General Dynamics Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not standalone fourth-quarter results. General Dynamics operates in business aviation, shipbuilding, combat systems and government technology services.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $38.469 billion | $37.925 billion | +1.4% |
| Operating earnings | $4.163 billion | $4.133 billion | +0.7% |
| Operating margin | 10.8% | 10.9% | Down 0.1 percentage point |
| Net earnings | $3.257 billion | $3.167 billion | +2.8% |
| Diluted EPS | $11.55 | $11.00 | +5.0% |
| Operating cash flow | $4.271 billion | $3.858 billion | +10.7% |
| Free cash flow from operations | $3.384 billion | $2.891 billion | +17.1% |
Operating cash flow equaled 131% of net earnings; free cash flow, a company-defined non-GAAP measure, equaled 104%. Cash and equivalents were $1.603 billion at year-end, down from $2.824 billion. Total debt was $11.495 billion, including $1.005 billion current; $1 billion of notes mature in November 2022. The company reported $5 billion in committed credit facilities and no commercial paper outstanding.
Business segments
| Segment | 2021 revenue | 2021 operating margin | Comparison with 2020 |
|---|---|---|---|
| Aerospace | $8.135 billion | 12.7% | Revenue +0.7%; earnings down 4.8%; margin down from 13.4% |
| Marine Systems | $10.526 billion | 8.3% | Revenue +5.5%; earnings +2.3%; margin down from 8.6% |
| Combat Systems | $7.351 billion | 14.5% | Revenue +1.8%; earnings +2.5%; margin up from 14.4% |
| Technologies | $12.457 billion | 10.2% | Revenue down 1.5%; earnings +5.3%; margin up from 9.6% |
Material changes and business drivers
- Marine Systems drove consolidated growth, with higher U.S. Navy ship-construction volume, including Columbia-class submarines and surface-ship programs. Its margin reflected a greater mix of early-stage submarine work.
- Aerospace services improved with higher maintenance and FBO activity, but manufacturing revenue and earnings were pressured by fewer aircraft deliveries following pandemic-related production reductions. Gulfstream delivered 119 aircraft versus 127 in 2020.
- Technologies revenue declined as C5ISR work faced program timing, supply-chain and customer acquisition-cycle impacts; higher IT services activity and improved contract mix lifted segment earnings.
- Combat Systems benefited from international wheeled-vehicle work and U.S. Stryker programs.
- Backlog was $87.6 billion at year-end, compared with $89.5 billion in 2020. Aerospace backlog rose 40% to $16.3 billion, with 2021 orders at their highest level in more than a decade and a 1.6-to-1 book-to-bill ratio. Total estimated contract value, including potential options and other work, was $127.5 billion.
Outlook, risks and unusual items
- 2022 outlook: Aerospace revenue of approximately $8.4 billion and margin around 12.8%; Marine Systems revenue around $10.8 billion and margin around 8.6%; Combat Systems revenue of $7.15–$7.25 billion and margin around 14.5%; Technologies revenue of $12.8–$13.0 billion and margin around 10%. Management projected higher Aerospace revenue and margin in 2023–2024 as deliveries increase. These are forward-looking estimates, not guarantees.
- Management said the continuing resolution for U.S. government funding was not expected to have a material financial effect, while acknowledging that delayed appropriations can slow new awards and revenue growth. Approximately 70% of 2021 revenue came from the U.S. government.
- COVID-19, supply-chain constraints, workforce availability and the federal contractor vaccine mandate could affect costs, schedules and operations. Business jet demand strengthened in 2021, though aircraft services remained below pre-pandemic levels in some regions.
- Long-term contract profitability depends on estimates of costs to complete. Contract estimate adjustments increased 2021 operating earnings by $377 million, or $1.06 per diluted share; no single contract adjustment was material.
- A $550 million pension annuity buy-out transferred benefits for about 21,000 retirees and beneficiaries to an insurer and resulted in a non-cash settlement charge of approximately $75 million.
- Electric Boat’s appeal concerning a dismissed False Claims Act case remained pending. The company said it could not estimate a reasonably possible loss; an adverse outcome could materially affect results, financial condition and cash flows. Other disclosed litigation and environmental matters were not expected by management to be material.
- Other key exposures include U.S. defense-budget and contract-funding changes, fixed-price execution risk, supplier disruption, business-jet demand, cybersecurity, international regulatory and currency risks, and environmental regulation.
Investor verification priorities
- Track Gulfstream delivery growth, G700 certification and entry-into-service timing, and whether Aerospace’s margin outlook is achieved.
- Monitor Navy program execution, workforce and supplier capacity, and the cost and schedule performance of Columbia- and Virginia-class submarine work.
- Assess the funding status of the $26.4 billion unfunded backlog and the realizability of $39.9 billion in estimated potential contract value, which includes options and other work not yet firm backlog.
- Review collections and customer resolution of the $1.3 billion unbilled receivable on a tracked-vehicle contract, alongside the remaining payments due through 2023 on another international program.
- Reconcile forecast cash generation with debt maturities, capital spending, dividends and repurchases; 2021 share repurchases totaled $1.8 billion.
- Follow the pending Electric Boat litigation appeal and changes in contract-cost estimates, pandemic impacts, supply-chain conditions and federal funding.