UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April ~~2, 2017~~1, 2018

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-3671

GENERAL DYNAMICS CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		13-1673581
State or other jurisdiction of incorporation or organization		I.R.S. employer identification no.

2941 Fairview Park Drive, Suite 100 Falls Church, Virginia		22042-4513
Address of principal executive offices		Zip code

(703) 876-3000

Registrant’s telephone number, including area code

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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ü Accelerated filer ___ Non-accelerated filer ___

Smaller reporting company ___ Emerging growth company ___

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

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

~~301,685,448~~297,033,427 shares of the registrant’s common stock, $1 par value per share, were outstanding on April ~~2, 2017.~~1, 2018.

INDEX

PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF EARNINGS (UNAUDITED)


	Three Months Ended						Three Months Ended
(Dollars in millions, except per-share amounts)	April 2, 2017			April 3, 2016			April 1, 2018			April 2, 2017
Revenue:
Products	$	4,467		$	4,582		$	4,576		$	4,467
Services	2,974			2,894			2,959			2,974
	7,441			7,476			7,535			7,441
Operating costs and expenses:
Products	3,436			3,635			3,546			3,438
Services	2,489			2,456			2,444			2,485
General and administrative (G&A)	481			461			537			472
	6,406			6,552			6,527			6,395
Operating earnings	1,035			924			1,008			1,046
Interest, net	(25		)	(22		)	(27		)	(25		)
Other, net	—			10			(21		)	(11		)
Earnings from continuing operations before income tax	1,010			912
Earnings before income tax							960			1,010
Provision for income tax, net	247			258			161			247
Earnings from continuing operations	763			654
Discontinued operations	—			(13		)
Net earnings	$	763		$	641		$	799		$	763

Earnings per share
Basic:
Continuing operations	$	2.53		$	2.12
Discontinued operations	—			(0.04		)
Net earnings	$	2.53		$	2.08
Diluted:
Continuing operations	$	2.48		$	2.08
Discontinued operations	—			(0.04		)
Net earnings	$	2.48		$	2.04
Basic							$	2.70		$	2.53
Diluted							$	2.65		$	2.48

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

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended					Three Months Ended
(Dollars in millions)	April 2, 2017		April 3, 2016			April 1, 2018			April 2, 2017
Net earnings	$	763	$	641		$	799		$	763
Gains on cash flow hedges	13		182
Unrealized gains (losses) on securities	5		(9		)
(Losses) gains on cash flow hedges						(3		)	13
Unrealized gains on marketable securities						—			5
Foreign currency translation adjustments	82		180			1			82
Change in retirement plans’ funded status	69		60			84			69
Other comprehensive income, pretax	169		413			82			169
Provision for income tax, net	44		69			15			44
Other comprehensive income, net of tax	125		344			67			125
Comprehensive income	$	888	$	985		$	866		$	888

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

CONSOLIDATED BALANCE ~~SHEETS (UNAUDITED)~~SHEET


							(Unaudited)
(Dollars in millions)	April 2, 2017			December 31, 2016			April 1, 2018			December 31, 2017

ASSETS
Current assets:
Cash and equivalents	$	2,168		$	2,334		$	4,332		$	2,983
Accounts receivable	3,483			3,399			3,769			3,617
Unbilled receivables	4,557			4,212			5,865			5,240
Inventories	5,822			5,817			5,543			5,303
Other current assets	584			772			955			1,185
Total current assets	16,614			16,534			20,464			18,328
Noncurrent assets:
Property, plant and equipment, net	3,412			3,477			3,533			3,517
Intangible assets, net	679			678			702			702
Goodwill	11,532			11,445			11,955			11,914
Other assets	974			1,038			565			585
Total noncurrent assets	16,597			16,638			16,755			16,718
Total assets	$	33,211		$	33,172		$	37,219		$	35,046

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt	$	901		$	900		$	2,498		$	2
Accounts payable	2,466			2,538			2,851			3,207
Customer advances and deposits	6,686			6,827			7,095			6,992
Other current liabilities	3,112			3,185			2,798			2,898
Total current liabilities	13,165			13,450			15,242			13,099
Noncurrent liabilities:
Long-term debt	2,988			2,988			3,981			3,980
Other liabilities	6,475			6,433			6,222			6,532
Commitments and contingencies (See Note M)
Commitments and contingencies (see Note N)
Total noncurrent liabilities	9,463			9,421			10,203			10,512
Shareholders’ equity:
Common stock	482			482			482			482
Surplus	2,762			2,819			2,820			2,872
Retained earnings	25,049			24,543			27,605			26,444
Treasury stock	(14,448		)	(14,156		)	(15,742		)	(15,543		)
Accumulated other comprehensive loss	(3,262		)	(3,387		)	(3,391		)	(2,820		)
Total shareholders’ equity	10,583			10,301			11,774			11,435
Total liabilities and shareholders’ equity	$	33,211		$	33,172		$	37,219		$	35,046

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

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF CASH FLOWS (UNAUDITED)


	Three Months Ended						Three Months Ended
(Dollars in millions)	April 2, 2017			April 3, 2016			April 1, 2018			April 2, 2017
Cash flows from operating activities - continuing operations:
Net earnings	$	763		$	641		$	799		$	763
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of property, plant and equipment	92			89			89			92
Amortization of intangible assets	19			27			20			19
Equity-based compensation expense	22			27			29			23
Deferred income tax provision (benefit)	45			(18		)
Discontinued operations	—			13
Deferred income tax provision							4			45
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable	(84		)	(210		)	(150		)	(84		)
Unbilled receivables	(338		)	(276		)	(608		)	(338		)
Inventories	2			(221		)	(236		)	2
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable	(72		)	179			(358		)	(72		)
Customer advances and deposits	(95		)	(18		)	(149		)	(95		)
Income taxes payable	202			253			167			202
Other current liabilities	(76		)	(52		)	(128		)	(76		)
Other, net	53			46			25			52
Net cash provided by operating activities	533			480
Net cash (used) provided by operating activities							(496		)	533
Cash flows from investing activities:
Capital expenditures	(62		)	(65		)	(104		)	(62		)
Other, net	(23		)	(53		)	(1		)	(23		)
Net cash used by investing activities	(85		)	(118		)	(105		)	(85		)
Cash flows from financing activities:
Proceeds from commercial paper, net							2,494			—
Purchases of common stock	(354		)	(1,026		)	(267		)	(354		)
Dividends paid	(230		)	(215		)	(250		)	(230		)
Other, net	(22		)	7			(25		)	(22		)
Net cash used by financing activities	(606		)	(1,234		)
Net cash provided (used) by financing activities							1,952			(606		)
Net cash used by discontinued operations	(8		)	(6		)	(2		)	(8		)
Net decrease in cash and equivalents	(166		)	(878		)
Net increase (decrease) in cash and equivalents							1,349			(166		)
Cash and equivalents at beginning of period	2,334			2,785			2,983			2,334
Cash and equivalents at end of period	$	2,168		$	1,907		$	4,332		$	2,168
Supplemental cash flow information:
Total income tax (refunds) payments	$	(4	)	$	21
Total interest payments	$	20		$	16
Income tax refunds, net							$	4		$	4
Interest payments							$	21		$	20

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

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)


	Common Stock					Retained			Treasury			Accumulated Other Comprehensive			Total Shareholders’			Common Stock					Retained			Treasury			Accumulated Other Comprehensive			Total Shareholders’
(Dollars in millions)	Par		Surplus			Earnings			Stock			Loss			Equity			Par		Surplus			Earnings			Stock			Loss			Equity
December 31, 2017																		$	482	$	2,872		$	26,444		$	(15,543	)	$	(2,820	)	$	11,435
Cumulative-effect adjustments (see Note A)																		—		—			638			—			(638		)	—
Net earnings																		—		—			799			—			—			799
Cash dividends declared																		—		—			(276		)	—			—			(276		)
Equity-based awards																		—		(52		)	—			58			—			6
Shares purchased																		—		—			—			(257		)	—			(257		)
Other comprehensive income																		—		—			—			—			67			67
April 1, 2018																		$	482	$	2,820		$	27,605		$	(15,742	)	$	(3,391	)	$	11,774

December 31, 2016	$	482	$	2,819		$	24,543		$	(14,156	)	$	(3,387	)	$	10,301		$	482	$	2,819		$	24,543		$	(14,156	)	$	(3,387	)	$	10,301
Cumulative-effect adjustment (see Note A)	—		—			(3		)	—			—			(3		)
Cumulative-effect adjustment*																		—		—			(3		)	—			—			(3		)
Net earnings	—		—			763			—			—			763			—		—			763			—			—			763
Cash dividends declared	—		—			(254		)	—			—			(254		)	—		—			(254		)	—			—			(254		)
Equity-based awards	—		(57		)	—			63			—			6			—		(57		)	—			63			—			6
Shares purchased	—		—			—			(355		)	—			(355		)	—		—			—			(355		)	—			(355		)
Other comprehensive income	—		—			—			—			125			125			—		—			—			—			125			125
April 2, 2017	$	482	$	2,762		$	25,049		$	(14,448	)	$	(3,262	)	$	10,583		$	482	$	2,762		$	25,049		$	(14,448	)	$	(3,262	)	$	10,583

December 31, 2015	$	482	$	2,730		$	22,903		$	(12,392	)	$	(3,283	)	$	10,440
Net earnings	—		—			641			—			—			641
Cash dividends declared	—		—			(234		)	—			—			(234		)
Equity-based awards	—		(5		)	—			45			—			40
Shares purchased	—		—			—			(1,039		)	—			(1,039		)
Other comprehensive income	—		—			—			—			344			344
April 3, 2016	$	482	$	2,725		$	23,310		$	(13,386	)	$	(2,939	)	$	10,192

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

* Reflects the cumulative effect of Accounting Standards Update (ASU) 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which we adopted on January 1, 2017.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Classification. The unaudited Consolidated Financial Statements include the accounts of General Dynamics Corporation and our wholly owned and majority-owned subsidiaries. We eliminate all inter-company balances and transactions in the unaudited Consolidated Financial Statements. Some prior-year amounts have been reclassified among financial statement accounts or disclosures to conform to the current-year presentation.

Consistent with industry practice, we classify assets and liabilities related to long-term contracts as current, even though some of these amounts may not be realized within one year.

Further discussion of our significant accounting policies is contained in the other notes to these financial statements.

Interim Financial Statements. The unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These rules and regulations permit some of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) to be condensed or omitted.

Our fiscal quarters are 13 weeks in length. Because our fiscal year ends on December 31, the number of days in our first and fourth quarters varies slightly from year to year. Operating results for the three-month period ended April ~~2, 2017,~~1, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2018.

The unaudited Consolidated Financial Statements contain all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations and financial condition for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016.~~2, 2017.

These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Accounting Standards Updates. ~~Since the first quarter of 2016,~~On January 1, 2018, we ~~have~~ adopted the following accounting standards issued by the Financial Accounting Standards Board (FASB) ~~that have impacted our prior-period financial statements:~~:

~~Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~

~~Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers~~

ASU ~~2015-17, Income Taxes (Topic 740)~~2016-01, Financial Instruments - Overall (Subtopic 825-10): ~~Balance Sheet Classification~~Recognition and Measurement of ~~Deferred Taxes~~

~~See Note Q~~Financial Assets and Financial Liabilities. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Specific to our business, ASU 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income. The ASU eliminates the available-for-sale classification for ~~further discussion~~equity investments that recognized changes in fair value as a component of ~~each of these accounting standards.~~

other comprehensive income. We ~~also~~ adopted ~~ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,~~the standard on a modified retrospective basis on January 1, ~~2017. We~~2018, and recognized the cumulative effect ~~of this standard~~ as a ~~$3 decrease~~$24 increase to retained earnings on the date of adoption.

ASU ~~2016-16 requires recognition~~2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the ~~current and deferred income tax effects~~Consolidated Statement of ~~an intra-entity asset transfer, other than inventory, when~~Cash Flows by providing guidance on eight specific cash flow issues. We adopted the ~~transfer occurs, as opposed~~standard retrospectively on January 1, 2018.

~~to former GAAP, which required companies to defer~~The adoption of the ~~income tax effects of intra-entity asset transfers until~~ASU did not have an effect on our cash flows for the ~~asset was sold to an outside party. The income tax effects of intra-entity inventory transfers will continue to be deferred until the inventory is sold.~~three-month period ended April 2, 2017.

~~There are several new accounting standards that have been issued by the FASB but are not yet effective, including~~ ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires the service cost component of net benefit cost to be reported separately from the other components of net benefit cost in the income statement. ~~The ASU also allows only~~We adopted the ~~service~~standard retrospectively on January 1, 2018. Our restated operating earnings increased $11 for the three-month period ended April 2, 2017, due to the reclassification of the non-service cost ~~component~~components of net benefit cost, and other income decreased by the same amount, with no impact to ~~be eligible for capitalization.~~net earnings.

ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act (tax reform) enacted on December 22, 2017. We ~~intend to adopt~~adopted the standard on January 1, 2018, and recognized a $614 increase to retained earnings on the ~~effective~~ date of ~~January 1, 2018. We have not yet determined the effect of the ASU on our results of operations, financial condition or cash flows.~~adoption.

For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the Accounting Standards Updates section in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

B. SUBSEQUENT EVENTS

On April 3, 2018, we completed our acquisition of CSRA Inc. (CSRA) for $41.25 per share in cash. The aggregate amount of consideration paid, including amounts to repay CSRA’s due and payable debt and cash out outstanding stock options and restricted stock units of CSRA, was approximately $9.7 billion. This amount was funded by a combination of available cash on hand, a borrowing of $7.5 billion under the 364-day credit facility further described in Note J and proceeds from commercial paper issuances. In addition, approximately $450 was paid to satisfy obligations under CSRA’s accounts receivable purchase agreement.

CSRA is now part of General Dynamics Information Technology (GDIT) in our Information Systems and Technology group. The combination of GDIT and CSRA creates a premier provider of high-tech IT solutions to the government IT market.

The disclosures required by Accounting Standards Codification (ASC) Topic 805 are not included in this Form 10-Q because the initial accounting for the business combination is incomplete.

Additionally, on April 11, 2018, we announced that we had entered into a binding agreement to acquire Hawker Pacific, a leading provider of integrated aviation solutions across Asia Pacific and the Middle East, for $250. The transaction is subject to customary closing conditions, and is expected to be completed in the second quarter of 2018.

C. ACQUISITIONS AND DIVESTITURES, GOODWILL, AND INTANGIBLE ASSETS

Acquisitions and Divestitures. In the first quarter of 2018, we acquired a provider of specialized transmitters and receivers in our Information Systems and Technology group. In 2017, we acquired four businesses for an aggregate of $399: a fixed-base operation (FBO) in our Aerospace group; and a manufacturer of electronics and communications products, a provider of mission-critical support services, and a manufacturer of signal distribution products in our Information Systems and Technology group. As the purchase prices of these

acquisitions were not material for the three-month periods ended April 1, 2018, and April 2, 2017, they are included in other investing activities, net, in the unaudited Consolidated Statement of Cash Flows.

The operating results of these acquisitions have been included with our reported results since the respective closing dates. The purchase prices of the acquisitions have been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.

In the first quarter of 2018, we completed the sale of a commercial health products business in our Information Systems and Technology group. The proceeds from the sale are included in other investing activities, net, in the unaudited Consolidated Statement of Cash Flows.

Goodwill. The changes in the carrying amount of goodwill by reporting unit were as follows:



	Aerospace		Combat Systems			Information Systems and Technology			Marine Systems		Total Goodwill
December 31, 2017 (a)	$	2,638	$	2,677		$	6,302		$	297	$	11,914
Acquisitions/divestitures (b)	—		—			16			—		16
Other (c)	40		(14		)	(1		)	—		25
April 1, 2018 (a)	$	2,678	$	2,663		$	6,317		$	297	$	11,955

(a)Goodwill in the Information Systems and Technology reporting unit is net of $2 billion of accumulated impairment losses.

