UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

2941 Fairview Park Drive, Suite 100, Falls Church, Virginia 22042-4513

(Former name or former address, if changed since last report.)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesü 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). Yesü No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerü Accelerated filer ___ Non-accelerated filer ___

Smaller reporting ~~company ___~~company___☐ Emerging growth ~~company ___~~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 ___~~Yes___☐ No ü

~~298,582,883~~289,306,108 shares of the registrant’s common stock, $1 par value per share, were outstanding on ~~October 1, 2017.~~September 29, 2019.

INDEX




PART I -	FINANCIAL INFORMATION	PAGE
Item 1 -	Unaudited Consolidated Financial Statements
	Consolidated ~~Statements~~Statement of Earnings (Three Months)	3
	Consolidated ~~Statements~~Statement of Earnings (Nine Months)	4
	Consolidated ~~Statements~~Statement of Comprehensive Income (Three and Nine Months)	5
	Consolidated Balance ~~Sheets~~Sheet	6
	Consolidated ~~Statements~~Statement of Cash Flows	7
	Consolidated ~~Statements~~Statement of Shareholders’ Equity (Three and Nine Months)	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4036
Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4 -	Controls and Procedures	51
	FORWARD-LOOKING STATEMENTS	51
PART II -	OTHER INFORMATION	53
Item ~~4 -~~	~~Controls and Procedures~~	54
	~~FORWARD-LOOKING STATEMENTS~~	54
~~PART II -~~	~~OTHER INFORMATION~~	54
~~Item~~ 1 -	Legal Proceedings	5453
Item 1A -	Risk Factors	5453
Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	5453
Item 6 -	Exhibits	5553
	SIGNATURES	5654

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)	October 1, 2017			October 2, 2016			September 29, 2019			September 30, 2018
Revenue:
Products	$	4,718		$	4,749		$	5,789		$	4,842
Services	2,862			2,908			3,972			4,252
	7,580			7,657			9,761			9,094
Operating costs and expenses:
Products	3,634			3,750			(4,640		)	(3,797		)
Services	2,384			2,421			(3,333		)	(3,610		)
General and administrative (G&A)	510			471			(572		)	(552		)
	6,528			6,642			(8,545		)	(7,959		)
Operating earnings	1,052			1,015			1,216			1,135
Interest, net	(27		)	(23		)	(114		)	(114		)
Other, net	2			2			(12		)	2
Earnings from continuing operations before income tax	1,027			994			1,090			1,023
Provision for income tax, net	263			263			(177		)	(159		)
Earnings from continuing operations	764			731			913			864
Discontinued operations, net of tax benefit of $46 in 2016	—			(84		)
Discontinued operations, net of tax							—			(13		)
Net earnings	$	764		$	647		$	913		$	851

Earnings per share
Basic:
Continuing operations	$	2.56		$	2.40		$	3.17		$	2.92
Discontinued operations	—			(0.27		)	—			(0.04		)
Net earnings	$	2.56		$	2.13		$	3.17		$	2.88
Diluted:
Continuing operations	$	2.52		$	2.36		$	3.14		$	2.89
Discontinued operations	—			(0.27		)	—			(0.04		)
Net earnings	$	2.52		$	2.09		$	3.14		$	2.85

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

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


	Nine Months Ended						Nine Months Ended
(Dollars in millions, except per-share amounts)	October 1, 2017			October 2, 2016			September 29, 2019			September 30, 2018
Revenue:
Products	$	13,851		$	14,274		$	16,441		$	14,172
Services	8,845			8,633			12,136			11,643
	22,696			22,907			28,577			25,815
Operating costs and expenses:
Products	10,664			11,274			(13,217		)	(11,045		)
Services	7,393			7,250			(10,258		)	(9,838		)
G&A	1,496			1,417			(1,782		)	(1,701		)
	19,553			19,941			(25,257		)	(22,584		)
Operating earnings	3,143			2,966			3,320			3,231
Interest, net	(76		)	(68		)	(350		)	(244		)
Other, net	2			13			18			(34		)
Earnings from continuing operations before income tax	3,069			2,911			2,988			2,953
Provision for income tax, net	793			812			(524		)	(504		)
Earnings from continuing operations	2,276			2,099			2,464			2,449
Discontinued operations, net of tax benefit of $46 in 2016	—			(97		)
Discontinued operations, net of tax							—			(13		)
Net earnings	$	2,276		$	2,002		$	2,464		$	2,436

Earnings per share
Basic:
Continuing operations	$	7.59		$	6.86		$	8.55		$	8.27
Discontinued operations	—			(0.31		)	—			(0.04		)
Net earnings	$	7.59		$	6.55		$	8.55		$	8.23
Diluted:
Continuing operations	$	7.45		$	6.74		$	8.47		$	8.16
Discontinued operations	—			(0.31		)	—			(0.04		)
Net earnings	$	7.45		$	6.43		$	8.47		$	8.12

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					Nine Months Ended					Three Months Ended						Nine Months Ended
(Dollars in millions)	October 1, 2017		October 2, 2016			October 1, 2017		October 2, 2016			September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Net earnings	$	764	$	647		$	2,276	$	2,002		$	913		$	851		$	2,464		$	2,436
Gains on cash flow hedges	138		102			286		260			2			61			70			40
Unrealized gains (losses) on securities	1		(1		)	8		(5		)
Unrealized gains on marketable securities											1			—			1			—
Foreign currency translation adjustments	128		(42		)	409		85			(109		)	85			47			(130		)
Change in retirement plans’ funded status	61		65			193		191			66			84			188			247
Other comprehensive income, pretax	328		124			896		531
Other comprehensive (loss) income, pretax											(40		)	230			306			157
Provision for income tax, net	57		49			160		133			(15		)	(33		)	(59		)	(60		)
Other comprehensive income, net of tax	271		75			736		398
Other comprehensive (loss) income, net of tax											(55		)	197			247			97
Comprehensive income	$	1,035	$	722		$	3,012	$	2,400		$	858		$	1,048		$	2,711		$	2,533

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)	October 1, 2017			December 31, 2016			September 29, 2019			December 31, 2018

ASSETS
Current assets:
Cash and equivalents	$	2,722		$	2,334		$	974		$	963
Accounts receivable	3,391			3,399			3,489			3,759
Unbilled receivables	5,609			4,212			8,077			6,576
Inventories	5,781			5,817			6,573			5,977
Other current assets	577			772			1,038			914
Total current assets	18,080			16,534			20,151			18,189
Noncurrent assets:
Property, plant and equipment, net	3,461			3,477			4,217			3,978
Intangible assets, net	715			678			2,376			2,585
Goodwill	11,918			11,445			19,617			19,594
Other assets	740			1,038			2,427			1,062
Total noncurrent assets	16,834			16,638			28,637			27,219
Total assets	$	34,914		$	33,172		$	48,788		$	45,408

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt	$	903		$	900		$	4,661		$	973
Accounts payable	2,718			2,538			2,999			3,179
Customer advances and deposits	6,610			6,827			6,854			7,270
Other current liabilities	2,978			3,185			3,713			3,317
Total current liabilities	13,209			13,450			18,227			14,739
Noncurrent liabilities:
Long-term debt	3,979			2,988			8,989			11,444
Other liabilities	6,162			6,433			8,059			7,493
Commitments and contingencies (see Note M)
Total noncurrent liabilities	10,141			9,421			17,048			18,937
Shareholders’ equity:
Common stock	482			482			482			482
Surplus	2,841			2,819			2,999			2,946
Retained earnings	26,058			24,543			30,909			29,326
Treasury stock	(15,166		)	(14,156		)	(17,346		)	(17,244		)
Accumulated other comprehensive loss	(2,651		)	(3,387		)	(3,531		)	(3,778		)
Total shareholders’ equity	11,564			10,301			13,513			11,732
Total liabilities and shareholders’ equity	$	34,914		$	33,172		$	48,788		$	45,408

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

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


	Nine Months Ended						Nine Months Ended
(Dollars in millions)	October 1, 2017			October 2, 2016			September 29, 2019			September 30, 2018
Cash flows from operating activities - continuing operations:
Net earnings	$	2,276		$	2,002		$	2,464		$	2,436
Adjustments to reconcile net earnings to net cash provided by operating activities:
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation of property, plant and equipment	269			270			352			315
Amortization of intangible assets	57			70
Amortization of intangible and finance lease right-of-use assets							273			227
Equity-based compensation expense	75			76			103			110
Deferred income tax provision	155			148
Deferred income tax benefit							(72		)	(66		)
Discontinued operations, net of tax	—			97			—			13
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable	26			21			253			472
Unbilled receivables	(1,361		)	(907		)	(1,603		)	(1,625		)
Inventories	57			(206		)	(646		)	(854		)
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable	167			305			(164		)	(324		)
Customer advances and deposits	(296		)	(554		)	(565		)	112
Income taxes payable	223			(14		)
Other, net	233			64			192			265
Net cash provided by operating activities	1,881			1,372			587			1,081
Cash flows from investing activities:
Capital expenditures							(606		)	(447		)
Business acquisitions, net of cash acquired	(364		)	(56		)	(19		)	(10,039		)
Capital expenditures	(273		)	(244		)
Other, net	53			18			21			169
Net cash used by investing activities	(584		)	(282		)	(604		)	(10,317		)
Cash flows from financing activities:
Proceeds from commercial paper, net							947			1,668
Dividends paid							(858		)	(801		)
Purchases of common stock	(1,172		)	(1,514		)	(231		)	(533		)
Proceeds from fixed-rate notes	985			992			—			6,461
Dividends paid	(735		)	(678		)
Repayment of fixed-rate notes	—			(500		)
Proceeds from floating-rate notes							—			1,000
Repayment of CSRA accounts receivable purchase agreement							—			(450		)
Other, net	41			172			207			(68		)
Net cash used by financing activities	(881		)	(1,528		)
Net cash provided by financing activities							65			7,277
Net cash used by discontinued operations	(28		)	(44		)	(37		)	(14		)
Net increase (decrease) in cash and equivalents	388			(482		)	11			(1,973		)
Cash and equivalents at beginning of period	2,334			2,785			963			2,983
Cash and equivalents at end of period	$	2,722		$	2,303		$	974		$	1,010
Supplemental cash flow information:
Cash payments for:
Income taxes	$	398		$	677
Interest	$	66		$	58
Income tax payments, net							$	487		$	305
Interest payments							$	271		$	144

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

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


																	Three Months Ended
	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, 2016	$	482	$	2,819	$	24,543		$	(14,156	)	$	(3,387	)	$	10,301
Cumulative-effect adjustment (see Note A)	—		—		(3		)	—			—			(3		)
June 30, 2019																	$	482	$	2,959	$	30,291		$	(17,379	)	$	(3,476	)	$	12,877
Net earnings																	—		—		913			—			—			913
Cash dividends declared																	—		—		(295		)	—			—			(295		)
Equity-based awards																	—		40		—			33			—			73
Shares purchased																	—		—		—			—			—			—
Other comprehensive loss																	—		—		—			—			(55		)	(55		)
September 29, 2019																	$	482	$	2,999	$	30,909		$	(17,346	)	$	(3,531	)	$	13,513

July 1, 2018																	$	482	$	2,865	$	28,115		$	(15,910	)	$	(3,558	)	$	11,994
Net earnings	—		—		2,276			—			—			2,276			—		—		851			—			—			851
Cash dividends declared	—		—		(758		)	—			—			(758		)	—		—		(275		)	—			—			(275		)
Equity-based awards	—		22		—			127			—			149			—		49		—			26			—			75
Shares purchased	—		—		—			(1,137		)	—			(1,137		)	—		—		—			(87		)	—			(87		)
Other comprehensive income	—		—		—			—			736			736			—		—		—			—			197			197
October 1, 2017	$	482	$	2,841	$	26,058		$	(15,166	)	$	(2,651	)	$	11,564

December 31, 2015	$	482	$	2,730	$	22,903		$	(12,392	)	$	(3,283	)	$	10,440
Net earnings	—		—		2,002			—			—			2,002
Cash dividends declared	—		—		(701		)	—			—			(701		)
Equity-based awards	—		59		—			206			—			265
Shares purchased	—		—		—			(1,538		)	—			(1,538		)
Other comprehensive income	—		—		—			—			398			398
October 2, 2016	$	482	$	2,789	$	24,204		$	(13,724	)	$	(2,885	)	$	10,866
September 30, 2018																	$	482	$	2,914	$	28,691		$	(15,971	)	$	(3,361	)	$	12,755

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

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

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

Interim Financial Statements. The unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These rules and regulations permit some of the information and footnote disclosures ~~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 typically 13 weeks in length. Because our fiscal year ends on December 31, the number of days in our first and fourth quarters varies slightly from year to year. Operating results for the three- and nine-month periods ended ~~October 1, 2017,~~September 29, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2019.

The unaudited Consolidated Financial Statements contain all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations and financial condition for the three- and nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~October 2, 2016.~~September 30, 2018.

These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Discontinued ~~Operations.~~Operations, Net of Tax. In 2013, we settled litigation with the U.S. Navy related to the terminated A-12 aircraft contract in the company’s former tactical military aircraft business. In connection with the settlement, we released some rights to reimbursement of costs on ships under contract at our Bath, Maine, shipyard. As we progressed through the shipbuilding process, we determined that the cost associated with this settlement was greater than anticipated. Therefore, in the third quarter of ~~2016,~~2018, we ~~recognized~~disposed of certain CSRA operations to address an ~~$84~~ ~~loss, net~~organizational conflict of ~~tax,~~interest with respect to ~~adjust the previously-recognized settlement value.~~

services provided to a government customer. In ~~2015, we completed~~accordance with GAAP, the sale ~~of our axle business~~did not result in ~~the Combat Systems group. In the first nine months of 2016, we recognized~~ a ~~final adjustment of $13 to the loss on~~gain for financial reporting purposes. However, the sale generated a taxable gain, resulting in tax expense of ~~the business.~~$13.

Accounting Standards ~~Updates. On~~Updates. Effective January 1, ~~2017,~~2019, we adopted ~~the following accounting standards issued by the Financial Accounting Standards Board (FASB) that have impacted our prior-period financial statements:~~

~~See Note Q for further discussion of each of these accounting standards.~~

We also adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, on January 1, 2017. We recognized the cumulative effect of this standard as a $3 decrease to retained earnings on the date of adoption. ASU 2016-16 requires recognition of the current and deferred income tax effects of an intra-entity asset transfer, other than inventory, when the transfer occurs, as opposed to former GAAP, which required companies to defer the income tax effects of intra-entity asset transfers until 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.

~~There are several new accounting standards that have been issued by the FASB but are not yet effective, including the following:~~

The standard provided several optional practical expedients for use in transition. We elected to use what the Financial Accounting Standards Board (FASB) has deemed the “package of practical expedients,” which allowed us not to reassess our previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs. We did not elect the practical expedient pertaining to the use of hindsight.

The most significant effects of the standard on our Consolidated Financial Statements are (1) the recognition of new right-of-use assets and lease liabilities on our Consolidated Balance Sheet for our operating leases, and (2) significant new disclosures about our leasing activities (see Note N). On January 1, 2019, we recognized operating lease liabilities and right-of-use assets of $1.4 billion based on the present value of the remaining lease payments over the lease term. The adoption did not result in a cumulative-effect adjustment to retained earnings. The new standard did not have a material impact on our results of operations, financial condition or cash flows.

There are several other accounting standards that have been issued by the FASB but are not yet effective, including Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 significantly changes how entities account for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, that are not measured at fair value through net income. The ASU ~~also~~ requires ~~disclosure~~a number of ~~key~~changes to the assessment of credit losses, including the utilization of an expected credit loss model, which requires consideration of a broader range of information ~~about leasing arrangements.~~to estimate expected credit losses over the entire lifetime of the asset, including losses where probability is considered remote. Additionally, the standard requires the estimation of lifetime expected losses for trade receivables and contract assets that are classified as current. We intend to adopt the standard on the effective date of January 1, 2019, using the modified retrospective method of adoption. We are currently evaluating our population of leased assets in order to assess the impact of the ASU on our lease portfolio, and designing and implementing new processes and controls. Until this effort is completed, we cannot determine the effect of the ASU on our results of operations, financial condition or cash flows.

capitalization. We do not expect this area of the ASU to have a material effect on our results of operations, financial condition or cash flows. We intend to adopt the standard on the effective date of January 1, 2018.

