General Dynamics Reports First-Quarter 2022 Financial Results

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Apr 27, 2022, 07:00 ET

Net earnings of $730 million on revenue of $9.4 billion
Diluted EPS of $2.61, up 5.2% year over year
Cash from operating activities of $2 billion
Highest Aerospace backlog in more than a decade

RESTON, Va., April 27, 2022 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported first-quarter 2022 net earnings of $730 million on revenue of $9.4 billion. Diluted earnings per share (EPS) were $2.61, a 5.2% increase from the year-ago quarter.

"Aerospace backlog grew for the fifth consecutive quarter, driven by continued strong Gulfstream demand, while operating discipline and growth in aviation services increased the group's margins," said Phebe N. Novakovic, chairman and chief executive officer. "Our defense segments delivered solid performance on key programs across the portfolios."

Cash
Net cash provided by operating activities in the quarter totaled $2 billion, or 270% of net earnings. The company invested $141 million in capital expenditures, paid $330 million in dividends, and used $294 million to repurchase shares, ending the quarter with $2.9 billion in cash and equivalents on hand.

Backlog
Orders remained strong across the company with a consolidated book-to-bill ratio, defined as orders divided by revenue, of 1-to-1 for the quarter. In addition to company-wide backlog of $87.2 billion, estimated potential contract value, representing management's estimate of additional value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $41.8 billion. Total estimated contract value, the sum of all backlog components, was $129 billion.

Aerospace backlog grew $1.3 billion in the quarter to $17.6 billion, up 8.1%.

Significant awards in the quarter for the three defense segments included a contract with a maximum potential value of $4.5 billion over 10 years from the National Geospatial-Intelligence Agency to provide hybrid cloud services and information technology design, engineering, and operations and sustainment services; a contract with a maximum potential value of $660 million from the Environmental Protection Agency for managed application, information, networking, enterprise and security services; $340 million from the U.S. Army to produce Stryker maneuver short-range air defense (M-SHORAD) vehicles; $325 million from the Army to upgrade Abrams main battle tanks; $260 million from the U.S. Navy to provide maintenance and repair services for an Arleigh Burke-class guided-missile destroyer and a Wasp-class amphibious assault ship; $235 million from the Army to provide spare parts, inventory management and support services for the Stryker wheeled combat vehicle program; $230 million to produce Piranha armored combat vehicles for Switzerland; and $260 million for several key classified contracts.

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; ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services. General Dynamics employs more than 100,000 people worldwide and generated $38.5 billion in revenue in 2021. More information is available at www.gd.com.

Certain statements in this press release, including any statements about the company's future operational and financial performance, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Words such as "expects," "anticipates," "plans," "believes," "forecasts," "scheduled," "outlook," "estimates," "should" and variations of these words and similar expressions are intended to identify forward-looking statements. 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 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 revisions to any 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 first-quarter 2022 financial results conference call at 9 a.m. EDT on Wednesday, April 27, 2022. The webcast will be a listen-only audio event available at www.gd.com. An on-demand replay of the webcast will be available by telephone one hour after the end of the call and end on May 4, 2022, at 866-813-9403 (international: +44 204-525-0658); passcode 488214. 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
	April 3, 2022		April 4, 2021			$		%
Revenue	$	9,392	$	9,389		$	3	—	%
Operating costs and expenses	(8,484)		(8,451)			(33)
Operating earnings	908		938			(30)		(3.2)	%
Other, net	39		30			9
Interest, net	(98)		(123)			25
Earnings before income tax	849		845			4		0.5	%
Provision for income tax, net	(119)		(137)			18
Net earnings	$	730	$	708		$	22	3.1	%
Earnings per share—basic	$	2.63	$	2.49		$	0.14	5.6	%
Basic weighted average shares outstanding	277.1		284.1
Earnings per share—diluted	$	2.61	$	2.48		$	0.13	5.2	%
Diluted weighted average shares outstanding	279.9		285.2

EXHIBIT B REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED) DOLLARS IN MILLIONS

	Three Months Ended						Variance
	April 3, 2022			April 4, 2021			$		%
Revenue:
Aerospace	$	1,903		$	1,887		$	16	0.8	%
Marine Systems	2,651			2,483			168		6.8	%
Combat Systems	1,675			1,820			(145)		(8.0)	%
Technologies	3,163			3,199			(36)		(1.1)	%
Total	$	9,392		$	9,389		$	3	—	%
Operating earnings:
Aerospace	$	243		$	220		$	23	10.5	%
Marine Systems	211			200			11		5.5	%
Combat Systems	227			244			(17)		(7.0)	%
Technologies	298			306			(8)		(2.6)	%
Corporate	(71)			(32)			(39)		(121.9)	%
Total	$	908		$	938		$	(30)	(3.2)	%
Operating margin:
Aerospace	12.8		%	11.7		%
Marine Systems	8.0		%	8.1		%
Combat Systems	13.6		%	13.4		%
Technologies	9.4		%	9.6		%
Total	9.7		%	10.0		%