(b)Includes adjustments during the purchase price allocation period and an allocation of goodwill associated with the sale of the commercial health products business discussed above.

(c)Consists primarily of adjustments for foreign currency translation.

Intangible Assets. Intangible assets consisted of the following:



	Gross Carrying Amount (a)		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount (a)		Accumulated Amortization			Net Carrying Amount
	April 1, 2018							December 31, 2017
Contract and program intangible assets (b)	$	1,665	$	(1,318	)	$	347	$	1,684	$	(1,320	)	$	364
Trade names and trademarks	477		(168		)	309		465		(160		)	305
Technology and software	154		(109		)	45		137		(105		)	32
Other intangible assets	155		(154		)	1		155		(154		)	1
Total intangible assets	$	2,451	$	(1,749	)	$	702	$	2,441	$	(1,739	)	$	702


(a)	Change in gross carrying amounts consists primarily of adjustments for acquired intangible assets and foreign currency translation.


(b)	Consists of acquired backlog and probable follow-on work and associated customer relationships.

Amortization expense was $20 and $19 for the three-month periods ended April 1, 2018, and April 2, 2017, respectively.

D. REVENUE

The majority of our revenue is derived from long-term contracts and programs that can span several years. We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with ~~Customers, which we adopted on January 1, 2017, using the retrospective method. See Note Q for further discussion of the adoption, including the impact on our 2016 financial statements.~~Customers.

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 in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise

to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support). For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract.

Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue from products and services transferred to customers over time accounted for ~~70 percent~~73% and ~~73 percent~~70% of our revenue for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, respectively. Substantially all of our revenue in the defense groups is recognized over ~~time.~~time because control is transferred continuously to our customers. Typically, revenue is recognized over time using ~~an input measure (e.g.,~~ costs incurred to date relative to total estimated costs at ~~completion)~~completion to measure ~~progress.~~progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses.

Revenue from goods and services transferred to customers at a ~~single~~ point in time accounted for ~~30 percent~~27% and ~~27 percent~~30% of our revenue for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, respectively. The majority of our revenue recognized at a point in time is for the manufacture of business-jet aircraft in our Aerospace group. Revenue on these contracts is recognized when the customer ~~accepts~~obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.

On April ~~2, 2017,~~1, 2018, we had ~~$60.4~~$62.1 billion of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately ~~30 percent~~60% of our remaining performance obligations as revenue ~~in 2017,~~by 2019, an additional ~~45 percent~~25% by ~~2019~~2021 and the balance thereafter. On December 31, 2017, we had $63.2 billion of remaining performance obligations, and on December 31, 2017, we expected to recognize approximately 40% of these remaining performance obligations as revenue in 2018, an additional 40% by 2020 and the balance thereafter.

Contract Estimates. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.

Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.

The nature of our contracts gives rise to several types of variable consideration, including claims and award and incentive fees. We include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred,

the reasonableness of those costs and the objective evidence available to support the claim. We include award or incentive fees in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical award experience, anticipated performance and our best judgment at the time. Because of our certainty in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance isare recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the ~~quarter~~period it is identified.

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates increased our revenue, ~~and~~ operating earnings ~~(and~~and diluted earnings per ~~share) by $72 and $50 ($0.11) for the three-month period ended April 2, 2017, and $68 and $58 ($0.12) for the three-month period ended April 3, 2016, respectively.~~ share as follows:



Three Months Ended	April 1, 2018		April 2, 2017
Revenue	$	115	$	72
Operating earnings	97		50
Diluted earnings per share	$	0.25	$	0.11

No adjustment on any one contract was material to ~~our~~the unaudited Consolidated Financial Statements for the three-month periods ended April 1, 2018, or April 2, ~~2017, and April 3, 2016.~~2017.

Revenue by Category. Our portfolio of products and services consists of ~~over~~almost 10,000 active contracts. The following series of tables presents our revenue disaggregated by several categories.

Revenue by major ~~product line~~products and services was as follows:


Three Months Ended	April 2, 2017		April 3, 2016		April 1, 2018		April 2, 2017
Aircraft manufacturing, outfitting and completions	$	1,629	$	1,376	$	1,366	$	1,629
Aircraft services	435		401		451		435
Pre-owned aircraft	10		4		8		10
Total Aerospace	2,074		1,781		1,825		2,074
Wheeled combat vehicles	560		563
Wheeled combat and tactical vehicles					625		560
Weapons systems, armament and munitions	346		341		383		346
Tanks and tracked vehicles	247		192		331		247
Engineering and other services	134		149		101		134
Total Combat Systems	1,287		1,245		1,440		1,287
C4ISR* solutions	1,088		1,186		1,098		1,088
Information technology (IT) services	1,058		1,142		1,138		1,058
Total Information Systems and Technology	2,146		2,328		2,236		2,146
Nuclear-powered submarines	1,204		1,387		1,296		1,204
Surface combatants	247		273		265		247
Auxiliary and commercial ships	143		149		218		143
Repair and other services	340		313		255		340
Total Marine Systems	1,934		2,122		2,034		1,934
Total revenue	$	7,441	$	7,476	$	7,535	$	7,441

* Command, control, communications, computers, intelligence, surveillance and reconnaissance.

Revenue by contract type was as follows:


Three Months Ended April 1, 2018											Aerospace		Combat Systems		Information Systems and Technology		Marine Systems		Total Revenue
Fixed-price											$	1,668	$	1,253	$	1,007	$	1,305	$	5,233
Cost-reimbursement											—		179		1,017		728		1,924
Time-and-materials											157		8		212		1		378
Total revenue											$	1,825	$	1,440	$	2,236	$	2,034	$	7,535
Three Months Ended April 2, 2017	Aerospace		Combat Systems		Information Systems and Technology		Marine Systems		Total Revenue
Fixed-price	$	1,902	$	1,073	$	930	$	1,130	$	5,035	$	1,902	$	1,073	$	930	$	1,130	$	5,035
Cost-reimbursement	—		207		1,010		801		2,018		—		207		1,010		801		2,018
Time-and-materials	172		7		206		3		388		172		7		206		3		388
Total revenue	$	2,074	$	1,287	$	2,146	$	1,934	$	7,441	$	2,074	$	1,287	$	2,146	$	1,934	$	7,441
Three Months Ended April 3, 2016
Fixed-price	$	1,641	$	1,024	$	1,077	$	1,321	$	5,063
Cost-reimbursement	—		216		1,049		800		2,065
Time-and-materials	140		5		202		1		348
Total revenue	$	1,781	$	1,245	$	2,328	$	2,122	$	7,476

Each of these contract types presents advantages and disadvantages. Typically, we assume more risk with fixed-price contracts. However, these types of contracts offer additional profits when we complete the work for less than originally estimated. Cost-reimbursement contracts generally subject us to lower risk. Accordingly, the associated base fees are usually lower than fees earned on fixed-price contracts. Under time-and-materials contracts, our profit may vary if actual labor-hour ~~costs~~rates vary significantly from the negotiated rates. Also, because these contracts can provide little or no fee for managing material costs, the content mix can impact profitability.

Revenue by customer was as follows:


Three Months Ended April 2, 2017	Aerospace		Combat Systems		Information Systems and Technology		Marine Systems		Total Revenue
Three Months Ended April 1, 2018											Aerospace		Combat Systems		Information Systems and Technology		Marine Systems		Total Revenue
U.S. government:
Department of Defense (DoD)	$	40	$	587	$	1,175	$	1,837	$	3,639	$	41	$	607	$	1,175	$	1,950	$	3,773
Non-DoD	—		24		665		—		689		—		1		755		—		756
Foreign Military Sales (FMS)	9		108		12		58		187		16		69		15		29		129
Total U.S. government	49		719		1,852		1,895		4,515		57		677		1,945		1,979		4,658
U.S. commercial	936		61		89		33		1,119		842		58		67		53		1,020
Non-U.S. government	5		502		176		4		687		10		697		173		2		882
Non-U.S. commercial	1,084		5		29		2		1,120		916		8		51		—		975
Total revenue	$	2,074	$	1,287	$	2,146	$	1,934	$	7,441	$	1,825	$	1,440	$	2,236	$	2,034	$	7,535
Three Months Ended April 3, 2016
Three Months Ended April 2, 2017
U.S. government:
DoD	$	46	$	514	$	1,306	$	1,992	$	3,858	$	40	$	609	$	1,142	$	1,837	$	3,628
Non-DoD	—		20		718		2		740		—		2		698		—		700
FMS	45		75		12		37		169		9		108		12		58		187
Total U.S. government	91		609		2,036		2,031		4,767		49		719		1,852		1,895		4,515
U.S. commercial	973		55		87		85		1,200		936		61		89		33		1,119
Non-U.S. government	77		547		160		6		790		5		502		176		4		687
Non-U.S. commercial	640		34		45		—		719		1,084		5		29		2		1,120
Total revenue	$	1,781	$	1,245	$	2,328	$	2,122	$	7,476	$	2,074	$	1,287	$	2,146	$	1,934	$	7,441

Contract Balances. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheet. In our defense groups, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers, particularly on our international contracts, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period. In our Aerospace group, we generally receive deposits from customers upon contract execution and upon achievement of contractual milestones. These deposits are liquidated when revenue is recognized. Changes in the contract asset and liability balances during the three-month period ended April ~~2, 2017,~~1, 2018, were not materially impacted by any other factors.

Revenue recognized ~~for~~in the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, that was included in the contract liability balance at the beginning of each year was $1.5 billion and $1.7 billion, ~~and $1.4 billion, respectively, and~~respectively. This revenue represented primarily ~~revenue from~~ the sale of business-jet aircraft.

~~C. ACQUISITIONS AND DIVESTITURES, GOODWILL, AND INTANGIBLE ASSETS~~

~~Acquisitions and Divestitures~~

In the first quarter of 2017, we acquired a fixed-base-operations (FBO) facility in our Aerospace group. In 2016, we acquired an aircraft management and charter services provider in our Aerospace group and a

manufacturer of unmanned underwater vehicles (UUVs) in our Information Systems and Technology group. As the purchase prices of these acquisitions are not material, they are included in other investing activities in the unaudited Consolidated Statement of Cash Flows.

We did not have any divestitures in 2017 or 2016. In 2015, we completed the sale of our axle business in our Combat Systems group. In the first quarter of 2016, we recognized in discontinued operations a final adjustment of $13 to the loss on the sale of this business.

~~Goodwill~~

~~The changes in the carrying amount of goodwill by reporting unit for the~~ ~~three-month period ended April 2, 2017, were as follows:~~

Aerospace Combat Systems Information Systems and Technology Marine Systems
Total
Goodwill
December 31, 2016 (a) $ 2,537
$ 2,598
$ 6,013
$ 297
$ 11,445
Acquisitions (b) 33
—
—
—
33
Other (c) 35
15
4
—
54
April 2, 2017 $ 2,605
$ 2,613
$ 6,017
$ 297
$ 11,532

~~(a)Goodwill on December 31, 2016, in the Information Systems and Technology reporting unit is net of $2 billion of accumulated impairment losses.~~

~~(b)Includes adjustments during the purchase price allocation period.~~

~~(c)Consists primarily of adjustments for foreign currency translation.~~

~~Intangible Assets~~

~~Intangible assets consisted of the following:~~

Gross Carrying Amount (a) Accumulated Amortization Net Carrying Amount Gross Carrying Amount (a) Accumulated Amortization Net Carrying Amount
April 2, 2017 December 31, 2016
Contract and program intangible assets (b) $ 1,626
$ (1,273 ) $ 353
$ 1,633
$ (1,281 ) $ 352
Trade names and trademarks 455
(146 ) 309
446
(139 ) 307
Technology and software 120
(103 ) 17
121
(102 ) 19
Other intangible assets 154
(154 ) —
154
(154 ) —
Total intangible assets $ 2,355
$ (1,676 ) $ 679
$ 2,354
$ (1,676 ) $ 678


~~(a)~~	~~Change in gross carrying amounts consists primarily of adjustments for foreign currency translation and acquired intangible assets.~~


~~(b)~~	~~Consists of acquired backlog and probable follow-on work and associated customer relationships.~~

~~Amortization expense was $19 and $27 for the three-month periods ended April 2, 2017, and April 3, 2016, respectively.~~

D.E. EARNINGS PER SHARE

We compute basic earnings per share (EPS) using net earnings for the period and the weighted average number of common shares outstanding during the period. Basic weighted average shares outstanding have decreased in ~~2017~~2018 and ~~2016~~2017 due to share repurchases. See Note KL for further discussion of our share repurchases. Diluted EPS incorporates the additional shares issuable upon the assumed exercise of stock options and the release of restricted stock and restricted stock units (RSUs).

Basic and diluted weighted average shares outstanding were as follows (in thousands):


Three Months Ended	April 2, 2017	April 3, 2016 (a)	April 1, 2018	April 2, 2017
Basic weighted average shares outstanding	301,771	307,928	296,399	301,771
Dilutive effect of stock options and restricted stock/RSUs (b)	5,511	5,571
Dilutive effect of stock options and restricted stock/RSUs*			4,705	5,511
Diluted weighted average shares outstanding	307,282	313,499	301,104	307,282

~~(a)~~Prior-period information has been restated for the adoption of ASU 2016-09, which we adopted in the second quarter of 2016, resulting in an increased dilutive effect of stock options and restricted stock/RSUs. See Note Q for further discussion of our adoption of this accounting standard.

~~(b)~~* Excludes outstanding options to purchase shares of common stock ~~because these options~~that had exercise prices in excess of the average market price of our common stock during the period and, therefore, the effect of including these options would be antidilutive. These options totaled ~~681~~517 and ~~2,948~~681 for the three-month periods ended April 1, 2018, and April 2, 2017, ~~and April 3, 2016,~~ respectively.

E.F. FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants. Various valuation approaches can be used to determine fair value, each requiring different valuation inputs. The following hierarchy classifies the inputs used to determine fair value into three levels:

Level 1 –- quoted prices in active markets for identical assets or liabilities;

Level 2 –- inputs, other than quoted prices, observable by a marketplace participant either directly or indirectly; and

Level 3 –- unobservable inputs significant to the fair value measurement.

We did not have any significant non-financial assets or liabilities measured at fair value on April ~~2, 2017,~~1, 2018, or December 31, ~~2016.~~2017.

Our financial instruments include cash and equivalents, ~~and other investments,~~ accounts receivable and payable, marketable securities held in trust and other investments, short- and long-term debt, and derivative financial instruments. The carrying values of cash and equivalents and accounts receivable and payable ~~and short-term debt~~ on the unaudited Consolidated Balance Sheet approximate their fair value. The following tables present the fair values of our other financial assets and liabilities on April ~~2, 2017,~~1, 2018, and December 31, ~~2016,~~2017, and the basis for determining their fair values:

Carrying
Value

Fair
Value

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2) (b)
Financial Assets (Liabilities) (a) April 2, 2017
Available-for-sale securities $ 178
$ 178
$ 56
$ 122
Cash flow hedges (468 ) (468 ) —
(468 )
Long-term debt, including current portion (3,925 ) (3,850 ) —
(3,850 )

December 31, 2016
Available-for-sale securities $ 177
$ 177
$ 59
$ 118
Cash flow hedges (477 ) (477 ) —
(477 )
Long-term debt, including current portion (3,924 ) (3,849 ) —
(3,849 )



	Carrying Value			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets (Liabilities)	April 1, 2018
Measured at fair value:
Marketable securities held in trust:
Cash and equivalents	$	6		$	6		$	2	$	4		$	—
Available-for-sale debt securities	130			130			—		130			—
Equity securities	54			54			54		—			—
Other investments	4			4			—		—			4
Cash flow hedges	(107		)	(107		)	—		(107		)	—
Measured at amortized cost:
Short- and long-term debt principal	(6,532		)	(6,356		)	—		(6,356		)	—

~~(a)We had no~~



	December 31, 2017
Measured at fair value:
Marketable securities held in trust:
Cash and equivalents	$	20		$	20		$	15	$	5		$	—
Available-for-sale debt securities	117			117			—		117			—
Equity securities	54			54			54		—			—
Other investments	4			4			—		—			4
Cash flow hedges	(105		)	(105		)	—		(105		)	—
Measured at amortized cost:
Short- and long-term debt principal	(4,032		)	(3,974		)	—		(3,974		)	—

Our Level ~~3 financial instruments on~~ ~~April~~1 assets include investments in publicly traded equity securities valued using quoted prices from the market exchanges. The fair value of our Level 2 ~~2017, or~~ ~~December 31, 2016~~.