B. ~~REVENUE~~ACQUISITIONS AND DIVESTITURES, GOODWILL, AND INTANGIBLE ASSETS

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

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



Cash and equivalents	$	45
Accounts receivable	155
Unbilled receivables	415
Other current assets	303
Property, plant and equipment, net	326
Intangible assets, net	2,066
Goodwill	7,935
Other noncurrent assets	369
Total assets	$	11,614
Accounts payable	$	(135	)
Customer advances and deposits	(151		)
Current lease obligation	(51		)
Other current liabilities	(434		)
Noncurrent lease obligation	(207		)
Noncurrent deferred tax liability	(355		)
Other noncurrent liabilities	(532		)
Total liabilities	$	(1,865	)
Net assets acquired	$	9,749

Pro Forma Information. The following pro forma information presents our consolidated revenue ~~is derived~~and earnings from ~~long-term contracts~~continuing operations as if the acquisition of CSRA 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~~the related financing transactions had occurred on January 1, ~~2017, using~~2017:



	Three Months Ended		Nine Months Ended
	September 30, 2018		September 30, 2018
Revenue	$	9,094	$	27,156
Earnings from continuing operations	872		2,470
Diluted earnings per share from continuing operations	$	2.92	$	8.23

The pro forma information was prepared by combining our reported historical results with the ~~retrospective method. See Note Q~~historical results of CSRA for ~~further discussion~~the pre-acquisition periods. In addition, the reported historical amounts were adjusted for the following items, net of associated tax effects:

The pro forma information does not reflect the realization of expected cost savings or synergies from the acquisition, and does not reflect what our combined results of operations would have been had the acquisition occurred on January 1, 2017.

Other Acquisitions and Divestitures

In the first nine months of 2019, we acquired two businesses in our Aerospace segment and a business in our Missions Systems segment for a total of $19. In 2018, we acquired 5 businesses in addition to the acquisition of CSRA for approximately $400: Hawker Pacific, a leading provider of integrated aviation solutions across Asia Pacific and the Middle East, and 2 fixed-base operation (FBO) businesses in our Aerospace segment; a maintenance and service provider for the German Army and other international customers in our Combat Systems segment; and a provider of specialized transmitters and receivers in our Mission Systems segment.

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

In the first nine months of 2019, we completed the sale of a business in our Information Technology segment that was classified as held for sale on the Consolidated Balance Sheet on December 31, 2018. In 2018, we completed the sale of a commercial health products business during the first quarter and the sale of a public-facing contact-center business during the fourth quarter in our ~~2016 financial statements.~~Information Technology segment. For the nine-month periods ended September 29, 2019, and September 30, 2018, the proceeds from the sale of businesses were not material and are included in other investing activities, net, in the unaudited Consolidated Statement of Cash Flows.

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



	Aerospace			Combat Systems		Information Technology		Mission Systems			Marine Systems		Total Goodwill
December 31, 2018 (a)	$	2,813		$	2,633	$	9,622	$	4,229		$	297	$	19,594
Acquisitions/divestitures (b)	2			15		77		6			—		100
Other (c)	(16		)	14		—		(75		)	—		(77		)
September 29, 2019 (a)	$	2,799		$	2,662	$	9,699	$	4,160		$	297	$	19,617

(a)Goodwill in the Information Technology and Mission Systems reporting units is net of $536 and $1.3 billion of accumulated impairment losses, respectively.

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

(c)Consists primarily of adjustments for foreign currency translation. Also includes an estimated allocation of goodwill in our Mission Systems reporting unit associated with a non-core operation classified as held for sale on the unaudited Consolidated Balance Sheet on September 29, 2019. As we expect this operation to be divested within the next 12 months, the assets and liabilities held for sale are included in other current assets and liabilities on the unaudited Consolidated Balance Sheet.

Intangible assets consisted of the following:

Amortization expense for intangible assets was $69 and $209 for the three- and nine-month periods ended September 29, 2019, and $86 and $190 for the three- and nine-month periods ended September 30, 2018, respectively.

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

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in ~~the~~ 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%~~72% and 74% of our revenue for the three- and nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~72%~~75% and ~~71%~~76% of our revenue for the three- and nine-month periods ended ~~October 2, 2016,~~September 30, 2018, respectively. Substantially all of our revenue in the defense ~~groups~~segments is recognized over time, because control is transferred continuously to our customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses.

Revenue from goods and services transferred to customers at a point in time accounted for ~~30%~~28% and 26% of our revenue for the three- and nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~28%~~25% and ~~29%~~ 24%

of our revenue for the three- and nine-month periods ended ~~October 2, 2016,~~September 30, 2018, respectively. The majority of our revenue recognized at a point in time is for the manufacture of business-jet aircraft in our Aerospace ~~group.~~segment. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft.

On ~~October 1, 2017,~~September 29, 2019, we had ~~$63.9~~$67.4 billion of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately ~~50%~~55% of our remaining performance obligations as revenue by ~~2018,~~year-end 2020, an additional 30% by ~~2020~~year-end 2022 and the balance thereafter. On December 31, 2018, we had $67.9 billion of remaining performance obligations, at which time we expected to recognize approximately 45% of these remaining performance obligations as revenue in 2019, an additional 35% by year-end 2021 and the balance thereafter.

Contract Estimates. The majority of our revenue is derived from long-term contracts and programs that can span several years. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.

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

The nature of our contracts gives rise to several types of variable consideration, including claims and award and incentive fees. We include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include award or incentive fees in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical award experience, anticipated performance and our best judgment at the time. Because of our certainty in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.

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



	Three Months Ended				Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Revenue	$	95	$	96	$	263	$	302
Operating earnings	81		103		220		283
Diluted earnings per share	$	0.22	$	0.27	$	0.60	$	0.75

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Revenue $ 94
$ 94
$ 256
$ 217
Operating earnings 103
52
274
169
Diluted earnings per share $ 0.22
$ 0.11
$ 0.58
$ 0.35

No adjustment on any one contract was material to ~~our~~the unaudited Consolidated Financial Statements for the three- and nine-month periods ended ~~October 1, 2017, and October 2, 2016.~~September 29, 2019, or September 30, 2018.

Revenue by Category. Our portfolio of products and services consists of ~~over 10,000~~approximately 11,000 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				Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Aircraft manufacturing and completions	$	1,881	$	1,437	$	5,169	$	4,165
Aircraft services	523		525		1,567		1,507
Pre-owned aircraft	91		69		135		79
Total Aerospace	2,495		2,031		6,871		5,751
Military vehicles	1,137		991		3,361		2,937
Weapons systems, armament and munitions	474		425		1,336		1,251
Engineering and other services	129		107		338		309
Total Combat Systems	1,740		1,523		5,035		4,497
IT services	2,071		2,307		6,398		5,887
Total Information Technology	2,071		2,307		6,398		5,887
C4ISR solutions	1,220		1,230		3,655		3,475
Total Mission Systems	1,220		1,230		3,655		3,475
Nuclear-powered submarines	1,567		1,369		4,482		4,103
Surface ships	402		445		1,376		1,401
Repair and other services	266		189		760		701
Total Marine Systems	2,235		2,003		6,618		6,205
Total revenue	$	9,761	$	9,094	$	28,577	$	25,815

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Aircraft manufacturing, outfitting and
    completions
$ 1,562
$ 1,482
$ 4,791
$ 4,700
Aircraft services 422
406
1,302
1,211
Pre-owned aircraft 11
37
54
79
Total Aerospace 1,995
1,925
6,147
5,990
Wheeled combat vehicles 623
587
1,749
1,695
Weapons systems, armament and
    munitions
412
363
1,167
1,059
Tanks and tracked vehicles 315
218
840
648
Engineering and other services 150
159
445
467
Total Combat Systems 1,500
1,327
4,201
3,869
C4ISR* solutions

1,086
1,254
3,226
3,559
Information technology (IT) services 1,068
1,076
3,178
3,314
Total Information Systems and
    Technology
2,154
2,330
6,404
6,873
Nuclear-powered submarines 1,248
1,357
3,794
4,022
Surface combatants 256
250
757
805
Auxiliary and commercial ships 129
190
427
491
Repair and other services 298
278
966
857
Total Marine Systems 1,931
2,075
5,944
6,175
Total revenue $ 7,580
$ 7,657
$ 22,696
$ 22,907

Revenue by contract type was as follows:

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.

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,~~segments, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers, particularly on our international contracts, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period. In our Aerospace ~~group,~~segment, we generally receive deposits from customers upon contract execution and upon achievement of contractual milestones. These deposits are liquidated when revenue is recognized. Changes in the contract asset and liability balances during the nine-month period ended ~~October 1, 2017,~~September 29, 2019, were not materially impacted by any other ~~factors.~~factors except for the delays in payment on an international wheeled armored vehicle contract in our Combat Systems segment, which contributed to growth in contract assets as further discussed in Note G.

Revenue recognized for the three- and nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~October 2, 2016,~~September 30, 2018, that was included in the contract liability balance at the beginning of each year was ~~$982 and $3.9~~$1.1 billion and ~~$911~~$4.0 billion, and ~~$3.7~~$875 and $3.5 billion, respectively. This revenue represented primarily the sale of business-jet aircraft.

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

~~Acquisitions.~~ In the first nine months of 2017, we acquired three businesses for an aggregate of $364: a fixed-base-operations (FBO) facility in our Aerospace group, and a manufacturer of electronics and communications products and a provider of mission-critical support services and technology solutions in our Information Systems and Technology 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 for an aggregate of $56.~~

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.

~~Goodwill.~~ ~~The changes in the carrying amount of goodwill by reporting unit for the~~ ~~nine-month period ended October 1, 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) 32
—
244
—
276
Other (c) 88
87
22
—
197
October 1, 2017 (a) $ 2,657
$ 2,685
$ 6,279
$ 297
$ 11,918

~~(a)Goodwill on December 31, 2016, and October 1, 2017, 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:~~

~~Amortization expense was $19 and $57 for the three- and nine-month periods ended October 1, 2017, and $20 and $70 for the three- and nine-month periods ended October 2, 2016.~~

D. EARNINGS PER SHARE

We compute basic earnings per share (EPS) using net earnings for the period and the weighted average number of common shares outstanding during the period. Basic weighted average shares outstanding have decreased in ~~2017~~2019 and ~~2016~~2018 due to share repurchases. See Note K for further discussion of our share repurchases. Diluted EPS incorporates the additional shares issuable upon the assumed exercise of stock options and the release of restricted stock and restricted stock units (RSUs).

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



	Three Months Ended		Nine Months Ended
	September 29, 2019	September 30, 2018	September 29, 2019	September 30, 2018
Basic weighted average shares outstanding	288,374	295,339	288,130	295,964
Dilutive effect of stock options and restricted stock/RSUs*	2,518	3,748	2,704	4,114
Diluted weighted average shares outstanding	290,892	299,087	290,834	300,078

Basic weighted average shares

* Excludes outstanding options to purchase shares of common stock that had exercise prices in excess of the average market price of our common stock during the period and, therefore, the effect of including these options would be antidilutive. These options totaled ~~1,850~~5,270 and ~~1,449~~4,899 for the three- and nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~4,622~~3,447 and ~~4,080~~3,043 for the three- and nine-month periods ended ~~October 2, 2016,~~September 30, 2018, respectively.

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:

We did not have any significant non-financial assets or liabilities measured at fair value on ~~October 1, 2017,~~September 29, 2019, or December 31, ~~2016.~~2018.

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 ~~October 1, 2017,~~September 29, 2019, and December 31, ~~2016,~~2018, 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)			Significant Unobservable Inputs (Level 3)
Financial Assets (Liabilities)	September 29, 2019
Measured at fair value:
Marketable securities held in trust:
Cash and equivalents	$	7		$	7		$	1	$	6		$	—
Available-for-sale debt securities	135			135			—		135			—
Equity securities	52			52			52		—			—
Other investments	4			4			—		—			4
Cash flow hedges	(10		)	(10		)	—		(10		)	—
Measured at amortized cost:
Short- and long-term debt principal	(13,733		)	(14,073		)	—		(14,073		)	—

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

~~(a)We had no~~Our Level ~~3 financial instruments on~~ ~~October~~ 1 ~~2017, or~~ ~~December 31, 2016~~.

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

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:



	September 29, 2019			December 31, 2018
Deferred tax asset	$	42		$	38
Deferred tax liability	(526		)	(577		)
Net deferred tax liability	$	(484	)	$	(539	)

October 1, 2017 December 31, 2016
Deferred tax asset $ 263
$ 564
Deferred tax liability (212 ) (183 )
Net deferred tax asset $ 51
$ 381

Tax Uncertainties. We participate in the Internal Revenue Service (IRS) Compliance Assurance Process (CAP), a real-time audit of our consolidated federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through 2017 and is currently reviewing our 2018 tax year.

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 October 1, 2017, 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 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 ~~October 1, 2017, is~~September 29, 2019, was not material to our results of operations, financial condition or cash ~~flows, and if recognized, would not have a material impact on our effective tax rate.~~flows. In addition, there are no0 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.

Income Tax Provision. The U.S. Treasury Department and the IRS are expected to issue further guidance related to the Tax Cuts and Jobs Act (tax reform) enacted in 2017 that could impact our provision for income taxes in future periods. As a result, we believe it is reasonably possible there may be changes to provisional interpretations and assumptions we made in our initial application of tax reform provisions. We do not expect the impact of any changes to have a material impact on our results of operations, financial condition or cash flows.

G. UNBILLED RECEIVABLES

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



	September 29, 2019			December 31, 2018
Unbilled revenue	$	33,170		$	27,908
Advances and progress billings	(25,093		)	(21,332		)
Net unbilled receivables	$	8,077		$	6,576

October 1, 2017 December 31, 2016
Unbilled revenue $ 28,923
$ 25,543
Advances and progress billings (23,314 ) (21,331 )
Net unbilled receivables $ 5,609
$ 4,212

The increase in net unbilled receivables during the nine-month period ended ~~October 1, 2017, is~~September 29, 2019, was due ~~in part~~primarily to ~~the timing of billings on a large~~an international wheeled armored vehicle contract ~~for a Middle Eastern customer~~ in our Combat Systems ~~group.~~segment. At September 29, 2019, the net unbilled receivable related to this contract was $2.6 billion. Our contract is with the Canadian government, who is selling the vehicles to an international customer. We have experienced delays in payment under the contract. We continue to meet our obligations under the contract and are entitled to payment for work performed. Therefore, we expect to collect the full amount currently outstanding.

H.INVENTORIES

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

Inventories consisted of the following:



	September 29, 2019		December 31, 2018
Work in process	$	4,706	$	4,357
Raw materials	1,670		1,504
Finished goods	46		33
Pre-owned aircraft	151		83
Total inventories	$	6,573	$	5,977

October 1, 2017 December 31, 2016
Work in process $ 3,884
$ 3,643
Raw materials 1,359
1,429
Finished goods 32
24
Pre-owned aircraft —
22
Other contract costs 506
699
Total inventories $ 5,781
$ 5,817

~~Other contract costs represent amounts that are not currently allocable~~The increase in total inventories during the nine-month period ended September 29, 2019, was due primarily to ~~government contracts, such as a portion~~the ramp-up in production of the new G600 aircraft in our ~~estimated workers’ compensation obligations, other insurance-related assessments, pension~~Aerospace segment. We received both type and ~~other post-retirement benefits,~~production certification from the U.S. Federal Aviation Administration (FAA) for the G600 aircraft in June 2019 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. Ifdelivered the ~~backlog~~first G600 aircraft in the ~~future does not support~~third quarter of 2019. The increase in total inventories was also driven by production of initial units of the ~~continued deferral of these costs, the profitability of our remaining contracts could be adversely affected.~~newly-announced G700 aircraft.

