GENERAL DYNAMICS CORPORATION BUSINESS OVERVIEWGeneral Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services. Our company is organized into four operating segments: Aerospace, Marine Systems, Combat Systems and Technologies. We refer to the latter three collectively as our defense segments. Our primary customer is theU.S. government, including theDepartment of Defense (DoD ), the intelligence community and otherU.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 and related services. The following discussion should be read in conjunction with our 2020 Annual Report on Form 10-K and with the unaudited Consolidated Financial Statements included in this Form 10-Q. BUSINESS ENVIRONMENT The Coronavirus (COVID-19) pandemic has caused significant disruptions to national and global economies and government activities sinceMarch 2020 . During this time, we have continued to conduct our operations while responding to the pandemic with actions to mitigate adverse consequences to our employees, business, supply chain and customers. While we expect this situation to be temporary, any longer-term impact to our business is currently unknown due to the uncertainty around the pandemic's duration and its broader impact. For additional information, see the Risk Factors in Part I, Item 1A, and the Business Environment in Part II, Item 7, in our most recent Form 10-K filing.The United States and some other governments have taken steps to respond to the pandemic and to support economic activity and liquidity in the capital markets. Inthe United States , the American Rescue Plan Act (ARPA) is the latest legislation to provide relief. ARPA extends throughSeptember 30, 2021 , the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) that allow agencies to reimburse contractors for payments to covered workers who are prevented from working due to government facility closures or other restrictions. ARPA also includes changes to employer funding requirements for pension plans designed to reduce the amount of required contributions. However, these same provisions reduce the amount of pension costs reimbursable on ourU.S. government contracts. As a result, this provision is not expected to have a material impact on our 2021 results of operations and financial condition. Our Aerospace segment's operating results continue to be the most significantly impacted by the pandemic. New aircraft deliveries reflect last year's decision to reduce production rates to accommodate supply chain challenges. However, aircraft orders have been strong in the first six months of the year due to the continued improvement of the large economies of the world and the return of international travel. As air travel has increased, demand for aircraft services has improved, but remains modestly below pre-pandemic levels. Although ourU.S. government business continues to experience some disruption from the COVID-19 pandemic, particularly in our Technologies segment, the impact has decreased due to the reopening of, and increased access to, customer sites. The Review of Operating Segments includes additional information on the second-quarter results for each of our segments. 27 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS INTRODUCTION An understanding of our accounting practices is necessary in the evaluation of our financial statements and operating results. The following paragraphs explain how we recognize revenue and operating costs in our operating segments and the terminology we use to describe our operating results. In the Aerospace segment, we record revenue on contracts for new aircraft when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the fully outfitted aircraft. Revenue associated with the segment's custom completions of narrow-body and wide-body aircraft and the segment's services businesses is recognized as work progresses or upon delivery of services. Fluctuations in revenue from period to period result from the number and mix of new aircraft deliveries, progress on aircraft completions, and the level and type of aircraft services performed during the period. The majority of the Aerospace segment's operating costs relates to new aircraft production on firm orders and consists of labor, material, subcontractor and overhead costs. The costs are accumulated in production lots, recorded in inventory and recognized as operating costs at aircraft delivery based on the estimated average unit cost in a production lot. While changes in the estimated average unit cost for a production lot impact the level of operating costs, the amount of operating costs reported in a given period is based largely on the number and type of aircraft delivered. Operating costs in the Aerospace segment's completions and services businesses are recognized generally as incurred. For new aircraft, operating earnings and margin are a function of the prices of our aircraft, our operational efficiency in manufacturing and outfitting the aircraft, and the mix of ultra-large-cabin, large-cabin and mid-cabin aircraft deliveries. Aircraft mix can also refer to the stage of program maturity for our aircraft models. A new aircraft model typically has lower margins in its initial production lots, and then margins generally increase as we realize efficiencies in the production process. Additional factors affecting the segment's earnings and margin include the volume, mix and profitability of completions and services work performed, the volume of and market for pre-owned aircraft, and the level of general and administrative (G&A) and net research and development (R&D) costs incurred by the segment. In the defense segments, revenue on long-term government contracts is recognized generally over time as the work progresses, either as products are produced or as services are rendered. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses. Variances in costs recognized from period to period reflect primarily increases and decreases in production or activity levels on individual contracts. Because costs are used as a measure of progress, year-over-year variances in cost result in corresponding variances in revenue, which we generally refer to as volume. Operating earnings and margin in the defense segments are driven by changes in volume, performance or contract mix. Performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract or both. Therefore, 28 -------------------------------------------------------------------------------- changes in costs incurred in the period compared with prior periods do not necessarily impact profitability. It is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value (or vice versa) that the profitability of that contract may be impacted. Contract mix refers to changes in the volume of higher- versus lower-margin work. Higher or lower margins can result from a number of factors, including contract type (e.g., fixed-price/cost-reimbursable) and type of work (e.g., development/production). Contract mix can also refer to the stage of program maturity for our long-term production contracts. New long-term production contracts typically have lower margins initially, and then margins generally increase as we achieve learning curve improvements or realize other cost reductions. CONSOLIDATED OVERVIEW Three Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 9,220 $ 9,264 $ (44) (0.5) % Operating costs and expenses (8,261) (8,430) 169 (2.0) % Operating earnings 959 834 125 15.0 % Operating margin 10.4 % 9.0 % Six Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 18,609 $ 18,013 $ 596 3.3 % Operating costs and expenses (16,712) (16,245) (467) 2.9 % Operating earnings 1,897 1,768 129 7.3 % Operating margin 10.2 % 9.8 % Our consolidated revenue increased in the first six months of 2021 driven by growth in each of our defense segments, including increases inU.S. Navy ship construction in our Marine Systems segment, international military vehicle programs in our Combat Systems segment and IT services in our Technologies segment. These increases were offset partially by fewer aircraft deliveries in our Aerospace segment reflecting last year's decision to lower aircraft production rates in response to the COVID-19 pandemic. On a quarter-over-quarter basis, increases in revenue across each of the defense segments were offset by fewer aircraft deliveries in the Aerospace segment. Operating margin increased 140 basis points in the second quarter of 2021 and 40 basis points in the first six months of 2021 due to margin improvement across all segments. REVIEW OF OPERATING SEGMENTS Following is a discussion of operating results and outlook for each of our operating segments. For the Aerospace segment, results are analyzed by specific types of products and services, consistent with how the segment is managed. For the defense segments, the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results. Additional information regarding our segments can be found in Note O to the unaudited Consolidated Financial Statements in Part I, Item 1. 29 --------------------------------------------------------------------------------
AEROSPACE Three Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 1,622 $ 1,974 $ (352) (17.8) % Operating earnings 195 159 36 22.6 % Operating margin 12.0 % 8.1 % Gulfstream aircraft deliveries (in units) 21 32 (11) (34.4) % Six Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 3,509 $ 3,665 $ (156) (4.3) % Operating earnings 415 399 16 4.0 % Operating margin 11.8 % 10.9 % Gulfstream aircraft deliveries (in units) 49 55 (6) (10.9) % Operating Results The change in the Aerospace segment's revenue in the second quarter and first six months of 2021 consisted of the following: Second Quarter Six Months Aircraft manufacturing $ (460)$ (253) Aircraft services and completions 108 97 Total decrease $ (352)$ (156) Aircraft manufacturing revenue decreased in the second quarter and first six months of 2021 due to fewer aircraft deliveries reflecting the full impact of last year's decision to reduce aircraft production rates in response to the COVID-19 pandemic. These decreases were offset partially by higher aircraft services and completions volume due to increased air travel driving additional demand for maintenance work and activity at our fixed-base operator (FBO) facilities. The increase in the segment's operating earnings in the second quarter and first six months of 2021 consisted of the following: Second Quarter Six Months Aircraft manufacturing $ (76)$ (119) Aircraft services and completions 50 71 Impact of 2020 restructuring charge 42 42 G&A/other expenses 20 22 Total increase $ 36$ 16 Aircraft manufacturing operating earnings were down in the second quarter and first six months of 2021 due to the planned reduced aircraft production and delivery rates and a less favorable mix of aircraft deliveries in the year-to-date period. In the first six months of 2021, aircraft manufacturing operating earnings were also impacted by mark-to-market adjustments related to aircraft that were in the G500 flight test program. These decreases were offset by increased aircraft services and completions operating earnings due to higher volume and mix of aircraft services. The Aerospace segment's operating earnings and margin were also up due to restructuring actions taken in the second quarter of 2020 to adjust the workforce size to the revised production levels and lower net G&A/other expenses, 30 -------------------------------------------------------------------------------- including reduced R&D expenses. In total, the Aerospace segment's operating margin increased 390 basis points in the second quarter of 2021 and 90 basis points in the first six months of 2021 compared with the prior-year periods. 