PR Newswire | Oct 28, 2020 07:01AM EDT

10/28 06:00 CDT

General Dynamics Reports Third-Quarter 2020 Results- Net earnings of $834 million and diluted EPS of $2.90, up 33% sequentially- Operating margin up 240 basis points over second quarter- Cash from operating activities 134% of net earnings RESTON, Va., Oct. 28, 2020

RESTON, Va., Oct. 28, 2020 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported third-quarter 2020 net earnings of $834 million on revenue of $9.4 billion. Diluted earnings per share (EPS) were $2.90. Revenue was up 1.8% over the previous quarter, while net earnings and diluted EPS grew 33%.

"As we manage through this challenging time, we remain focused on the basics of operating performance, especially cash conversion and the early and aggressive management of costs, as evidenced this quarter by our strong operating margin and return on sales," said Phebe N. Novakovic, chairman and chief executive officer. "Moreover, we continue to reduce debt and invest in the company for future growth."

MarginCompany-wide operating margin for the quarter was 11.5%, a 240 basis-point increase from the previous quarter, with a notable increase of 620 basis points in the Aerospace segment's margin. Return on sales was 8.8%, a 210 basis-point increase over the previous quarter.

CashNet cash provided by operating activities in the quarter totaled $1.1 billion, or 134% of net earnings. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $903 million, a 108% conversion of net earnings.

Capital DeploymentIn the third quarter, the company reduced its net debt by $388 million to $11.9 billion, a decrease of 3.2% from the previous quarter. Capital expenditures were $216 million, or 2.3% of revenue.

BacklogGeneral Dynamics' total backlog at the end of third-quarter 2020 was $81.5 billion, up 21% from the year-ago quarter. Estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $50.4 billion. Total estimated contract value, the sum of all backlog components, was $131.9 billion at the end of the quarter.

Significant awards in the quarter included $870 million to deliver 8x8 combat vehicles and provide maintenance and life cycle support to the Spanish Ministry of Defense; a contract with a maximum potential value of $760 million from the U.S. Department of Defense (DoD) for enterprise information technology and cybersecurity services and solutions; a contract with a maximum potential value of $365 million to provide command, control and communications capabilities for the DoD; an IDIQ contract with a maximum potential value of $250 million from the U.S. Army to produce Small Multipurpose Equipment Transport (SMET) vehicles; $240 million from the U.S. Navy for ship maintenance and repair services; a contract with a maximum potential value of $240 million from the U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services for cloud services and software tools; $155 million from the Navy for Advanced Nuclear Plant Studies (ANPS) in support of various submarine programs; $145 million for several key Information Technology contracts to provide intelligence services to classified customers; and $140 million for several key Mission Systems contracts for classified customers.

About General DynamicsHeadquartered in Reston, Virginia, 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; IT services; C4ISR solutions; and shipbuilding and ship repair. General Dynamics employs approximately 100,000 people worldwide and generated $39.4 billion in revenue in 2019. More information is available at www.gd.com.

Certain statements made in this press release, including any statements as to future results of operations and financial projections, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are based on management's expectations, estimates, projections and assumptions. 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. Additional information regarding these factors is contained in the company's filings with the Securities and Exchange Commission, including, without limitation, its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. All forward-looking statements speak only as of the date they were made. The company does 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 press release.

WEBCAST INFORMATION: General Dynamics will webcast its third-quarter 2020 financial results conference call at 9 a.m. EDT on Wednesday, October 28, 2020. The webcast will be a listen-only audio event available atwww.gd.com. An on-demand replay of the webcast will be available one hour after the end of the call and end on November 4, 2020. To hear a recording of the conference call by telephone, please call 1-877-344-7529 (international: 1-412-317-0088) passcode 10148284. Charts furnished to investors and securities analysts in connection with General Dynamics' announcement of its financial results are available atwww.gd.com.

EXHIBIT A

CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Three Months Ended Variance

September 27, 2020 September 29, 2019 $ %

Revenue $ 9,431 $ 9,761 $ (330) (3.4) %

Operating costs and expenses (8,347) (8,545) 198

Operating earnings 1,084 1,216 (132) (10.9) %

Other, net 12 (12) 24

Interest, net (118) (114) (4)

Earnings before income tax 978 1,090 (112) (10.3) %

Provision for income tax, net (144) (177) 33

Net earnings $ 834 $ 913 $ (79) (8.7) %

Earnings per share-basic $ 2.91 $ 3.17 $ (0.26) (8.2) %

Basic weighted average shares outstanding 286.5 288.4

Earnings per share-diluted $ 2.90 $ 3.14 $ (0.24) (7.6) %

Diluted weighted average shares outstanding 287.2 290.9

EXHIBIT B

CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Nine Months Ended Variance

September 27, 2020 September 29, 2019 $ %

Revenue $ 27,444 $ 28,577 $ (1,133) (4.0) %

Operating costs and expenses (24,578) (25,257) 679

Operating earnings 2,866 3,320 (454) (13.7) %

Other, net 44 18 26

Interest, net (357) (350) (7)