I. DEBT

Debt consisted of the following:



		September 29, 2019		December 31, 2018
Fixed-rate notes due:	Interest rate:
May 2020	2.875%	$	2,000	$	2,000
May 2021	3.000%	2,000		2,000
July 2021	3.875%	500		500
November 2022	2.250%	1,000		1,000
May 2023	3.375%	750		750
August 2023	1.875%	500		500
November 2024	2.375%	500		500
May 2025	3.500%	750		750
August 2026	2.125%	500		500
November 2027	2.625%	500		500
May 2028	3.750%	1,000		1,000
November 2042	3.600%	500		500
Floating-rate notes due:
May 2020	3-month LIBOR + 0.29%	500		500
May 2021	3-month LIBOR + 0.38%	500		500
Commercial paper	2.117%	1,800		850
Other	Various	433		168
Total debt principal		13,733		12,518
Less unamortized debt issuance costs and discounts		83		101
Total debt		13,650		12,417
Less current portion		4,661		973
Long-term debt		$	8,989	$	11,444

October 1, 2017 December 31, 2016
Fixed-rate notes due: Interest rate:
November 2017 1.000% $ 900
$ 900
July 2021 3.875% 500
500
November 2022 2.250% 1,000
1,000
August 2023 1.875% 500
500
November 2024 2.375% 500
—
August 2026 2.125% 500
500
November 2027 2.625% 500
—
November 2042 3.600% 500
500
Other Various 35
24
Total debt principal 4,935
3,924
Less unamortized debt issuance costs and discounts 53
36
Total debt 4,882
3,888
Less current portion 903
900
Long-term debt $ 3,979
$ 2,988

Our ~~fixed-rate~~fixed- and floating-rate notes are fully and unconditionally guaranteed by several of our 100%-owned subsidiaries. See Note PQ for condensed consolidating financial statements. We have the option to

redeem the fixed-rate notes prior to their maturity in whole or in part for the principal plus any accrued but unpaid interest and applicable make-whole amounts.

~~In the third quarter of 2017,~~On September 29, 2019, we ~~issued $1~~had $1.8 billion of ~~fixed-rate notes. The proceeds will be used to repay $900 of fixed-rate notes maturing in November of 2017 and for general corporate purposes.~~

~~On October 1, 2017, we had no~~ commercial paper outstanding ~~but we maintain the ability to access the commercial paper market in the future.~~with a dollar-weighted average interest rate of 2.117%. We have $2$5 billion in committed bank credit facilities to support our commercial paper issuances and for general corporate purposes and working capital needs. These credit facilities include a $1$2 billion ~~multi-year~~364-day facility expiring in ~~July 2018 and~~March 2020, a $1 billion multi-year facility expiring in November ~~2020.~~2020 and a $2 billion multi-year facility expiring in March 2023. We may renew or replace these credit facilities in whole or in part at or prior to their expiration dates. Our ~~bank~~ credit facilities are guaranteed by several of our 100%-owned subsidiaries. We also have an effective shelf registration on file with the ~~SEC~~Securities and Exchange Commission that allows us to access the debt markets.

Our financing arrangements contain a number of customary covenants and restrictions. We were in compliance with all covenants and restrictions on ~~October 1, 2017.~~September 29, 2019.

J. OTHER LIABILITIES

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


	October 1, 2017		December 31, 2016		September 29, 2019		December 31, 2018

Salaries and wages	$	795	$	693	$	968	$	952
Fair value of cash flow hedges	239		521
Workers’ compensation	340		337		274		244
Retirement benefits	294		303		280		272
Operating lease liabilities					241		—
Fair value of cash flow hedges					62		141
Other (a)	1,310		1,331		1,888		1,708
Total other current liabilities	$	2,978	$	3,185	$	3,713	$	3,317

Retirement benefits	$	4,211	$	4,393	$	4,151	$	4,422
Operating lease liabilities					1,230		—
Customer deposits on commercial contracts	636		719		527		726
Deferred income taxes	212		183		526		577
Other (b)	1,103		1,138		1,625		1,768
Total other liabilities	$	6,162	$	6,433	$	8,059	$	7,493

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

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

K. SHAREHOLDERS’ EQUITY

Share Repurchases. Our board of directors from time to time authorizes management’s repurchase of outstanding shares of our common stock on the open ~~market from time to time.~~market. On ~~March 1, 2017,~~December 5, 2018, the board of directors authorized management to repurchase up to 10 million additional shares of the company’s outstanding stock. In the ~~nine-month~~nine-month period ended ~~October 1, 2017,~~September 29, 2019, we repurchased ~~5.9~~1.1 million of our outstanding shares for ~~$1.1 billion.~~$184. On ~~October 1, 2017, 9.5~~September 29, 2019, 6.4 million shares remained authorized by our board of directors for repurchase, approximately ~~3 percent~~2% of our total shares outstanding. We repurchased ~~11.2~~2.5 million shares for ~~$1.5 billion~~$522 in the ~~nine-month~~nine-month period ended ~~October 2, 2016.~~September 30, 2018.

Dividends per Share. ~~Dividends~~Our board of directors declared dividends of $1.02 and $3.06 per share ~~were $0.84 and $2.52~~for the three- and nine-month periods ended ~~October 1, 2017~~, September 29, 2019, and ~~$0.76~~$0.93 and ~~$2.28~~$2.79 per share for the three- and nine-month periods ended ~~October 2, 2016,~~September 30, 2018, respectively. ~~Cash~~We paid cash dividends ~~paid were $252~~of $295 and ~~$735~~$858 for the three- and nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~$231~~$275 and ~~$678~~$801 for the three- and nine-month periods ended ~~October 2, 2016~~, September 30, 2018, respectively.

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



	Losses on Cash Flow Hedges			Unrealized Gains on Marketable Securities		Foreign Currency Translation Adjustments		Changes in Retirement Plans’ Funded Status			AOCL
December 31, 2018	$	(71	)	$	—	$	102	$	(3,809	)	$	(3,778	)
Other comprehensive income, pretax	70			1		47		188			306
Provision for income tax, net	(17		)	—		—		(42		)	(59		)
Other comprehensive income, net of tax	53			1		47		146			247
September 29, 2019	$	(18	)	$	1	$	149	$	(3,663	)	$	(3,531	)

Losses on Cash Flow Hedges Unrealized Gains on Securities Foreign Currency Translation Adjustments Changes in Retirement Plans’ Funded Status AOCL
December 31, 2016 $ (345 ) $ 14
$ 69
$ (3,125 ) $ (3,387 )
Other comprehensive income, pretax 286
8
409
193
896
Provision for income tax, net 73
2
15
70
160
Other comprehensive income, net of tax 213
6
394
123
736
October 1, 2017 $ (132 ) $ 20
$ 463
$ (3,002 ) $ (2,651 )



December 31, 2017	$	(94	)	$	19		$	402		$	(3,147	)	$	(2,820	)
Cumulative-effect adjustments*	(4		)	(19		)	—			(615		)	(638		)
Other comprehensive income, pretax	40			—			(130		)	247			157
Provision for income tax, net	(8		)	—			—			(52		)	(60		)
Other comprehensive income, net of tax	32			—			(130		)	195			97
September 30, 2018	$	(66	)	$	—		$	272		$	(3,567	)	$	(3,361	)

December 31, 2015 $ (487 ) $ 20
$ 181
$ (2,997 ) $ (3,283 )
Other comprehensive income, pretax 260
(5 ) 85
191
531
Provision for income tax, net 65
(2 ) 1
69
133
Other comprehensive income, net of tax 195
(3 ) 84
122
398
October 2, 2016 $ (292 ) $ 17
$ 265
$ (2,875 ) $ (2,885 )
* Reflects the cumulative effects of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which we adopted on January 1, 2018.

~~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 ~~$255~~$232 and ~~$249~~$280 for the nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~October 2, 2016,~~September 30, 2018, respectively. This was offset partially by pretax amortization of prior service credit of ~~$53~~$16 and ~~$56~~$36 for the nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~October 2, 2016,~~September 30, 2018, respectively. These AOCL components are included in our net periodic pension and other post-retirement benefit cost. See Note NO for additional details.

L. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to market risk, primarily from foreign currency exchange rates, interest rates, commodity prices and investments. We may use derivative financial instruments to hedge some of these risks as described below. We ~~had $5.2 billion in notional forward exchange contracts outstanding on October 1, 2017, and $6.3 billion on December 31, 2016. 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 E for additional details.~~

Foreign Currency ~~Risk and Hedging Activities.~~ Risk. Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and inter-company transactions denominated in foreign currencies. To the extent possible, we include terms in our contracts that are designed to protect us from this risk. Otherwise, we enter into derivative financial instruments, principally foreign currency forward purchase and sale contracts, designed to offset and minimize our risk. The dollar-weighted ~~three-year~~two-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- and nine-month periods ended October 1, 2017, and October 2, 2016. Net gains and losses reclassified to earnings from OCL were not material to our results of operations for the three- and nine-month periods ended October 1, 2017, and October 2, 2016, 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 October 1, 2017, or December 31, 2016.~~

Interest Rate Risk. Our financial instruments subject to interest rate risk include ~~fixed-rate~~variable-rate commercial paper and fixed- and floating-rate long-term debt ~~obligations and variable-rate commercial paper. However, the~~obligations. We entered into derivative financial instruments, specifically interest rate swap contracts, to eliminate our floating-rate interest risk. The interest rate risk associated with ~~these~~our financial instruments is not material.

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

Investment Risk. Our investment policy allows for purchases of fixed-income securities with an investment-grade rating and a maximum maturity of up to five years. On ~~October 1, 2017,~~September 29, 2019, and December 31, 2018, we held ~~$2.7 billion~~$974 and $963 in cash and equivalents, respectively, 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 September 29, 2019, and December 31, 2018, these marketable securities totaled $194 and $202, respectively, and were reflected at fair value on the Consolidated Balance Sheet in other current and noncurrent assets. See Note E for additional details.

Hedging Activities. We had notional forward exchange and interest rate swap contracts outstanding of $4.4 billion and $5.8 billion on September 29, 2019, and December 31, 2018, respectively. These derivative financial instruments are cash flow hedges, and are reflected at fair value on the Consolidated Balance Sheet in other current assets and liabilities. See Note E for additional details.

Changes in fair value (gains and losses) related to derivative financial instruments that qualify as cash flow hedges are deferred in AOCL until the underlying transaction is reflected in earnings. Alternatively, gains and losses on derivative financial instruments that do not qualify for hedge accounting are recorded each period in earnings. All gains and losses from derivative financial instruments recognized in the Consolidated Statement of Earnings are presented in the same line item as the underlying transaction, either operating costs and expenses or interest expense.

Net gains and losses recognized in earnings on derivative financial instruments that do not qualify for hedge accounting were not material to our results of operations for the three- and nine-month periods ended September 29, 2019, and September 30, 2018. Net gains and losses reclassified to earnings from AOCL related to qualified hedges also were not material to our results of operations for the three- and nine-month periods ended September 29, 2019, and September 30, 2018, and we do not expect the amount of these gains and losses that will be reclassified to earnings during the next 12 months to be material.

We had no material derivative financial instruments designated as fair value or net investment hedges on September 29, 2019, or December 31, 2018.

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

We do not hedge the fluctuation in reported revenue and earnings resulting from the translation of these international operations’ results into U.S. dollars. The impact of translating our non-U.S. operations’ revenue into U.S. dollars was not material to our results of operations for the three- and nine-month periods ended ~~October 1, 2017, and October 2, 2016.~~

September 29, 2019, or September 30, 2018. In addition, the effect of changes in foreign exchange rates on non-U.S. cash balances was not material for the nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~October 2, 2016.~~September 30, 2018.

M. COMMITMENTS AND CONTINGENCIES

Litigation

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

in a lawsuit related to this matter which had been 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.

In the third quarter of 2019, the Department of Justice declined to intervene in the qui tam action, noting that its investigation continues, and the court unsealed the relator’s complaint. 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 $1.2 billion on ~~October 1, 2017.~~September 29, 2019. In addition, from time to time and in the ordinary course of business, we contractually guarantee the ~~payments~~payment or performance of our subsidiaries arising under certain contracts.

Aircraft Trade-ins. In connection with orders for new aircraft in ~~funded~~ contract backlog, our Aerospace ~~group~~segment has outstanding options with some customers to trade in aircraft as partial consideration in their new-aircraft transaction. These trade-in commitments are generally structured to establish the fair market value of the trade-in aircraft at a date generally 45 or fewer days preceding delivery of the new aircraft to the customer. At that time, the customer is required to either exercise the option or allow its expiration. ~~Any~~Other trade-in commitments are structured to guarantee a pre-determined trade-in value. These commitments present more risk in the event of an adverse change in market conditions. In either case, any excess of the pre-established trade-in price above the fair market value at the time the new aircraft is delivered is treated as a reduction of revenue in the new-aircraft sales transaction. As of September 29, 2019, the estimated change in fair market values from the date of the commitments was not material.

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

The changes in the carrying amount of warranty liabilities for the nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~October 2, 2016,~~September 30, 2018, were as follows:



Nine Months Ended	September 29, 2019			September 30, 2018
Beginning balance	$	480		$	467
Warranty expense	84			87
Payments	(62		)	(77		)
Adjustments	(14		)	(16		)
Ending balance	$	488		$	461

Nine Months Ended October 1, 2017 October 2, 2016
Beginning balance $ 474
$ 434
Warranty expense 94
95
Payments (74 ) (72 )
Adjustments (28 ) (14 )
Ending balance $ 466
$ 443

N. LEASES

We determine at its inception whether an arrangement that provides us control over the use of an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. We have elected not to recognize an ROU asset and lease liability for leases with terms of 12 months or less. Certain of our leases include options to extend the term of the lease for up to 30 years or to terminate the lease within 1 year. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining total future lease payments. As most of our lease agreements do not explicitly state the

discount rate implicit in the lease, we use our incremental borrowing rate on the commencement date to calculate the present value of future payments.

Our leases commonly include payments that are based on the Consumer Price Index (CPI) or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability. Other variable lease payments, such as usage-based amounts, are excluded from the ROU asset and lease liability, and are expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease, such as commissions.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. For all other types of leases, non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.

Our leases are for office space, manufacturing facilities, and machinery and equipment. Real estate represents over 75% of our lease obligations.

The components of lease costs were as follows:



	Three Months Ended			Nine Months Ended
	September 29, 2019			September 29, 2019
Finance lease cost:
Amortization of right-of-use assets	$	21		$	64
Interest on lease liabilities	7			19
Operating lease cost	86			250
Short-term lease cost	22			54
Variable lease cost	3			5
Sublease income	(3		)	(11		)
Total lease costs, net	$	136		$	381

Additional information related to leases was as follows:



Nine Months Ended	September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	247
Operating cash flows from finance leases	19
Financing cash flows from finance leases	42
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	292
Finance leases	5

Additional quantitative lease information was as follows:



	September 29, 2019
Weighted-average remaining lease term:
Operating leases	11.0 years
Finance leases	5.2 years
Weighted-average discount rate:
Operating leases	3	%
Finance leases	9	%

The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on the unaudited Consolidated Balance Sheet on September 29, 2019:



Year Ended December 31	Operating Leases		Finance Leases
2019 (excluding the nine months ended September 29, 2019)	$	81	$	22
2020	281		81
2021	237		75
2022	191		75
2023	147		29
Thereafter	900		67
Total future lease payments	1,837		349
Less imputed interest	366		68
Present value of future lease payments	1,471		281
Less current portion of lease liabilities	241		66
Long-term lease liabilities	$	1,230	$	215
ROU assets	$	1,400	$	325

Lease liabilities are included on the Consolidated Balance Sheet in current and noncurrent other liabilities, while ROU assets are included in noncurrent other assets.

On September 29, 2019, we had additional future payments on leases that had not yet commenced of $144. These leases will commence between 2019 and 2020, and have lease terms of 1 to 20 years.

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



Year Ended December 31	Operating Leases		Capital Leases
2019	$	297	$	92
2020	234		84
2021	196		78
2022	154		79
2023	110		30
Thereafter	698		70
Total future minimum lease payments	$	1,689	433
Less amount representing interest	*		95
Less amount representing executory costs	*		19
Present value of net minimum lease payments	*		319
Less current maturities of capital lease liabilities	*		64
Noncurrent capital lease liabilities	*		$	255

* Not applicable for operating leases.

