PR Newswire | Jul 29, 2020 07:02AM EDT

07/29 06:00 CDT

General Dynamics Reports Second-Quarter 2020 Results- Diluted EPS of $2.18- Net earnings of $625 million on revenue of $9.3 billion- Free cash flow conversion 100%- 32 aircraft delivered despite pandemic-caused delivery challenges RESTON, Va., July 29, 2020

RESTON, Va., July 29, 2020 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported second-quarter 2020 net earnings of $625 million on revenue of $9.3 billion. Diluted earnings per share (EPS) were $2.18.

"We have continued to operate throughout the COVID-19 pandemic, meeting our customers' needs while keeping our people as safe as possible," said Phebe N. Novakovic, chairman and chief executive officer. "We are focused on the basics of early and aggressive cost management, performance and cash conversion as we manage through this period."

Aircraft deliveriesThe company delivered 32 aircraft during the quarter, up from 23 last quarter, despite continued pandemic-related challenges to making international deliveries.

CashNet cash provided by operating activities in the quarter totaled $843 million, $552 million better than the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $622 million, 100% of net earnings. The company ended the quarter with $2.3 billion of cash on hand, $1.6 billion more than at the end of second-quarter 2019.

BacklogTotal backlog at the end of second-quarter 2020 was $82.7 billion, 22% higher than 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 $49.6 billion. Total estimated contract value, the sum of all backlog components, was $132.2 billion at the end of the quarter, approximately 30% more than the year-ago quarter.

Significant awards in the quarter included a contract to construct the first two Columbia-class submarines which will be worth $11.5 billion when funding is received from Congress; $320 million to upgrade Stryker vehicles to the double-V-hull A1 configuration; $215 million from the U.S. Army to produce Hydra-70 rockets; $175 million from the Army for computing and communications equipment under the Common Hardware Systems-5 program; $160 million in separate contracts from the U.S. Navy to provide missile components for the Aegis Ballistic Missile Defense program and gun systems for the F-35 Joint Strike Fighter; $130 million from the Centers for Medicare and Medicaid Services for several contracts, including support of the agency's Healthcare Integrated General Ledger Accounting System (HIGLAS) application; and $125 million for several key contracts to provide intelligence services to 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 second-quarter 2020 financial results conference call at 9 a.m. EDT on Wednesday, July 29, 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 August 5, 2020. To hear a recording of the conference call by telephone, please call 1-877-344-7529 (international: 1-412-317-0088) passcode 10144907. 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

June 28, 2020 June 30, 2019 $ %

Revenue $ 9,264 $ 9,555 $ (291) (3.0) %

Operating costs and expenses (8,423) (8,465) 42

Operating earnings 841 1,090 (249) (22.8) %

Interest, net (132) (119) (13)

Other, net 18 12 6

Earnings before income tax 727 983 (256) (26.0) %

Provision for income tax, net (102) (177) 75

Net earnings $ 625 $ 806 $ (181) (22.5) %

Earnings per share-basic $ 2.18 $ 2.80 $ (0.62) (22.1) %

Basic weighted average shares outstanding 286.4 288.1

Earnings per share-diluted $ 2.18 $ 2.77 $ (0.59) (21.3) %

Diluted weighted average shares outstanding 286.9 290.8

EXHIBIT B

CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Six Months Ended Variance

June 28, 2020 June 30, 2019 $ %

Revenue $ 18,013 $ 18,816 $ (803) (4.3) %

Operating costs and expenses (16,231) (16,712) 481

Operating earnings 1,782 2,104 (322) (15.3) %

Interest, net (239) (236) (3)

Other, net 32 30 2

Earnings before income tax 1,575 1,898 (323) (17.0) %

Provision for income tax, net (244) (347) 103

Net earnings $ 1,331 $ 1,551 $ (220) (14.2) %

Earnings per share-basic $ 4.63 $ 5.39 $ (0.76) (14.1) %

Basic weighted average shares outstanding 287.5 288.0

Earnings per share-diluted $ 4.61 $ 5.33 $ (0.72) (13.5) %

Diluted weighted average shares outstanding 288.5 290.8

EXHIBIT C

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Three Months Ended Variance

June 28, 2020 June 30, 2019 $ %

Revenue:

Aerospace $ 1,974 $ 2,136 $ (162) (7.6) %

Combat Systems 1,754 1,659 95 5.7 %

Information Technology 1,884 2,158 (274) (12.7) %

Mission Systems 1,181 1,277 (96) (7.5) %

Marine Systems 2,471 2,325 146 6.3 %

Total $ 9,264 $ 9,555 $ (291) (3.0) %

Operating earnings:

Aerospace $ 159 $ 331 $ (172) (52.0) %

Combat Systems 239 242 (3) (1.2) %

Information Technology 83 154 (71) (46.1) %

Mission Systems 164 162 2 1.2 %

Marine Systems 200 197 3 1.5 %

Corporate (4) 4 (8) (200.0) %

Total $ 841 $ 1,090 $ (249) (22.8) %

Operating margin:

Aerospace 8.1 % 15.5 %

Combat Systems 13.6 % 14.6 %

Information Technology 4.4 % 7.1 %

Mission Systems 13.9 % 12.7 %

Marine Systems 8.1 % 8.5 %

Total 9.1 % 11.4 %

EXHIBIT D

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Six Months Ended Variance

June 28, 2020 June 30, 2019 $ %

Revenue:

Aerospace $ 3,665 $ 4,376 $ (711) (16.2) %

Combat Systems 3,462 3,295 167 5.1 %

Information Technology 3,872 4,327 (455) (10.5) %

Mission Systems 2,297 2,435 (138) (5.7) %

Marine Systems 4,717 4,383 334 7.6 %

Total $ 18,013 $ 18,816 $ (803) (4.3) %

Operating earnings:

Aerospace $ 399 $ 659 $ (260) (39.5) %

Combat Systems 462 448 14 3.1 %

Information Technology 233 310 (77) (24.8) %

Mission Systems 312 310 2 0.6 %

Marine Systems 384 377 7 1.9 %

Corporate (8) - (8) - %

Total $ 1,782 $ 2,104 $ (322) (15.3) %

Operating margin:

Aerospace 10.9 % 15.1 %

Combat Systems 13.3 % 13.6 %

Information Technology 6.0 % 7.2 %

Mission Systems 13.6 % 12.7 %

Marine Systems 8.1 % 8.6 %

Total 9.9 % 11.2 %

EXHIBIT E

CONSOLIDATED BALANCE SHEET

DOLLARS IN MILLIONS

(Unaudited)

June 28, 2020 December 31, 2019

ASSETS

Current assets:

Cash and equivalents $ 2,300 $ 902

Accounts receivable 3,515 3,544

Unbilled receivables 7,715 7,857

Inventories 6,666 6,306

Other current assets 939 1,171

Total current assets 21,135 19,780

Noncurrent assets:

Property, plant and equipment, net 4,721 4,475

Intangible assets, net 2,197 2,315

Goodwill 19,718 19,677

Other assets 2,451 2,594

Total noncurrent assets 29,087 29,061

Total assets $ 50,222 $ 48,841

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Short-term debt and current portion of long-term debt $ 4,121 $ 2,920

Accounts payable 2,383 3,162

Customer advances and deposits 6,212 7,148

Other current liabilities 3,890 3,571

Total current liabilities 16,606 16,801

Noncurrent liabilities:

Long-term debt 10,470 9,010

Other liabilities 9,256 9,453

Total noncurrent liabilities 19,726 18,463

Shareholders' equity:

Common stock 482 482

Surplus 3,050 3,039

Retained earnings 32,294 31,633

Treasury stock (17,809) (17,358)

Accumulated other comprehensive loss (4,127) (4,219)

Total shareholders' equity 13,890 13,577

Total liabilities and shareholders' equity $ 50,222 $ 48,841

EXHIBIT F

CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Six Months Ended

June 28, 2020 June 30, 2019

Cash flows from operating activities-continuing operations:

Net earnings $ 1,331 $ 1,551

Adjustments to reconcile net earnings to net cash from operatingactivities:

Depreciation of property, plant and equipment 254 232

Amortization of intangible and finance lease right-of-use assets 177 183

Equity-based compensation expense 61 72

Deferred income tax benefit (83) (17)

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

Accounts receivable (1) 64

Unbilled receivables 160 (1,074)

Inventories (433) (556)

Increase (decrease) in liabilities, net of effects of businessacquisitions:

Accounts payable (782) (301)

Customer advances and deposits (863) (607)

Other, net 356 (51)

Net cash provided (used) by operating activities 177 (504)

Cash flows from investing activities:

Capital expenditures (406) (362)

Other, net 184 (1)

Net cash used by investing activities (222) (363)

Cash flows from financing activities:

Proceeds from fixed-rate notes 3,960 -

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

Proceeds from commercial paper, net 816 1,394

Dividends paid (610) (563)

Purchases of common stock (501) (231)

Repayment of floating-rate notes (500) -

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

Other, net (118) 30

Net cash provided by financing activities 1,467 630

Net cash used by discontinued operations (24) (24)

Net increase (decrease) in cash and equivalents 1,398 (261)

Cash and equivalents at beginning of period 902 963

Cash and equivalents at end of period $ 2,300 $ 702

EXHIBIT G

ADDITIONAL FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Other Financial Information:

June 28, 2020 December 31, 2019

Debt-to-equity (a) 105.0 % 87.9 %

Debt-to-capital (b) 51.2 % 46.8 %

Book value per share (c) 48.41 $ 46.88

Shares outstanding 286,932,436 289,610,336

Second Quarter Six Months

2020 2019 2020 2019

Income tax payments, net $ 13 $ 360 $ 56 $ 397

Company-sponsored research and $ 116 $ 120 $ 194 $ 242development (d)