EXHIBIT C
CONSOLIDATED BALANCE SHEET
DOLLARS IN MILLIONS

(Unaudited)

April 3, 2022

December 31, 2021

ASSETS

Current assets:

Cash and equivalents

2,907

1,603

Accounts receivable

3,015

3,041

Unbilled receivables

7,888

8,498

Inventories

5,548

5,340

Other current assets

1,436

1,505

Total current assets

20,794

19,987

Noncurrent assets:

Property, plant and equipment, net

5,450

5,417

Intangible assets, net

1,926

1,978

Goodwill

20,114

20,098

Other assets

2,592

2,593

Total noncurrent assets

30,082

30,086

Total assets

50,876

50,073

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Short-term debt and current portion of long-term debt

1,005

1,005

Accounts payable

3,190

3,167

Customer advances and deposits

6,363

6,266

Other current liabilities

3,478

3,540

Total current liabilities

14,036

13,978

Noncurrent liabilities:

Long-term debt

10,491

10,490

Other liabilities

8,335

7,964

Total noncurrent liabilities

18,826

18,454

Shareholders' equity:

Common stock

482

482

Surplus

3,434

3,278

Retained earnings

35,800

35,420

Treasury stock

(19,837)

(19,619)

Accumulated other comprehensive loss

(1,865)

(1,920)

Total shareholders' equity

18,014

17,641

Total liabilities and shareholders' equity

50,876

50,073

EXHIBIT D CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED) DOLLARS IN MILLIONS

	Three Months Ended
	April 3, 2022		April 4, 2021
Cash flows from operating activities—continuing operations:
Net earnings	$	730	$	708
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation of property, plant and equipment	139		136
Amortization of intangible and finance lease right-of-use assets	74		79
Equity-based compensation expense	96		40
Deferred income tax benefit	(106)		(19)
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable	26		(30)
Unbilled receivables	617		52
Inventories	(234)		57
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable	23		(216)
Customer advances and deposits	675		(544)
Other, net	(72)		(260)
Net cash provided by operating activities	1,968		3
Cash flows from investing activities:
Capital expenditures	(141)		(134)
Other, net	(6)		3
Net cash used by investing activities	(147)		(131)
Cash flows from financing activities:
Dividends paid	(330)		(315)
Purchases of common stock	(294)		(759)
Other, net	107		201
Net cash used by financing activities	(517)		(873)
Net cash used by discontinued operations	—		(12)
Net increase (decrease) in cash and equivalents	1,304		(1,013)
Cash and equivalents at beginning of period	1,603		2,824
Cash and equivalents at end of period	$	2,907	$	1,811

	EXHIBIT E ADDITIONAL FINANCIAL INFORMATION - (UNAUDITED) DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS


	Other Financial Information:
		April 3, 2022			December 31, 2021
	Debt-to-equity (a)	63.8		%	65.2		%
	Book value per share (b)	$	64.87		$	63.54
	Shares outstanding	277,705,115			277,620,943

		First Quarter
		2022			2021
	Income tax payments, net	$	15		$	33
	Company-sponsored research and development (c)	$	107		$	90
	Return on sales (d)	7.8		%	7.5		%

	Non-GAAP Financial Measures:
		First Quarter
		2022			2021
	Free cash flow:
	Net cash provided by operating activities	$	1,968		$	3
	Capital expenditures	(141)			(134)
	Free cash flow (e)	$	1,827		$	(131)

		April 3, 2022			December 31, 2021
	Net debt:
	Total debt	$	11,496		$	11,495
	Less cash and equivalents	2,907			1,603
	Net debt (f)	$	8,589		$	9,892

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

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

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

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

(e)	We define free cash flow as net cash provided by operating activities less capital expenditures. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow to assess the quality of our earnings and as a key performance measure in evaluating management.

(f)	We define net debt as short- and long-term debt (total debt) less cash and equivalents. We believe net debt is a useful measure for investors because it reflects the borrowings that support our operations and capital deployment strategy. We use net debt as an important indicator of liquidity and financial position.