O. RETIREMENT PLANS

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

Net periodic defined-benefit pension and other post-retirement benefit cost (credit) for the three- and nine-month periods ended ~~October 1, 2017,~~September 29, 2019, and ~~October 2, 2016,~~September 30, 2018, consisted of the following:



	Pension Benefits						Other Post-retirement Benefits
Three Months Ended	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Service cost	$	28		$	45		$	2		$	3
Interest cost	150			140			9			8
Expected return on plan assets	(228		)	(225		)	(9		)	(10		)
Recognized net actuarial loss (gain)	98			94			(2		)	(1		)
Amortization of prior service credit	(4		)	(11		)	(1		)	(1		)
Net periodic benefit cost (credit)	$	44		$	43		$	(1	)	$	(1	)
Nine Months Ended
Service cost	$	84		$	135		$	6		$	8
Interest cost	450			394			27			24
Expected return on plan assets	(684		)	(632		)	(27		)	(29		)
Recognized net actuarial loss (gain)	238			283			(6		)	(3		)
Amortization of prior service credit	(13		)	(33		)	(3		)	(3		)
Net periodic benefit cost (credit)	$	75		$	147		$	(3	)	$	(3	)

Pension Benefits Other Post-retirement Benefits
Three Months Ended October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Service cost $ 42
$ 44
$ 3
$ 3
Interest cost 113
114
8
8
Expected return on plan assets (169 ) (178 ) (8 ) (8 )
Recognized net actuarial loss (gain) 86
84
(1 ) (1 )
Amortization of prior service credit (17 ) (17 ) (1 ) (2 )
Net periodic benefit cost $ 55
$ 47
$ 1
$ —
Nine Months Ended
Service cost $ 126
$ 132
$ 9
$ 8
Interest cost 339
342
25
25
Expected return on plan assets (508 ) (534 ) (25 ) (24 )
Recognized net actuarial loss (gain) 258
252
(3 ) (3 )
Amortization of prior service credit (50 ) (51 ) (3 ) (5 )
Net periodic benefit cost $ 165
$ 141
$ 3
$ 1

~~In 2017,~~Based on recent market conditions, we ~~decreased~~adjusted our assumptions for our non-qualified supplemental retirement plans, and the ~~expected long-term rate~~third quarter of ~~return on assets~~2019 reflects a cumulative adjustment to recognize the resulting increase 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.~~expense.

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.~~segments. For non-funded plans, our government contracts allow us to recover claims paid. Following payment, these recoverable amounts are allocated to contracts and billed to the customer in accordance with the Cost Accounting Standards (CAS) and specific contractual terms. For some of these plans, the cumulative pension and other post-retirement benefit cost exceeds the amount currently allocable to contracts. To the extent we consider recovery of the cost ~~is considered~~to be 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 other 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.

~~O. BUSINESS GROUP~~P. SEGMENT INFORMATION

We ~~operate in four business groups:~~have 5 operating segments: Aerospace, Combat Systems, Information Technology, Mission Systems ~~and Technology,~~ and Marine Systems. We organize our ~~business groups~~segments in accordance with the nature of products and services offered. We measure each ~~group’s~~segment’s profitability based on operating earnings. As a result, we do not allocate net interest, other income and expense items, and income taxes to our ~~business groups.~~

segments.

Summary financial information for each of our ~~business groups~~segments follows:



	Revenue				Operating Earnings
Three Months Ended	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Aerospace	$	2,495	$	2,031	$	393	$	376
Combat Systems	1,740		1,523		264		241
Information Technology	2,071		2,307		146		157
Mission Systems	1,220		1,230		185		179
Marine Systems	2,235		2,003		209		169
Corporate	—		—		19		13
Total	$	9,761	$	9,094	$	1,216	$	1,135
Nine Months Ended
Aerospace	$	6,871	$	5,751	$	1,052	$	1,108
Combat Systems	5,035		4,497		712		701
Information Technology	6,398		5,887		456		414
Mission Systems	3,655		3,475		495		478
Marine Systems	6,618		6,205		586		548
Corporate	—		—		19		(18		)
Total	$	28,577	$	25,815	$	3,320	$	3,231

Revenue Operating Earnings
Three Months Ended October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Aerospace $ 1,995
$ 1,925
$ 385
$ 377
Combat Systems 1,500
1,327
247
209
Information Systems and Technology 2,154
2,330
253
239
Marine Systems 1,931
2,075
179
197
Corporate* —
—
(12 ) (7 )
Total $ 7,580
$ 7,657
$ 1,052
$ 1,015
Nine Months Ended
Aerospace $ 6,147
$ 5,990
$ 1,253
$ 1,133
Combat Systems 4,201
3,869
677
601
Information Systems and Technology 6,404
6,873
729
710
Marine Systems 5,944
6,175
518
553
Corporate* —
—
(34 ) (31 )
Total $ 22,696
$ 22,907
$ 3,143
$ 2,966

* Corporate operating results ~~consist primarily of~~have two primary components: pension and other post-retirement benefit income, and stock option expense. We are required to report the non-service cost components of pension and other post-retirement benefit cost (e.g., interest cost) in other income (expense) in the Consolidated

Statement of Earnings. As described in Note O, in our defense segments, pension and other post-retirement benefit costs are recoverable contract costs. Therefore, the non-service cost components are included in the operating results of these segments, but an offset is reported in Corporate.

P.Q. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

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

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



Three Months Ended September 29, 2019	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Revenue	$	—		$	7,660		$	2,101		$	—		$	9,761
Cost of sales	36			(6,257		)	(1,752		)	—			(7,973		)
G&A	(17		)	(415		)	(140		)	—			(572		)
Operating earnings	19			988			209			—			1,216
Interest, net	(105		)	(1		)	(8		)	—			(114		)
Other, net	(6		)	1			(7		)	—			(12		)
Earnings before income tax	(92		)	988			194			—			1,090
Provision for income tax, net	32			(168		)	(41		)	—			(177		)
Equity in net earnings of subsidiaries	973			—			—			(973		)	—
Net earnings	$	913		$	820		$	153		$	(973	)	$	913
Comprehensive income	$	858		$	813		$	53		$	(866	)	$	858
Three Months Ended September 30, 2018
Revenue	$	—		$	6,811		$	2,283		$	—		$	9,094
Cost of sales	26			(5,518		)	(1,915		)	—			(7,407		)
G&A	(15		)	(393		)	(144		)	—			(552		)
Operating earnings	11			900			224			—			1,135
Interest, net	(105		)	(2		)	(7		)	—			(114		)
Other, net	4			2			(4		)	—			2
Earnings before income tax	(90		)	900			213			—			1,023
Provision for income tax, net	8			(132		)	(35		)	—			(159		)
Discontinued operations, net of tax	(13		)	—			—			—			(13		)
Equity in net earnings of subsidiaries	946			—			—			(946		)	—
Net earnings	$	851		$	768		$	178		$	(946	)	$	851
Comprehensive income	$	1,048		$	769		$	307		$	(1,076	)	$	1,048

Three Months Ended October 1, 2017 Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Revenue $ —
$ 6,556
$ 1,024
$ —
$ 7,580
Cost of sales (3 ) 5,217
804
—
6,018
G&A 15
420
75
—
510
Operating earnings (12 ) 919
145
—
1,052
Interest, net (24 ) —
(3 ) —
(27 )
Other, net 2
—
—
—
2
Earnings before income tax (34 ) 919
142
—
1,027
Provision for income tax, net (26 ) 283
6
—
263
Equity in net earnings of subsidiaries 772
—
—
(772 ) —
Net earnings $ 764
$ 636
$ 136
$ (772 ) $ 764
Comprehensive income $ 1,035
$ 648
$ 371
$ (1,019 ) $ 1,035
Three Months Ended October 2, 2016
Revenue $ —
$ 6,716
$ 941
$ —
$ 7,657
Cost of sales (1 ) 5,455
717
—
6,171
G&A 10
381
80
—
471
Operating earnings (9 ) 880
144
—
1,015
Interest, net (23 ) (1 ) 1
—
(23 )
Other, net 1
(4 ) 5
—
2
Earnings before income tax (31 ) 875
150
—
994
Provision for income tax, net (42 ) 290
15
—
263
Discontinued operations, net of tax (84 ) —
—
—
(84 )
Equity in net earnings of subsidiaries 720
—
—
(720 ) —
Net earnings $ 647
$ 585
$ 135
$ (720 ) $ 647
Comprehensive income $ 722
$ 578
$ 168
$ (746 ) $ 722

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



Nine Months Ended September 29, 2019	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Revenue	$	—		$	22,042		$	6,535		$	—		$	28,577
Cost of sales	75			(18,094		)	(5,456		)	—			(23,475		)
G&A	(58		)	(1,262		)	(462		)	—			(1,782		)
Operating earnings	17			2,686			617			—			3,320
Interest, net	(322		)	—			(28		)	—			(350		)
Other, net	17			4			(3		)	—			18
Earnings before income tax	(288		)	2,690			586			—			2,988
Provision for income tax, net	94			(495		)	(123		)	—			(524		)
Equity in net earnings of subsidiaries	2,658			—			—			(2,658		)	—
Net earnings	$	2,464		$	2,195		$	463		$	(2,658	)	$	2,464
Comprehensive income	$	2,711		$	2,182		$	576		$	(2,758	)	$	2,711
Nine Months Ended September 30, 2018
Revenue	$	—		$	20,088		$	5,727		$	—		$	25,815
Cost of sales	54			(16,195		)	(4,742		)	—			(20,883		)
G&A	(73		)	(1,247		)	(381		)	—			(1,701		)
Operating earnings	(19		)	2,646			604			—			3,231
Interest, net	(225		)	(1		)	(18		)	—			(244		)
Other, net	(38		)	6			(2		)	—			(34		)
Earnings before income tax	(282		)	2,651			584			—			2,953
Provision for income tax, net	89			(475		)	(118		)	—			(504		)
Discontinued operations, net of tax	(13		)	—			—			—			(13		)
Equity in net earnings of subsidiaries	2,642			—			—			(2,642		)	—
Net earnings	$	2,436		$	2,176		$	466		$	(2,642	)	$	2,436
Comprehensive income	$	2,533		$	2,154		$	386		$	(2,540	)	$	2,533

Nine Months Ended October 1, 2017 Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Revenue $ —
$ 19,832
$ 2,864
$ —
$ 22,696
Cost of sales (6 ) 15,858
2,205
—
18,057
G&A 39
1,230
227
—
1,496
Operating earnings (33 ) 2,744
432
—
3,143
Interest, net (71 ) —
(5 ) —
(76 )
Other, net 2
—
—
—
2
Earnings before income tax (102 ) 2,744
427
—
3,069
Provision for income tax, net (119 ) 877
35
—
793
Equity in net earnings of subsidiaries 2,259
—
—
(2,259 ) —
Net earnings $ 2,276
$ 1,867
$ 392
$ (2,259 ) $ 2,276
Comprehensive income $ 3,012
$ 1,907
$ 1,005
$ (2,912 ) $ 3,012
Nine Months Ended October 2, 2016
Revenue $ —
$ 20,123
$ 2,784
$ —
$ 22,907
Cost of sales 1
16,360
2,163
—
18,524
G&A 30
1,162
225
—
1,417
Operating earnings (31 ) 2,601
396
—
2,966
Interest, net (69 ) (1 ) 2
—
(68 )
Other, net 11
(3 ) 5
—
13
Earnings before income tax (89 ) 2,597
403
—
2,911
Provision for income tax, net (93 ) 839
66
—
812
Discontinued operations, net of tax (97 ) —
—
—
(97 )
Equity in net earnings of subsidiaries 2,095
—
—
(2,095 ) —
Net earnings $ 2,002
$ 1,758
$ 337
$ (2,095 ) $ 2,002
Comprehensive income $ 2,400
$ 1,746
$ 637
$ (2,383 ) $ 2,400

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)



September 29, 2019	Parent*			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated

ASSETS
Current assets:
Cash and equivalents	$	412		$	—		$	562		—			$	974
Accounts receivable	—			1,083			2,406			—			3,489
Unbilled receivables	—			3,268			4,809			—			8,077
Inventories	—			6,419			154			—			6,573
Other current assets	(404		)	920			522			—			1,038
Total current assets	8			11,690			8,453			—			20,151
Noncurrent assets:
Property, plant and equipment (PP&E)	341			7,486			1,630			—			9,457
Accumulated depreciation of PP&E	(88		)	(4,238		)	(914		)	—			(5,240		)
Intangible assets, net	—			219			2,157			—			2,376
Goodwill	—			7,960			11,657			—			19,617
Other assets	196			1,158			1,073			—			2,427
Net investment in subsidiaries	30,594			—			—			(30,594		)	—
Total noncurrent assets	31,043			12,585			15,603			(30,594		)	28,637
Total assets	$	31,051		$	24,275		$	24,056		$	(30,594	)	$	48,788

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt	$	4,294		$	—		$	367		$	—		$	4,661
Customer advances and deposits	—			3,965			2,889			—			6,854
Other current liabilities	677			4,116			1,919			—			6,712
Total current liabilities	4,971			8,081			5,175			—			18,227
Noncurrent liabilities:
Long-term debt	8,923			52			14			—			8,989
Other liabilities	3,644			2,659			1,756			—			8,059
Total noncurrent liabilities	12,567			2,711			1,770			—			17,048
Total shareholders’ equity	13,513			13,483			17,111			(30,594		)	13,513
Total liabilities and shareholders’ equity	$	31,051		$	24,275		$	24,056		$	(30,594	)	$	48,788


*	Includes the funded status of the company’s primary domestic qualified defined-benefit pension plans as the Parent has the ultimate obligation for the plans.

October 1, 2017 Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated

ASSETS
Current assets:
Cash and equivalents $ 1,571
$ —
$ 1,151
$ —
$ 2,722
Accounts receivable —
1,027
2,364
—
3,391
Unbilled receivables —
2,677
2,932
—
5,609
Inventories 198
5,494
89
—
5,781
Other current assets 133
182
262
—
577
Total current assets 1,902
9,380
6,798
—
18,080
Noncurrent assets:
Property, plant and equipment (PP&E) 220
6,659
1,232
—
8,111
Accumulated depreciation of PP&E (73 ) (3,796 ) (781 ) —
(4,650 )
Intangible assets, net —
292
423
—
715
Goodwill —
8,293
3,625
—
11,918
Other assets 371
226
143
—
740
Investment in subsidiaries 44,207
—
—
(44,207 ) —
Total noncurrent assets 44,725
11,674
4,642
(44,207 ) 16,834
Total assets $ 46,627
$ 21,054
$ 11,440
$ (44,207 ) $ 34,914

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 900
$ 2
$ 1
$ —
$ 903
Customer advances and deposits —
3,730
2,880
—
6,610
Other current liabilities 563
3,509
1,624
—
5,696
Total current liabilities 1,463
7,241
4,505
—
13,209
Noncurrent liabilities:
Long-term debt 3,949
21
9
—
3,979
Other liabilities 2,279
3,254
629
—
6,162
Total noncurrent liabilities 6,228
3,275
638
—
10,141
Intercompany 27,372
(27,238 ) (134 ) —
—
Shareholders’ equity:
Common stock 482
6
2,126
(2,132 ) 482
Other shareholders’ equity 11,082
37,770
4,305
(42,075 ) 11,082
Total shareholders’ equity 11,564
37,776
6,431
(44,207 ) 11,564
Total liabilities and shareholders’ equity $ 46,627
$ 21,054
$ 11,440
$ (44,207 ) $ 34,914

CONDENSED CONSOLIDATING BALANCE SHEET ~~(UNAUDITED)~~



December 31, 2018	Parent*			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated

ASSETS
Current assets:
Cash and equivalents	$	460		$	—		$	503		$	—		$	963
Accounts receivable	—			1,171			2,588			—			3,759
Unbilled receivables	—			2,758			3,818			—			6,576
Inventories	—			5,855			122			—			5,977
Other current assets	(251		)	647			518			—			914
Total current assets	209			10,431			7,549			—			18,189
Noncurrent assets:
PP&E	273			7,177			1,522			—			8,972
Accumulated depreciation of PP&E	(83		)	(4,071		)	(840		)	—			(4,994		)
Intangible assets, net	—			251			2,334			—			2,585
Goodwill	—			8,031			11,563			—			19,594
Other assets	195			274			593			—			1,062
Net investment in subsidiaries	27,887			—			—			(27,887		)	—
Total noncurrent assets	28,272			11,662			15,172			(27,887		)	27,219
Total assets	$	28,481		$	22,093		$	22,721		$	(27,887	)	$	45,408

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt	$	850		$	—		$	123		$	—		$	973
Customer advances and deposits	—			4,541			2,729			—			7,270
Other current liabilities	552			3,944			2,000			—			6,496
Total current liabilities	1,402			8,485			4,852			—			14,739
Noncurrent liabilities:
Long-term debt	11,398			39			7			—			11,444
Other liabilities	3,949			2,115			1,429			—			7,493
Total noncurrent liabilities	15,347			2,154			1,436			—			18,937
Total shareholders’ equity	11,732			11,454			16,433			(27,887		)	11,732
Total liabilities and shareholders’ equity	$	28,481		$	22,093		$	22,721		$	(27,887	)	$	45,408


*	Includes the funded status of the company’s primary domestic qualified defined-benefit pension plans as the Parent has the ultimate obligation for the plans.

