment’s product development efforts. These arrangements explicitly state that supplier contributions
are for reimbursement of costs we incur in the development of new aircraft models and technologies,
and we retain substantial rights in the products developed under these arrangements. We record amounts
received from these cost-sharing arrangements as a reduction of R&D expenses. We have no obligation
to refund any amounts received under the agreements regardless of the outcome of the development
efforts. Under the typical terms of an agreement, payments received from suppliers for their share of the
costs are based on milestones and are recognized as received. Our policy is to defer payments in excess
of the costs we have incurred.

Interest, Net. Net interest expense consisted of the following:

Year Ended December 31
Interest expense
Interest income
Interest expense, net

2020

2019

2018

489 $
(12)
477 $

472 $
(12)
460 $

374
(18)
356

The increase in 2019 is 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 K for
additional information regarding our debt obligations, including interest rates.

Cash and Equivalents and Investments in Debt and Equity Securities. We consider securities
with a maturity of three months or less to be cash equivalents. Our cash balances are invested primarily
in time deposits rated A-/A3 or higher. Our investments in other securities are included in other current
and noncurrent assets on the Consolidated Balance Sheet. We report our equity securities at fair value
with subsequent changes in fair value recognized in net earnings. We report our available-for-sale debt
securities at fair value with unrealized gains and losses recognized as a component of other
comprehensive income in the Consolidated Statement of Comprehensive Income. We had no trading or
held-to-maturity debt securities on December 31, 2020 or 2019. See Note E for additional information
regarding our investments in debt and equity securities.

Other Contract Costs. Other contract costs represent amounts that are not currently allocable to
government contracts, such as a portion of our estimated workers’ compensation obligations, other
insurance-related assessments, pension and other post-retirement benefits, and environmental expenses.
These costs will become allocable to contracts generally after they are paid. We have elected to defer
these costs in other current assets on the Consolidated Balance Sheet until they can be allocated to
contracts. We expect to recover these costs through ongoing business, including existing backlog and
probable follow-on contracts. We regularly assess the probability of recovery of these costs. If the
backlog in the future does not support the continued deferral of these costs, the profitability of our
remaining contracts could be adversely affected. Other contract costs on December 31, 2020 and 2019,
were $499 and $652, respectively.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible
assets acquired in a business combination. We review goodwill for impairment annually at each of our
reporting units or when circumstances indicate that the likelihood of an impairment is greater than 50%.
Our reporting units are consistent with our operating segments in Note S. We use both qualitative and
quantitative approaches when testing goodwill for impairment. When determining the approach to be
used, we consider the current facts and circumstances of each reporting unit as well as the excess of each
reporting unit’s estimated fair value over its carrying value based on our most recent quantitative
assessments. Our qualitative approach evaluates the business environment and various events impacting
the reporting unit including, but not limited to, macroeconomic conditions, changes in the business
environment and reporting unit-specific events. If, based on the qualitative assessment, we determine
that it is more likely than not that the fair value of a reporting unit is greater than its carrying value, then
a quantitative assessment is not necessary. However, if a quantitative assessment is determined to be
necessary, we compare the fair value of a reporting unit to its carrying value and, if necessary, recognize

an impairment loss for the amount by which the carrying value exceeds the reporting unit’s fair value.

Our estimate of fair value is based primarily on the discounted cash flows of the underlying operations.

As of December 31, 2020, we completed qualitative assessments for our Aerospace, Marine Systems

and Combat Systems reporting units as the estimated fair values of each of these reporting units

significantly exceeded the respective carrying values based on our most recent quantitative assessments,

which were performed as of December 31, 2018. Our qualitative assessments, including consideration of

the impact of the COVID-19 pandemic, did not present indicators of impairment for these reporting

units.

Effective December 31, 2020, we reorganized our Information Technology and Mission Systems

operating segments into a single segment: Technologies. This reorganization similarly changed the

composition of our reporting units. Accordingly, goodwill of the Information Technology and Mission

Systems reporting units was combined and assigned to the Technologies reporting unit. We performed

goodwill impairment assessments immediately prior to the change, and the results indicated that no

impairment existed at the former Information Technology and Mission Systems reporting units. As of

December 31, 2020, we completed a quantitative assessment for our Technologies reporting unit, and

the fair value was well in excess of its carrying value. For a summary of our goodwill by reporting unit,

see Note C.

Accounting Standards Updates. Effective January 1, 2020, we adopted 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 adopted the

standard on a modified retrospective basis and recognized the cumulative effect as a $37 decrease to

retained earnings on the date of adoption.

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.

There are other accounting standards that have been issued by the Financial Accounting Standards

Board (FASB) but are not effective until after December 31, 2020. These standards are not expected to

have a material impact on our results of operations, financial condition or cash flows.

B. REVENUE

Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct

good or service to the customer, and is the unit of account for revenue. A contract’s transaction price is

allocated to each distinct performance obligation within that contract and recognized as revenue when,

or as, the performance obligation is satisfied. The majority of our contracts have a single performance

obligation as the promise to transfer the individual goods or services is not separately identifiable from

Cash and Equivalents and Investments in Debt and Equity Securities. We consider securities

with a maturity of three months or less to be cash equivalents. Our cash balances are invested primarily

in time deposits rated A-/A3 or higher. Our investments in other securities are included in other current

and noncurrent assets on the Consolidated Balance Sheet. We report our equity securities at fair value

with subsequent changes in fair value recognized in net earnings. We report our available-for-sale debt

securities at fair value with unrealized gains and losses recognized as a component of other

comprehensive income in the Consolidated Statement of Comprehensive Income. We had no trading or

held-to-maturity debt securities on December 31, 2020 or 2019. See Note E for additional information

regarding our investments in debt and equity securities.

Other Contract Costs. Other contract costs represent amounts that are not currently allocable to

government contracts, such as a portion of our estimated workers’ compensation obligations, other

insurance-related assessments, pension and other post-retirement benefits, and environmental expenses.

These costs will become allocable to contracts generally after they are paid. We have elected to defer

these costs in other current assets on the Consolidated Balance Sheet until they can be allocated to

contracts. We expect to recover these costs through ongoing business, including existing backlog and

probable follow-on contracts. We regularly assess the probability of recovery of these costs. If the

backlog in the future does not support the continued deferral of these costs, the profitability of our

remaining contracts could be adversely affected. Other contract costs on December 31, 2020 and 2019,

were $499 and $652, respectively.