2021 Outlook We expect the Aerospace segment's 2021 revenue to be about$8.2 billion . As scheduled customer deliveries increase in the second half of the year, operating margin is expected to improve to approximately 12.4% for the full year. MARINE SYSTEMS Three Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 2,536 $ 2,471 $ 65 2.6 % Operating earnings 210 200 10 5.0 % Operating margin 8.3 % 8.1 % Six Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 5,019 $ 4,717 $ 302 6.4 % Operating earnings 410 384 26 6.8 % Operating margin 8.2 % 8.1 % Operating Results The increase in the Marine Systems segment's revenue in the second quarter and first six months of 2021 consisted of the following: Second Quarter Six Months U.S. Navy ship construction $ 117 $ 384 Commercial ship construction (21) (54) U.S. Navy ship engineering, repair and other services (31) (28) Total increase $ 65 $ 302 Revenue fromU.S. Navy ship construction was up across our shipyards in the second quarter and first six months of 2021 due to increased volume on the Columbia-class submarine program, the Arleigh Burke-class (DDG-51) destroyer program and the Expeditionary Sea Base (ESB) auxiliary ship program. These increases were offset partially by lower commercial ship construction and submarine engineering volume. Overall, the Marine Systems segment's operating margin increased 20 basis points in the second quarter of 2021 and 10 basis points in the first six months of 2021 as our shipyards continue to focus on operating efficiency and effectively managing workload growth. 2021 Outlook We expect the Marine Systems segment's 2021 revenue to be approximately$10.6 billion . Operating margin is expected to be approximately 8.4%. 31 -------------------------------------------------------------------------------- COMBAT SYSTEMS Three Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 1,899 $ 1,754 $ 145 8.3 % Operating earnings 266 239 27 11.3 % Operating margin 14.0 % 13.6 % Six Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 3,719 $ 3,462 $ 257 7.4 % Operating earnings 510 462 48 10.4 % Operating margin 13.7 % 13.3 % Operating Results The increase in the Combat Systems segment's revenue in the second quarter and first six months of 2021 consisted of the following: Second Quarter Six Months International military vehicles $ 159$ 241 Weapons systems and munitions (6) 36 U.S. military vehicles (8) (20) Total increase $ 145$ 257 Revenue from international military vehicles increased in the second quarter and first six months of 2021 due primarily to higher volume on wheeled armored vehicle programs, including contracts to produce armored combat support vehicles (ACSVs) and light armored vehicles (LAVs) for the Canadian government. Domestic Abrams and Stryker revenue was also somewhat higher in the second quarter and first six months of 2021. The Combat Systems segment's operating margin increased 40 basis points in the second quarter and first six months of 2021 on a favorable product mix and continued cost reduction efforts. 2021 Outlook We expect the Combat Systems segment's 2021 revenue to be about$7.4 billion with operating margin of approximately 14.6%. TECHNOLOGIES Three Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 3,163 $ 3,065 $ 98 3.2 % Operating earnings 308 247 61 24.7 % Operating margin 9.7 % 8.1 % Six Months Ended July 4, 2021 June 28, 2020 Variance Revenue$ 6,362 $ 6,169 $ 193 3.1 % Operating earnings 614 545 69 12.7 % Operating margin 9.7 % 8.8 % 32
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Operating Results
The increase in the Technologies segment's revenue in the second quarter and
first six months of 2021 consisted of the following:
Second Quarter Six Months
IT services $ 188 $ 285
C4ISR* solutions (90) (92)
Total increase $ 98 $ 193
*Command, control, communications, computers, intelligence, surveillance and
reconnaissance
IT services revenue increased in the second quarter and first six months of 2021
due to the ramp up of several new programs. The decrease in C4ISR solutions
revenue in the first six months of 2021 was due to approximately $115 of revenue
in the prior-year period from a satellite communications business that was sold
in the second quarter of 2020. Year-over-year growth for the segment was 5.1%
for the first half excluding the impact of the sale. In the second quarter of
2021, C4ISR solutions revenue was also impacted by timing on several programs.
The Technologies segment's operating margin increased 160 basis points in the
second quarter of 2021 and 90 basis points in the first six months of 2021 due
to favorable contract mix and reduced COVID-related impacts in our IT services
business, particularly customer reimbursement of idle workforce cost at zero
fee. Additionally, operating results in the second quarter of 2020 included an
approximate $40 loss on a contract with a non-U.S. customer from schedule delays
caused by COVID-related travel restrictions, offset partially by a gain on the
sale of the satellite communications business.