December 31, 2016 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
Accounts receivable —
1,155
2,244
—
3,399
Unbilled receivables —
2,235
1,977
—
4,212
Inventories 304
5,417
96
—
5,817
Other current assets 330
204
238
—
772
Total current assets 1,888
9,011
5,635
—
16,534
Noncurrent assets:
PP&E 197
6,586
1,146
—
7,929
Accumulated depreciation of PP&E (67 ) (3,653 ) (732 ) —
(4,452 )
Intangible assets, net —
265
413
—
678
Goodwill —
8,050
3,395
—
11,445
Other assets 640
232
166
—
1,038
Investment in subsidiaries 41,956
—
—
(41,956 ) —
Total noncurrent assets 42,726
11,480
4,388
(41,956 ) 16,638
Total assets $ 44,614
$ 20,491
$ 10,023
$ (41,956 ) $ 33,172

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 898
$ 2
$ —
$ —
$ 900
Customer advances and deposits —
4,339
2,488
—
6,827
Other current liabilities 564
3,465
1,694
—
5,723
Total current liabilities 1,462
7,806
4,182
—
13,450
Noncurrent liabilities:
Long-term debt 2,966
22
—
—
2,988
Other liabilities 3,520
2,330
583
—
6,433
Total noncurrent liabilities 6,486
2,352
583
—
9,421
Intercompany 26,365
(25,827 ) (538 ) —
—
Shareholders’ equity:
Common stock 482
6
2,354
(2,360 ) 482
Other shareholders’ equity 9,819
36,154
3,442
(39,596 ) 9,819
Total shareholders’ equity 10,301
36,160
5,796
(41,956 ) 10,301
Total liabilities and shareholders’ equity $ 44,614
$ 20,491
$ 10,023
$ (41,956 ) $ 33,172

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

Nine Months Ended October 1, 2017 Parent
Guarantors
on a
Combined
Basis
Other
Subsidiaries
on a
Combined
Basis
Consolidating
Adjustments
Total
Consolidated
Net cash provided by operating activities* $ 145
$ 1,502
$ 234
$ —
$ 1,881
Cash flows from investing activities:
Business acquisitions, net of cash acquired —
(315 ) (49 ) —
(364 )
Capital expenditures (23 ) (205 ) (45 ) —
(273 )
Other, net 5
50
(2 ) —
53
Net cash used by investing activities (18 ) (470 ) (96 ) —
(584 )
Cash flows from financing activities:
Purchases of common stock (1,172 ) —
—
—
(1,172 )
Proceeds from fixed-rate notes 985
—
—
—
985
Dividends paid (735 ) —
—
—
(735 )
Other, net 43
(2 ) —
—
41
Net cash used by financing activities (879 ) (2 ) —
—
(881 )
Net cash used by discontinued operations (28 ) —
—
—
(28 )
Cash sweep/funding by parent 1,097
(1,030 ) (67 ) —
—
Net increase in cash and equivalents 317
—
71
—
388
Cash and equivalents at beginning of period 1,254
—
1,080
—
2,334
Cash and equivalents at end of period $ 1,571
$ —
$ 1,151
$ —
$ 2,722
Nine Months Ended October 2, 2016
Net cash provided by operating activities* $ 98
$ 1,161
$ 113
$ —
$ 1,372
Cash flows from investing activities:
Capital expenditures (5 ) (208 ) (31 ) —
(244 )
Other, net 3
(3 ) (38 ) —
(38 )
Net cash used by investing activities (2 ) (211 ) (69 ) —
(282 )
Cash flows from financing activities:
Purchases of common stock (1,514 ) —
—
—
(1,514 )
Proceeds from fixed-rate notes 992
—
—
—
992
Dividends paid (678 ) —
—
—
(678 )
Repayment of fixed-rate notes (500 ) —
—
—
(500 )
Other, net 173
(1 ) —
—
172
Net cash used by financing activities (1,527 ) (1 ) —
—
(1,528 )
Net cash used by discontinued operations (44 ) —
—
—
(44 )
Cash sweep/funding by parent 820
(949 ) 129
—
—
Net decrease in cash and equivalents (655 ) —
173
—
(482 )
Cash and equivalents at beginning of period 1,732
—
1,053
—
2,785
Cash and equivalents at end of period $ 1,077
$ —
$ 1,226
$ —
$ 2,303

* Continuing operations only.

~~Q. PRIOR-PERIOD FINANCIAL STATEMENTS~~

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

~~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 upon delivery and acceptance of 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
October 2, 2016 ASC ASU October 2, 2016
(Dollars in millions, except per-share amounts) As Reported Topic 606 2015-17 As Adjusted
Revenue:
Products $ 4,844
$ (95 ) $ —
$ 4,749
Services 2,887
21
—
2,908
7,731
(74 ) —
7,657
Operating costs and expenses:

Products 3,757
(7 ) —
3,750
Services 2,434
(13 ) —
2,421
G&A 471
—
—
471
6,662
(20 ) —
6,642
Operating earnings 1,069
(54 ) —
1,015
Interest, net (23 ) —
—
(23 )
Other, net 2
—
—
2
Earnings from continuing operations before
income tax
1,048
(54 ) —
994
Provision for income tax, net 281
(18 ) —
263
Earnings from continuing operations 767
(36 ) —
731
Discontinued operations, net of tax benefit of $46 (84 ) —
—
(84 )
Net earnings $ 683
$ (36 ) $ —
$ 647

Earnings per share

Basic:
Continuing operations $ 2.52
$ (0.12 ) $ —
$ 2.40
Discontinued operations (0.27 ) —
—
(0.27 )
Net earnings $ 2.25
$ (0.12 ) $ —
$ 2.13
Diluted:
Continuing operations $ 2.48
$ (0.12 ) $ —
$ 2.36
Discontinued operations (0.27 ) —
—
(0.27 )
Net earnings $ 2.21

$ (0.12 ) $ —
$ 2.09

~~CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)~~

Nine Months Ended Effect of the Adoption of Nine Months Ended
October 2, 2016 ASC ASU October 2, 2016
(Dollars in millions, except per-share amounts) As Reported Topic 606 2015-17 As Adjusted
Revenue:
Products $ 14,556
$ (282 ) $ —
$ 14,274
Services 8,564
69
—
8,633
23,120

(213 ) —
22,907
Operating costs and expenses:

Products 11,287
(13 ) —
11,274
Services 7,224
26
—
7,250
G&A 1,417
—
—
1,417
19,928
13
—
19,941
Operating earnings 3,192

(226 )
—
2,966
Interest, net (68 ) —
—
(68 )
Other, net 13
—
—
13
Earnings from continuing operations before
income tax
3,137
(226 ) —
2,911
Provision for income tax, net 882
(70 ) —
812
Earnings from continuing operations 2,255

(156 )
—
2,099
Discontinued operations, net of tax benefit of $46 (97 ) —
—
(97 )
Net earnings $ 2,158

$ (156 )
$ —
$ 2,002

Earnings per share
Basic:
Continuing operations $ 7.38
$ (0.52 ) $ —
$ 6.86
Discontinued operations (0.31 ) —
—
(0.31 )
Net earnings $ 7.07

$ (0.52 )
$ —
$ 6.55
Diluted:
Continuing operations $ 7.25
$ (0.51 ) $ —
$ 6.74
Discontinued operations (0.31 ) —
—
(0.31 )
Net earnings $ 6.94

$ (0.51 )
$ —
$ 6.43

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

Three Months Ended Effect of the Adoption of Three Months Ended
October 2, 2016 ASC ASU October 2, 2016
(Dollars in millions) As Reported Topic 606 2015-17 As Adjusted
Net earnings $ 683
$ (36 ) $ —
$ 647
Gains on cash flow hedges 102
—
—
102
Unrealized losses on securities (1 ) —
—
(1 )
Foreign currency translation adjustments (43 ) 1
—
(42 )
Change in retirement plans’ funded status 65
—
—
65
Other comprehensive income, pretax 123
1
—
124
Provision for income tax, net 49
—
—
49
Other comprehensive income, net of tax 74
1
—
75
Comprehensive income $ 757
$ (35 ) $ —
$ 722

Nine Months Ended Effect of the Adoption of Nine Months Ended
October 2, 2016 ASC ASU October 2, 2016
(Dollars in millions) As Reported Topic 606 2015-17 As Adjusted
Net earnings $ 2,158
$ (156 ) $ —
$ 2,002
Gains on cash flow hedges 260
—
—
260
Unrealized losses on securities (5 ) —
—
(5 )
Foreign currency translation adjustments 82
3
—
85
Change in retirement plans’ funded status 191
—
—
191
Other comprehensive income, pretax 528
3
—
531
Provision for income tax, net 133
—
—
133
Other comprehensive income, net of tax 395
3
—
398
Comprehensive income $ 2,553
$ (153 ) $ —
$ 2,400

~~CONSOLIDATED BALANCE SHEET (UNAUDITED)~~

Effect of the Adoption of
December 31, 2016 ASC ASU December 31, 2016
(Dollars in millions) As Reported 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 represents the impact to current deferred taxes of adopting ASC Topic 606.

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



Nine Months Ended September 29, 2019	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments		Total Consolidated
Net cash provided by operating activities*	$	181		$	679		$	(273	)	$	—	$	587
Cash flows from investing activities:
Capital expenditures	(65		)	(404		)	(137		)	—		(606		)
Other, net	6			21			(25		)	—		2
Net cash used by investing activities	(59		)	(383		)	(162		)	—		(604		)
Cash flows from financing activities:
Proceeds from commercial paper, net	947			—			—			—		947
Dividends paid	(858		)	—			—			—		(858		)
Purchases of common stock	(231		)	—			—			—		(231		)
Other, net	24			(1		)	184			—		207
Net cash provided by financing activities	(118		)	(1		)	184			—		65
Net cash used by discontinued operations	(37		)	—			—			—		(37		)
Cash sweep/funding by parent	(15		)	(295		)	310			—		—
Net increase in cash and equivalents	(48		)	—			59			—		11
Cash and equivalents at beginning of period	460			—			503			—		963
Cash and equivalents at end of period	$	412		$	—		$	562		$	—	$	974
Nine Months Ended September 30, 2018
Net cash provided by operating activities*	$	(204	)	$	1,561		$	(276	)	$	—	$	1,081
Cash flows from investing activities:
Business acquisitions, net of cash acquired	(9,749		)	(74		)	(216		)	—		(10,039		)
Capital expenditures	(36		)	(331		)	(80		)	—		(447		)
Other, net	93			76			—			—		169
Net cash used by investing activities	(9,692		)	(329		)	(296		)	—		(10,317		)
Cash flows from financing activities:
Proceeds from fixed-rate notes	6,461			—			—			—		6,461
Proceeds from commercial paper, net	1,668			—			—			—		1,668
Proceeds from floating-rate notes	1,000			—			—			—		1,000
Dividends paid	(801		)	—			—			—		(801		)
Purchases of common stock	(533		)	—			—			—		(533		)
Repayment of CSRA accounts receivable purchase agreement	—			—			(450		)	—		(450		)
Other, net	(10		)	—			(58		)	—		(68		)
Net cash provided by financing activities	7,785			—			(508		)	—		7,277
Net cash used by discontinued operations	(14		)	—			—			—		(14		)
Cash sweep/funding by parent	844			(1,232		)	388			—		—
Net decrease in cash and equivalents	(1,281		)	—			(692		)	—		(1,973		)
Cash and equivalents at beginning of period	1,930			—			1,053			—		2,983
Cash and equivalents at end of period	$	649		$	—		$	361		$	—	$	1,010

* Continuing operations only.

Nine Months Ended Effect of the Adoption of Nine Months Ended
October 2, 2016 ASC ASU October 2, 2016
(Dollars in millions) As Reported Topic 606 2015-17 As Adjusted
Cash flows from operating activities -
    continuing operations:

Net earnings $ 2,158
$ (156 ) $ —
$ 2,002
Adjustments to reconcile net earnings to net cash provided
    by operating activities:

Depreciation of property, plant and equipment 272
(2 ) —
270
Amortization of intangible assets 70
—
—
70
Equity-based compensation expense 76
—
—
76
Deferred income tax provision 218
(70 ) —
148
Discontinued operations, net of tax 97
—
—
97
(Increase) decrease in assets, net of effects of
    business acquisitions:

Accounts receivable (52 ) 73
—
21
Unbilled receivables (957 ) 50
—
(907 )
Inventories (288 ) 82
—
(206 )
Increase (decrease) in liabilities, net of effects of
    business acquisitions:

Accounts payable 305
—
—
305
Customer advances and deposits (574 ) 20
—
(554 )
Income taxes payable (14 ) —
—
(14 )
Other, net 61
3
—
64
Net cash provided by operating activities 1,372
—
—
1,372
Cash flows from investing activities:

Capital expenditures (244 ) —
—
(244 )
Business acquisitions, net of cash acquired (56 ) —
—
(56 )
Other, net 18
—
—
18
Net cash used by investing activities (282 ) —
—
(282 )
Cash flows from financing activities:

Purchases of common stock (1,514 ) —
—
(1,514 )
Proceeds from fixed-rate notes 992
—
—
992
Dividends paid (678 ) —
—
(678 )
Repayment of fixed-rate notes (500 ) —
—
(500 )
Other, net 172
—
—
172
Net cash used by financing activities (1,528 ) —
—
(1,528 )
Net cash used by discontinued operations (44 ) —
—
(44 )
Net decrease in cash and equivalents (482 ) —
—
(482 )
Cash and equivalents at beginning of period 2,785
—
—
2,785
Cash and equivalents at end of period $ 2,303
$ —
$ —
$ 2,303

~~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
Nine months ended October 2, 2016 - as
    reported
—
59
1,457
(1,332 ) 395
579
Effect of the adoption of ASC Topic 606 —
—
(156 ) —
3
(153 )
Effect of the adoption of ASU 2015-17 —
—
—
—
—
—
October 2, 2016 - as adjusted $ 482
$ 2,789
$ 24,204
$ (13,724 ) $ (2,885 ) $ 10,866

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,~~services; command, control, communications, computers, intelligence, surveillance and ~~reconnaissance)~~reconnaissance (C4ISR) solutions; and shipbuilding and ship repair.

~~We operate through four business groups:~~Our company is organized into five operating segments: Aerospace, Combat Systems, Information Technology, Mission Systems ~~and Technology,~~ and Marine Systems. We refer to the latter four segments collectively as our defense segments. Our primary customer is the U.S. government, including the Department of Defense (DoD), the intelligence community and other U.S. government customers. We also have significant business with non-U.S. governments and a diverse base of corporate and individual buyers of business-jet aircraft. The following discussion should be read in conjunction with our ~~2016~~2018 Annual Report on Form 10-K and with the unaudited Consolidated Financial Statements included in this Form 10-Q.