~~(b)Determined~~assets and liabilities is determined under a market approach using valuation models that incorporate observable inputs such as interest rates, bond yields and quoted prices for similar assets. Our Level 3 assets ~~and liabilities.~~include direct private equity investments that are measured using inputs unobservable to a marketplace participant.

F.G. INCOME TAXES

Income Tax Provision. We calculate our provision for federal, state and international income taxes based on current tax law. Tax reform was enacted on December 22, 2017, and has several key provisions impacting accounting for and reporting of income taxes. The most significant provision reduced the U.S. corporate statutory tax rate from 35% to 21% beginning on January 1, 2018. We recorded the effect of the change in tax law in the fourth quarter of 2017.

Net Deferred Tax ~~Asset.~~Liability. Our deferred tax assets and liabilities are included in other noncurrent assets and liabilities on the Consolidated Balance Sheet. Our net deferred tax ~~asset~~liability consisted of the following:


	April 2, 2017			December 31, 2016			April 1, 2018			December 31, 2017
Deferred tax asset	$	487		$	564		$	60		$	75
Deferred tax liability	(187		)	(183		)	(249		)	(244		)
Net deferred tax asset	$	300		$	381
Net deferred tax liability							$	(189	)	$	(169	)

Tax Uncertainties. For all periods open to examination by tax authorities, we periodically assess our liabilities and contingencies based on the latest available information. Where we believe there is more than a ~~50 percent~~50% chance that our tax position will not be sustained, we record our best estimate of the resulting tax liability, including interest, in the Consolidated Financial Statements. We include any interest or penalties incurred in connection with income taxes as part of income tax expense. The total amount of these tax liabilities on April ~~2, 2017,~~1, 2018, was not material to our results of operations, financial condition or cash flows.

We participate in the Internal Revenue Service (IRS) Compliance Assurance Process (CAP), a real-time audit of our consolidated federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through ~~2015.~~2016. We do not expect the resolution of tax matters for open years to have a material impact on our results of operations, financial condition, cash flows or effective tax rate.

Based on all known facts and circumstances and current tax law, we believe the total amount of any unrecognized tax benefits on April ~~2, 2017, is~~1, 2018, was not material to our results of operations, financial condition or cash flows, and if recognized, would not have a material impact on our effective tax rate. In addition, there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will vary significantly over the next 12 months, producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.

G.H. UNBILLED RECEIVABLES

Unbilled receivables represent revenue recognized on long-term contracts (contract costs and estimated profits) less associated advances and progress billings. These amounts will be billed in accordance with the agreed-upon contractual terms or upon ~~shipment~~achievement of ~~products or rendering of services.~~contractual milestones. Unbilled receivables consisted of the following:


	April 2, 2017			December 31, 2016			April 1, 2018			December 31, 2017
Unbilled revenue	$	25,979		$	25,543		$	22,928		$	21,845
Advances and progress billings	(21,422		)	(21,331		)	(17,063		)	(16,605		)
Net unbilled receivables	$	4,557		$	4,212		$	5,865		$	5,240

The increase in net unbilled receivables during the three-month period ended April 1, 2018, was due primarily to the timing of billings on large international vehicle contracts in our Combat Systems group.

H.I. INVENTORIES

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

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 expect to recover these costs through ongoing business, including existing backlog and probable follow-on contracts. 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.

Inventories consisted of the following:

April 2, 2017 December 31, 2016
Work in process $ 3,775
$ 3,643
Raw materials 1,383
1,429
Finished goods 25
24
Pre-owned aircraft 40
22
Other contract costs 599
699
Total inventories $ 5,822
$ 5,817



	April 1, 2018		December 31, 2017
Work in process	$	4,138	$	3,872
Raw materials	1,328		1,357
Finished goods	52		51
Pre-owned aircraft	25		23
Total inventories	$	5,543	$	5,303

J. DEBT

Debt consisted of the following:


		April 2, 2017		December 31, 2016			April 1, 2018		December 31, 2017
Fixed-rate notes due:	Interest rate					Interest rate:
November 2017	1.000%	$	900	$	900
July 2021	3.875%	500		500		3.875%	$	500	$	500
November 2022	2.250%	1,000		1,000		2.250%	1,000		1,000
August 2023	1.875%	500		500		1.875%	500		500
November 2024						2.375%	500		500
August 2026	2.125%	500		500		2.125%	500		500
November 2027						2.625%	500		500
November 2042	3.600%	500		500		3.600%	500		500
Commercial paper						2.097%	2,500		—
Other	Various	25		24		Various	32		32
Total debt - principal		3,925		3,924
Total debt principal							6,532		4,032
Less unamortized debt issuance costs and discounts		36		36			53		50
Total debt		3,889		3,888			6,479		3,982
Less current portion		901		900			2,498		2
Long-term debt		$	2,988	$	2,988		$	3,981	$	3,980

In the first quarter of 2018, we renewed and increased to $2 billion our$1 billion multi-year committed bank credit facility, which was scheduled to expire in July 2018. The new credit facility expires in March 2023. We have an additional $1 billion multi-year committed bank credit facility that expires in November 2020. We may renew or replace these credit facilities in whole or in part at or prior to their expiration dates.

Also in the first quarter of 2018, we entered into a $7.5 billion, 364-day committed bank credit facility that expires in March 2019. We financed the acquisition of CSRA, in part, by borrowing $7.5 billion under this facility subsequent to the end of the quarter. We intend to issue debt securities in the future to repay in whole or in part the borrowings under this facility. The proceeds from these issuances will automatically reduce the bank’s commitments under this facility to an amount not less than $2 billion. Following this reduction, our three credit facilities will total $5 billion. Our credit facilities are used for general corporate purposes and working capital needs and support our commercial paper issuances. Our credit facilities are guaranteed by several of our 100%-owned subsidiaries.

On April 1, 2018, $2.5 billion of commercial paper had been issued and remained outstanding with a dollar-weighted average interest rate of 2.097% and original maturities of less than 90 days.

Our fixed-rate notes are fully and unconditionally guaranteed by several of our ~~100-percent-owned~~100%-owned subsidiaries. See Note PQ for condensed consolidating financial statements. We have the option to redeem the notes prior to their maturity in whole or in part for the principal plus any accrued but unpaid interest and applicable make-whole amounts.

~~Fixed-rate notes of $900 mature in November of 2017. As we approach the maturity date of this debt, we will determine whether to repay these notes with cash on hand or refinance the obligation.~~

On April 2, 2017, we had no commercial paper outstanding, but we maintain the ability to access the commercial paper market in the future. We have $2 billion in committed bank credit facilities for general corporate purposes and working capital needs. These credit facilities include a $1 billion multi-year facility expiring in July 2018 and a $1 billion multi-year facility expiring in November 2020. These facilities are required by credit rating agencies to support our commercial paper issuances. We may renew or replace these credit facilities in whole or in part at or prior to their expiration dates. Our bank credit facilities are guaranteed by several of our 100-percent-owned subsidiaries. We also have an effective shelf registration on file with the SEC that allows us to access the debt markets.

Our financing arrangements contain a number of customary covenants and restrictions. We were in compliance with all covenants and restrictions on April ~~2, 2017.~~

1, 2018.

K. OTHER LIABILITIES

A summary of significant other liabilities by balance sheet caption follows:


	April 2, 2017		December 31, 2016		April 1, 2018		December 31, 2017

Salaries and wages	$	639	$	693	$	665	$	786
Fair value of cash flow hedges	502		521
Workers’ compensation	334		337		320		320
Retirement benefits	293		303		292		295
Fair value of cash flow hedges					201		180
Other (a)	1,344		1,331		1,320		1,317
Total other current liabilities	$	3,112	$	3,185	$	2,798	$	2,898

Retirement benefits	$	4,359	$	4,393	$	4,359	$	4,408
Customer deposits on commercial contracts	765		719		555		814
Deferred income taxes	187		183		249		244
Other (b)	1,164		1,138		1,059		1,066
Total other liabilities	$	6,475	$	6,433	$	6,222	$	6,532

(a)Consists primarily of dividends payable, taxes payable, environmental remediation reserves, warranty reserves, deferred revenue and supplier contributions in the Aerospace group, liabilities of discontinued operations, and insurance-related costs.

(b)Consists primarily of warranty reserves, workers’ compensation liabilities and liabilities of discontinued operations.

K.L. SHAREHOLDERS’ EQUITY

Share Repurchases. Our board of directors authorizes management’s repurchase of outstanding shares of our common stock on the open market from time to time. On March 1, 2017, the board of directors authorized management to repurchase up to 10 million additional shares of the company’s outstanding stock. In the three-month period ended April ~~2, 2017,~~1, 2018, we repurchased ~~1.9~~1.2 million of our outstanding shares for ~~$355.~~$257. On April ~~2, 2017, 13.5~~1, 2018, 6.4 million shares remained authorized by our board of directors for repurchase, approximately ~~4 percent~~2% of our total shares outstanding. We repurchased ~~7.8~~1.9 million shares for ~~$1 billion~~$355 in the three-month period ended April ~~3, 2016.~~2, 2017.

Dividends per Share. Dividends declared per share were ~~$0.84~~$0.93 and ~~$0.76~~ $0.84for the three-month periods ended April ~~2, 2017,~~ 1, 2018, and April ~~3, 2016,~~2, 2017, respectively. Cash dividends paid were ~~$230~~$250 and ~~$215~~$230 for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016~~2, 2017, respectively.

Accumulated Other Comprehensive Loss. The changes, pretax and net of tax, in each component of accumulated other comprehensive loss (AOCL) consisted of the following:


	Losses on Cash Flow Hedges			Unrealized Gains on Securities		Foreign Currency Translation Adjustments		Changes in Retirement Plans’ Funded Status			AOCL			Losses on Cash Flow Hedges			Unrealized Gains on Marketable Securities			Foreign Currency Translation Adjustments		Changes in Retirement Plans’ Funded Status			AOCL
December 31, 2016	$	(345	)	$	14	$	69	$	(3,125	)	$	(3,387	)
December 31, 2017														$	(94	)	$	19		$	402	$	(3,147	)	$	(2,820	)
Cumulative effect adjustments (see Note A)														(4		)	(19		)	—		(615		)	(638		)
Other comprehensive income, pretax	13			5		82		69			169			(3		)	—			1		84			82
Provision for income tax, net	4			1		15		24			44			(1		)	—			—		16			15
Other comprehensive income, net of tax	9			4		67		45			125			(2		)	—			1		68			67
April 2, 2017	$	(336	)	$	18	$	136	$	(3,080	)	$	(3,262	)
April 1, 2018														$	(100	)	$	—		$	403	$	(3,694	)	$	(3,391	)


December 31, 2015	$	(487	)	$	20		$	181	$	(2,997	)	$	(3,283	)
December 31, 2016															$	(345	)	$	14	$	69	$	(3,125	)	$	(3,387	)
Other comprehensive income, pretax	182			(9		)	180		60			413			13			5		82		69			169
Provision for income tax, net	45			(3		)	5		22			69			4			1		15		24			44
Other comprehensive income, net of tax	137			(6		)	175		38			344			9			4		67		45			125
April 3, 2016	$	(350	)	$	14		$	356	$	(2,959	)	$	(2,939	)
April 2, 2017															$	(336	)	$	18	$	136	$	(3,080	)	$	(3,262	)

~~Amounts~~Current-period amounts reclassified out of AOCL related primarily to changes in our retirement plans’ funded status and consisted of pretax recognized net actuarial losses of ~~$85~~$95 and ~~$83~~$85 for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, respectively. This was offset partially by pretax amortization of prior service credit of ~~$18~~$12 and ~~$19~~$18 for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, respectively. These AOCL components are included in our net periodic pension and other post-retirement benefit cost. See Note NO for additional details.

L.M. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to market risk, primarily from foreign currency exchange rates, interest rates, commodity prices and investments. We may use derivative financial instruments to hedge some of these risks as described below. We had ~~$6.2~~$4.3 billion in notional forward exchange contracts outstanding on April ~~2, 2017,~~1, 2018, and ~~$6.3 billion on~~ December 31, ~~2016.~~2017. We do not use derivative financial instruments for trading or speculative purposes. We recognize derivative financial instruments on the Consolidated Balance Sheet at fair value. See Note EF for additional details.

Foreign Currency Risk and Hedging Activities. Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and inter-company transactions denominated in foreign currencies. To the extent possible, we include terms in our contracts that are designed to protect us from this risk. Otherwise, we enter into derivative financial instruments, principally foreign currency forward purchase and sale contracts, designed to offset and minimize our risk. The dollar-weighted three-year average maturity of these instruments generally matches the duration of the activities that are at risk.

We record changes in the fair value of derivative financial instruments in operating costs and expenses in the Consolidated Statement of Earnings or in other comprehensive loss (OCL) within the Consolidated Statement of Comprehensive Income depending on whether the derivative is designated and qualifies for hedge accounting. Gains and losses related to derivative financial instruments that qualify as cash flow hedges are deferred in OCL until the underlying transaction is reflected in earnings. We adjust derivative

financial instruments not designated as cash flow hedges to market value each period and record the gain

or loss in the Consolidated Statement of Earnings. The gains and losses on these instruments generally offset losses and gains on the assets, liabilities and other transactions being hedged. Gains and losses resulting from hedge ineffectiveness are recognized in the Consolidated Statement of Earnings for all derivative financial instruments, regardless of designation.

Net gains and losses on derivative financial instruments recognized in earnings, including gains and losses related to hedge ineffectiveness, were not material to our results of operations for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016.~~2, 2017. Net gains and losses reclassified to earnings from OCL were not material to our results of operations for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, and we do not expect the amount of these gains and losses that will be reclassified to earnings during the next 12 months to be material.

We had no material derivative financial instruments designated as fair value or net investment hedges on April ~~2, 2017,~~1, 2018, or December 31, ~~2016.~~2017.

Interest Rate Risk. Our financial instruments subject to interest rate risk include fixed-rate long-term debt obligations and variable-rate commercial paper. However, the risk associated with these instruments is not material.

Commodity Price Risk. We are subject to rising labor and commodity price risk, primarily on long-term, fixed-price contracts. To the extent possible, we include terms in our contracts that are designed to protect us from these risks. Some of the protective terms included in our contracts are considered derivative financial instruments but are not accounted for separately, because they are clearly and closely related to the host contract. We have not entered into any material commodity hedging contracts but may do so as circumstances warrant. We do not believe that changes in labor or commodity prices will have a material impact on our results of operations or cash flows.

Investment Risk. Our investment policy allows for purchases of fixed-income securities with an investment-grade rating and a maximum maturity of up to five years. On April ~~2, 2017,~~1, 2018, we held ~~$2.2~~$4.3 billion in cash and equivalents, but held no marketable ~~securities.~~securities other than those held in trust to meet some of our obligations under workers’ compensation and non-qualified supplemental executive retirement plans. On April 1, 2018, and December 31, 2017, these marketable securities totaled $190 and $191, respectively, and were reflected at fair value on the unaudited Consolidated Balance Sheet in other current and noncurrent assets.

Foreign Currency Financial Statement Translation. We translate foreign currency balance sheets from our international businesses’ functional currency (generally the respective local currency) to U.S. dollars at end-of-period exchange rates, and statements of earnings at average exchange rates for each period. The resulting foreign currency translation adjustments are a component of OCL.