2021 Outlook
We expect the Technologies segment's 2021 revenue to be approximately $13
billion with operating margin of around 9.8%.
CORPORATE
Corporate operating results consisted primarily of equity-based compensation
expense and totaled $20 in the second quarter and $52 in the first six months of
2021 compared with $11 and $22 in the prior-year periods, respectively.
Corporate operating costs are expected to be approximately $85 in 2021.
OTHER INFORMATION
PRODUCT REVENUE AND OPERATING COSTS
Three Months Ended July 4, 2021 June 28, 2020 Variance
Revenue $ 5,160 $ 5,505 $ (345) (6.3) %
Operating costs (4,259) (4,607) 348 (7.6) %
Six Months Ended July 4, 2021 June 28, 2020 Variance
Revenue $ 10,515 $ 10,395 $ 120 1.2 %
Operating costs (8,697) (8,593) (104) 1.2 %
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The change in product revenue in the second quarter and first six months of 2021 consisted of the following:
Second Quarter Six Months
Aircraft manufacturing $ (460) $ (253)
Ship construction 96 330
Other, net 19 43
Total (decrease) increase $ (345) $ 120
In the second quarter and first six months of 2021, aircraft manufacturing
revenue decreased due to fewer aircraft deliveries. In the first six months of
2021, this decrease was more than offset by an increase in ship construction
revenue, driven by higher U.S. Navy ship construction volume across our
shipyards. In the second quarter and first six months of 2021, the primary
drivers of the changes in product operating costs were the changes in volume on
the programs described above.
SERVICE REVENUE AND OPERATING COSTS
Three Months Ended July 4, 2021 June 28, 2020 Variance
Revenue $ 4,060 $ 3,759 $ 301 8.0 %
Operating costs (3,446) (3,249) (197) 6.1 %
Six Months Ended July 4, 2021 June 28, 2020 Variance
Revenue $ 8,094 $ 7,618 $ 476 6.2 %
Operating costs (6,900) (6,553) (347) 5.3 %
The increase in service revenue in the second quarter and first six months of 2021 consisted of the following:
Second Quarter Six Months
IT services $ 188 $ 285
Aircraft services and completions 108 97
Other, net 5 94
Total increase $ 301 $ 476
Services revenue increased in the second quarter and first six months of 2021
due to the ramp up of several new IT services programs and higher aircraft
services and completions revenue driven by additional maintenance work and FBO
activity. The primary drivers of the increase in service operating costs were
the changes in volume on the programs described above.
G&A EXPENSES
As a percentage of revenue, G&A expenses were 6% in the first six months of 2021
compared with 6.1% in the first six months of 2020. We expect G&A expenses as a
percentage of revenue in 2021 to be generally consistent with 2020.
INTEREST, NET
Net interest expense was $232 in the first six months of 2021 compared with $239
in the prior-year period. See Note I to the unaudited Consolidated Financial
Statements in Part I, Item 1, for additional
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information regarding our debt obligations, including interest rates. We expect
2021 net interest expense to be approximately $425 , reflecting repayment of our
scheduled debt maturities of $3 billion in 2021.
OTHER, NET
Net other income was $61 in the first six months of 2021 compared with $46 in
the first six months of 2020. Other represents primarily the non-service
components of pension and other post-retirement benefits, which were income in
both periods. In 2021, we expect net other income to be approximately $115 .
PROVISION FOR INCOME TAX, NET
Our effective tax rate was 16.3% in the first six months of 2021 compared with
15.5% in the prior-year period. For 2021, we anticipate a full-year effective
tax rate of approximately 16%.
BACKLOG AND ESTIMATED POTENTIAL CONTRACT VALUE
Our total backlog, including funded and unfunded portions, was $89.2 billion at
the end of the second quarter of 2021 compared with $89.6 billion on April 4,
2021 . Our total backlog is equal to our remaining performance obligations under
contracts with customers as discussed in Note B 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 $130.3
billion on July 4, 2021 .
