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Wednesday, 10/25/2017 9:27:42 AM

Wednesday, October 25, 2017 9:27:42 AM

Post# of 448
General Dynamics Reports Third-Quarter 2017 Results

FALLS CHURCH, Va., Oct. 25, 2017 /PRNewswire/ --

Diluted earnings per share from continuing operations of $2.52, up 6.8%
Earnings from continuing operations up 4.5% to $764 million
Operating earnings up 3.6% to $1.1 billion
General Dynamics (NYSE: GD) today reported third-quarter 2017 earnings from continuing operations of $764 million, a 4.5 percent increase over third-quarter 2016, on revenue of $7.6 billion. Diluted earnings per share from continuing operations were $2.52 compared to $2.36 in the year-ago quarter, a 6.8 percent increase.

"Our focus on operations continues to drive strong performance, exhibited this quarter by 13.9 percent operating margin and 10.1 percent return on sales," said Phebe N. Novakovic, chairman and chief executive officer of General Dynamics. "Total backlog rose to $63.9 billion, up 9.2 percent from the second quarter, with growth in every defense segment and good order activity at Gulfstream."

Margin
Company-wide operating margin for the third quarter of 2017 was 13.9 percent, a 60 basis-point increase when compared to 13.3 percent in third-quarter 2016, with expansion in the Combat Systems and Information Systems and Technology groups.

Cash
Net cash provided by operating activities in the quarter totaled $871 million, compared to $499 million in the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $751 million.

Capital Deployment
The company repurchased 1.2 million of its outstanding shares in the third quarter. Year-to-date, the company has repurchased 5.9 million outstanding shares.

Backlog
General Dynamics' total backlog at the end of third-quarter 2017 was $63.9 billion, up 9.2 percent from the end of second-quarter 2017. The estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25.7 billion. Total potential contract value, the sum of all backlog components, was $89.7 billion at the end of the quarter.

There was order activity across the Gulfstream product portfolio and strong demand for defense products, including a book-to-bill ratio (orders divided by revenue) greater than one-to-one in each of the defense segments. Significant awards in the quarter include $5.1 billion from the U.S. Navy to complete the design and prototype development of the lead Columbia-class submarine, the Navy's award of two Arleigh Burke-class destroyers, $615 million from the U.S. Army to produce and modernize Abrams main battle tanks, $260 million from the Army and U.S. Air Force for ammunition and ordnance, $175 million from the Army for Stryker double-V-hull vehicles and $455 million from the Centers for Medicare & Medicaid Services for contact-center services.

About General Dynamics
Headquartered in Falls Church, 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; C4ISR and IT solutions; and shipbuilding. The company's 2016 revenue was $30.6 billion. More information is available at www.generaldynamics.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 certain risks and uncertainties, which 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 and its Quarterly Reports on Form 10-Q.

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 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 third-quarter 2017 financial results conference call at 9 a.m. EDT on Wednesday, October 25, 2017. The webcast will be a listen-only audio event, available at www.generaldynamics.com. An on-demand replay of the webcast will be available by 12 p.m. on October 25 and will continue for 12 months. To hear a recording of the conference call by telephone, please call 877-344-7529 (international: 412-317-0088); passcode 10113242. The phone replay will be available from October 25 through November 1, 2017.


EXHIBIT A


CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS



Three Months Ended


Variance


October 1, 2017


October 2, 2016*


$


%

Revenue

$

7,580



$

7,657



$

(77)



(1.0)

%

Operating costs and expenses

6,528



6,642



(114)




Operating earnings

1,052



1,015



37



3.6

%

Interest, net

(27)



(23)



(4)




Other, net

2



2








Earnings from continuing operations before income tax

1,027



994



33



3.3

%

Provision for income tax, net

263



263








Earnings from continuing operations

764



731



33



4.5

%

Discontinued operations, net of tax





(84)



84




Net earnings

$

764



$

647



$

117



18.1

%

Earnings per share—basic









Continuing operations

$

2.56



$

2.40



$

0.16



6.7

%

Discontinued operations





(0.27)



0.27




Net earnings

$

2.56



$

2.13



$

0.43



20.2

%

Basic weighted average shares outstanding

298.1



303.9








Earnings per share—diluted








Continuing operations

$

2.52



$

2.36



$

0.16



6.8

%

Discontinued operations





(0.27)



0.27




Net earnings

$

2.52



$

2.09



$

0.43



20.6

%

Diluted weighted average shares outstanding

303.8



309.7







* Prior-period information has been restated for the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, which we adopted on January 1, 2017.