We do not hedge the fluctuation in reported revenue and earnings resulting from the translation of these international operations’ results into U.S. dollars. The ~~negative~~ impact of translating our non-U.S. operations’ revenue into U.S. dollars was not material to our results of operations for the three-month periods ended April 1, 2018, and April 2, ~~2017, or April 3, 2016.~~2017. In addition, the effect of changes in foreign exchange rates on non-U.S. cash balances was not material for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016.~~2, 2017.

M.N. COMMITMENTS AND CONTINGENCIES

Litigation

In 2015, Electric Boat Corporation, a subsidiary of General Dynamics Corporation, received a Civil Investigative Demand from the U.S. Department of Justice regarding an investigation of potential False Claims Act violations relating to alleged failures of Electric Boat’s quality system with respect to allegedly non-conforming parts purchased from a supplier. In 2016, Electric Boat was made aware that it is a defendant

in a lawsuit related to this matter filed under seal in U.S. district court. Also in 2016, the Suspending and Debarring Official for the U.S. Department of the Navy issued a Show Cause Letter to Electric Boat requesting that Electric Boat respond to the official’s concerns regarding Electric Boat’s oversight and management with respect to its quality assurance systems for subcontractors and suppliers. Electric Boat responded to the Show Cause Letter and has been engaged in discussions with the U.S. government. Given the current status of these matters, we are unable to express a view regarding the ultimate outcome or, if the outcome is adverse, to estimate an amount or range of reasonably possible loss. Depending on the outcome of these matters, there could be a material impact on our results of operations, financial condition and cash flows.

Additionally, various other claims and legal proceedings incidental to the normal course of business are pending or threatened against us. These other matters relate to such issues as government investigations and claims, the protection of the environment, asbestos-related claims and employee-related matters. The nature of litigation is such that we cannot predict the outcome of these other matters. However, based on information currently available, we believe any potential liabilities in these other proceedings, individually or in the aggregate, will not have a material impact on our results of operations, financial condition or cash flows.

Environmental

We are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. We are directly or indirectly involved in environmental investigations or remediation at some of our current and former facilities and third-party sites that we do not own but where we have been designated a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency. Based on historical experience, we expect that a significant percentage of the total remediation and compliance costs associated with these facilities will continue to be allowable contract costs and, therefore, recoverable under U.S. government contracts.

As required, we provide financial assurance for certain sites undergoing or subject to investigation or remediation. We accrue environmental costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. Where applicable, we seek insurance recovery for costs related to environmental liabilities. We do not record insurance recoveries before collection is considered probable. Based on all known facts and analyses, we do not believe that our liability at any individual site, or in the aggregate, arising from such environmental conditions will be material to our results of operations, financial condition or cash flows. We also do not believe that the range of reasonably possible additional loss beyond what has been recorded would be material to our results of operations, financial condition or cash flows.

Other

Government Contracts. As a government contractor, we are subject to U.S. government audits and investigations relating to our operations, including claims for fines, penalties, and compensatory and treble

damages. We believe the outcome of such ongoing government audits and investigations will not have a material impact on our results of operations, financial condition or cash flows.

In the performance of our contracts, we routinely request contract modifications that require additional funding from the customer. Most often, these requests are due to customer-directed changes in the scope of work. While we are entitled to recovery of these costs under our contracts, the administrative process with our customer may be protracted. Based ~~upon~~on the circumstances, we periodically file requests for equitable adjustment (REAs) that are sometimes converted into claims. In some cases, these requests are disputed by our customer. We believe our outstanding modifications, REAs and other claims will be resolved without material impact to our results of operations, financial condition or cash flows.

Letters of Credit and Guarantees. In the ordinary course of business, we have entered into letters of credit, bank guarantees, surety bonds and other similar arrangements with financial institutions and insurance

carriers totaling approximately ~~$1.1~~$1.4 billion on April ~~2, 2017.~~1, 2018. In addition, from time to time and in the ordinary course of business, we contractually guarantee the payment or performance ~~obligations~~ of our subsidiaries arising under certain contracts.

Aircraft Trade-ins. In connection with orders for new aircraft in ~~funded~~ contract backlog, our Aerospace group has outstanding options with some customers to trade in aircraft as partial consideration in their new-aircraft transaction. These trade-in commitments are generally structured to establish the fair market value of the trade-in aircraft at a date generally 45 or fewer days preceding delivery of the new aircraft to the customer. At that time, the customer is required to either exercise the option or allow its expiration. Any excess of the pre-established trade-in price above the fair market value at the time the new aircraft is delivered is treated as a reduction of revenue in the new-aircraft sales transaction.

Product Warranties. We provide warranties to our customers associated with certain product sales. We record estimated warranty costs in the period in which the related products are delivered. The warranty liability recorded at each balance sheet date is based generally on the number of months of warranty coverage remaining for the products delivered and the average historical monthly warranty payments. Warranty obligations incurred in connection with long-term production contracts are accounted for within the contract estimates at completion. Our other warranty obligations, primarily for business-jet aircraft, are included in other current and noncurrent liabilities on the Consolidated Balance Sheet.

The changes in the carrying amount of warranty liabilities for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, were as follows:


Three Months Ended	April 2, 2017			April 3, 2016			April 1, 2018			April 2, 2017
Beginning balance	$	474		$	434		$	467		$	474
Warranty expense	35			23			29			38
Payments	(21		)	(22		)	(25		)	(24		)
Adjustments	—			(1		)	(3		)	—
Ending balance	$	488		$	434		$	468		$	488

N.O. RETIREMENT PLANS

We provide defined-contribution benefits to eligible employees, as well as some remaining defined-benefit pension and other post-retirement benefits.

Net periodic defined-benefit pension and other post-retirement benefit cost for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, consisted of the following:


	Pension Benefits						Other Post-retirement Benefits						Pension Benefits						Other Post-retirement Benefits
Three Months Ended	April 2, 2017			April 3, 2016			April 2, 2017			April 3, 2016			April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017
Service cost	$	42		$	44		$	3		$	3		$	46		$	42		$	3		$	3
Interest cost	113			114			8			8			114			113			8			8
Expected return on plan assets	(169		)	(178		)	(8		)	(8		)	(179		)	(169		)	(9		)	(8		)
Recognized net actuarial loss (gain)	86			84			(1		)	(1		)	96			86			(1		)	(1		)
Amortization of prior service credit	(17		)	(17		)	(1		)	(2		)	(11		)	(17		)	(1		)	(1		)
Net periodic benefit cost	$	55		$	47		$	1		$	—		$	66		$	55		$	—		$	1

~~In 2017, we decreased~~As discussed in Note A, the ~~expected long-term rate~~service cost component of ~~return on assets~~net periodic benefit cost is reported separately from the other components of net periodic benefit cost in ~~our primary U.S. government and commercial pension plans by 75 basis points following an assessment of the historical and expected long-term returns of our various asset classes.~~accordance with ASU 2017-07.

Our contractual arrangements with the U.S. government provide for the recovery of contributions to our pension and other post-retirement benefit plans covering employees working in our defense business groups. For non-funded plans, our government contracts allow us to recover claims paid. Following payment, these recoverable amounts are allocated to contracts and billed to the customer in accordance with the Cost Accounting Standards (CAS) and specific contractual terms. For some of these plans, the cumulative pension and other post-retirement benefit cost exceeds the amount currently allocable to contracts. To the extent recovery of the cost is considered probable based on our backlog and probable follow-on contracts, we defer the excess in other contract costs in ~~inventory~~other current assets on the Consolidated Balance Sheet until the cost is allocable to contracts. ~~See Note H for discussion of our deferred contract costs.~~ For other plans, the amount allocated to contracts and included in revenue has exceeded the plans’ cumulative benefit cost. We have similarly deferred recognition of these excess earnings ~~classifying these deferrals against the plan assets~~ on the Consolidated Balance Sheet.

It is our policy to fund our defined-benefit retirement plans in a manner that optimizes the tax deductibility and contract recovery of contributions considered within our capital deployment framework. Therefore, we may make discretionary contributions in addition to the required contributions determined in accordance with IRS regulations. In addition to our required contributions of approximately $315 in 2018, as we deploy additional cash resulting from the recent tax reform, we intend to make discretionary contributions, resulting in total pension plan contributions of approximately $550 in 2018.

O.P. BUSINESS GROUP INFORMATION

We operate in four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems. We organize our business groups in accordance with the nature of products and services offered. We measure each group’s profitability based on operating earnings. As a result, we do not allocate net interest, other income and expense items, and income taxes to our business groups.

Summary financial information for each of our business groups follows:


	Revenue				Operating Earnings						Revenue				Operating Earnings
Three Months Ended	April 2, 2017		April 3, 2016		April 2, 2017			April 3, 2016			April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017
Aerospace	$	2,074	$	1,781	$	443		$	332		$	1,825	$	2,074	$	346	$	439
Combat Systems	1,287		1,245		205			187			1,440		1,287		224		205
Information Systems and Technology	2,146		2,328		236			237			2,236		2,146		247		236
Marine Systems	1,934		2,122		161			184			2,034		1,934		184		161
Corporate*	—		—		(10		)	(16		)
Corporate											—		—		7		5
Total	$	7,441	$	7,476	$	1,035		$	924		$	7,535	$	7,441	$	1,008	$	1,046

*ASU 2017-07 requires the non-service cost components of pension and other post-retirement benefit cost (e.g., interest cost) to be reported in other income (expense) in the income statement. In our three defense groups, pension and other post-retirement benefit costs are allocable contract costs. For these groups, we report the offset for the non-service cost components in Corporate operating ~~results consist primarily of stock~~results. Stock option ~~expense.~~

expense is also reported in Corporate operating results.

P.Q. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

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

CONDENSED CONSOLIDATING ~~STATEMENTS~~STATEMENT OF EARNINGS (UNAUDITED)


Three Months Ended April 2, 2017	Parent			Guarantors on a Combined Basis		Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Revenue	$	—		$	6,544	$	897		$	—		$	7,441
Cost of sales	(3		)	5,241		687			—			5,925
G&A	11			394		76			—			481
Operating earnings	(8		)	909		134			—			1,035
Interest, net	(24		)	—		(1		)	—			(25		)
Earnings before income tax	(32		)	909		133			—			1,010
Provision for income tax, net	(67		)	293		21			—			247
Equity in net earnings of subsidiaries	728			—		—			(728		)	—
Net earnings	$	763		$	616	$	112		$	(728	)	$	763
Comprehensive income	$	888		$	617	$	207		$	(824	)	$	888
Three Months Ended April 3, 2016
Three Months Ended April 1, 2018															Parent			Guarantors on a Combined Basis		Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Revenue	$	—		$	6,599	$	877		$	—		$	7,476		$	—		$	6,484	$	1,051		$	—		$	7,535
Cost of sales	4			5,391		696			—			6,091			(19		)	5,202		807			—			5,990
G&A	11			379		71			—			461			13			436		88			—			537
Operating earnings	(15		)	829		110			—			924			6			846		156			—			1,008
Interest, net	(23		)	—		1			—			(22		)	(26		)	—		(1		)	—			(27		)
Other, net	10			—		—			—			10			(24		)	1		2			—			(21		)
Earnings before income tax	(28		)	829		111			—			912			(44		)	847		157			—			960
Provision for income tax, net	(28		)	262		24			—			258			(42		)	165		38			—			161
Discontinued operations	(13		)	—		—			—			(13		)
Equity in net earnings of subsidiaries	654			—		—			(654		)	—			801			—		—			(801		)	—
Net earnings	$	641		$	567	$	87		$	(654	)	$	641		$	799		$	682	$	119		$	(801	)	$	799
Comprehensive income	$	985		$	565	$	400		$	(965	)	$	985		$	866		$	685	$	137		$	(822	)	$	866
Three Months Ended April 2, 2017
Revenue															$	—		$	6,544	$	897		$	—		$	7,441
Cost of sales															(17		)	5,252		688			—			5,923
G&A															10			386		76			—			472
Operating earnings															7			906		133			—			1,046
Interest, net															(24		)	—		(1		)	—			(25		)
Other, net															(15		)	3		1			—			(11		)
Earnings before income tax															(32		)	909		133			—			1,010
Provision for income tax, net															(67		)	293		21			—			247
Equity in net earnings of subsidiaries															728			—		—			(728		)	—
Net earnings															$	763		$	616	$	112		$	(728	)	$	763
Comprehensive income															$	888		$	617	$	207		$	(824	)	$	888

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)


April 2, 2017	Parent		Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
April 1, 2018														Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated

ASSETS
Current assets:
Cash and equivalents	$	1,051	$	—		$	1,117		$	—		$	2,168	$	3,787		$	—		$	545		$	—		$	4,332
Accounts receivable	—		1,156			2,327			—			3,483		—			1,215			2,554			—			3,769
Unbilled receivables	—		2,563			1,994			—			4,557		—			2,757			3,108			—			5,865
Inventories	238		5,485			99			—			5,822		—			5,441			102			—			5,543
Other current assets	142		195			247			—			584		113			453			389			—			955
Total current assets	1,431		9,399			5,784			—			16,614		3,900			9,866			6,698			—			20,464
Noncurrent assets:
Property, plant and equipment, net	131		2,854			427			—			3,412
Property, plant and equipment (PP&E)														228			6,857			1,250			—			8,335
Accumulated depreciation of PP&E														(77		)	(3,940		)	(785		)	—			(4,802		)
Intangible assets, net	—		255			424			—			679		—			285			417			—			702
Goodwill	—		8,052			3,480			—			11,532		—			8,336			3,619			—			11,955
Other assets	577		244			153			—			974		188			229			148			—			565
Investment in subsidiaries	41,618		—			—			(41,618		)	—		45,799			—			—			(45,799		)	—
Total noncurrent assets	42,326		11,405			4,484			(41,618		)	16,597		46,138			11,767			4,649			(45,799		)	16,755
Total assets	$	43,757	$	20,804		$	10,268		$	(41,618	)	$	33,211	$	50,038		$	21,633		$	11,347		$	(45,799	)	$	37,219

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt	$	898	$	3		$	—		$	—		$	901	$	2,496		$	—		$	2		$	—		$	2,498
Customer advances and deposits	—		4,053			2,633			—			6,686		—			4,273			2,822			—			7,095
Other current liabilities	599		3,406			1,573			—			5,578		559			3,417			1,673			—			5,649
Total current liabilities	1,497		7,462			4,206			—			13,165		3,055			7,690			4,497			—			15,242
Noncurrent liabilities:
Long-term debt	2,966		22			—			—			2,988		3,952			20			9			—			3,981
Other liabilities	2,398		3,475			602			—			6,475		2,399			3,234			589			—			6,222
Total noncurrent liabilities	5,364		3,497			602			—			9,463		6,351			3,254			598			—			10,203
Intercompany	26,313		(26,259		)	(54		)	—			—		28,858			(28,093		)	(765		)	—			—
Shareholders’ equity:
Common stock	482		6			2,354			(2,360		)	482		482			6			2,126			(2,132		)	482
Other shareholders’ equity	10,101		36,098			3,160			(39,258		)	10,101		11,292			38,776			4,891			(43,667		)	11,292
Total shareholders’ equity	10,583		36,104			5,514			(41,618		)	10,583		11,774			38,782			7,017			(45,799		)	11,774
Total liabilities and shareholders’ equity	$	43,757	$	20,804		$	10,268		$	(41,618	)	$	33,211	$	50,038		$	21,633		$	11,347		$	(45,799	)	$	37,219

CONDENSED CONSOLIDATING BALANCE SHEET


December 31, 2016	Parent		Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
December 31, 2017														Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated

ASSETS
Current assets:
Cash and equivalents	$	1,254	$	—		$	1,080		$	—		$	2,334	$	1,930		$	—		$	1,053		$	—		$	2,983
Accounts receivable	—		1,155			2,244			—			3,399		—			1,259			2,358			—			3,617
Unbilled receivables	—		2,235			1,977			—			4,212		—			2,547			2,693			—			5,240
Inventories	304		5,417			96			—			5,817		—			5,216			87			—			5,303
Other current assets	330		204			238			—			772		351			461			373			—			1,185
Total current assets	1,888		9,011			5,635			—			16,534		2,281			9,483			6,564			—			18,328
Noncurrent assets:
Property, plant and equipment, net	130		2,933			414			—			3,477
PP&E														221			6,779			1,237			—			8,237
Accumulated depreciation of PP&E														(75		)	(3,869		)	(776		)	—			(4,720		)
Intangible assets, net	—		265			413			—			678		—			287			415			—			702
Goodwill	—		8,050			3,395			—			11,445		—			8,320			3,594			—			11,914
Other assets	640		232			166			—			1,038		199			232			154			—			585
Investment in subsidiaries	41,956		—			—			(41,956		)	—		44,887			—			—			(44,887		)	—
Total noncurrent assets	42,726		11,480			4,388			(41,956		)	16,638		45,232			11,749			4,624			(44,887		)	16,718
Total assets	$	44,614	$	20,491		$	10,023		$	(41,956	)	$	33,172	$	47,513		$	21,232		$	11,188		$	(44,887	)	$	35,046

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt	$	898	$	2		$	—		$	—		$	900	$	—		$	1		$	1		$	—		$	2
Customer advances and deposits	—		4,339			2,488			—			6,827		—			4,180			2,812			—			6,992
Other current liabilities	564		3,465			1,694			—			5,723		561			3,758			1,786			—			6,105
Total current liabilities	1,462		7,806			4,182			—			13,450		561			7,939			4,599			—			13,099
Noncurrent liabilities:
Long-term debt	2,966		22			—			—			2,988		3,950			21			9			—			3,980
Other liabilities	3,520		2,330			583			—			6,433		2,451			3,473			608			—			6,532
Total noncurrent liabilities	6,486		2,352			583			—			9,421		6,401			3,494			617			—			10,512
Intercompany	26,365		(25,827		)	(538		)	—			—		29,116			(28,494		)	(622		)	—			—
Shareholders’ equity:
Common stock	482		6			2,354			(2,360		)	482		482			6			2,126			(2,132		)	482
Other shareholders’ equity	9,819		36,154			3,442			(39,596		)	9,819		10,953			38,287			4,468			(42,755		)	10,953
Total shareholders’ equity	10,301		36,160			5,796			(41,956		)	10,301		11,435			38,293			6,594			(44,887		)	11,435
Total liabilities and shareholders’ equity	$	44,614	$	20,491		$	10,023		$	(41,956	)	$	33,172	$	47,513		$	21,232		$	11,188		$	(44,887	)	$	35,046

CONDENSED CONSOLIDATING ~~STATEMENTS~~STATEMENT OF CASH FLOWS (UNAUDITED)


Three Months Ended April 1, 2018															Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments		Total Consolidated
Net cash (used) provided by operating activities*															$	80		$	105		$	(681	)	$	—	$	(496	)
Cash flows from investing activities:
Capital expenditures															(7		)	(86		)	(11		)	—		(104		)
Other, net															1			(2		)	—			—		(1		)
Net cash used by investing activities															(6		)	(88		)	(11		)	—		(105		)
Cash flows from financing activities:
Proceeds from commercial paper, net															2,494			—			—			—		2,494
Purchases of common stock															(267		)	—			—			—		(267		)
Dividends paid															(250		)	—			—			—		(250		)
Other, net															(25		)	—			—			—		(25		)
Net cash provided by financing activities															1,952			—			—			—		1,952
Net cash used by discontinued operations															(2		)	—			—			—		(2		)
Cash sweep/funding by parent															(167		)	(17		)	184			—		—
Net increase in cash and equivalents															1,857			—			(508		)	—		1,349
Cash and equivalents at beginning of period															1,930			—			1,053			—		2,983
Cash and equivalents at end of period															$	3,787		$	—		$	545		$	—	$	4,332
Three Months Ended April 2, 2017	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments		Total Consolidated
Net cash provided by operating activities*	$	(9	)	$	442		$	100		$	—	$	533		$	(10	)	$	443		$	100		$	—	$	533
Cash flows from investing activities:
Capital expenditures	(3		)	(42		)	(17		)	—		(62		)	(3		)	(42		)	(17		)	—		(62		)
Other, net	(1		)	29			(51		)	—		(23		)	—			28			(51		)	—		(23		)
Net cash used by investing activities	(4		)	(13		)	(68		)	—		(85		)	(3		)	(14		)	(68		)	—		(85		)
Cash flows from financing activities:
Purchases of common stock	(354		)	—			—			—		(354		)	(354		)	—			—			—		(354		)
Dividends paid	(230		)	—			—			—		(230		)	(230		)	—			—			—		(230		)
Other, net	(21		)	(1		)	—			—		(22		)	(21		)	(1		)	—			—		(22		)
Net cash used by financing activities	(605		)	(1		)	—			—		(606		)	(605		)	(1		)	—			—		(606		)
Net cash used by discontinued operations	(8		)	—			—			—		(8		)	(8		)	—			—			—		(8		)
Cash sweep/funding by parent	423			(428		)	5			—		—			423			(428		)	5			—		—
Net decrease in cash and equivalents	(203		)	—			37			—		(166		)	(203		)	—			37			—		(166		)
Cash and equivalents at beginning of period	1,254			—			1,080			—		2,334			1,254			—			1,080			—		2,334
Cash and equivalents at end of period	$	1,051		$	—		$	1,117		$	—	$	2,168		$	1,051		$	—		$	1,117		$	—	$	2,168
Three Months Ended April 3, 2016
Net cash provided by operating activities*	$	102		$	314		$	64		$	—	$	480
Cash flows from investing activities:
Capital expenditures	(1		)	(58		)	(6		)	—		(65		)
Other, net	6			(21		)	(38		)	—		(53		)
Net cash used by investing activities	5			(79		)	(44		)	—		(118		)
Cash flows from financing activities:
Purchases of common stock	(1,026		)	—			—			—		(1,026		)
Dividends paid	(215		)	—			—			—		(215		)
Other, net	7			—			—			—		7
Net cash used by financing activities	(1,234		)	—			—			—		(1,234		)
Net cash used by discontinued operations	(6		)	—			—			—		(6		)
Cash sweep/funding by parent	387			(235		)	(152		)	—		—
Net decrease in cash and equivalents	(746		)	—			(132		)	—		(878		)
Cash and equivalents at beginning of period	1,732			—			1,053			—		2,785
Cash and equivalents at end of period	$	986		$	—		$	921		$	—	$	1,907

* Continuing operations only.

~~Q. PRIOR-PERIOD FINANCIAL STATEMENTS~~

~~Our prior-period financial statements were restated for the adoption of three ASUs that are discussed below.~~

~~ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~ We adopted ASU 2016-09 in the second quarter of 2016. ASU 2016-09 impacted several aspects of our accounting for share-based payment transactions. The ASU requires that excess tax benefits and tax deficiencies (the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes) be recognized as income tax expense or benefit in the Consolidated Statement of Earnings. Previously, these amounts were recognized directly to shareholders’ equity. While this area of the ASU permits only prospective adoption, because we adopted the standard in the second quarter of 2016, we were required to restate the first-quarter 2016 financial statements to reflect the adoption as of the beginning of the year.

In the Consolidated Statement of Cash Flows, the excess tax benefit from equity-based compensation, previously classified as a financing activity, is now classified as an operating activity. Additionally, cash paid when directly withholding shares on an employee’s behalf for tax withholding purposes is classified as a financing activity. These areas were adopted retrospectively.

~~ASC Topic 606.~~ We adopted ASC Topic 606 on January 1, 2017, using the retrospective method. The adoption of ASC Topic 606 had two primary impacts on our Consolidated Financial Statements. The impact of adjustments on profit recorded to date is now recognized in the period identified (cumulative catch-up method), rather than prospectively over the remaining contract term. For our contracts for the manufacture of business-jet aircraft, we now recognize revenue at a single point in time when control is transferred to the customer, generally when the customer accepts the fully outfitted aircraft. Prior to the adoption of ASC Topic 606, we recognized revenue for these contracts at two contractual milestones: when green aircraft were completed and accepted by the customer and when the customer accepted final delivery of the fully outfitted aircraft. The cumulative effect of the adoption was recognized as a decrease to retained earnings of $372 on January 1, 2015.

~~We applied the standard's practical expedient that permits the omission of prior-period information about our remaining performance obligations. No other practical expedients were applied.~~

~~ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.~~ We adopted ASU 2015-17 on January 1, 2017, using the retrospective method. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent on the Consolidated Balance Sheet. The adoption of ASU 2015-17 resulted in reclassifications among accounts on the Consolidated Balance Sheet, but had no other impacts on our results of operations, financial condition or cash flows.

~~The following tables summarize the effects of adopting these accounting standards on our unaudited Consolidated Financial Statements.~~

~~CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)~~

Three Months Ended Effect of the Adoption of Three Months Ended
April 3, 2016 ASU ASC ASU April 3, 2016
(Dollars in millions, except per-share amounts) As Reported 2016-09 Topic 606 2015-17 As Adjusted
Revenue:
Products $ 4,864
$ —
$ (282 ) $ —
$ 4,582
Services 2,860
—
34
—
2,894
7,724
—
(248 ) —
7,476
Operating costs and expenses:

Products 3,784
—
(149 ) —
3,635
Services 2,427
—
29
—
2,456
G&A 460
—
1
—
461
6,671
—
(119 ) —
6,552
Operating earnings 1,053
—
(129 ) —
924
Interest, net (22 ) —
—
—
(22 )
Other, net 10
—
—
—
10
Earnings from continuing operations
before income tax
1,041
—
(129 ) —
912
Provision for income tax, net 311
(15 ) (38 ) —
258
Earnings from continuing operations 730
15
(91 ) —
654
Discontinued operations (13 ) —
—
—
(13 )
Net earnings $ 717
$ 15
$ (91 ) $ —
$ 641

Earnings per share

Basic:

Continuing operations $ 2.37
$ 0.05
$ (0.30 ) $ —
$ 2.12
Discontinued operations (0.04 ) —
—
—
(0.04 )
Net earnings $ 2.33
$ 0.05
$ (0.30 ) $ —
$ 2.08
Diluted:

Continuing operations $ 2.34
$ 0.03
$ (0.29 ) $ —
$ 2.08
Discontinued operations (0.04 ) —
—
—
(0.04 )
Net earnings $ 2.30
$ 0.03
$ (0.29 ) $ —
$ 2.04

~~CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)~~

Three Months Ended Effect of the Adoption of Three Months Ended
April 3, 2016 ASU ASC ASU April 3, 2016
(Dollars in millions) As Reported 2016-09 Topic 606 2015-17 As Adjusted
Net earnings $ 717
$ 15
$ (91 ) $ —
$ 641
Gains on cash flow hedges 182
—
—
—
182
Unrealized losses on securities (9 ) —
—
—
(9 )
Foreign currency translation adjustments 181
—
(1 ) —
180
Change in retirement plans’ funded status 60
—
—
—
60
Other comprehensive income, pretax 414
—
(1 ) —
413
Provision for income tax, net 69
—
—
—
69
Other comprehensive income, net of tax 345
—
(1 ) —
344
Comprehensive income $ 1,062
$ 15
$ (92 ) $ —
$ 985

~~CONSOLIDATED BALANCE SHEET (UNAUDITED)~~

Effect of the Adoption of
December 31, 2016 ASU ASC ASU December 31, 2016
(Dollars in millions) As Reported 2016-09 Topic 606 2015-17* As Adjusted

ASSETS
Current assets:
Cash and equivalents $ 2,334
$ —
$ —
$ —
$ 2,334
Accounts receivable 3,611
—
(212 ) —
3,399
Unbilled receivables 5,282
—
(1,070 ) —
4,212
Inventories 3,523
—
2,294
—
5,817
Other current assets 697
—
90
(15 ) 772
Total current assets 15,447
—
1,102
(15 ) 16,534
Noncurrent assets:

Property, plant and equipment, net 3,467
—
10
—
3,477
Intangible assets, net 678
—
—
—
678
Goodwill 11,445
—
—
—
11,445
Other assets 1,835
—
—
(797 ) 1,038
Total noncurrent assets 17,425
—
10
(797 ) 16,638
Total assets $ 32,872
$ —
$ 1,112
$ (812 ) $ 33,172

LIABILITIES AND
    SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt and current portion of
    long-term debt
$ 900
$ —
$ —
$ —
$ 900
Accounts payable 2,538
—
—
—
2,538
Customer advances and deposits 4,939
—
1,888
—
6,827
Other current liabilities 4,469
—
(361 ) (923 ) 3,185
Total current liabilities 12,846
—
1,527
(923 ) 13,450
Noncurrent liabilities:

Long-term debt 2,988
—
—
—
2,988
Other liabilities 6,062
—
260
111
6,433
Commitments and contingencies
    (see Note M)

Total noncurrent liabilities 9,050
—
260
111
9,421
Shareholders’ equity:

Common stock 482
—
—
—
482
Surplus 2,819
—
—
—
2,819
Retained earnings 25,227
—
(684 ) —
24,543
Treasury stock (14,156 ) —
—
—
(14,156 )
Accumulated other comprehensive loss (3,396 ) —
9
—
(3,387 )
Total shareholders’ equity 10,976
—
(675 ) —
10,301
Total liabilities and
    shareholders’ equity
$ 32,872
$ —
$ 1,112
$ (812 ) $ 33,172

* The effect of the adoption of ASU 2015-17 includes the reclassification of current deferred tax assets and liabilities of $10 and $335, respectively, which are included as effects of adopting ASC Topic 606.

~~CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)~~

Three Months Ended Effect of the Adoption of Three Months Ended
April 3, 2016 ASU ASC ASU April 3, 2016
(Dollars in millions) As Reported 2016-09 Topic 606 2015-17 As Adjusted
Cash flows from operating activities -
    continuing operations:

Net earnings $ 717
$ 15
$ (91 ) $ —
$ 641
Adjustments to reconcile net earnings to net cash
    provided by operating activities:

Depreciation of property, plant and equipment 90
—
(1 ) —
89
Amortization of intangible assets 27
—
—
—
27
Equity-based compensation expense 27
—
—
—
27
Excess tax benefit from equity-based
    compensation
(15 ) 15
—
—
—
Deferred income tax provision 20
—
(38 ) —
(18 )
Discontinued operations 13
—
—
—
13
(Increase) decrease in assets, net of effects of
    business acquisitions:

Accounts receivable (195 ) —
(15 ) —
(210 )
Unbilled receivables (337 ) —
61
—
(276 )
Inventories (133 ) —
(88 ) —
(221 )
Increase (decrease) in liabilities, net of effects of
    business acquisitions:

Accounts payable 179
—
—
—
179
Customer advances and deposits (209 ) —
191
—
(18 )
Income taxes payable 268
(15 ) —
—
253
Other current liabilities (70 ) 26
(8 ) —
(52 )
Other, net 57
—
(11 ) —
46
Net cash provided by operating activities 439
�� 41
—
—
480
Cash flows from investing activities:

Capital expenditures (65 ) —
—
—
(65 )
Other, net (53 ) —
—
—
(53 )
Net cash used by investing activities (118 ) —
—
—
(118 )
Cash flows from financing activities:

Purchases of common stock (1,026 ) —
—
—
(1,026 )
Dividends paid (215 ) —
—
—
(215 )
Other, net 48
(41 ) —
—
7
Net cash used by financing activities (1,193 ) (41 ) —
—
(1,234 )
Net cash used by discontinued operations (6 ) —
—
—
(6 )
Net decrease in cash and equivalents (878 ) —
—
—
(878 )
Cash and equivalents at beginning of period 2,785
—
—
—
2,785
Cash and equivalents at end of period $ 1,907
$ —
$ —
$ —
$ 1,907

~~CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)~~

Common Stock Retained Treasury
Accumulated
Other
Comprehensive

Total
Shareholders’
(Dollars in millions) Par Surplus Earnings Stock Loss Equity
December 31, 2015 - as reported $ 482
$ 2,730
$ 23,204
$ (12,392 ) $ (3,286 ) $ 10,738
Cumulative-effect adjustment of ASC
Topic 606 on January 1, 2016
—
—
(301 ) —
3
(298 )
December 31, 2015 - as adjusted 482
2,730
22,903
(12,392 ) (3,283 ) 10,440
First quarter 2016 - as reported —
10
483
(994 ) 345
(156 )
Effect of the adoption of ASU 2016-09 —
(15 ) 15
—
—
—
Effect of the adoption of ASC Topic 606 —
—
(91 ) —
(1 ) (92 )
Effect of the adoption of ASU 2015-17 —
—
—
—
—
—
April 3, 2016 - as adjusted $ 482
$ 2,725
$ 23,310
$ (13,386 ) $ (2,939 ) $ 10,192

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

BUSINESS OVERVIEW

General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions; and shipbuilding and ship repair.

