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A M 2 Annual Report | 2020

Dear Fellow Your company faced a very challenging 2020 with very good performance Shareholder under the circumstances. Our Aerospace markets were dramatically impacted by COVID-19 and the resultant economic disruptions and travel restrictions. Our defense markets did not have the same problem, but productivity was directly and immediately impacted by the shutdown of numerous government agencies and by disruptions to our workforce. Nevertheless, your company demonstrated its resilience and adaptability.

As a critical national infrastructure company, we remained open and fully operational. We took immediate action to protect our people, supply chain and operations. And, as you would expect, our management team was on-site, at their posts, throughout.

We were also called upon by the government to help our communities. We responded by providing over 200,000 items of PPE to first responders in hard-hit areas. We repurposed machinery to produce shields and testing swab packaging. We also increased donations to hospitals and food banks.

Despite the foregoing, we achieved most of our operational and financial goals. We had solid cash performance and added to our backlog in important ways. Our total backlog rose 3% to $89.5 billion and our total estimated contract value rose to a record $134.7 billion. The total company book-to- bill was 1.1 to 1 for the year, led by particularly strong order performance at Electric Boat. This bodes well for the business going forward.

On the cash front, we had free cash flow of $2.9 billion, a very respectable 91% of net earnings. We expect our cash generation from operations in the near and intermediate time frames to be even better. It follows quite naturally that we improved our financial flexibility with an $854 million reduction in net debt. We also increased our dividend by 8%, marking the 23rd consecutive year of annual increases.

As I am sure you are aware, the entire Aerospace industry was enormously impacted by the economic and social consequences of COVID-19. Some

382788_GD_2020 Annual Report_03.03.21_CVR_R2.indd 4-6 3/17/21 4:26 AM commentators called it a worldwide collapse of both The Marine Systems segment had another very good the commercial and markets. Early in the year. Revenue of $10 billion was up almost $800 million, crisis, we sought to be a good cyclical. In that regard, or 8.7%, driven primarily by increased submarine we lowered our aircraft production rate to better align construction. Operating earnings were $854 million, up production with demand, adjusted staffi ng levels, and 8.8%, the highest ever for Marine Systems. Backlog implemented other strong cost control measures. As a rose to $50 billion, up 13.1% on the award of a $9.5 result, your company’s Aerospace operating earnings billion contract for the construction of the fi rst two of 12 were an industry-leading $1.08 billion on revenue of $8.1 Columbia-class ballistic missile submarines. To support the billion, an operating margin of 13.4%. This, of course, increase in submarine production this year and beyond, we was down from 2019, a record year. However, this continued to invest capital expenditures at Electric Boat. performance compared to all others in the industry is We expect solid year-over-year increases in production, more than compelling. revenue and earnings in the Marine Systems segment.

Demand, while lower than pre-COVID levels, remained Our newly designated Technologies segment combines solid with a dollar-denominated book-to-bill for the year for reporting purposes our IT services business and at 0.88 to 1. The sales pipeline remains active for us, Mission Systems, refl ecting their strategy to increasingly and we believe it will improve further as international go to market as