General Dynamics Corp. (GD)

General Dynamics reviews long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. General Dynamics assesses the recoverability of the carrying value of assets held for use based on a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of the long-lived asset over its estimated fair value as determined by discounted projected cash flows.

Concurrent with the acquisition of CSRA in April 2018, General Dynamics reorganized the Information Systems and Technology operating segment in accordance with the nature of the segment’s products and services into the Information Technology and Mission Systems segments. This reorganization similarly changed the composition of General Dynamics’ reporting units. Accordingly, goodwill of the Information Systems and Technology reporting unit was reassigned to the Information Technology and Mission Systems reporting units using a relative fair value allocation approach as of the date of the reorganization.

General Dynamics reviews goodwill for impairment annually or when circumstances indicate that the likelihood of an impairment is greater than 50%. Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. The test for goodwill impairment is a two-step process to first identify potential goodwill impairment for each reporting unit by comparing the fair value of each of General Dynamics’ reporting units to its respective carrying value and then, if necessary, measure the amount of the impairment loss. General Dynamics estimates the fair value of the reporting units based primarily on the discounted projected cash flows of the underlying operations.

General Dynamics completed the required annual goodwill impairment test as of December 31, 2018. The results of the first-step test indicated that, for each of General Dynamics’ reporting units, no impairment existed. The estimated fair value of each of General Dynamics’ reporting units was substantially in excess of its respective carrying value as of December 31, 2018, with the exception of the Information Technology reporting unit.

The estimated fair value of the Information Technology reporting unit exceeded its carrying value as of December 31, 2018, by slightly more than 5%. This is due to the significant size of the CSRA acquisition relative to the newly formed Information Technology reporting unit and its recent acquisition date. Given that the net book value of this business was recorded at its fair value during the current reporting period, the reporting unit’s carrying value, by default, closely approximates its fair value at year end. As the carrying value and fair value of the Information Technology reporting unit are closely aligned, a material change in the fair value or carrying value would put the reporting unit at risk of goodwill impairment. For example, General Dynamics’ ability to realize synergies from the acquisition of CSRA and the level of funding in the U.S. government budget for contracts in the portfolio are key assumptions in the projections of revenue, earnings and cash flows. If General Dynamics’ actual experience in future years falls significantly below the current projections, the fair value of the reporting unit could be negatively impacted.Similarly, an increase in interest rates would lower General Dynamics’ discounted cash flows and negatively impact the fair value of the reporting unit. General Dynamics believes the projections and assumptions General Dynamics used in estimating fair value are reasonable, but it is possible they could change, impacting the fair value estimate, or the carrying value could change.

Source: 10-K (filing date: 2019-02-13).

General Dynamics Corp., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Contract and program intangible assets
	Trade names and trademarks
	Technology and software
	Other intangible assets
	Intangible assets, gross carrying amount
	Accumulated amortization
	Intangible assets, net carrying amount
	Goodwill
	Intangible assets and goodwill

Based on: 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08), 10-K (filing date: 2015-02-09).

General Dynamics Corp., adjustments to financial data

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Shareholders’ Equity
	Shareholders’ equity (as reported)
	Less: Goodwill
	Shareholders’ equity (adjusted)

Based on: 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08), 10-K (filing date: 2015-02-09).

General Dynamics Corp., Financial Data: Reported vs. Adjusted

General Dynamics Corp., adjusted ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08), 10-K (filing date: 2015-02-09).

General Dynamics Corp., Ratios: Reported vs. Adjusted

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Revenue
	Total assets
	Ratio
	Total asset turnover1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Revenue
	Adjusted total assets
	Ratio
	Adjusted total asset turnover2

Based on: 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08), 10-K (filing date: 2015-02-09).

2018 Calculations

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Total assets
	Shareholders’ equity
	Ratio
	Financial leverage1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted total assets
	Adjusted shareholders’ equity
	Ratio
	Adjusted financial leverage2

Based on: 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08), 10-K (filing date: 2015-02-09).

2018 Calculations

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net earnings
	Shareholders’ equity
	Ratio
	ROE1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Net earnings
	Adjusted shareholders’ equity
	Ratio
	Adjusted ROE2

Based on: 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08), 10-K (filing date: 2015-02-09).

2018 Calculations

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net earnings
	Total assets
	Ratio
	ROA1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Net earnings
	Adjusted total assets
	Ratio
	Adjusted ROA2

Based on: 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08), 10-K (filing date: 2015-02-09).

2018 Calculations