~~We operate through~~Our company is organized into four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems. Our primary customer is the U.S. government, including the Department of Defense (DoD), the intelligence community and other U.S. government customers. We also have significant business with non-U.S. governments and a diverse base of corporate and individual buyers of business-jet aircraft. The following discussion should be read in conjunction with our ~~2016~~2017 Annual Report on Form 10-K and with the unaudited Consolidated Financial Statements included in this Form 10-Q.

~~DEFENSE BUSINESS ENVIRONMENT~~ACQUISITION OF CSRA

~~With~~On April 3, 2018, we completed our acquisition of CSRA Inc. (CSRA) for $41.25 per share in cash. See Note B to the unaudited Consolidated Financial Statements in Part I, Item 1, for further discussion of the acquisition. CSRA is now part of General Dynamics Information Technology (GDIT) in our Information Systems and Technology group. The combination of GDIT and CSRA creates a premier provider of high-tech IT solutions to the government IT market.

As a result of the CSRA acquisition and the associated impacts (e.g., acquisition financing), we anticipate the following adjustments to our 2018 outlook:

CSRA is expected to add approximately ~~60 percent~~$3.6 billion of ~~our~~ revenue ~~from~~in 2018 to the U.S. government, our financial performance is impacted by U.S. government spending levels, particularly defense spending. Over the past several years, U.S. defense spending has been mandated by the Budget Control ActInformation Systems and Technology group’s revenue.

After a one-time charge of ~~2011 (BCA). The BCA establishes spending caps over a 10-year period through 2021.~~

~~The fiscal year (FY) 2017 budget request for the DoD totals $589 billion, which includes $524 billion~~approximately $80 in the ~~base budget in compliance~~second quarter of 2018 associated with the ~~BCA, as well as $65 billion for overseas contingency operations. The budget request represents a slight increase over FY 2016 spending levels. In December 2016, since~~costs to complete the ~~Congress had not passed~~acquisition, we expect the FY 2017 defense appropriations bill, a continuing resolution (CR), which funds government agencies at FY 2016 spending levels, was approved through April 28, 2017. To prevent detrimental changes or delaysacquisition to ~~certain government programs,~~be break even to slightly accretive to our diluted earnings per share in the ~~CR included exceptions that provide funding flexibility and additional appropriations for these programs, including the Columbia-class submarine.~~

~~On March 8, 2017, the House~~second half of Representatives passed the FY 2017 defense appropriations bill, but the Senate has not yet passed the bill as of the filing of this Form 10-Q on April 26, 2017. The current CR has not had a material impact on our results of operations, financial condition or cash flows. The timing of the passage of an appropriations bill remains uncertain. However, if a full-year extension of the CR occurs, it is not expected to have a material impact on our results of operations, financial condition or cash flows.2018.

RESULTS OF OPERATIONS

INTRODUCTION

An understanding of our accounting practices is ~~important to evaluate~~necessary in the evaluation of our financial statements and operating results. The following paragraphs explain how we recognize revenue and operating costs in our business groups. We account for revenue in accordance with ~~ASC~~Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with

~~Customers, which we adopted on January 1, 2017. As a result of adoption, our prior-period results of operations and backlog have been restated.~~ Customers.

In the Aerospace group, we record revenue on contracts for new aircraft when ~~control is transferred to~~ the customer obtains control of the asset, which is generally ~~when~~upon delivery and acceptance by the customer ~~accepts~~of the fully outfitted aircraft. Revenue associated with the group’s completions of other original equipment

manufacturers’ (OEMs) aircraft and the group’s services businesses ~~are~~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 of aircraft service activity during the period.

The majority of the Aerospace group’s operating costs ~~relates~~relate to new aircraft production on firm orders and ~~consists~~consist 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 group’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 large-cabin and mid-cabin aircraft deliveries. Additional factors affecting the group’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 group.

In the three defense groups, revenue on long-term government contracts is recognized generally over time as the work progresses, either as the products are produced or as services are rendered. Typically, revenue is recognized over time using ~~an input measure (e.g.,~~ costs incurred to date relative to total estimated costs at ~~completion)~~completion to measure ~~progress. Operating~~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 ~~for the defense groups consist of~~include labor, material, ~~subcontractor,~~ overhead and, when appropriate, G&A ~~costs and are recognized generally as incurred.~~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 groups 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 ~~scope~~ or both. Therefore, changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. Additionally, higher or lower margins can be inherent in the contract type (e.g., fixed-price/cost-reimbursable) or type of work (e.g., development/production).

CONSOLIDATED OVERVIEW


Three Months Ended	April 2, 2017			April 3, 2016			Variance					April 1, 2018			April 2, 2017			Variance
Revenue	$	7,441		$	7,476		$	(35	)	(0.5	)%	$	7,535		$	7,441		$	94		1.3	%
Operating costs and expenses	6,406			6,552			(146		)	(2.2	)%	6,527			6,395			132			2.1	%
Operating earnings	1,035			924			111			12.0	%	1,008			1,046			(38		)	(3.6	)%
Operating margin	13.9		%	12.4		%						13.4		%	14.1		%

Our consolidated ~~results for the first quarter of 2017 reflect superb operating performance, with operating earnings over $1 billion and a record-high 13.9 percent operating margin.~~

~~Revenue was down very slightly~~revenue increased in the first quarter of ~~2017 compared with the prior-year period.~~2018 as revenue growth in each of our defense groups offset a decrease in revenue in our Aerospace group due to fewer aircraft deliveries . The ~~decrease~~increase in revenue in our defense groups was driven by ~~less U.S. Navy ship construction work~~higher volume from international military vehicles in our ~~Marine~~Combat Systems group, ~~and lower volume~~IT services in our Information Systems and Technology ~~group. Revenue increased~~group and U.S. Navy ship construction in our ~~Aerospace group with additional aircraft deliveries and in our Combat~~Marine Systems ~~group with higher combat vehicle sales.~~group.

Operating costs and expenses ~~decreased~~increased at a greater rate than revenue ~~resulting in operating earnings and margin growth compared with the prior-year period. The 150 basis-point margin expansion~~ in the first quarter of ~~2017~~2018, resulting in lower operating earnings and margin due primarily to aircraft delivery mix in our Aerospace group. This margin decrease was ~~attributable to~~offset partially by margin expansion in our Marine Systems group, reflecting improved operating performance inacross the ~~Aerospace, Combat Systems, and Information Systems and Technology groups.~~group’s shipyards.

REVIEW OF BUSINESS GROUPS

Following is a discussion of ~~the~~ operating results and outlook for each of our business groups. For the Aerospace group, results are analyzed by specific types of products and services, consistent with how the group is managed. For the defense groups, the discussion is based on the lines of products and services each group offers with a supplemental discussion of specific contracts and programs when significant to the group’s results. Additional information regarding our business groups can be found in Note OP to the unaudited Consolidated Financial Statements in Part I, Item 1.

AEROSPACE


Three Months Ended	April 2, 2017			April 3, 2016			Variance				April 1, 2018			April 2, 2017			Variance
Revenue	$	2,074		$	1,781		$	293	16.5	%	$	1,825		$	2,074		$	(249	)	(12.0	)%
Operating earnings	443			332			111		33.4	%	346			439			(93		)	(21.2	)%
Operating margin	21.4		%	18.6		%					19.0		%	21.2		%
Gulfstream aircraft deliveries (in units)	30			28			2		7.1	%	26			30			(4		)	(13.3	)%

Operating Results

The change in the Aerospace group’s revenue in the first quarter of ~~2017~~2018 consisted of the following:


Aircraft manufacturing, outfitting and completions	$	253	$	(263	)
Aircraft services	34		16
Pre-owned aircraft	6		(2		)
Total increase	$	293
Total decrease			$	(249	)

Aircraft manufacturing, outfitting and completions revenue ~~increased in the first quarter of 2017~~decreased due ~~primarily~~ to ~~additional~~fewer deliveries of the ultra-large-cabin G650 aircraft ~~offset partially by fewer G550 large-cabin~~consistent with our plan. Revenue is expected to increase later this year with initial deliveries of the new G500 aircraft. The increase in aircraft ~~deliveries. Aircraft~~ services revenue ~~increased in the first quarter of 2017~~was driven by higher demand for maintenance work and the acquisitions of an aircraft management and charter services provider in 2016 and a fixed-base operations (FBO) facility in 2017. We had one pre-owned aircraft sale in each of the first-quarter periods.work.

The change in the group’s operating earnings in the first quarter of ~~2017~~2018 consisted of the following:


Aircraft manufacturing, outfitting and completions	$	124		$	(86	)
Aircraft services	(7		)	11
Pre-owned aircraft	2
G&A/other expenses	(8		)	(18		)
Total increase	$	111
Total decrease				$	(93	)

~~Operating~~Aircraft manufacturing, outfitting and completions earnings were updown due to fewer aircraft deliveries and the mix of aircraft deliveries. Aircraft services operating earnings were particularly strong in the first quarter of ~~2017 compared with the prior-year period~~2018 due to ~~additional aircraft deliveries, a~~ favorable cost performance and the mix of ~~those deliveries and effective cost containment, driving a 280 basis-point increase in~~services. G&A/other expenses were higher due primarily to increased R&D expenses associated with ongoing product-development efforts. Overall, the Aerospace group’s operating margin decreased 220 basis points to ~~21.4 percent.~~

~~Outlook~~

~~We expect~~19% consistent with our plan as we transition to the ~~group’s full-year 2017 revenue to increase about 6 percent from 2016. Operating margin is expected to be in~~G500 and later the ~~low-19 percent range.~~G600 aircraft.

COMBAT SYSTEMS


Three Months Ended	April 2, 2017			April 3, 2016			Variance				April 1, 2018			April 2, 2017			Variance
Revenue	$	1,287		$	1,245		$	42	3.4	%	$	1,440		$	1,287		$	153	11.9	%
Operating earnings	205			187			18		9.6	%	224			205			19		9.3	%
Operating margin	15.9		%	15.0		%					15.6		%	15.9		%

Operating Results

The increase in the Combat Systems group’s revenue in the first quarter of ~~2017~~2018 consisted of the following:


International military vehicles				$	133
Weapons systems and munitions				11
U.S. military vehicles	$	44		9
Weapons systems and munitions	11
International military vehicles	(13		)
Total increase	$	42		$	153

Revenue from ~~U.S.~~international military vehicles increased indue primarily to the ~~first quarter of 2017 due to higher volume on the Stryker program to produce vehicles with a 30-millimeter cannon. Weapons systems and munitions revenue was~~ramp up ~~slightly due to increased production~~ of several ~~products,~~production programs, including bombs and Hydra-70 rockets. Lower revenue on our international military vehicle programs was driven by the transition from engineering to production on a major combat-vehicle contract in the Middle East and timing of work to upgrade and modernize LAV III combat vehicles for the Canadian army. These decreases were largely offset by higher volume on the BritishU.K. AJAX armoured fighting vehicles, Piranha 5 wheeled armored vehicles for the Romanian Armed Forces and ~~Danish~~the upgrade of light armored ~~personnel carriers programs.~~

vehicles (LAVs) for the Government of Canada.

The Combat Systems group’s operating margin ~~increased 90~~decreased 30 basis points ~~in the first quarter of 2017~~ driven by ~~improved operating performance. Operating results~~contract mix in ~~the first quarter of 2016 included a loss on the design~~our weapons systems and ~~development phase of the AJAX contract.~~

~~Outlook~~

~~We expect the Combat Systems group’s full-year revenue to increase between 6 and 7 percent in 2017. Operating margin is expected to be in the mid-15 percent range.~~munitions business.

INFORMATION SYSTEMS AND TECHNOLOGY


Three Months Ended	April 2, 2017			April 3, 2016			Variance					April 1, 2018			April 2, 2017			Variance
Revenue	$	2,146		$	2,328		$	(182	)	(7.8	)%	$	2,236		$	2,146		$	90	4.2	%
Operating earnings	236			237			(1		)	(0.4	)%	247			236			11		4.7	%
Operating margin	11.0		%	10.2		%						11.0		%	11.0		%

Operating Results

The ~~change~~increase in the Information Systems and Technology group’s revenue in the first quarter of ~~2017~~2018 consisted of the following:


IT services				$	80
C4ISR solutions	$	(98	)	10
IT services	(84		)
Total decrease	$	(182	)
Total increase				$	90

~~C4ISR solutions revenue decreased~~Revenue in our Information Systems and Technology group increased in the first quarter of 2018 due to an increase in activity following program delays across the group in 2017 ~~due primarily to lower volume on~~and the ~~Common Hardware Systems-4 (CHS-4) ruggedized computing equipment and Warfighter Information Network-Tactical (WIN-T) mobile communications network programs. Revenue decreased~~acquisition of a provider of mission-critical support services in ~~the first quarter of~~late 2017 in our IT services ~~business driven by lower volume on the Department of State supply chain management program and decreased contact-center services work for the Centers for Medicare & Medicaid Services.~~

~~The group maintained steady operating earnings despite the lower revenue. The 80 basis-point increase in operating~~business. Operating margin in the first quarter of ~~2017~~2018 was ~~driven primarily by strong program performance on several mature programs in~~steady compared with the ~~IT services business.~~

~~Outlook~~

~~We expect full-year revenue in the Information Systems and Technology group to increase slightly in 2017, with operating margin approximating 11 percent.~~prior-year period.

MARINE SYSTEMS


Three Months Ended	April 2, 2017			April 3, 2016			Variance					April 1, 2018			April 2, 2017			Variance
Revenue	$	1,934		$	2,122		$	(188	)	(8.9	)%	$	2,034		$	1,934		$	100	5.2	%
Operating earnings	161			184			(23		)	(12.5	)%	184			161			23		14.3	%
Operating margin	8.3		%	8.7		%						9.0		%	8.3		%

Operating Results

The ~~change~~increase in the Marine Systems group’s revenue in the first quarter of ~~2017~~2018 consisted of the following:


U.S. Navy ship construction	$	(232	)	$	146
Commercial ship construction	(51		)	18
U.S. Navy ship engineering, repair and other services	95			(64		)
Total decrease	$	(188	)
Total increase				$	100

Revenue from U.S. Navy ship construction ~~revenue decreased in the first quarter of 2017~~increased due primarily to ~~lower material~~higher volume on Block ~~III~~IV of the Virginia-class submarine program ~~offset partially by higher volume on~~and the ~~Expeditionary Sea Base (ESB) and~~ TAO-205 ~~next-generation~~ fleet oiler ~~contracts. Jones Act commercial~~contract. Commercial ship construction revenue ~~decreased following the~~increased as work ramped up on a contract for two container ships scheduled for delivery ~~of six ships~~ in ~~2016.~~2019 and 2020. These ~~decreases~~increases were offset partially by ~~increased~~lower revenue from U.S. Navy ship engineering, repair and other services driven by ~~additional development work on the Columbia-class submarine program and~~ a ~~higher~~lower volume of submarine repair work and the timing of surface ship repair work.

The Marine Systems group’s operating margin ~~decreased 40~~increased 70 basis points reflecting improved performance across the group’s shipyards.