DEFENSE BUSINESS ENVIRONMENT

With approximately ~~60%~~65% of our revenue from the U.S. government, ~~our financial performance is impacted by U.S.~~ government spending levels, particularly defense ~~spending. Prior to~~spending, influence our financial performance. At the ~~U.S.~~start of the government’s new fiscal year (FY) that began on October 1, ~~2017,~~2019, the Congress had not passed the FY ~~2018~~2020 defense appropriations bill. On September ~~8, 2017,~~27, 2019, a continuing resolution (CR)~~, which funds government~~ was signed into law, providing funding for federal agencies at FY ~~2017~~2019 spending levels ~~was approved~~ through ~~December 8, 2017.~~November 21, 2019. When the government operates under a CR, newly awarded programs are not funded, which could result in program delays. We do not anticipate that the current CR, or subsequent extensions, will have a material impact on our results of operations, financial condition or cash flows.

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 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 have been restated.operating segments.

In the Aerospace ~~group,~~segment, we record revenue on contracts for new aircraft when ~~control is transferred to~~ the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft. Revenue associated with the ~~group’s~~segment’s custom completions of ~~other original equipment manufacturers’ (OEMs)~~narrow-body and wide-body aircraft and the ~~group’s~~segment’s services businesses is recognized as work progresses or upon delivery of services. Fluctuations in revenue from period to period result from the number and mix of new aircraft deliveries, progress on aircraft completions, and the level and type of aircraft ~~service activity~~services performed during the period.

The majority of the Aerospace ~~group’s~~segment’s operating costs ~~relate~~relates to new aircraft production on firm orders and ~~consist~~consists of labor, material, subcontractor and overhead costs. The costs are accumulated in production lots, recorded in inventory and recognized as operating costs at aircraft delivery based on the

estimated average unit cost in a production lot. While changes in the estimated average unit cost for a production lot impact the level of operating costs, the amount of operating costs reported in a given period is based largely

on the number and type of aircraft delivered. Operating costs in the Aerospace ~~group’s~~segment’s completions and services businesses are recognized generally as incurred.

For new aircraft, operating earnings and margin are a function of the prices of our aircraft, our operational efficiency in manufacturing and outfitting the aircraft, and the mix of ultra-large-cabin, large-cabin and mid-cabin aircraft deliveries. Additional factors affecting the ~~group’s~~segment’s earnings and margin include the volume, mix and profitability of completions and services work performed, the volume of and market for pre-owned aircraft, and the level of general and administrative (G&A) and net research and development (R&D) costs incurred by the ~~group.~~segment.

In the ~~three~~ defense ~~groups,~~segments, 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~~segments are driven by changes in volume, performance or contract mix. Performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract or both. Therefore, changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. ~~Additionally, higher~~Higher or lower margins can ~~be inherent in the~~result from a number of factors, including contract type (e.g., fixed-price/cost-reimbursable) orand type of work (e.g., development/production).

CONSOLIDATED OVERVIEW


Three Months Ended	October 1, 2017			October 2, 2016			Variance					September 29, 2019			September 30, 2018			Variance
Revenue	$	7,580		$	7,657		$	(77	)	(1.0	)%	$	9,761		$	9,094		$	667		7.3	%
Operating costs and expenses	6,528			6,642			(114		)	(1.7	)%	(8,545		)	(7,959		)	(586		)	7.4	%
Operating earnings	1,052			1,015			37			3.6	%	1,216			1,135			81			7.1	%
Operating margin	13.9		%	13.3		%						12.5		%	12.5		%
Nine Months Ended	October 1, 2017			October 2, 2016			Variance					September 29, 2019			September 30, 2018			Variance
Revenue	$	22,696		$	22,907		$	(211	)	(0.9	)%	$	28,577		$	25,815		$	2,762		10.7	%
Operating costs and expenses	19,553			19,941			(388		)	(1.9	)%	(25,257		)	(22,584		)	(2,673		)	11.8	%
Operating earnings	3,143			2,966			177			6.0	%	3,320			3,231			89			2.8	%
Operating margin	13.8		%	12.9		%						11.6		%	12.5		%

Our consolidated results for the third quarter of 2017 reflected strong operating performance, with operating earnings over $1 billion and a robust operating margin of 13.9% in the third quarter and 13.8% in the first nine months of 2017.

~~Revenue was down~~revenue increased in the third quarter and first nine months of ~~2017~~2019 driven by ~~lower~~additional aircraft deliveries in our Aerospace segment, higher volume from U.S. military vehicles in our Combat Systems segment and increased U.S. Navy ship construction ~~volume~~ in our Marine Systems ~~group and lower volume across our Information Systems and Technology~~

~~group. These decreases were offset partially by higher volume across our Combat Systems group and increased revenue from aircraft deliveries and aircraft services in our Aerospace group.~~

Operating costs and expenses decreased at a greater rate than revenue in the third quarter and first nine months of 2017 resulting in operating earnings and margin growth compared with the prior-year periods. Operating margin expanded 60 basis points in the third quarter driven primarily by strong program performance and favorable contract mix in our Information Systems and Technology and Combat Systems groups.segment. In the first nine months of ~~2017, operating~~2019, the increase in revenue was also driven by the acquisition of CSRA Inc. (CSRA) in our Information Technology segment, which we acquired on April 3, 2018. See Note B to the unaudited Consolidated Financial Statements in Part I, Item 1, for further discussion of the acquisition.

Operating margin ~~expanded~~remained steady in the third quarter of 2019 but declined 90 basis points ~~due to improved operating performance~~in the first nine months of 2019. Both periods were impacted by a less favorable aircraft delivery mix in our Aerospace ~~Information Systems~~segment and ~~Technology, and~~a less favorable contract mix in our Combat Systems ~~groups.~~segment. The unfavorable impacts of these items were fully offset in the third quarter as a result of ongoing operational performance improvements and cost containment activities across the company.

REVIEW OF ~~BUSINESS GROUPS~~OPERATING SEGMENTS

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

AEROSPACE


Three Months Ended	October 1, 2017			October 2, 2016			Variance					September 29, 2019			September 30, 2018			Variance
Revenue	$	1,995		$	1,925		$	70		3.6	%	$	2,495		$	2,031		$	464		22.8	%
Operating earnings	385			377			8			2.1	%	393			376			17			4.5	%
Operating margin	19.3		%	19.6		%						15.8		%	18.5		%
Gulfstream aircraft deliveries (in units)	30			29			1			3.4	%	38			27			11			40.7	%
Nine Months Ended	October 1, 2017			October 2, 2016			Variance					September 29, 2019			September 30, 2018			Variance
Revenue	$	6,147		$	5,990		$	157		2.6	%	$	6,871		$	5,751		$	1,120		19.5	%
Operating earnings	1,253			1,133			120			10.6	%	1,052			1,108			(56		)	(5.1	)%
Operating margin	20.4		%	18.9		%						15.3		%	19.3		%
Gulfstream aircraft deliveries (in units)	90			93			(3		)	(3.2	)%	103			79			24			30.4	%

Operating Results

The increase in the Aerospace ~~group’s~~segment’s revenue in the third quarter and first nine months of ~~2017~~2019 consisted of the following:


	Third Quarter			Nine Months			Third Quarter			Nine Months
Aircraft manufacturing, outfitting and completions	$	80		$	91
Aircraft manufacturing and completions							$	444		$	1,004
Aircraft services	16			91			(2		)	60
Pre-owned aircraft	(26		)	(25		)	22			56
Total increase	$	70		$	157		$	464		$	1,120

Aircraft manufacturing ~~outfitting~~ and completions revenue increased due primarily to the initial deliveries of the new large-cabin G600 aircraft, which entered into service in the third quarter of 2019, and additional deliveries of the ~~ultra-large-cabin G650 and mid-cabin G280~~large-cabin G500 aircraft, ~~offset partially by fewer G550 and G450 large-cabin~~which entered into service in the third quarter of 2018. We expect deliveries of both of these aircraft ~~deliveries. Aircraft~~to continue to ramp up in the fourth quarter.

In the first nine months of 2019, the increase in aircraft services revenue ~~increased~~was driven by higher demand for maintenance

work and the acquisition in the second quarter of 2018 of Hawker Pacific, a ~~fixed-base-operations (FBO) facility in 2017. We had one pre-owned aircraft sale in each~~leading provider of integrated aviation solutions across the Asia-Pacific region and the Middle East.

The components of the ~~third-quarter periods and four pre-owned aircraft sales~~change in the first nine months of 2017 compared with six in the first nine months of 2016. While we sold the same number of pre-owned aircraft in the third quarter of 2017 compared with the prior-year period, the type of aircraft sold resulted in lower pre-owned aircraft revenue.

~~The increase in the group’s~~segment’s operating earnings in the third quarter and first nine months of ~~2017 consisted~~2019 are presented below. Operating earnings were up in the quarter over the third quarter of 2018, which is particularly notable in light of a significant favorable supplier settlement in the third quarter of 2018 that was the primary driver of the ~~following:~~decrease in operating earnings in the first nine months of 2019.

~~Aircraft~~In addition to the supplier settlement, aircraft manufacturing ~~outfitting~~ and completions operating earnings were ~~up due to a favorable~~impacted by the shift in the mix of ~~large-cabin~~Gulfstream aircraft deliveries as the G600 was introduced and ~~effective cost containment. R&D expenses (included~~G500 production increased, bringing the typical lower margin associated with initial units of a new aircraft model. The shift in the mix was offset by the operating earnings generated from additional deliveries in the current-year periods.

Net G&A/other expenses ~~above) associated with ongoing product-development efforts~~ were higher in the ~~third quarter and~~ first nine months of ~~2017 as the group progresses~~2019 compared with the ~~certification~~prior-year period as a result of ~~its two newest~~the receipt in the second quarter of 2018 of milestone payments from suppliers under our cost sharing arrangements on aircraft ~~models,~~development programs. Overall, R&D expenses have been trending downward with the completion of the G500 and G600 aircraft test programs, resulting in lower G&A/other expenses in the ~~G600.~~

~~The~~third quarter of 2019. In total, the Aerospace ~~group’s~~segment’s operating margin ~~was down 30~~decreased 270 basis points in the third quarter ~~driven by higher R&D expenses. However, operating margin increased 150~~and 400 basis points in the first nine months of ~~2017~~2019 compared with the prior-year ~~period as a favorable aircraft delivery mix and strong performance more than offset the impact of higher R&D expenses.~~

We expect the group’s full-year 2017 revenue to be consistent with our second-quarter estimate of approximately $8 to $8.1 billion. Operating margin is expected to be around 19.6%, also in line with our prior outlook.periods.

The increase in the Combat Systems ~~group’s~~segment’s revenue in the third quarter and first nine months of ~~2017~~2019 consisted of the following:

~~Revenue was up across the Combat Systems group in the third quarter and first nine months of 2017.~~ Revenue from U.S. military vehicles increased due primarily to higher volume on the U.S. Army’s ~~Stryker~~Abrams M1A2 System Enhancement Package Version 3 (SEPv3) tank and new Mobile Protected Firepower (MPF) vehicle programs. Weapons systems and munitions revenue was up due ~~primarily~~ to increased ~~production of~~volume on several products, including ~~bombs and Hydra-70 rockets~~artillery for the ~~U.S. government.~~Army and missile subcomponents. Revenue from international military vehicles ~~increased in the third quarter and first nine months of 2017~~decreased due to ~~the ramp up in production~~lower volume on various wheeled armored vehicle programs and reduced volume on the British Army’s AJAX ~~armoured~~armored fighting vehicles program. In the first nine months of 2017, revenue from international military vehicles also increased due to higher volume on the group’s contract to refurbish and upgrade Abrams main battle tanks for the Kingdom of Morocco and several international light armored vehicle ~~(LAV) programs. These increases were offset partially by lower revenue on a large combat-vehicle contract in the Middle East~~program as ~~the group~~it transitions from engineering to production.

The Combat Systems ~~group’s~~segment’s operating margin ~~increased 80~~decreased 60 basis points in the third quarter and 60150 basis points in the first nine months of ~~2017~~2019 driven by ~~improved~~contract mix in our U.S. military vehicles business and an unfavorable settlement in the first quarter of 2019 relating to a lease at a former operating ~~performance across~~site outside the ~~group’s portfolio.~~

~~We expect the Combat Systems group’s full-year 2017 revenue to be consistent with our prior outlook of $5.9 billion. Similarly, operating margin remains about 15.6 to 15.7%.~~United States.

The change in the Information ~~Systems and~~ Technology ~~group’s~~segment’s revenue in the third quarter and first nine months of ~~2017~~2019 consisted of the following:

~~C4ISR solutions~~In the first nine months of 2019, revenue ~~decreased~~increased across all three businesses due to the CSRA acquisition in the second quarter of 2018. Federal civilian revenue in the third quarter and first nine months

of ~~2017 due primarily to~~2019 were lower ~~volume on~~because of the ~~Warfighter Information Network-Tactical (WIN-T) mobile communications network~~sale of the segment’s public-facing contact-center business in the fourth quarter of 2018 and ~~Common Hardware Systems-4 (CHS-4) computing and communications equipment programs.~~other portfolio shaping following the acquisition. Revenue ~~in our IT services business~~also decreased in ~~2017 due to lower volume on a U.S. Department~~the third quarter of ~~State supply chain management program.~~2019 driven by the completion of several legacy CSRA programs in 2018, offset partially by the ramp up of new programs.

~~Despite the lower revenue, operating earnings increased, and~~The Information Technology segment’s operating margin ~~expanded 140~~was up 20 basis points in the third quarter ~~and 110~~of 2019 compared with the prior-year period due to lower intangible asset amortization expense from the CSRA acquisition, offset somewhat by a charge recorded as we exited a non-core line of business. Operating margin increased 10 basis points in the first nine months of ~~2017. The margin expansion was driven primarily by strong~~2019 compared with the prior-year period due to favorable program ~~performance~~mix and ~~favorable contract mix across our portfolio.~~acquisition-related synergies offsetting additional intangible asset amortization expense.

We expect full-year revenue in the Information Systems and Technology group to be essentially flat from 2016. Operating margin is expected to be around 11.3%, both consistent with our second-quarter outlook.

The change in the ~~Marine~~Mission Systems ~~group’s~~segment’s revenue in the third quarter and first nine months of ~~2017~~2019 consisted of the following:

Revenue in the Mission Systems segment was down slightly in the third quarter but up in the first nine months of 2019 compared with the prior-year periods. Increased volume on combat and seaframe control systems for the U.S. Navy’s Independence-variant Littoral Combat Ships and fire-control systems for the Navy’s submarine programs drove the increase in the naval, air and electronic systems business. Ground systems and products revenue was up in the first nine months of 2019 due primarily to higher demand for computing and communications equipment.

The Mission Systems segment’s operating margin increased 60 basis points in the third quarter and decreased 30 basis points in the first nine months of 2019 compared with prior-year periods due to program mix.

The increase in the Marine Systems segment’s revenue in the third quarter and first nine months of 2019 consisted of the following:

Revenue from U.S. Navy ship construction ~~decreased driven by lower~~was up due to higher volume on Block ~~III~~V of the Virginia-class submarine ~~program. This decrease was offset partially by higher volume on~~program, the ~~Navy’s Expeditionary Sea Base (ESB) program. Jones Act commercial ship construction revenue decreased due to reduced construction activity following~~Columbia-class submarine program and the ~~delivery of six ships in 2016 and two ships in the first nine months of 2017.~~John Lewis-class (T-AO-205) fleet replenishment oiler contract. Revenue from U.S. Navy ship engineering, repair and other services increased ~~in 2017 due to additional development work on the Columbia-class submarine program and~~driven by a higher volume of ~~submarine~~surface ship repair work. These increases were offset partially by lower commercial ship construction volume.

The Marine Systems ~~group’s~~segment’s operating margin ~~decreased 20~~increased 100 basis points in the third quarter of 2019 and 3010 basis points in the first nine months of ~~2017 due to a shift in contract mix, including~~2019 compared with the ~~transition from~~prior-year periods driven by favorable performance on the end of Block III ~~to Block IV~~ of the ~~Virgina-class~~Virginia-class submarine program.

~~We expect~~ In the ~~Marine Systems group’s full-year 2017 revenue to remain steady compared with 2016. Operating margin is expected to be between 8.5~~first nine months of 2019, this favorable performance offset the impact of mix shift, particularly in our submarine and ~~8.6%, consistent with our second-quarter outlook.~~auxiliary ship workloads, that the segment has been experiencing in 2019.