Earnings before income tax 2,553 2,988 (435) (14.6) %

Provision for income tax, net (388) (524) 136

Net earnings $ 2,165 $ 2,464 $ (299) (12.1) %

Earnings per share-basic $ 7.54 $ 8.55 $ (1.01) (11.8) %

Basic weighted average shares outstanding 287.1 288.1

Earnings per share-diluted $ 7.52 $ 8.47 $ (0.95) (11.2) %

Diluted weighted average shares outstanding 288.1 290.8

EXHIBIT C

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Three Months Ended Variance

September 27, 2020 September 29, 2019 $ %

Revenue:

Aerospace $ 1,975 $ 2,495 $ (520) (20.8) %

Combat Systems 1,801 1,740 61 3.5 %

Information Technology 2,029 2,071 (42) (2.0) %

Mission Systems 1,221 1,220 1 0.1 %

Marine Systems 2,405 2,235 170 7.6 %

Total $ 9,431 $ 9,761 $ (330) (3.4) %

Operating earnings:

Aerospace $ 283 $ 393 $ (110) (28.0) %

Combat Systems 270 264 6 2.3 %

Information Technology 146 146 - - %

Mission Systems 168 185 (17) (9.2) %

Marine Systems 223 209 14 6.7 %

Corporate (6) 19 (25) (131.6) %

Total $ 1,084 $ 1,216 $ (132) (10.9) %

Operating margin:

Aerospace 14.3 % 15.8 %

Combat Systems 15.0 % 15.2 %

Information Technology 7.2 % 7.0 %

Mission Systems 13.8 % 15.2 %

Marine Systems 9.3 % 9.4 %

Total 11.5 % 12.5 %

EXHIBIT D

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months Ended Variance

September 27, 2020 September 29, 2019 $ %

Revenue:

Aerospace $ 5,640 $ 6,871 $ (1,231) (17.9) %

Combat Systems 5,263 5,035 228 4.5 %

Information Technology 5,901 6,398 (497) (7.8) %

Mission Systems 3,518 3,655 (137) (3.7) %

Marine Systems 7,122 6,618 504 7.6 %

Total $ 27,444 $ 28,577 $ (1,133) (4.0) %

Operating earnings:

Aerospace $ 682 $ 1,052 $ (370) (35.2) %

Combat Systems 732 712 20 2.8 %

Information Technology 379 456 (77) (16.9) %

Mission Systems 480 495 (15) (3.0) %

Marine Systems 607 586 21 3.6 %

Corporate (14) 19 (33) (173.7) %

Total $ 2,866 $ 3,320 $ (454) (13.7) %

Operating margin:

Aerospace 12.1 % 15.3 %

Combat Systems 13.9 % 14.1 %

Information Technology 6.4 % 7.1 %

Mission Systems 13.6 % 13.5 %

Marine Systems 8.5 % 8.9 %

Total 10.4 % 11.6 %

EXHIBIT E

CONSOLIDATED BALANCE SHEET

DOLLARS IN MILLIONS

(Unaudited)

September 27, December 31, 2020 2019

ASSETS

Current assets:

Cash and equivalents $ 1,469 $ 902

Accounts receivable 3,863 3,544

Unbilled receivables 8,143 7,857

Inventories 6,402 6,306

Other current assets 988 1,171

Total current assets 20,865 19,780

Noncurrent assets:

Property, plant and equipment, net 4,863 4,475

Intangible assets, net 2,162 2,315

Goodwill 19,889 19,677

Other assets 2,479 2,594

Total noncurrent assets 29,393 29,061

Total assets $ 50,258 $ 48,841

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Short-term debt and current portion of $ 3,394 $ 2,920long-term debt

Accounts payable 2,613 3,162

Customer advances and deposits 6,086 7,148

Other current liabilities 4,027 3,571

Total current liabilities 16,120 16,801

Noncurrent liabilities:

Long-term debt 9,978 9,010

Other liabilities 9,444 9,453

Total noncurrent liabilities 19,422 18,463

Shareholders' equity:

Common stock 482 482

Surplus 3,082 3,039

Retained earnings 32,812 31,633

Treasury stock (17,805) (17,358)

Accumulated other comprehensive loss (3,855) (4,219)

Total shareholders' equity 14,716 13,577

Total liabilities and shareholders' equity $ 50,258 $ 48,841

EXHIBIT F

CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months Ended

September 27, 2020 September 29, 2019

Cash flows from operating activities-continuing operations:

Net earnings $ 2,165 $ 2,464

Adjustments to reconcile net earnings to net cash from operating activities:

Depreciation of property, plant and equipment 376 352

Amortization of intangible and finance lease right-of-use assets 267 273

Equity-based compensation expense 91 103

Deferred income tax benefit (112) (72)

(Increase) decrease in assets, net of effects of business acquisitions:

Accounts receivable (336) 253

Unbilled receivables (239) (1,603)

Inventories (134) (646)

Increase (decrease) in liabilities, net of effects of business acquisitions:

Accounts payable (558) (164)

Customer advances and deposits (906) (565)

Other current liabilities 360 191

Other, net 322 1

Net cash provided by operating activities 1,296 587

Cash flows from investing activities:

Capital expenditures (622) (606)

Other, net 33 2

Net cash used by investing activities (589) (604)

Cash flows from financing activities:

Proceeds from fixed-rate notes 3,960 -

Repayment of fixed-rate notes (2,000) -

Dividends paid (925) (858)

Purchases of common stock (501) (231)

Repayment of floating-rate notes (500) -

Proceeds from commercial paper, gross (maturities greater than 3 months) 420 -

Repayment of commercial paper, gross (maturities greater than 3 months) (420) -

Proceeds from commercial paper, net - 947

Other, net (134) 207

Net cash (used) provided by financing activities (100) 65

Net cash used by discontinued operations (40) (37)

Net increase in cash and equivalents 567 11

Cash and equivalents at beginning of period 902 963

Cash and equivalents at end of period $ 1,469 $ 974

EXHIBIT G

ADDITIONAL FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Other Financial Information:

September 27, 2020 December 31, 2019

Debt-to-equity (a) 90.9 % 87.9 %

Debt-to-capital (b) 47.6 % 46.8 %

Book value per share (c) $ 51.28 $ 46.88

Shares outstanding 286,972,150 289,610,336

Third Quarter Nine Months

2020 2019 2020 2019

Income tax payments, net $ 289 $ 90 $ 345 $ 487

Company-sponsored research and $ 97 $ 110 $ 291 $ 352development (d)

Return on sales (e) 8.8 % 9.4 % 7.9 % 8.6 %

Non-GAAP Financial Measures:

Third Quarter Nine Months

2020 2019 2020 2019

Earnings before interest, taxes,depreciation and amortization:

Net earnings $ 834 $ 913 $ 2,165 $ 2,464

Interest, net 118 114 357 350

Provision for income tax, net 144 177 388 524

Depreciation of property, plant and 122 120 376 352equipment

Amortization of intangible and finance 90 90 267 273lease right-of-use assets

Earnings before interest, taxes, $ 1,308 $ 1,414 $ 3,553 $ 3,963 depreciation and amortization (f)

Free cash flow from operations:

Net cash provided by operating $ 1,119 $ 1,091 $ 1,296 $ 587activities

Capital expenditures (216) (244) (622) (606)

Free cash flow from operations (g) $ 903 $ 847 $ 674 $ (19)

(a) Debt-to-equity ratio is calculated as total debt divided by total equity as of the end of the period.

(b) Debt-to-capital ratio is calculated as total debt divided by the sum of total debt plus total equity as of the end of the period.

(c) Book value per share is calculated as total equity divided by total outstanding shares as of the end of the period.

(d) Includes independent research and development and Aerospace product-development costs.

(e) Return on sales is calculated as net earnings divided by revenue.

We believe earnings before interest, taxes, depreciation and amortization (EBITDA) is a useful measure for investors because it provides another(f) measure of our profitability and our ability to service our debt. We calculate EBITDA by adding back interest, taxes, depreciation and amortization to net earnings. The most directly comparable GAAP measure to EBITDA is net earnings.

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,(g) 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 most directly comparable GAAP measure to free cash flow from operations is net cash provided by operating activities.

EXHIBIT H

BACKLOG - (UNAUDITED)

DOLLARS IN MILLIONS

Estimated Total Total Funded Unfunded Backlog Potential Estimated Contract Value Contract Value*

Third Quarter 2020:

Aerospace $ 11,640 $ 324 $ 11,964 $ 2,888 $ 14,852

Combat Systems 14,511 200 14,711 6,593 21,304

Information Technology 5,558 3,411 8,969 18,925 27,894

Mission Systems 4,554 240 4,794 7,317 12,111

Marine Systems 23,958 17,124 41,082 14,666 55,748

Total $ 60,221 $ 21,299 $ 81,520 $ 50,389 $ 131,909

Second Quarter 2020:

Aerospace $ 11,874 $ 239 $ 12,113 $ 2,834 $ 14,947

Combat Systems 13,863 242 14,105 6,399 20,504

Information Technology 5,464 3,463 8,927 18,392 27,319

Mission Systems 4,856 185 5,041 7,510 12,551

Marine Systems 25,118 17,365 42,483 14,441 56,924

Total $ 61,175 $ 21,494 $ 82,669 $ 49,576 $ 132,245

Third Quarter 2019:

Aerospace $ 11,195 $ 188 $ 11,383 $ 2,065 $ 13,448

Combat Systems 15,069 449 15,518 4,255 19,773

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 17,801 8,072 25,873 4,497 30,370

Total $ 53,999 $ 13,397 $ 67,396 $ 35,644 $ 103,040

The estimated potential contract value includes work awarded on unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options associated with existing firm contracts, including options and other agreements with existing customers to purchase new aircraft and aircraft* services. 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. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value.