CORPORATE

Corporate income totaled $7 in the first quarter of 2018 compared with $5 in the first quarter of 2017. ~~Operating results~~As discussed in Note A to the unaudited Consolidated Financial Statements in Part I, Item 1, Corporate operating costs are impacted by Accounting Standards Update (ASU) 2017-07. ASU 2017-07 requires the non-service cost components of pension and other post-retirement benefit cost (e.g., interest cost) to be reported in other income (expense) in the income statement. In our three defense groups, pension and other post-retirement benefit costs are allocable contract costs. For these groups, we report the offset for the non-service cost

components in Corporate operating results. This amount exceeds our stock option expense in the first ~~quarter~~quarters of ~~2017 were impacted in part by a delay in the scheduled delivery of one ship in Block III of the Virginia-class submarine program.~~

~~Outlook~~

~~We expect the Marine Systems group’s full-year revenue to decrease slightly in~~2018 and 2017. ~~Operating margin is expected to improve to the mid-8 percent range.~~

~~CORPORATE~~

Corporate costs totaled $10 in the first quarter of 2017 compared with $16 in the first quarter of 2016. Corporate results consist primarily of compensation expense for stock options. We expect 2017 Corporate operating costs of approximately $55.

OTHER INFORMATION

PRODUCT REVENUE AND OPERATING COSTS


Three Months Ended	April 2, 2017		April 3, 2016		Variance					April 1, 2018		April 2, 2017		Variance
Revenue	$	4,467	$	4,582	$	(115	)	(2.5	)%	$	4,576	$	4,467	$	109	2.4	%
Operating costs	3,436		3,635		(199		)	(5.5	)%	3,546		3,438		108		3.1	%

The ~~change~~increase in product revenue in the first quarter of ~~2017~~2018 consisted of the following:


Military vehicle production				$	176
Ship construction	$	(285	)	167
Aircraft manufacturing, outfitting and completions	253			(263		)
C4ISR products	(78		)
Other, net	(5		)	29
Total decrease	$	(115	)
Total increase				$	109

~~Product~~Military vehicle production revenue ~~decreased in the first quarter of 2017~~increased due primarily to ~~lower material~~the ramp up of several international production programs, including U.K. AJAX armoured fighting vehicles, Romanian Piranha 5 wheeled armored vehicles and the upgrade of LAVs for the Government of Canada. Ship construction revenue increased due primarily to higher volume on Block ~~III~~IV of the Virginia-class submarine program, the TAO-205 fleet oiler contract and ~~decreased Jones Act~~ commercial container ship ~~construction volume. Revenue from C4ISR products decreased in the first quarter of 2017 due to lower volume on the CHS-4 and WIN-T programs.~~construction. These ~~decreases~~increases were offset partially by ~~additional Gulfstream~~lower aircraft ~~deliveries in the first quarter of 2017.~~manufacturing, outfitting and completions revenue due to fewer aircraft deliveries. Product operating costs ~~decreased~~increased consistent with the changes in volume on the ~~first quarter of 2017 at a higher rate than revenue declined due to improved operating performance in the Aerospace, Combat Systems, and Information Systems and Technology groups.~~programs described above.

SERVICE REVENUE AND OPERATING COSTS


Three Months Ended	April 2, 2017		April 3, 2016		Variance				April 1, 2018		April 2, 2017		Variance
Revenue	$	2,974	$	2,894	$	80	2.8	%	$	2,959	$	2,974	$	(15	)	(0.5	)%
Operating costs	2,489		2,456		33		1.3	%	2,444		2,485		(41		)	(1.6	)%

The change in service revenue in the first quarter of ~~2017~~2018 consisted of the following:


Ship engineering, repair and other services	$	97		$	(68	)
IT services				70
Other, net	(17		)	(17		)
Total increase	$	80
Total decrease				$	(15	)

~~Service revenue increased in the first quarter of 2017~~Ship engineering, repair and other services decreased due primarily to ~~additional development work on the Columbia-class submarine program and~~ a ~~higher~~lower volume of submarine repair work and the timing of surface ship repair work. This decrease was offset by higher IT services revenue, including the acquisition of a provider of mission-critical support services in late 2017. Service operating costs ~~increased~~decreased at a higher rate than revenue due to strong service operating performance in ~~the first quarter~~each of ~~2017 consistent with the higher volume on the programs described above.~~our business groups.

OTHER FINANCIAL INFORMATION

G&A Expenses

As a percentage of revenue, G&A expenses were ~~6.5 percent~~7.1% in the first three months of~~2017~~2018 compared with ~~6.2 percent~~6.3% in the first three months of ~~2016. We expect full-year G&A expenses in 2017 to be generally consistent with 2016.~~2017.

Interest, Net

Net interest expense was ~~$25~~$27 in the first three months of ~~2017~~2018 compared with ~~$22~~$25 in the prior-year period. The increase is due primarily to ~~a $500 net increase~~slightly higher interest rates on the $1 billion of fixed-rate notes issued in ~~long-term~~2017 compared with the $900 of fixed-rate notes that matured in 2017. See Note J to the unaudited Consolidated Financial Statements in Part I, Item 1, for additional information regarding our debt ~~beginning~~obligations, including interest rates.

Other, Net

Net other expense was $21 in the ~~third quarter~~first three months of ~~2016. We expect full-year 2017 net interest~~2018 compared with $11 in the first three months of 2017. Other expense ~~to be approximately $110.~~represents the non-service cost components of pension and other post-retirement benefit cost and transaction costs associated with the CSRA acquisition.

Provision for Income Tax, Net

Our effective tax rate was ~~24.5 percent~~16.8% in the first three months of ~~2017~~2018 compared with ~~28.3 percent~~24.5% in the prior-year period. The decrease is due primarily to ~~additional~~the reduction of the U.S. corporate statutory tax ~~benefits~~rate from ~~equity-based compensation~~35% to 21% beginning on January 1, 2018, resulting from the enactment of the Tax Cuts and Jobs Act (tax reform) on December 22, 2017. The effective tax rate in the first three months of ~~2017 associated with stock option exercises and~~2018 also included the ~~vesting~~impact of ~~restricted stock and restricted stock units. We anticipate a full-year 2017 effective~~excess tax ~~rate of approximately 28 percent.~~

~~Discontinued Operations~~

~~In the first quarter of 2016, we recognized in discontinued operations a final adjustment of $13~~ ~~to the loss on the sale of our axle business in the Combat Systems group. The business was sold in 2015.~~benefits from equity-based compensation.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

Our total backlog, including funded and unfunded portions, was ~~$60.4~~$62.1 billion at the end of the first quarter of ~~2017~~2018, compared with ~~$62.2~~$63.2 billion on December 31, ~~2016. The funded portion of the backlog grew by approximately $1.5 billion to $53.3 billion, or 88 percent of our total backlog.~~2017. Our total backlog is equal to our remaining performance obligations under contracts that meet the criteria in ASC Topic 606 as discussed in Note BD to the unaudited Consolidated Financial Statements in Part I, Item 1. Our total estimated contract value, which combines total backlog with estimated potential contract value, was ~~$85~~$87.6 billion on April ~~2, 2017.~~1, 2018.

The following table details the backlog and ~~the~~ estimated potential contract value of each business group at the end of the first quarter of ~~2017~~2018 and the fourth quarter of ~~2016:~~2017:


	Funded		Unfunded		Total Backlog		Estimated Potential Contract Value		Total Estimated Contract Value		Funded		Unfunded		Total Backlog		Estimated Potential Contract Value		Total Potential Contract Value
	April 2, 2017										April 1, 2018
Aerospace	$	12,446	$	133	$	12,579	$	1,929	$	14,508	$	11,898	$	158	$	12,056	$	1,868	$	13,924
Combat Systems	17,058		523		17,581		4,970		22,551		17,126		378		17,504		3,549		21,053
Information Systems and Technology	6,682		2,038		8,720		13,994		22,714		6,739		2,075		8,814		15,787		24,601
Marine Systems	17,071		4,413		21,484		3,756		25,240		18,310		5,458		23,768		4,271		28,039
Total	$	53,257	$	7,107	$	60,364	$	24,649	$	85,013	$	54,073	$	8,069	$	62,142	$	25,475	$	87,617

	December 31, 2016										December 31, 2017
Aerospace	$	13,119	$	96	$	13,215	$	2,127	$	15,342	$	12,319	$	147	$	12,466	$	1,955	$	14,421
Combat Systems	17,206		597		17,803		4,698		22,501		17,158		458		17,616		3,154		20,770
Information Systems and Technology	6,458		2,007		8,465		14,327		22,792		6,682		2,192		8,874		14,875		23,749
Marine Systems	15,000		7,723		22,723		3,873		26,596		15,872		8,347		24,219		4,809		29,028
Total	$	51,783	$	10,423	$	62,206	$	25,025	$	87,231	$	52,031	$	11,144	$	63,175	$	24,793	$	87,968

AEROSPACE

Aerospace funded backlog represents new aircraft and custom completion orders for which we have definitive purchase contracts and deposits from customers. Unfunded backlog consists of agreements to provide future aircraft maintenance and support services. The group ended the first quarter of ~~2017~~2018 with backlog of ~~$12.6~~$12.1 billion compared with ~~$13.2~~$12.5 billion on December 31, ~~2016.~~2017.

Orders in the first quarter of ~~2017~~2018 reflected good demand across our product and services portfolio. We received orders for all models of in-production Gulfstream aircraft, ~~as well as additional~~with particularly strong first-quarter orders for the ultra-large-cabin G650 aircraft. We continue to progress toward anticipated U.S. Federal Aviation Administration (FAA) type certification and entry into service of the new G500 and G600, ~~aircraft,~~for which ~~are expected to enter into service~~we received additional orders in ~~2017 and 2018, respectively.~~the first quarter of 2018.

Beyond total backlog, estimated potential contract value in the Aerospace group was $1.9 billion on April ~~2, 2017~~1, 2018, compared with ~~$2.1~~$2 billion on December 31, ~~2016.~~2017. Estimated potential contract value represents primarily options to purchase new aircraft and long-term aircraft services agreements. ~~The value was down slightly in the first quarter of 2017 as customers exercised options to purchase new aircraft.~~

DEFENSE GROUPS

The total backlog in our three defense groups represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of this backlog includes items that have been authorized and appropriated by the U.S. Congress and funded by ~~the customer,~~customers, as well as commitments by international customers that are approved and funded similarly by their governments. ~~We have included in total backlog firm contracts at~~The unfunded portion includes the amounts that we believe we are likely to ~~receive funding,~~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 groups includes unexercised options associated with existing firm contracts and work awarded on unfunded indefinite delivery, indefinite quantity (IDIQ) ~~contracts and unexercised options associated with existing firm~~ contracts. Contract options in our defense business represent agreements to perform additional work under existing contracts at the election of the customer. We recognize options in backlog when the customer exercises the option and establishes a firm order. For IDIQ contracts, we evaluate the amount of funding we expect to receive and include this amount in our estimated potential contract value. This amount is often less than the total IDIQ contract value, particularly when the contract has multiple awardees. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value. ~~We recognize options in backlog when the customer exercises the option and establishes a firm order.~~

Total backlog in our defense groups was ~~$47.8~~$50.1 billion on April ~~2, 2017, down 2.5 percent from $49~~1, 2018, compared with $50.7 billion on December 31, ~~2016. However, our funded backlog increased over 5 percent~~2017. The decrease was due primarily to ~~$40.8 billion, primarily in our~~the Marine Systems ~~group.~~group as the group continued to perform on significant multi-year contracts. The Combat Systems group achieved a book-to-bill ratio (orders divided by revenue) ~~in our Information Systems and Technology group exceeded~~higher than one-to-one in the first quarter of ~~2017, resulting in backlog growth of over $250.~~2018, driven by a large international armored vehicle order. Estimated potential contract value in our defense groups was ~~$22.7~~$23.6 billion on April ~~2, 2017, compared with $22.9~~1, 2018, up 3.4% from $22.8 billion on December 31, ~~2016. Each of our defense groups~~2017. We received ~~notable~~the following significant contract awards during the first quarter of ~~2017.~~2018:

Combat ~~Systems awards included~~Systems:

$445 to produce Piranha 5 wheeled armored vehicles and provide associated support services to the ~~following:~~Romanian Armed Forces, part of a larger contract with a total potential value exceeding $1 billion.

$~~175~~285 from the U.S. Army for inventory management and engineering and support services for the Stryker wheeled combat-vehicle fleet.

$75155 from the Army for various calibers of ammunition.

$80 from the Army for technical support and engineering and logistics ~~support~~ services for the Abrams ~~family of vehicles.~~main battle tank program.

$~~65 from the Army for training ammunition.~~

~~$50 from the U.S. Special Operations Command for the production of Ground Mobility Vehicles (GMVs).~~

~~$35 to produce gun systems for the F-35 Joint Strike Fighter.~~

~~$30~~70 from the Army for the production of Stryker double-V-hull vehicles ~~with an integrated 30-millimeter gun system.~~in the A1 configuration.

$65 to produce AGM-114R Hellfire munitions.

Information Systems and ~~Technology awards included the following:~~Technology:

$~~415 from the U.K. Ministry of Defence to design and develop the next-generation tactical communication and information system in the initial phase of the U.K.'s MORPHEUS program.~~

~~$160~~215 from the National ~~Geospatial-Intelligence Agency (NGA)~~Aeronautics and Space Administration (NASA) for the Space Network Ground Segment Sustainment (SGSS) program to ~~continue the consolidation of NGA's operations from six locations to one stand-alone location at New Campus East (NCE).~~modernize NASA’s ground infrastructure systems for its satellite network.

$85120 from the ~~NATO Communications~~U.S. Army for computing and ~~Information Agency to upgrade existing technical infrastructure with a comprehensive cloud-based infrastructure.~~communications equipment under the Common Hardware Systems-4 (CHS-4) program.

$8595 from the U.S. Air Force for the Battlefield Information Collection and Exploitation System (BICES) program to provide ~~intelligence~~ information sharing ~~and~~ support to coalition operations.

$60 to provide IT network and technical support services for the U.S. Army Intelligence and Security Command.

$5055 from the U.S. Air ~~Forces~~Force Central Command for communications equipment and associated technical support services in Asia.

$50 from the National Geospatial-Intelligence Agency (NGA) for IT lifecycle management and virtual desktop services.

$45 ~~from~~to provide vehicle electronic systems and components for Prophet, the ~~U.S. Naval Air Warfare Center for design, development~~Army’s ground-based tactical signals intelligence and ~~support services of shipboard and airborne systems.~~electronic warfare system.

$45 from the Army for ~~additional equipment for~~ the ~~WIN-T Increment 2 program.~~lightweight mobile tactical network.

$40 to ~~provide enterprise IT support services for U.S. Army Europe.~~continue managing the Army’s live training systems.

$3530 to provide engineering and integration support for the Canadian Army’s tactical communications network, the Land Command Support System (LCSS).

Marine Systems:

$695 from the ~~Army for ruggedized computing equipment under the CHS-4 program.~~

~~Marine Systems awards included the following:~~

~~$310 from the~~ U.S. ~~Navy for design work on the Columbia-class submarine program and Advanced Nuclear Plant Studies (ANPS) in support of the program.~~

~~$125 from the~~ Navy to procure long-lead materials for ~~two~~four Virginia-class submarines under Block V of the program.

$40420 from the Navy for ~~modernization work on~~construction of the ~~USS Cowpens, a Ticonderoga-class guided-missile cruiser.~~

second ship in the John Lewis-class (TAO-205) fleet oiler program.

$35100 from the Navy for ~~Post Shakedown Availability (PSA) work on a Virginia-class submarine.~~Advanced Nuclear Plant Studies in support of the Columbia-class submarine program.

$2585 from the Navy for maintenance and modernization work on the USS ~~Gonzalez, an Arleigh Burke-class guided-missile destroyer.~~Montpelier, a Los Angeles-class attack submarine.