Corporate ~~costs totaled $12 in~~operating results consisted of the ~~third quarter of 2017 compared with $7 in the third quarter of 2016, and $34~~following:

Corporate operating results in the first nine months of ~~2017 compared~~2018 included one-time transaction-related charges of approximately $45 associated with ~~$31~~the costs to complete the CSRA acquisition. Excluding these charges, Corporate operating results have two primary components: pension and other post-retirement benefit income, and stock option expense.

We are required to report the non-service cost components of pension and other post-retirement benefit cost (e.g., interest cost) in other income (expense) in the ~~prior-year period.~~Consolidated Statement of Earnings. In our defense segments, pension and other post-retirement benefit costs are recoverable contract costs. Therefore, the non-service cost components are included in the operating results of these segments, but an offset is reported in Corporate.

Based on recent market conditions, we adjusted our assumptions for our non-qualified supplemental retirement plans, and the third quarter of 2019 reflects a cumulative adjustment to recognize the resulting increase in expense. In our defense segments, this results in an increase in the offset reported in Corporate, ~~results consist primarily of stock option expense. We~~as described above. Due to the revised assumptions, we expect ~~2017~~minimal income/expense for Corporate ~~operating costs of approximately $50.~~in the fourth quarter.

The ~~change~~increase in product revenue in the third quarter and first nine months of ~~2017~~2019 consisted of the following:

Aircraft manufacturing and completions revenue increased due primarily to the initial deliveries of the new large-cabin G600 aircraft and additional deliveries of the large-cabin G500 aircraft. Ship construction revenue ~~decreased~~increased due to ~~lower~~higher volume on Block ~~III~~V of the Virginia-class submarine program, the Columbia-class submarine program and ~~reduced Jones Act~~the John Lewis-class fleet replenishment oiler contract, offset partially by lower commercial ship construction volume. ~~Revenue from~~ C4ISR products ~~decreased driven by lower~~revenue was up due to higher demand for computing and communications equipment and increased volume on combat and seaframe control systems. Military vehicle production revenue was up due to higher volume on the ~~WIN-T~~U.S. Army’s Abrams tank and ~~CHS-4~~new MPF programs. ~~These decreases were offset partially~~

~~by higher revenue on several military vehicle production programs and additional deliveries of the ultra-large-cabin G650 and mid-cabin G280 aircraft.~~

Product operating costs ~~decreased in the third quarter and first nine months of 2017~~increased at a higher rate than revenue ~~declined~~ due primarily to ~~strong operating performance~~the shift in ~~our Aerospace and Information Systems and Technology groups.~~mix of Gulfstream aircraft deliveries.

The change in service revenue in the third quarter and first nine months of ~~2017~~2019 consisted of the following:

~~Service~~In the first nine months of 2019, IT services revenue increased due to the CSRA acquisition in the second quarter of 2018. IT services revenue decreased in the third quarter of ~~2017, but was up in the first nine months of 2017 compared with the prior-year period~~2019 due primarily to ~~additional development work on~~ the ~~Columbia-class submarine program and~~sale of a ~~higher volume~~public-facing contact-center business in the fourth quarter of ~~submarine repair work. C4ISR services revenue decreased in~~2018. In the third quarter ~~and first nine months~~ of ~~2017 due to lower volume on several programs, including less development work for the WIN-T program. Service~~2019, service operating costs decreased inat a higher rate than revenue due primarily to lower intangible asset amortization expense from the ~~third quarter and increased in the first nine months of 2017 consistent with the changes in volume on the programs described above.~~CSRA acquisition.

As a percentage of revenue, G&A expenses were 6.2% in the first nine months of2019 compared with 6.6% in the first nine months of~~2017 compared with 6.2% in the first nine months of 2016. We expect full-year G&A expenses as a percentage of revenue in 2017 to be generally consistent with the first nine months of2017.~~ 2018.

Net interest expense was ~~$76~~$350 in the first nine months of ~~2017~~2019 compared with ~~$68~~$244 in the prior-year period. The increase iswas due primarily to the impact of financing the CSRA acquisition, including the issuance of $7.5 billion of fixed- and floating-rate notes in the second quarter of 2018. See Note I to the unaudited Consolidated Financial Statements in Part I, Item 1, for additional information regarding our debt obligations, including interest rates.

Net other income was $18 in the first nine months of 2019 compared with expense of $34 in the first nine months of 2018. These amounts represent primarily the non-service cost components of pension and other post-retirement benefits, which became a ~~$500~~ net ~~increase~~income item in ~~long-term debt beginning~~the first nine months of 2019 versus a net expense in the prior-year period. The first nine months of 2018 also included approximately $30 of transaction costs associated with the CSRA acquisition.

Based on recent market conditions, we adjusted our assumptions for our non-qualified supplemental retirement plans, and the third quarter of ~~2016. We~~2019 reflects a cumulative adjustment to recognize the resulting increase in expense. Due to the revised assumptions, we expect ~~full-year 2017 net interest~~ minimal other income/expense ~~to be approximately $110.~~in the fourth quarter.

Our effective tax rate was ~~25.8%~~17.5% in the first nine months of ~~2017~~2019 compared with ~~27.9%~~17.1% in the prior-year period. ~~The decrease is due primarily to additional tax benefits from equity-based compensation in the first~~

~~nine months of 2017 associated with stock option exercises and the vesting of restricted stock and restricted stock units and increased international activity. We~~For 2019, we anticipate ~~our~~a full-year ~~2017~~ effective tax rate ~~to be approximately 27%.~~in the mid-17% range.

~~In 2013, we settled litigation~~Concurrent with the ~~U.S. Navy related~~acquisition of CSRA, we were required by a government customer to dispose of certain CSRA operations to address an organizational conflict of interest with respect to services provided to the ~~terminated A-12 aircraft contract in the company’s former tactical military aircraft business.~~customer. In connection with the settlement, we released some rights to reimbursement of costs on ships under contract at our Bath, Maine, shipyard. As we progressed through the shipbuilding process, we determined that the cost associated with this settlement was greater than anticipated. Therefore, in the third quarter of ~~2016,~~2018, we ~~recognized an $84 loss, net of tax, to adjust the previously-recognized settlement value.~~

sold these operations. In ~~2015, we completed~~accordance with U.S. generally accepted accounting principles (GAAP), the sale ~~of our axle business~~did not result in ~~the Combat Systems group. In the first nine months of 2016, we recognized~~ a ~~final adjustment of $13 to the loss on~~gain for financial reporting purposes. However, the sale generated a taxable gain, resulting in tax expense of ~~the business.~~$13.

BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE

Our total backlog, including funded and unfunded portions, was ~~$63.9~~$67.4 billion at the end of the third quarter of ~~2017, up 9.2%~~2019, down slightly from ~~$58.6~~$67.7 billion on ~~July 2, 2017.~~June 30, 2019. Our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in Note BC 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 ~~$89.7~~$103 billion on ~~October 1, 2017.~~September 29, 2019, up 1.1% from $101.9 billion on June 30, 2019.

The following table details the backlog and estimated potential contract value of each ~~business group~~segment at the end of the third and second quarters of ~~2017:~~2019:

Estimated Contract Value

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~~Aerospace segment ended the third quarter of ~~2017~~2019 with backlog of ~~$11.8~~$11.4 billion compared with ~~$12.2~~$12.1 billion on ~~July 2, 2017.~~June 30, 2019.

Orders in the third quarter of ~~2017~~2019 reflected ~~strong~~ demand across our product and services ~~portfolio. We received~~portfolio including orders for all models of ~~in-production~~ Gulfstream ~~aircraft, as well as additional orders for the G500 and G600 aircraft, which are expected to enter into service in 2018.~~aircraft. The segment’s book-to-bill ratio (orders divided by revenue) was ~~nearly one-to-one~~0.7-to-1 in the third quarter of 2019 and approximately 1-to-1 over the trailing 12 months. We received both type and production certification from the U.S. Federal Aviation Administration (FAA) for ~~Gulfstream~~the G600 aircraft in June 2019 and delivered the first G600 aircraft in the third quarter of ~~2017.~~2019.

Beyond total backlog, estimated potential contract value ~~in the Aerospace group was $1.9 billion on October 1, 2017, and July 2, 2017. Estimated potential contract value~~ represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements. On September 29, 2019, estimated potential contract value in the Aerospace segment was $2.1 billion, consistent with June 30, 2019.

On October 21, 2019, we introduced the new G700 aircraft, combining our industry-leading high-speed, ultra-long-range, ultra-long-cabin G650ER aircraft with an expanded cabin, a new high-thrust, high-efficiency engine to optimize performance and our Symmetry Flight Deck – the industry’s most technologically advanced flight deck, which we launched on our new G500 and G600 aircraft. The G700 is expected to enter into service in 2022, following type certification from the FAA and European Aviation Safety Agency. Although the G700 was only recently announced, demand for the next generation aircraft has been solid, and our September 29, 2019, backlog already includes orders associated with the new model.

DEFENSE ~~GROUPS~~SEGMENTS

The total backlog in our ~~three~~ defense ~~groups~~segments represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of this backlog includes items that have been authorized and appropriated by the U.S. Congress and funded by customers, as well as commitments by international customers that are approved and funded similarly by their governments. ~~We have included in total backlog firm contracts at~~The unfunded portion includes the amounts that we believe 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~~segments 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~~segments was ~~$52.1~~$56 billion on ~~October 1, 2017, up 12.5% from $46.3~~September 29, 2019, compared with $55.5 billion on ~~July 2, 2017, driven by a $5.1 billion contract awarded by the U.S. Navy to complete the design~~June 30, 2019. The Combat Systems, Information Technology and ~~prototype development of the lead Columbia-class submarine. Each of our defense groups~~Mission Systems segments each achieved a book-to-bill ratio ~~exceeding one-to-one~~in excess of 1-to-1 in the third quarter of ~~2017.~~2019. Estimated potential contract value in our defense segments was ~~$23.8~~$33.6 billion on ~~October 1, 2017, compared with $22.5~~September 29, 2019, up 4.4% from $32.2 billion on ~~July 2, 2017.~~June 30, 2019. We received the following significant contract awards during the third quarter of ~~2017:~~2019:

Combat Systems:

$~~310~~1.3 billion from the Canadian government to produce armored combat support vehicles (ACSVs) and provide associated support services.

$155 from the U.S. Army ~~to design, develop~~for various munitions and ~~integrate multiple engineering changes into the Abrams M1A2 System Enhancement Package Version 3 (SEPv3), creating a SEPv4.~~ordnance.

$~~270 from the Army~~70 to produce ~~45 Abrams M1A2 SEPv3 tanks, deliver M1A2 components and provide associated program support.~~gun systems for the F-35 Joint Strike Fighter.

$~~260 from the Army and U.S. Air Force for various calibers of ammunition and ordnance.~~

~~$220 from an international customer to produce Piranha 3+ vehicles in five variants and provide associated program support.~~

~~$195~~55 from the Army for various maintenance and enhancements at the ~~production~~Lima Army Tank Plant in Lima, Ohio.

Information Technology:

An IDIQ contract to provide C4ISR installation services for the U.S. Navy. The program has a maximum potential value of ~~Hydra-70 rockets.~~$2.5 billion among 6 awardees.

~~$175~~A contract to provide program management and engineering services to the Cybersecurity and Infrastructure Security Agency’s (CISA) emergency communications infrastructure. The contract has a maximum potential value of $325.

A contract from the ~~Army for Stryker double-V-hull vehicles.~~U.S. Department of Veterans Affairs under the Veterans Intake, Conversion and Communications Services (VICCS) program to provide support and communication services to U.S. veterans. The contract has a maximum potential value of $280.

$35155 from the ~~Army for engineering and logistics~~U.S. Department of State to provide business process support services for the ~~Abrams family~~Bureau of ~~vehicles.~~

~~Information Systems and Technology:~~Consular Affairs’ Global Support Strategy (GSS) program for visa services.

$~~455~~125 to provide design, development, testing, installation, maintenance, logistics support and modernization services for Navy airborne and shipboard platforms.

$95 from the Centers for Medicare &and Medicaid Services for ~~contact center services and cloud hosting support.~~several key contracts, including support of the Medicare Secondary Payer (MSP) program. These contracts have a maximum potential value of $220.

Mission Systems:

$~~110~~265 from the Army for computing and communications equipment under the ~~CHS-4~~ Common Hardware Systems-5 (CHS-5) program.

$1.1 billion from the Navy for design and construction of two Expeditionary Sea Base (ESB) auxiliary support ships and an option totaling approximately $550 for an additional ship.

$390 from the Navy for Advanced Nuclear Plant Studies (ANPS) in support of the Columbia-class submarine program.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We ended the third quarter of ~~2017~~2019 with a cash balance of ~~$2.7 billion, up $388 from~~$974 compared with $963 at the end of ~~2016.~~2018. Our net debt position, defined as debt less cash and equivalents and marketable securities, ~~less debt,~~ was ~~$2.2~~$12.7 billion at

the end of the third quarter of ~~2017~~2019 compared with ~~$1.6~~$11.5 billion at the end of ~~2016.~~2018.

We expect to continue to generate funds in excess of our short- and long-term liquidity needs. We believe we have adequate funds on hand and sufficient borrowing capacity to execute our financial and operating strategy. The following is a discussion of our major operating, investing and financing activities in the first nine months of 2019and2018, as classified on the unaudited Consolidated Statement of Cash Flows in ~~the~~ ~~first nine months~~ of ~~2017and2016~~.Part I, Item 1.

OPERATING ACTIVITIES

We generated cash from operating activities of ~~$1.9 billion~~$587 in the first nine months of ~~2017~~2019 compared with ~~$1.4~~$1.1 billion in the same period in ~~2016.~~2018. The primary driver of cash ~~flows~~inflows in both periods was net earnings. ~~Cash~~However, cash flows in both periods were affected negatively by growth in operating working capital (OWC), particularly the timing of payments on international armored vehicle contracts in our Combat Systems ~~group due~~segment. For additional information about the growth in our unbilled receivables balance, see Note G to the ~~timing~~unaudited Consolidated Financial Statements in Part I, Item 1. Cash flows in the first nine months of ~~billings on a large contract for a Middle Eastern customer, and~~2019 were also affected negatively by net OWC growth in our Aerospace ~~group from~~segment driven by our position in the ~~build-up~~development, production and cash collection cycles of ~~inventory related to~~our Gulfstream aircraft models.

Additionally, cash flows in the ~~new G500 and G600 aircraft programs and~~first nine months of 2018 reflected a ~~decrease in customer deposits associated with aircraft deliveries.~~discretionary pension plan contribution of $255.

INVESTING ACTIVITIES

Cash used for investing activities was ~~$584~~$604 in the first nine months of ~~2017~~2019 compared with ~~$282~~$10.3 billion in the same period in ~~2016~~.2018. 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 uses~~In the first nine months of ~~cash for investing activities in both periods were acquisitions and capital expenditures. In 2017,~~2018, we acquired three businesses for an aggregate of ~~$364, and in 2016, we acquired two businesses~~$10 billion, including $9.7 billion for ~~an aggregate of $56.~~CSRA. Capital expenditures were ~~$273~~$606 in the first nine months of ~~2017~~2019 compared with ~~$244~~$447 in the same period in ~~2016. We expect capital expenditures between 1% and 2% of revenue in 2017.~~2018. The increase reflects ongoing investments to support growth at our shipyards.

FINANCING ACTIVITIES

Cash ~~used for~~provided by financing activities was ~~$881 million~~$65 in the first nine months of ~~2017~~2019 compared with ~~$1.5~~$7.3 billion in the same period in ~~2016~~.2018. Net cash from financing activities includes proceeds received from debt and commercial paper issuances and payment of dividends. Our financing activities also include repurchases of common stock, ~~payment of dividends and~~ debt ~~repayments. Net cash from financing activities also includes proceeds received from debt issuances~~repayments and employee stock option exercises.