	EXHIBIT F BACKLOG - (UNAUDITED) DOLLARS IN MILLIONS

		Funded			Unfunded			Total Backlog			Estimated Potential Contract Value*			Total Estimated Contract Value
	First Quarter 2022:
	Aerospace		$	17,114		$	501		$	17,615		$	1,829		$	19,444
	Marine Systems		27,656			15,258			42,914			4,316			47,230
	Combat Systems		12,760			299			13,059			6,298			19,357
	Technologies		9,067			4,579			13,646			29,347			42,993
	Total		$	66,597		$	20,637		$	87,234		$	41,790		$	129,024
	Fourth Quarter 2021:
	Aerospace		$	15,878		$	415		$	16,293		$	1,657		$	17,950
	Marine Systems		23,678			21,177			44,855			4,271			49,126
	Combat Systems		12,584			509			13,093			6,936			20,029
	Technologies		9,005			4,348			13,353			26,997			40,350
	Total		$	61,145		$	26,449		$	87,594		$	39,861		$	127,455
	First Quarter 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

*	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 F-1
BACKLOG - (UNAUDITED)
DOLLARS IN MILLIONS

https://mma.prnewswire.com/media/1804988/Exhibit_F_1.jpg

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

https://mma.prnewswire.com/media/1804990/Aerospace_Backlog.jpg

https://mma.prnewswire.com/media/1804991/Marine_Systems_Backlog.jpg

https://mma.prnewswire.com/media/1804992/Combat_Systems_Backlog.jpg

https://mma.prnewswire.com/media/1804993/Technologies_Backlog.jpg

https://mma.prnewswire.com/media/1804994/Backlog_Key.jpg

EXHIBIT G
FIRST QUARTER 2022 SIGNIFICANT ORDERS - (UNAUDITED)
DOLLARS IN MILLIONS

We received the following significant contract awards during the first quarter of 2022:

Marine Systems:

$260 from the U.S. Navy to provide maintenance and repair services for an Arleigh Burke-class (DDG-51) guided-missile destroyer and a Wasp-class amphibious assault ship.
$130 from the Navy for maintenance and modernization work on the USS Hartford, a Los Angeles-class submarine.
$95 from the Navy for advanced nuclear plant studies (ANPS) in support of the Columbia-class submarine program.
$75 from the Navy for changes in scope associated with DDG-51 contracts.

Combat Systems:

$340 from the U.S. Army to produce Stryker maneuver short-range air defense (M-SHORAD) vehicles.
$325 from the Army to upgrade Abrams battle tanks to the system enhancement package version 3 (SEPv3) configuration.
$235 from the Army to provide spare parts and inventory management and support services for the Stryker wheeled combat vehicle program.
$230 to produce Piranha armored combat vehicles for Switzerland.
$45 to provide laser range finders and repair and management support services for Canadian light armored vehicle (LAV) programs.

Technologies:

An indefinite delivery, indefinite quantity (IDIQ) contract from the National Geospatial-Intelligence Agency (NGA) to provide hybrid cloud services and information technology (IT) design, engineering, and operations and sustainment services. The contract has a maximum potential value of $4.5 billion over 10 years.
$80 from the Environmental Protection Agency (EPA) for managed application, information, networking, enterprise and security services. The contract has a maximum potential value of $660.
$260 for several key classified contracts.
$190 from the U.S. Air Force for the Battlefield Information Collection and Exploitation System (BICES) program to provide intelligence information sharing capabilities and engineering services.
$40 from the Defense Information Systems Agency (DISA) for an Identity, Credential and Access Management (ICAM) solution to provide secure identity, access and account management for Department of Defense (DoD) applications. The contract has a maximum potential value of $160.
$130 to provide flight simulation services for the Army.
$15 from the U.S. Department of Education to develop the Award Eligibility Determination system. The contract has a maximum potential value of $120.
$110 to manufacture and deliver hardware in support of the SPY-6 radar program.
$90 from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.
$85 from the Army to provide continued software support and engineering for the Warfighter Information Network-Tactical (WIN-T) Increment 2 program.
$85 from the North Carolina Department of Health and Human Services in support of the Medicaid Management Information System.

EXHIBIT H AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

	First Quarter
		2022		2021
Gulfstream Aircraft Deliveries (units):
Large-cabin aircraft		21		25
Mid-cabin aircraft		4		3
Total		25		28

Aerospace Book-to-Bill:
Orders*		$	3,243	$	2,457
Revenue		1,903		1,887
Book-to-Bill Ratio		1.70x		1.30x

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