EXHIBIT B


CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

















Nine Months Ended


Variance


October 1, 2017


October 2, 2016*


$


%

Revenue

$

22,696



$

22,907



$

(211)



(0.9)

%

Operating costs and expenses

19,553



19,941



(388)




Operating earnings

3,143



2,966



177



6.0

%

Interest, net

(76)



(68)



(8)




Other, net

2



13



(11)




Earnings from continuing operations before income tax

3,069



2,911



158



5.4

%

Provision for income tax, net

793



812



(19)




Earnings from continuing operations

2,276



2,099



177



8.4

%

Discontinued operations, net of tax





(97)



97




Net earnings

$

2,276



$

2,002



$

274



13.7

%

Earnings per share—basic








Continuing operations

$

7.59



$

6.86



$

0.73



10.6

%

Discontinued operations





(0.31)



0.31




Net earnings

$

7.59



$

6.55



$

1.04



15.9

%

Basic weighted average shares outstanding

299.9



305.4






Earnings per share—diluted








Continuing operations

$

7.45



$

6.74



$

0.71



10.5

%

Discontinued operations





(0.31)



0.31




Net earnings

$

7.45



$

6.43



$

1.02



15.9

%

Diluted weighted average shares outstanding

305.5



311.1







* Prior-period information has been restated for the adoption of ASC Topic 606, which we adopted on January 1, 2017.





EXHIBIT C


REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

















Three Months Ended


Variance


October 1, 2017


October 2, 2016*


$


%

Revenue:








Aerospace

$

1,995



$

1,925



$

70



3.6

%

Combat Systems

1,500



1,327



173



13.0

%

Information Systems and Technology

2,154



2,330



(176)



(7.6)

%

Marine Systems

1,931



2,075



(144)



(6.9)

%

Total

$

7,580



$

7,657



$

(77)



(1.0)

%

Operating earnings:








Aerospace

$

385



$

377



$

8



2.1

%

Combat Systems

247



209



38



18.2

%

Information Systems and Technology

253



239



14



5.9

%

Marine Systems

179



197



(18)



(9.1)

%

Corporate

(12)



(7)



(5)



(71.4)

%

Total

$

1,052



$

1,015



$

37



3.6

%

Operating margin:








Aerospace

19.3

%


19.6

%





Combat Systems

16.5

%


15.7

%





Information Systems and Technology

11.7

%


10.3

%





Marine Systems

9.3

%


9.5

%





Total

13.9

%


13.3

%








* Prior-period information has been restated for the adoption of ASC Topic 606, which we adopted on January 1, 2017.







EXHIBIT D


REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

















Nine Months Ended


Variance


October 1, 2017


October 2, 2016*


$


%

Revenue:








Aerospace

$

6,147



$

5,990



$

157



2.6

%

Combat Systems

4,201



3,869



332



8.6

%

Information Systems and Technology

6,404



6,873



(469)



(6.8)

%

Marine Systems

5,944



6,175



(231)



(3.7)

%

Total

$

22,696



$

22,907



$

(211)



(0.9)

%

Operating earnings:








Aerospace

$

1,253



$

1,133



$

120



10.6

%

Combat Systems

677



601



76



12.6

%

Information Systems and Technology

729



710



19



2.7

%

Marine Systems

518



553



(35)



(6.3)

%

Corporate

(34)



(31)



(3)



(9.7)

%

Total

$

3,143



$

2,966



$

177



6.0

%

Operating margin:








Aerospace

20.4

%


18.9

%





Combat Systems

16.1

%


15.5

%





Information Systems and Technology

11.4

%


10.3

%





Marine Systems

8.7

%


9.0

%





Total

13.8

%


12.9

%






* Prior-period information has been restated for the adoption of ASC Topic 606, which we adopted on January 1, 2017.





EXHIBIT E


CONSOLIDATED BALANCE SHEETS - (UNAUDITED)

DOLLARS IN MILLIONS










October 1, 2017


December 31, 2016*

ASSETS




Current assets:




Cash and equivalents

$

2,722



$

2,334


Accounts receivable

3,391



3,399


Unbilled receivables

5,609



4,212


Inventories

5,781



5,817


Other current assets

577



772


Total current assets

18,080



16,534


Noncurrent assets:




Property, plant and equipment, net

3,461



3,477


Intangible assets, net

715



678


Goodwill

11,918



11,445


Other assets

740



1,038


Total noncurrent assets

16,834



16,638


Total assets

$

34,914



$

33,172


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




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

$

903



$

900


Accounts payable

2,718



2,538


Customer advances and deposits

6,610



6,827


Other current liabilities

2,978



3,185


Total current liabilities

13,209



13,450


Noncurrent liabilities:




Long-term debt

3,979



2,988


Other liabilities

6,162



6,433


Total noncurrent liabilities

10,141



9,421


Shareholders' equity:




Common stock

482



482


Surplus

2,841



2,819


Retained earnings

26,058



24,543


Treasury stock

(15,166)



(14,156)


Accumulated other comprehensive loss

(2,651)



(3,387)


Total shareholders' equity

11,564



10,301


Total liabilities and shareholders' equity

$

34,914



$

33,172



* Prior-period information has been restated for the adoption of Accounting Standards Update (ASU) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, and ASC Topic 606, both of which we adopted on January 1, 2017.





