General Dynamics Reports Third-Quarter 2020 Results

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."

Margin
Company-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.

Cash
Net 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 Deployment
In 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.

Backlog
General 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 Dynamics
Headquartered 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 at www.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 at www.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, 2020


December 31, 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 long-term debt

$

3,394



$

2,920


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
development (d)

$

97



$

110



$

291



$

352


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
equipment

122



120



376



352


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

90



90



267



273


     Earnings before interest, taxes, 
     depreciation and amortization (f)

$

1,308



$

1,414



$

3,553



$

3,963










Free cash flow from operations:








Net cash provided by operating
activities

$

1,119



$

1,091



$

1,296



$

587


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.



(f)

We believe earnings before interest, taxes, depreciation and amortization (EBITDA) is a useful measure for investors because it provides another 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.



(g)

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 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




Funded


Unfunded


Total
Backlog


Estimated

Potential

Contract Value*


Total
Estimated
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

 

EXHIBIT H-1

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

EXHIBIT H-2

BACKLOG BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

 

EXHIBIT H-2 Aerospace

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

EXHIBIT H-2 Combat Systems

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

EXHIBIT H-2 Information Technology

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

EXHIBIT H-2 Mission Systems

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

EXHIBIT H-2 Marine Systems

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

EXHIBIT H-2 Segment Key

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.

 

General Dynamics (PRNewsFoto/General Dynamics) (PRNewsFoto/General Dynamics)

 

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SOURCE General Dynamics

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