The following table details the backlog and estimated potential contract value
of each segment at the end of the second and first quarters of 2021:
Estimated Total
Potential Estimated
Funded Unfunded Total Backlog Contract Value Contract Value
July 4, 2021
Aerospace $ 13,155 $ 366 $ 13,521 $ 2,099 $ 15,620
Marine Systems 26,435 21,095 47,530 4,689 52,219
Combat Systems 14,157 271 14,428 7,711 22,139
Technologies 9,769 3,999 13,768 26,594 40,362
Total $ 63,516 $ 25,731 $ 89,247 $ 41,093 $ 130,340
April 4, 2021
Aerospace $ 11,545 $ 384 $ 11,929 $ 2,312 $ 14,241
Marine Systems 27,676 22,075 49,751 2,815 52,566
Combat Systems 14,085 143 14,228 9,120 23,348
Technologies 10,003 3,670 13,673 27,530 41,203
Total $ 63,309 $ 26,272 $ 89,581 $ 41,777 $ 131,358
AEROSPACE
Aerospace funded backlog represents new aircraft and custom completion orders
for which we have definitive purchase contracts and deposits from customers.
Unfunded backlog consists of agreements to provide future aircraft maintenance
and support services. The Aerospace segment ended the second quarter of 2021
with backlog of $13.5 billion , up 13.3% from $11.9 billion on April 4, 2021 .
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Orders in the second quarter of 2021 reflected strong demand across our aircraft
portfolio - the second highest quarterly orders in more than five years. The
segment's book-to-bill ratio (orders divided by revenue) exceeded 2-to-1 in the
second quarter of 2021, resulting in a book-to-bill of 1.3-to-1 over the
trailing 12 months.
Beyond total backlog, estimated potential contract value represents primarily
options and other agreements with existing customers to purchase new aircraft
and long-term aircraft services agreements. On July 4, 2021 , estimated potential
contract value in the Aerospace segment was $2.1 billion .
DEFENSE SEGMENTS
The total backlog in our defense segments represents the estimated remaining
sales value of work to be performed under firm contracts. The funded portion of
total backlog includes items that have been authorized and appropriated by the
U.S. Congress and funded by customers, as well as commitments by international
customers that are approved and funded similarly by their governments. The
unfunded portion of total backlog includes the amounts we believe are likely to
be funded, but there is no guarantee that future budgets and appropriations will
provide the same funding level currently anticipated for a given program.
Estimated potential contract value in our defense segments includes unexercised
options associated with existing firm contracts and unfunded work on indefinite
delivery, indefinite quantity (IDIQ) contracts. Contract options represent
agreements to perform additional work under existing contracts at the election
of the customer. We recognize options in backlog when the customer exercises the
option and establishes a firm order. For IDIQ contracts, we evaluate the amount
of funding we expect to receive and include this amount in our estimated
potential contract value. This amount is often less than the total IDIQ contract
value, particularly when the contract has multiple awardees. The actual amount
of funding received in the future may be higher or lower than our estimate of
potential contract value.
Total backlog in our defense segments was $75.7 billion on July 4, 2021 . In the
second quarter of 2021, the Combat Systems and Technologies segments each
achieved a book-to-bill ratio of 1-to-1. Overall, the defense segments achieved
a book-to-bill ratio of 1.1-to-1 over the trailing twelve months. Estimated
potential contract value in our defense segments was $39 billion on July 4,
2021 . We received the following significant contract awards during the second
quarter of 2021:
Marine Systems:
•$135 from the U.S. Navy to provide ongoing lead yard services for the
Virginia-class submarine program and options totaling $1.6 billion of additional
potential value.
•$100 from the Navy for maintenance and modernization work on the USS Pinckney,
an Arleigh Burke -class (DDG-51) guided-missile destroyer.
•$65 from the Navy for maintenance and modernization work on the USS Hartford, a
Los Angeles-class submarine.
•$55 from the Navy to provide ongoing lead yard services for the DDG-51 program.
Combat Systems:
•$620 from the U.S. Army to upgrade Stryker vehicles to the double-V-hull A1
configuration.
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•$435 from the Army to produce Stryker Initial Maneuver Short-Range Air Defense
(IM-SHORAD) vehicles.
•$145 from the Army for the production of Hydra-70 rockets.
•$100 for various munitions and ordnance.
•$45 to produce mission control units for Abrams main battle tanks.
Technologies:
•$865 for several key contracts for classified customers.
•$160 to provide ship modernization services for the Navy . The contract has a
maximum potential value of $730 .
•$240 from the Centers for Medicare and Medicaid Services (CMS) for several
contracts, including work to provide cloud services and software tools.
•$115 to provide enterprise information technology (IT) and cybersecurity
services and solutions for the Department of Defense (DoD ).
•$40 to provide IT support services and system engineering for the U.S.
Department of Energy (DOE). The contract has a maximum potential value of $90 .