On ~~March 1, 2017,~~December 5, 2018, our board of directors authorized management to repurchase up to 10 million additional shares of the company’s outstanding stock. In the first nine months of ~~2017,~~2019, we repurchased ~~approximately 5.9~~1.1 million of our outstanding shares for ~~$1.1 billion.~~$184. On ~~October 1, 2017, 9.5~~September 29, 2019, 6.4 million shares remained authorized by our board of directors for repurchase, approximately 3%2% of our total shares outstanding. We repurchased ~~11.2~~2.5 million shares for ~~$1.5 billion~~$522 in the first nine months of ~~2016.~~2018.

In the third quarter of 2017, we issued $1 billion of fixed-rate notes. The proceeds will be used to repay $900 of fixed-rate notes maturing in November of 2017 and for general corporate purposes. In the third quarter of 2016, we repaid $500 of fixed-rate notes on their maturity date with cash on hand and issued $1 billion of fixed-rate notes for general corporate purposes. 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.2018.

needs. We also have an effective shelf registration on file with the Securities and Exchange Commission that allows us to access the debt markets.

NON-GAAP FINANCIAL ~~MEASURES~~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:

ADDITIONAL FINANCIAL INFORMATION

ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES

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

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 $103 ($0.22) and $274 ($0.58) for the three- and nine-month periods ended October 1, 2017, and $52 ($0.11) and $169 ($0.35) for the three- and nine-month periods ended October 2, 2016, respectively. No adjustment on any one contract was material to our unaudited Consolidated Financial Statements for the three- and nine-month periods ended October 1, 2017, and October 2, 2016.

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.

Revenue. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. Contract estimates are based on various assumptions to project the outcome of future events that often span several years. We review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified.The aggregate impact of adjustments in contract

estimates increased our operating earnings (and diluted earnings per share) by $81 ($0.22) and $220 ($0.60) for the three- and nine-month periods ended September 29, 2019, and $103 ($0.27) and $283 ($0.75) for the three- and nine-month periods ended September 30, 2018, respectively. No adjustment on any one contract was material to the unaudited Consolidated Financial Statements for the three- and nine-month periods ended September 29, 2019, or September 30, 2018.

Leases. Effective January 1, 2019, we adopted ASC Topic 842, Leases. ASC Topic 842 requires the recognition of lease rights and obligations as assets and liabilities on the balance sheet. Previously, lessees were not required to recognize on the balance sheet assets and liabilities arising from operating leases. As we elected the cumulative-effect adoption method, prior-period information has not been restated. The most significant effects of the standard on our Consolidated Financial Statements are (1) the recognition of new right-of-use assets and lease liabilities on our Consolidated Balance Sheet associated with our operating leases, and (2) significant new disclosures about our leasing activities (see Note N to the unaudited Consolidated Financial Statements in Part I, Item1). On January 1, 2019, we recognized operating lease liabilities and right-of-use assets of $1.4 billion based on the present value of the remaining lease payments over the lease term. The adoption did not result in a cumulative-effect adjustment to retained earnings. The new standard did not have a material impact on our results of operations or cash flows.

CSRA Acquisition. We are required to estimate the fair value of the assets acquired and liabilities assumed in business combinations on the acquisition date, including identified intangible assets. The amount of purchase price paid in excess of the net assets acquired is recorded as goodwill. The fair values are estimated in accordance with the principles of ASC Topic 820, Fair Value Measurement, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair values of the net assets acquired are determined primarily using Level 3 inputs (inputs that are unobservable to the market place participant).

The most significant of the fair value estimates is related to long-lived assets, specifically intangible assets subject to amortization. We have valued $2.1 billion of acquired intangible assets in connection with the CSRA acquisition. This amount was determined based primarily on CSRA’s projected cash flows. The projected cash flows include various assumptions, including the timing of work embedded in backlog, success in securing future business, profitability of work, and the appropriate risk-adjusted interest rate used to discount the projected cash flows.

Other. Other significant estimates include those related to goodwill and intangible assets, income taxes, pension and other post-retirement benefits, workers’ compensation, warranty obligations, and litigation and other contingencies. We believe our judgment is applied consistently and produces financial information that fairly depicts our results of operations for all periods presented. For a full discussion of our critical accounting policies, see our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. For a discussion of new accounting standards that have been issued by the FASB but are not yet effective, see Note A to the unaudited Consolidated Financial Statements in Part I, Item 1.

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.~~2018.

ITEM 4. CONTROLS AND PROCEDURES

Our management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures ~~as of October 1, 2017,~~ (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended). as of September 29, 2019. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, on ~~October 1, 2017,~~September 29, 2019, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~October 1, 2017,~~September 29, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “outlook,” “estimates,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements. Examples include projections of revenue, earnings, operating margin, segment performance, cash flows, contract awards, aircraft production, deliveries and backlog. In making these statements we rely on assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe our estimates and judgments are reasonable based on information available to us at the time. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including, without limitation, the risk factors discussed in Item 1A of our Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2018. These factors include:

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

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

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

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

expected recovery on contract claims and requests for equitable adjustment;

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

potential for changing prices for energy and raw materials; ~~and~~

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

potential effects of audits and reviews by government agencies of our government contract performance, compliance and internal control systems and policies;

risks and uncertainties relating to our acquisitions and joint ventures; and

potential for cybersecurity events and other disruptions.

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

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes with respect to this item from the disclosure included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018.

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

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

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Number of Shares That May Yet Be Purchased Under the Program
Pursuant to Share Buyback Program
7/3/17-7/30/17 100,000
$ 196.12
100,000
10,665,696
7/31/17-8/27/17 823,933
198.76
823,933
9,841,763
8/28/17-10/1/17 308,067
198.24
308,067
9,533,696
1,232,000
$ 198.42



Period	Total Number of Shares	Average Price per Share
Shares Delivered or Withheld Pursuant to Restricted Stock Vesting*
7/1/19-7/28/19	1,148	$	167.16
7/29/19-8/25/19	398	184.07
8/26/19-9/29/19	36	184.36
	1,582	$	171.81

* Represents shares withheld by, or delivered to, us pursuant to provisions in agreements with recipients of restricted stock granted under our equity compensation plans that allow us to withhold, or the recipient to deliver to us, the number of shares with a fair value equal to the statutory tax withholding due upon vesting of the restricted shares.

On December 5, 2018, the board of directors authorized management to repurchase up to 10 million additional shares of the company’s outstanding common stock on the open market. We did not repurchase any shares in the third quarter of 2019. On September 29, 2019, 6.4 million shares remained authorized by our board of directors for repurchase.

We did not make any unregistered sales of equity securities in the third quarter of ~~2017.~~2019.

ITEM 6. EXHIBITS


~~4.1~~	Second Supplemental Indenture, dated as of September 14, 2017, among General Dynamics Corporation, the Guarantors named therein and The Bank of New York Mellon, as Trustee (incorporated by reference from the company’s current report on Form 8-K, filed with the Securities and Exchange Commission September 14, 2017)


31.1	Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*


31.2	Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*


32.1	Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*


32.2	Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*


~~101~~101.INS	Inline eXtensible Business Reporting Language (XBRL) Instance Document – the instance document does not appear in the Interactive Data File*File because its XBRL tags are embedded within the Inline XBRL document.


101.SCH	Inline XBRL Taxonomy Extension Schema Document*


101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document*


101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document*


101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document*


101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document*


104	Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

* Filed or furnished electronically 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: October ~~25, 2017~~23, 2019

5654



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~~
11011 Sunset Hills Road	Reston,	Virginia	20190
Address of principal executive offices			Zip code



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	GD	New York Stock Exchange



	Gross Carrying Amount (a)		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount (a)		Accumulated Amortization			Net Carrying Amount
	September 29, 2019							December 31, 2018
Contract and program intangible assets (b)	$	3,775	$	(1,717	)	$	2,058	$	3,771	$	(1,531	)	$	2,240
Trade names and trademarks	465		(188		)	277		469		(177		)	292
Technology and software	165		(126		)	39		165		(116		)	49
Other intangible assets	159		(157		)	2		159		(155		)	4
Total intangible assets	$	4,564	$	(2,188	)	$	2,376	$	4,564	$	(1,979	)	$	2,585



	Gross Carrying Amount (a)		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount (a)		Accumulated Amortization			Net Carrying Amount
	October 1, 2017							December 31, 2016
Contract and program intangible assets (b)	$	1,679	$	(1,300	)	$	379	$	1,633	$	(1,281	)	$	352
Trade names and trademarks	469		(158		)	311		446		(139		)	307
Technology and software	130		(106		)	24		121		(102		)	19
Other intangible assets	155		(154		)	1		154		(154		)	—
Total intangible assets	$	2,433	$	(1,718	)	$	715	$	2,354	$	(1,676	)	$	678



	Three Months Ended		Nine Months Ended
	October 1, 2017	October 2, 2016	October 1, 2017	October 2, 2016
Basic weighted average shares outstanding	298,145	303,938	299,902	305,445
Dilutive effect of stock options and restricted stock/RSUs*	5,606	5,790	5,599	5,679
Diluted weighted average shares outstanding	303,751	309,728	305,501	311,124


(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.


Three Months Ended October 1, 2017	Aerospace		Combat Systems		Information Systems and Technology		Marine Systems		Total Revenue
Nine Months Ended September 29, 2019											Aerospace		Combat Systems		Information Technology		Mission Systems		Marine Systems		Total Revenue
Fixed-price	$	1,835	$	1,258	$	971	$	1,131	$	5,195	$	6,271	$	4,344	$	2,620	$	2,122	$	4,508	$	19,865
Cost-reimbursement	—		233		989		797		2,019		—		662		2,537		1,405		2,101		6,705
Time-and-materials	160		9		194		3		366		600		29		1,241		128		9		2,007
Total revenue	$	1,995	$	1,500	$	2,154	$	1,931	$	7,580	$	6,871	$	5,035	$	6,398	$	3,655	$	6,618	$	28,577
Three Months Ended October 2, 2016
Nine Months Ended September 30, 2018
Fixed-price	$	1,773	$	1,102	$	1,094	$	1,241	$	5,210	$	5,171	$	3,892	$	2,387	$	1,973	$	3,961	$	17,384
Cost-reimbursement	—		215		1,033		832		2,080		—		580		2,462		1,390		2,241		6,673
Time-and-materials	152		10		203		2		367		580		25		1,038		112		3		1,758
Total revenue	$	1,925	$	1,327	$	2,330	$	2,075	$	7,657	$	5,751	$	4,497	$	5,887	$	3,475	$	6,205	$	25,815



Nine Months Ended October 1, 2017	Aerospace		Combat Systems		Information Systems and Technology		Marine Systems		Total Revenue
Fixed-price	$	5,650	$	3,538	$	2,793	$	3,514	$	15,495
Cost-reimbursement	—		636		3,017		2,422		6,075
Time-and-materials	497		27		594		8		1,126
Total revenue	$	6,147	$	4,201	$	6,404	$	5,944	$	22,696
Nine Months Ended October 2, 2016
Fixed-price	$	5,547	$	3,207	$	3,181	$	3,785	$	15,720
Cost-reimbursement	—		638		3,076		2,384		6,098
Time-and-materials	443		24		616		6		1,089
Total revenue	$	5,990	$	3,869	$	6,873	$	6,175	$	22,907


~~(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.~~



	Losses on Cash Flow Hedges			Unrealized Gains on Securities		Foreign Currency Translation Adjustments		Changes in Retirement Plans’ Funded Status			AOCL
December 31, 2016	$	(345	)	$	14	$	69	$	(3,125	)	$	(3,387	)
Other comprehensive income, pretax	286			8		409		193			896
Provision for income tax, net	73			2		15		70			160
Other comprehensive income, net of tax	213			6		394		123			736
October 1, 2017	$	(132	)	$	20	$	463	$	(3,002	)	$	(2,651	)



December 31, 2015	$	(487	)	$	20		$	181	$	(2,997	)	$	(3,283	)
Other comprehensive income, pretax	260			(5		)	85		191			531
Provision for income tax, net	65			(2		)	1		69			133
Other comprehensive income, net of tax	195			(3		)	84		122			398
October 2, 2016	$	(292	)	$	17		$	265	$	(2,875	)	$	(2,885	)



	Three Months Ended			Effect of the Adoption of					Three Months Ended
	October 2, 2016			ASC			ASU		October 2, 2016
(Dollars in millions, except per-share amounts)	As Reported			Topic 606			2015-17		As Adjusted
Revenue:
Products	$	4,844		$	(95	)	$	—	$	4,749
Services	2,887			21			—		2,908
	7,731			(74		)	—		7,657
Operating costs and expenses:
Products	3,757			(7		)	—		3,750
Services	2,434			(13		)	—		2,421
G&A	471			—			—		471
	6,662			(20		)	—		6,642
Operating earnings	1,069			(54		)	—		1,015
Interest, net	(23		)	—			—		(23		)
Other, net	2			—			—		2
Earnings from continuing operations before income tax	1,048			(54		)	—		994
Provision for income tax, net	281			(18		)	—		263
Earnings from continuing operations	767			(36		)	—		731
Discontinued operations, net of tax benefit of $46	(84		)	—			—		(84		)
Net earnings	$	683		$	(36	)	$	—	$	647

Earnings per share
Basic:
Continuing operations	$	2.52		$	(0.12	)	$	—	$	2.40
Discontinued operations	(0.27		)	—			—		(0.27		)
Net earnings	$	2.25		$	(0.12	)	$	—	$	2.13
Diluted:
Continuing operations	$	2.48		$	(0.12	)	$	—	$	2.36
Discontinued operations	(0.27		)	—			—		(0.27		)
Net earnings	$	2.21		$	(0.12	)	$	—	$	2.09



	Third Quarter			Nine Months
Defense	$	(19	)	$	354
Intelligence and homeland security	(85		)	110
Federal civilian	(132		)	47
Total (decrease) increase	$	(236	)	$	511



	Third Quarter			Nine Months
U.S. Navy ship construction	$	(50	)	$	(241	)
Commercial ship construction	(105		)	(229		)
U.S. Navy ship engineering, repair and other services	11			239
Total decrease	$	(144	)	$	(231	)



	Third Quarter			Nine Months
Naval, air and electronic systems	$	7		$	92
Ground systems and products	(19		)	64
Space, intelligence and cyber systems	2			24
Total (decrease) increase	$	(10	)	$	180


	Funded		Unfunded		Total Backlog		Estimated Potential Contract Value		Total Estimated Contract Value		Funded		Unfunded		Total Backlog		Estimated Potential Contract Value		Total Estimated Contract Value
	October 1, 2017										September 29, 2019
Aerospace	$	11,729	$	86	$	11,815	$	1,909	$	13,724	$	11,195	$	188	$	11,383	$	2,065	$	13,448
Combat Systems	17,060		494		17,554		4,607		22,161		15,069		449		15,518		4,255		19,773
Information Systems and Technology	7,109		2,413		9,522		14,384		23,906
Information Technology											4,782		4,381		9,163		18,063		27,226
Mission Systems											5,152		307		5,459		6,764		12,223
Marine Systems	16,791		8,247		25,038		4,826		29,864		17,801		8,072		25,873		4,497		30,370
Total	$	52,689	$	11,240	$	63,929	$	25,726	$	89,655	$	53,999	$	13,397	$	67,396	$	35,644	$	103,040

	July 2, 2017										June 30, 2019
Aerospace	$	12,116	$	120	$	12,236	$	1,911	$	14,147	$	11,932	$	213	$	12,145	$	2,079	$	14,224
Combat Systems	16,749		281		17,030		4,845		21,875		14,794		438		15,232		4,113		19,345
Information Systems and Technology	6,809		2,085		8,894		14,389		23,283
Information Technology											4,446		4,405		8,851		17,983		26,834
Mission Systems											4,925		258		5,183		6,847		12,030
Marine Systems	16,033		4,374		20,407		3,282		23,689		18,344		7,899		26,243		3,223		29,466
Total	$	51,707	$	6,860	$	58,567	$	24,427	$	82,994	$	54,441	$	13,213	$	67,654	$	34,245	$	101,899



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
7/3/17-7/30/17	100,000	$	196.12	100,000	10,665,696
7/31/17-8/27/17	823,933	198.76		823,933	9,841,763
8/28/17-10/1/17	308,067	198.24		308,067	9,533,696
	1,232,000	$	198.42