$40 from the Navy to provide design and development and lead yard services for Virginia-class submarines.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We ended the first quarter of ~~2017~~2018 with a cash balance of ~~$2.2~~$4.3 billion, ~~down $166~~up $1.3 billion from the end of ~~2016.~~2017. Our net debt position, defined as debt less cash and equivalents and marketable securities, ~~less debt,~~ was ~~$1.7~~$2.1 billion at the end of the first quarter of ~~2017~~2018 compared with ~~$1.6 billion~~$999 at the end of ~~2016.~~2017.

We believe we have adequate funds on hand and sufficient borrowing capacity to execute our financial and operating strategy. The following is a discussion of our major operating, investing and financing activities in the first three months of 2018and2017, as classified on the unaudited Consolidated Statement of Cash Flows in ~~the~~ ~~first three months~~ of ~~2017and2016~~.Part I, Item 1.

OPERATING ACTIVITIES

We used cash for operating activities of $496 in the first three months of 2018 compared with cash generated ~~cash~~ from operating activities of $533 in the ~~first three months of 2017 compared with $480 in the~~ same period in ~~2016.~~2017. The primary driver of cash ~~flows~~inflows in both periods was net earnings. ~~Cash~~However, cash flows in the first three months of ~~2017~~2018 were affected negatively by growth in operating working capital, particularly the timing of billings and collections on large international vehicle contracts in our ~~Aerospace group from~~Combat Systems group. Additionally, in both periods, cash flows were affected negatively by the build-up of inventory related to the new G500 and G600 aircraft ~~programs.~~programs and the liquidation of customer deposits associated with aircraft deliveries in our Aerospace group.

INVESTING ACTIVITIES

Cash used for investing activities was ~~$85~~$105 in the first three months of ~~2017~~2018 compared with $~~118~~85 in the same period in ~~2016~~2017. Our investing activities include cash paid for capital expenditures and business acquisitions; purchases, sales and maturities of marketable securities; and proceeds from asset sales. The primary use of cash for investing activities in both periods was capital expenditures. ~~We expect capital~~Capital expenditures were $104 in the first three months of ~~approximately 2 percent of revenue~~2018 compared with $62 in ~~2017.~~the same period in 2017 as we deploy additional cash resulting from the recent tax reform to support the growth in our shipyards.

FINANCING ACTIVITIES

Cash ~~used for~~provided by financing activities was ~~$606~~$2 billion in the first three months of ~~2017~~2018 compared with ~~$1.2 billion~~cash used for financing activities of $606 in the same period in ~~2016~~2017. Our financing activities include repurchases of common stock, payment of

dividends and debt repayments. Net cash from financing activities also includes proceeds received from debt and commercial paper issuances and employee stock option exercises.

On March 1, 2017, our board of directors authorized management to repurchase up to 10 million additional shares of the ~~company's~~company’s outstanding stock. In the first three months of ~~2017,~~2018, we repurchased approximately ~~1.9~~1.2 million of our outstanding shares for ~~$355.~~$257. On April ~~2, 2017, 13.5~~1, 2018, 6.4 million shares remained authorized by our board of directors for repurchase, approximately ~~4 percent~~2% of our total shares outstanding. We repurchased ~~7.8~~1.9 million shares for ~~$1 billion~~$355 in the first three months of ~~2016.~~2017.

On March ~~1, 2017,~~7, 2018, our board of directors declared an increased quarterly dividend of ~~$0.84~~$0.93 per share, the ~~20th~~21st consecutive annual increase. Previously, the board had increased the quarterly dividend to ~~$0.76~~$0.84 per share in March ~~2016.~~2017. Cash dividends paid were ~~$230~~$250 in the first three months of ~~2017~~2018 compared with ~~$215~~$230 in the same period in ~~2016.~~2017.

~~Fixed-rate notes~~In the first quarter of ~~$900 mature~~2018, we took several actions in ~~November~~anticipation of ~~2017. As we approach~~ the ~~maturity date~~acquisition of this debt, we will determine whether to repay these notes with cash on hand or refinance the obligation. See Note I to the unaudited Consolidated Financial Statements in Part I, Item 1, for additional information regarding our debt obligations, including scheduled debt maturities and interest rates.

~~We had no commercial paper outstanding~~CSRA, which was completed on April ~~2, 2017.~~3, 2018. We renewed and increased to $2 billion our $1 billion multi-year committed bank credit facility, which was scheduled to expire in July 2018. The new credit facility expires in March 2023. We have $2an additional $1 billion inmulti-year committed bank credit ~~facilities~~facility that ~~remain available, including a $1 billion facility expiring in July 2018 and a $1 billion facility expiring~~expires in November 2020. ~~These~~We may renew or replace these credit facilities in whole or in part at or prior to their expiration dates. We also entered into a $7.5 billion, 364-day committed bank credit facility that expires in March 2019. We financed the acquisition of CSRA, in part, by borrowing $7.5 billion under this facility subsequent to the end of the quarter. We intend to issue debt securities in the future to repay in whole or in part the borrowings under this facility. The proceeds from these issuances will automatically reduce the bank’s commitments under this facility to an amount not less than $2 billion. Following this reduction, our three credit facilities will total $5 billion. Our credit facilities are used for general corporate purposes and working capital needs and ~~are required by credit rating agencies to~~ support our commercial paper issuances. ~~We also have an effective shelf registration~~

In the first quarter of 2018, we issued $2.5 billion of commercial paper, which remained outstanding on ~~file with the Securities and Exchange Commission that allows us to access the debt markets.~~April 1, 2018.

NON-GAAP FINANCIAL ~~MEASURES~~MEASURE – FREE CASH FLOW

We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow from operations to measure our performance in these areas. While we believe this metric provides useful information, it is not a defined operating measure under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with its use. Our calculation of this metric may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of this metric should not be considered in isolation from, or as a substitute for, other GAAP measures.

We define free cash flow from operations as net cash provided by operating activities less capital expenditures. We believe free cash flow from operations is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a key performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities, as classified on the unaudited Consolidated Statement of Cash ~~Flows:~~Flows in Part I, Item 1:

Three Months Ended April 2, 2017 April 3, 2016
Net cash provided by operating activities $ 533
$ 480
Capital expenditures (62 ) (65 )
Free cash flow from operations $ 471
$ 415
Cash flows as a percentage of earnings from continuing operations:
Net cash provided by operating activities 70 % 73 %
Free cash flow from operations 62 % 63 %

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.



Three Months Ended	April 1, 2018			April 2, 2017
Net cash (used) provided by operating activities	$	(496	)	$	533
Capital expenditures	(104		)	(62		)
Free cash flow from operations	$	(600	)	$	471
Cash flows as a percentage of earnings from continuing operations:
Net cash (used) provided by operating activities	(62		)%	70		%
Free cash flow from operations	(75		)%	62		%

ADDITIONAL FINANCIAL INFORMATION

ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES

For a discussion of environmental matters and other contingencies, see Note MN to the unaudited Consolidated Financial Statements in Part I, Item 1. Except as otherwise noted in Note M,N, we do not expect our aggregate liability with respect to these matters to have a material impact on our results of operations, financial condition or cash flows.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on ~~our~~the unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period.

Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. Contract estimates are based on various assumptions to project the outcome of future events that often span several years. We review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. The aggregate impact of adjustments in contract estimates increased our operating earnings (and diluted earnings per share) by $97 ($0.25) and $50 ($0.11) ~~and $58 ($0.12)~~ for the three-month periods ended April ~~2, 2017,~~1, 2018, and April ~~3, 2016,~~2, 2017, respectively. No adjustment on any one contract was material to ~~our~~the unaudited Consolidated Financial Statements for the three-month periods ended April 1, 2018, or April 2, ~~2017, and April 3, 2016.~~2017.

Other significant estimates include those related to goodwill and intangible assets, income taxes, pension and other post-retirement benefits, workers’ compensation, warranty obligations, and litigation and other contingencies. We 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 our results of operations for all periods presented. For a full discussion of our critical accounting policies, see our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. For a discussion of new accounting standards that have been issued by the FASB but are not yet effective, see Note A to the unaudited Consolidated Financial Statements in Part I, Item 1.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to this item from the disclosure included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

ITEM 4. CONTROLS AND PROCEDURES

Our management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of April ~~2, 2017,~~1, 2018, (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, on April ~~2, 2017,~~1, 2018, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that occurred during the quarter ended April ~~2, 2017,~~1, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The certifications of the company’s Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to this report.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “outlook,” “estimates,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements. Examples include projections of revenue, earnings, operating margin, segment performance, cash flows, contract awards, aircraft production, deliveries and backlog. In making these statements we rely on assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe our estimates and judgments are reasonable based on information available to us at the time. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including, without limitation, the risk factors discussed in Item 1A of our Annual Report on Form 10-K. These factors include:

general U.S. and international political and economic conditions;

decreases in U.S. government defense spending or changing priorities within the defense budget;

termination or restructuring of government contracts due to unilateral government action;

differences in anticipated and actual program performance, including the ability to perform under long-term, fixed-price contracts within estimated costs, and performance issues with key suppliers and subcontractors;

expected recovery on contract claims and requests for equitable adjustment;

changing customer demand or preferences for business aircraft, including the effects of economic conditions on the business-aircraft market;

potential for changing prices for energy and raw materials; and

the status or outcome of legal and/or regulatory proceedings.

All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to General Dynamics or any person acting on our behalf are qualified by the cautionary statements in this section. We do not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after

the date of this report. These factors may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes with respect to this item from the disclosure included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about our first-quarter purchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program (a) Maximum Number of Shares That May Yet Be Purchased Under the Program (a)
Pursuant to Share Buyback Program
1/1/17-1/29/17 —
$ —
—
5,388,754
1/30/17-2/26/17 540,000
186.96
540,000
4,848,754
2/27/17-4/2/17 1,340,000
189.53
1,340,000
13,508,754

Shares Delivered or Withheld Pursuant to Restricted Stock Vesting (b)
1/1/17-1/29/17 444,579
175.49

1/30/17-2/26/17 —
—

2/27/17-4/2/17 —
—

2,324,579
$ 186.25



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares That May Yet Be Purchased Under the Program
Pursuant to Share Buyback Program
1/1/18-1/28/18	425,242	$	207.83	425,242	7,160,168
1/29/18-2/25/18	—	—		—	7,160,168
2/26/18-4/1/18	750,000	224.23		750,000	6,410,168

Shares Delivered or Withheld Pursuant to Restricted Stock Vesting*
1/1/18-1/28/18	321,249	201.99
1/29/18-2/25/18	—	—
2/26/18-4/1/18	110,501	223.93
	1,606,992	$	215.43

~~(a) On March 1, 2017, the board of directors authorized management to repurchase 10 million additional shares of common stock.~~

~~(b)~~* 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 ~~minimum~~ statutory tax withholding due upon vesting of the restricted shares.

We did not make any unregistered sales of equity securities in the first quarter of ~~2017.~~2018.

ITEM 6. EXHIBITS

10.1*2.1

~~Form~~

Agreement and Plan of ~~Non-Statutory Stock Option Agreement pursuant to the~~Merger, dated February 9, 2018, by and among CSRA Inc., General Dynamics Corporation ~~2012 Equity Compensation Plan (for grants beginning March 1, 2017,~~ and ~~including, as indicated therein, provisions for certain executive officers who are subject to~~Red Hawk Enterprises Corp. (incorporated herein by reference from the ~~company's Compensation Recoupment Policy)~~company’s current report on Form 8-K, filed with the Commission on February 12, 2018)**

10.2*2.2

~~Form~~

Amendment No. 1 to Agreement and Plan of ~~Restricted Stock Award Agreement pursuant to the~~Merger, dated March 20, 2018, by and among CSRA Inc., General Dynamics Corporation ~~2012 Equity Compensation Plan (for grants beginning~~and Red Hawk Enterprises Corp. (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission on March 1, 2017, and including, as indicated therein, provisions for certain executive officers who are subject to the company's Compensation Recoupment Policy)**20, 2018)

10.3*4.1

~~Form~~

Indenture, dated as of ~~Restricted Stock Unit Award Agreement pursuant to the~~March 22, 2018, among General Dynamics Corporation, ~~2012 Equity Compensation Plan (for grants beginning~~the Guarantors party thereto and The Bank of New York Mellon, as Trustee (incorporated herein by reference from the company’s registration statement on Form S-3, filed with the Commission on March 22, 2018)


10.1	364-Day Incremental Credit Facility Commitment Letter, dated March 1, ~~2017)~~2018, by and among General Dynamics Corporation, JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC and Wells Fargo Bank, National Association (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission on March 5, 2018)


10.2	364-Day Credit Agreement, dated as of March 16, 2018, by and among General Dynamics Corporation, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders named therein (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission on March 20, 2018)


10.3	Resignation and Appointment Agreement, dated March 23, 2018, by and among JPMorgan Chase Bank, N.A., as resigning administrative agent, Wells Fargo Bank, National Association, as successor administrative agent, and certain guarantors and lenders named therein (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission on March 27, 2018)


10.4	Amendment No. 1 to the 364-Day Credit Agreement, dated as of March 28, 2018, by and among General Dynamics Corporation and Wells Fargo Bank, National Association, as administrative agent, and the lenders named therein**


31.1	Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002*


31.2	Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002*


32.1	Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002*


32.2	Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002*


101	Interactive Data File**

* Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 6 of Form 10-Q.

** Filed or furnished herewith.


*	General Dynamics Corporation has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation S-K and agrees to furnish supplementally to the SEC a copy of any omitted schedule or exhibit upon request by the SEC.


**	Filed or furnished herewith.

SIGNATURES

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



	GENERAL DYNAMICS CORPORATION
	by
		William A. Moss
		Vice President and Controller
		(Authorized Officer and Chief Accounting Officer)
Dated: April ~~26, 2017~~25, 2018

4845




PART I -	FINANCIAL INFORMATION	PAGE
Item 1 -	Unaudited Consolidated Financial Statements
	Consolidated ~~Statements~~Statement of Earnings	3
	Consolidated ~~Statements~~Statement of Comprehensive Income	4
	Consolidated Balance ~~Sheets~~Sheet	5
	Consolidated ~~Statements~~Statement of Cash Flows	6
	Consolidated ~~Statements~~Statement of Shareholders’ Equity	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3329
Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	4441
Item 4 -	Controls and Procedures	4541
	FORWARD-LOOKING STATEMENTS	4541
PART II -	OTHER INFORMATION	4642
Item 1 -	Legal Proceedings	4642
Item 1A -	Risk Factors	4642
Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	4643
Item 6 -	Exhibits	4743
	SIGNATURES	4845



	Three Months Ended			Effect of the Adoption of								Three Months Ended
	April 3, 2016			ASU			ASC			ASU		April 3, 2016
(Dollars in millions, except per-share amounts)	As Reported			2016-09			Topic 606			2015-17		As Adjusted
Revenue:
Products	$	4,864		$	—		$	(282	)	$	—	$	4,582
Services	2,860			—			34			—		2,894
	7,724			—			(248		)	—		7,476
Operating costs and expenses:
Products	3,784			—			(149		)	—		3,635
Services	2,427			—			29			—		2,456
G&A	460			—			1			—		461
	6,671			—			(119		)	—		6,552
Operating earnings	1,053			—			(129		)	—		924
Interest, net	(22		)	—			—			—		(22		)
Other, net	10			—			—			—		10
Earnings from continuing operations before income tax	1,041			—			(129		)	—		912
Provision for income tax, net	311			(15		)	(38		)	—		258
Earnings from continuing operations	730			15			(91		)	—		654
Discontinued operations	(13		)	—			—			—		(13		)
Net earnings	$	717		$	15		$	(91	)	$	—	$	641

Earnings per share
Basic:
Continuing operations	$	2.37		$	0.05		$	(0.30	)	$	—	$	2.12
Discontinued operations	(0.04		)	—			—			—		(0.04		)
Net earnings	$	2.33		$	0.05		$	(0.30	)	$	—	$	2.08
Diluted:
Continuing operations	$	2.34		$	0.03		$	(0.29	)	$	—	$	2.08
Discontinued operations	(0.04		)	—			—			—		(0.04		)
Net earnings	$	2.30		$	0.03		$	(0.29	)	$	—	$	2.04