•$80 to provide military information support operations for the DoD .
•$80 from the Environmental Protection Agency (EPA ) to provide infrastructure
support and applications hosting services.
•$80 from the Army for computing and communications equipment under the Common
Hardware Systems-5 (CHS-5) program.
•$65 to provide training support for the Navy .
•$40 from the Navy to retrofit five Knifefish surface mine countermeasure
systems with improved operational capabilities.
•$40 from the Army to provide continued software support and engineering for the
Warfighter Information Network-Tactical (WIN-T) Increment 2 program.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We ended the second quarter of 2021 with a cash and equivalents balance of $3
billion compared with $2.8 billion at the end of 2020.
We expect to continue to generate funds in excess of our short- and long-term
liquidity needs. We believe we have adequate funds on hand and sufficient
borrowing capacity to execute our financial and operating strategy. The
following is a discussion of our major operating, investing and financing
activities in the first six months of 2021 and 2020, as classified on the
unaudited Consolidated Statement of Cash Flows in Part I, Item 1.
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OPERATING ACTIVITIES
Cash provided by operating activities was $1.1 billion in the first six months
of 2021 compared with $177 in the same period in 2020. The primary driver of
cash inflows in both periods was net earnings. However, cash flows in both
periods were affected negatively by growth in operating working capital (OWC),
which is defined as current assets, excluding cash and equivalents, less current
liabilities, excluding short-term debt and current portion of long-term debt.
Throughout 2020, we experienced growth in OWC in our Aerospace segment due to
our position in the development and production cycles of our Gulfstream aircraft
models. While Aerospace OWC has decreased in the first six months of 2021, the
timing of billings and payments in our defense segments resulted in net OWC
growth.
INVESTING ACTIVITIES
Cash used by investing activities was $308 in the first six months of 2021
compared with $222 in the same period in 2020. Our investing activities include
cash paid for capital expenditures and business acquisitions; purchases, sales
and maturities of marketable securities; and proceeds from asset sales. The
primary use of cash for investing activities in both periods was capital
expenditures. Capital expenditures were $306 in the first six months of 2021
compared with $406 in the same period in 2020. We expect capital expenditures to
be approximately 2.5% of revenue in 2021.
FINANCING ACTIVITIES
Cash used by financing activities was $671 in the first six months of 2021
compared with cash provided of $1.5 billion in the same period in 2020. Net cash
from financing activities includes proceeds received from debt and commercial
paper issuances and employee stock option exercises. Our financing activities
also include the use of cash for repurchases of common stock, payment of
dividends and debt repayments.
Our board of directors from time to time authorizes management to repurchase
outstanding shares of our common stock on the open market. We paid $1.4 billion
and $501 in the first six months of 2021 and 2020, respectively, to repurchase
our outstanding shares. On July 4, 2021 , 14.5 million shares remained authorized
by our board of directors for repurchase, representing 5.2% of our total shares
outstanding.
On March 3, 2021 , our board of directors declared an increased quarterly
dividend of $1.19 per share, the 24th consecutive annual increase. Previously,
the board had increased the quarterly dividend to $1.10 per share in March 2020 .
Cash dividends paid were $651 in the first six months of 2021 compared with $610
in the same period in 2020.
In May 2021 , we issued $1.5 billion of fixed-rate notes. The proceeds, together
with cash on hand and commercial paper issuances, were used to repay fixed- and
floating-rate notes totaling $2.5 billion that matured in May 2021 and for
general corporate purposes. On July 15, 2021 , we repaid an additional $500 of
fixed-rate notes at the scheduled maturity. For additional information regarding
our debt obligations, including scheduled debt maturities and interest rates,
see Note I to the unaudited Consolidated Financial Statements in Part 1, Item 1.
In the first six months of 2021, we received net proceeds of $2 billion from the
issuance of commercial paper, which remained outstanding on July 4, 2021 .
Separately, we have $5 billion in committed bank credit facilities for general
corporate purposes and working capital needs and to support
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our commercial paper issuances. We also have an effective shelf registration on file with theSecurities and Exchange Commission (SEC) that allows us to access the debt markets. NON-GAAP FINANCIAL MEASURES We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow from operations and net debt to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures underU.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, other GAAP measures. Free Cash Flow. We define free cash flow from operations as net cash provided by operating activities less capital expenditures. We believe free cash flow from operations is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a key performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities, as classified on the unaudited Consolidated Statement of Cash Flows in Part I, Item 1:
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