Return on sales (e) 6.7 % 8.4 % 7.4 % 8.2 %

Non-GAAP Financial Measures:

Second Quarter Six Months

2020 2019 2020 2019

Earnings before interest, taxes,depreciation and amortization:

Net earnings $ 625 $ 806 $ 1,331 $ 1,551

Interest, net 132 119 239 236

Provision for income tax, net 102 177 244 347

Depreciation of property, plant and 132 118 254 232equipment

Amortization of intangible and 87 92 177 183finance lease right-of-use assets

Earnings before interest, taxes, $ 1,078 $ 1,312 $ 2,245 $ 2,549 depreciation and amortization (f)

Free cash flow from operations:

Net cash provided (used) by $ 843 $ 291 $ 177 $ (504)operating activities

Capital expenditures (221) (181) (406) (362)

Free cash flow from operations (g) $ 622 $ 110 $ (229) $ (866)



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

EXHIBIT H

BACKLOG - (UNAUDITED)

DOLLARS IN MILLIONS

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

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

First Quarter 2020:

Aerospace $ 12,998 $ 274 $ 13,272 $ 2,837 $ 16,109

Combat Systems 14,373 244 14,617 4,253 18,870

Information Technology 5,375 4,127 9,502 18,638 28,140

Mission Systems 4,947 229 5,176 7,957 13,133

Marine Systems 26,112 17,053 43,165 4,460 47,625

Total $ 63,805 $ 21,927 $ 85,732 $ 38,145 $ 123,877

Second Quarter 2019:

Aerospace $ 11,932 $ 213 $ 12,145 $ 2,079 $ 14,224

Combat Systems 14,794 438 15,232 4,113 19,345

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 18,344 7,899 26,243 3,223 29,466

Total $ 54,441 $ 13,213 $ 67,654 $ 34,245 $ 101,899



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

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EXHIBIT H-2 BACKLOG BY SEGMENT - (UNAUDITED)DOLLARS IN MILLIONS

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EXHIBIT I SECOND QUARTER 2020 SIGNIFICANT ORDERS - (UNAUDITED)DOLLARS IN MILLIONS

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

Combat Systems:

* $320 from the U.S. Army to upgrade Stryker vehicles to the double-V-hull A1 configuration. The contract has a maximum potential value of $2.5 billion.

* $215 from the Army for the production of Hydra-70 rockets. The contract has a maximum potential value of $3.4 billion.

* $110 from the U.S. Navy to provide missile components for the Aegis Ballistic Missile Defense program.

* $100 for various munitions and ordnance.

* $50 from the Navy to produce gun systems for the F-35 Joint Strike Fighter.

Information Technology:

* $120 from the U.S. Air Force for the Battlefield Information Collection and Exploitation System (BICES) program to provide intelligence information sharing capabilities for the Department of Defense (DoD). The contract has a maximum potential value of $620.

* $130 from the Centers for Medicare and Medicaid Services (CMS) for several contracts, including support of the agency's Healthcare Integrated General Ledger Accounting System (HIGLAS) application.

* $125 for several key contracts to provide intelligence services to classified customers.

* $50 from the Navy to provide training and training-related program support.

* $40 to provide IT, cloud support and network management services for a commercial customer.

Mission Systems:

* $175 from the Army for computing and communications equipment under the Common Hardware Systems-5 program.

* $105 from the Navy to support the design and development of fire-control systems for ballistic-missile submarines for the Navy and the U.K. Royal Navy.

* $60 to provide sustainment services for the Navy's next-generation Mobile User Objective System (MUOS) satellite communications system.

* $35 from the U.S. Coast Guard to provide system sustainment support for the Rescue 21 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:

* A contract from the Navy to construct the first two Columbia-class submarines, which will be worth $11.5 billion when funding is received from Congress.

* $130 from the Navy for capital expenditures and industrial base development in support of the Arleigh Burke-class (DDG-51) guided-missile destroyer program.

* $80 from the Navy for Advanced Nuclear Plant Studies (ANPS) in support of the Columbia-class submarine program.

* $55 from the Navy to support the Common Missile Compartment work under joint development for the Navy and the U.K. Royal Navy.

* $45 from the Navy to provide ongoing lead yard services for the DDG-51 program.

EXHIBIT J

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

Second Quarter Six Months

2020 2019 2020 2019

Gulfstream Aircraft Deliveries (units):

Large-cabin aircraft 26 23 46 50

Mid-cabin aircraft 6 8 9 15

Total 32 31 55 65

Aerospace Book-to-Bill:

Orders* $ 1,072 $ 2,198 $ 2,928 $ 5,329

Revenue (excluding pre-owned aircraft sales) 1,974 2,134 3,665 4,332

Book-to-Bill Ratio 0.54x 1.03x 0.80x 1.23x



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

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SOURCE General Dynamics