EXHIBIT H-1

BACKLOG - (UNAUDITED)

DOLLARS IN MILLIONS

https://mma.prnewswire.com/media/1321089/Exhibit_H_1.jpg

EXHIBIT H-2

BACKLOG BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

https://mma.prnewswire.com/media/1321090/EXHIBIT_H_2_Aerospace.jpg

https://mma.prnewswire.com/media/1321091/EXHIBIT_H_2_Combat_Systems.jpg

https://mma.prnewswire.com/media/1321092/EXHIBIT_H_2_Information_Technology.jpg

https://mma.prnewswire.com/media/1321093/EXHIBIT_H_2_Mission_Systems.jpg

https://mma.prnewswire.com/media/1321094/EXHIBIT_H_2_Marine_Systems.jpg

https://mma.prnewswire.com/media/1321095/EXHIBIT_H_2_Segment_Key.jpg

EXHIBIT I

THIRD QUARTER 2020 SIGNIFICANT ORDERS - (UNAUDITED)

DOLLARS IN MILLIONS

We received the following significant contract awards during the third quarter of 2020:

Combat Systems:

* $870 to deliver 8x8 wheeled combat vehicles, maintenance and life cycle support to the Spanish Ministry of Defense. * An IDIQ contract to produce Small Multipurpose Equipment Transport (SMET) vehicles for the U.S. Army. The contract has a maximum potential value of $250. * $125 from the Army for various munitions and ordnance. * $55 from the U.S. Navy to produce gun systems for the F-35 Joint Strike Fighter. * $35 from the Army for the production of Improved Fire Control Electronics Units (IFCEUs) and Improved Commanders Display Units (ICDUs) for the Abrams tank program.

Information Technology:

* $65 to provide enterprise information technology and cybersecurity services and solutions for the U.S. Department of Defense (DoD). The contract has a maximum potential value of $760. * $70 to provide command, control and communications capabilities for the DoD. The contract has a maximum potential value of $365. * $50 from the U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services (CMS) to provide cloud services and software tools. The contract has a maximum potential value of $240. * $145 for several key contracts to provide intelligence services to classified customers. * $110 to provide design, development, testing, installation, maintenance, logistics support and modernization services for Navy airborne and shipboard platforms. * $95 to provide logistics, sustainment and maintenance support services for the Army. * $50 from the U.S. Department of Veterans Affairs under the Veterans Intake, Conversion and Communications Services (VICCS) program to modernize benefits claims processing.

Mission Systems:

* $140 for several key contracts for classified customers. * $95 from the Army for computing and communications equipment under the Common Hardware Systems-5 program. * $35 from the Army to provide continued software support and engineering for the Warfighter Information Network-Tactical (WIN-T) Increment 2 program.

Marine Systems:

* $240 from the Navy to provide maintenance and repair services for the Arleigh Burke-class guided-missile destroyer, Independence-class Littoral Combat Ship (LCS), Ticonderoga-class guided-missile cruiser and Wasp-class amphibious assault ship programs. * $155 from the Navy for Advanced Nuclear Plant Studies (ANPS) in support of various submarine programs. * $115 from the Navy for maintenance and modernization work on the USS Hartford, a Los Angeles-class attack submarine. * $35 from the Navy for the Expeditionary Sea Base (ESB) auxiliary support ship program.

EXHIBIT J

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

Third Quarter Nine Months

2020 2019 2020 2019

Gulfstream Aircraft Deliveries (units):

Large-cabin aircraft 25 29 71 79

Mid-cabin aircraft 7 9 16 24

Total 32 38 87 103

Aerospace Book-to-Bill:

Orders* $ 1,816 $ 1,693 $ 4,744 $ 7,022

Revenue (excluding pre-owned aircraft sales) 1,975 2,404 5,640 6,735

Book-to-Bill Ratio 0.92x 0.70x 0.84x 1.04x

* Does not include customer defaults, liquidated damages, cancellations, foreign exchange fluctuations and other backlog adjustments.

View original content to download multimedia: http://www.prnewswire.com/news-releases/general-dynamics-reports-third-quarter-2020-results-301161095.html

SOURCE General Dynamics