EXHIBIT F


CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS










Nine Months Ended


October 1, 2017


October 2, 2016*

Cash flows from operating activities—continuing operations:




Net earnings

$

2,276



$

2,002


Adjustments to reconcile net earnings to net cash provided by operating activities:




Depreciation of property, plant and equipment

269



270


Amortization of intangible assets

57



70


Equity-based compensation expense

75



76


Deferred income tax provision

155



148


Discontinued operations, net of tax





97


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




Accounts receivable

26



21


Unbilled receivables

(1,361)



(907)


Inventories

57



(206)


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




Accounts payable

167



305


Customer advances and deposits

(296)



(554)


Income taxes payable

223



(14)


Other, net

233



64


Net cash provided by operating activities

1,881



1,372


Cash flows from investing activities:




Business acquisitions, net of cash acquired

(364)



(56)


Capital expenditures

(273)



(244)


Other, net

53



18


Net cash used by investing activities

(584)



(282)


Cash flows from financing activities:




Purchases of common stock

(1,172)



(1,514)


Proceeds from fixed-rate notes

985



992


Dividends paid

(735)



(678)


Repayment of fixed-rate notes





(500)


Other, net

41



172


Net cash used by financing activities

(881)



(1,528)


Net cash used by discontinued operations

(28)



(44)


Net increase (decrease) in cash and equivalents

388



(482)


Cash and equivalents at beginning of period

2,334



2,785


Cash and equivalents at end of period

$

2,722



$

2,303



* Prior-period information has been restated for the adoption of ASC Topic 606, which we adopted on January 1, 2017.





EXHIBIT G


PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS


















2017




2016 (a)




Third Quarter




Third Quarter



Other Financial Information:








Debt-to-equity (b)

42.2

%




35.8

%



Debt-to-capital (c)

29.7

%




26.3

%



Book value per share (d)

$

38.73





$

35.68




Total income tax payments

$

70





$

217




Company-sponsored research and development (e)

$

120





$

99




Shares outstanding

298,582,883





304,519,550












Non-GAAP Financial Measures:









2017


2016


Third Quarter


Nine Months


Third Quarter


Nine Months

Free cash flow from operations:








Net cash provided by operating activities

$

871



$

1,881



$

499



$

1,372


Capital expenditures

(120)



(273)



(110)



(244)


Free cash flow from operations (f)

$

751



$

1,608



$

389



$

1,128




(a)

Prior-period information has been restated for the adoption of ASC Topic 606, which we adopted on January 1, 2017.



(b)

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



(c)

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.



(d)

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



(e)

Includes independent research and development and Aerospace product-development costs.



(f)

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 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


TotalBacklog


EstimatedPotentialContract Value (a)


Total PotentialContractValue

Third Quarter 2017:











Aerospace


$

11,729



$

86



$

11,815



$

1,909



$

13,724


Combat Systems


17,060



494



17,554



4,607



22,161


Information Systems and Technology


7,109



2,413



9,522



14,384



23,906


Marine Systems


16,791



8,247



25,038



4,826



29,864


Total


$

52,689



$

11,240



$

63,929



$

25,726



$

89,655


Second Quarter 2017:











Aerospace


$

12,116



$

120



$

12,236



$

1,911



$

14,147


Combat Systems


16,749



281



17,030



4,845



21,875


Information Systems and Technology


6,809



2,085



8,894



14,389



23,283


Marine Systems


16,033



4,374



20,407



3,282



23,689


Total


$

51,707



$

6,860



$

58,567



$

24,427



$

82,994


Third Quarter 2016 (b):











Aerospace


$

13,260



$

108



$

13,368



$

2,158



$

15,526


Combat Systems


17,723



436



18,159



4,469



22,628


Information Systems and Technology


7,155



2,057



9,212



14,444



23,656


Marine Systems


15,080



8,001



23,081



4,172



27,253


Total


$

53,218



$

10,602



$

63,820



$

25,243



$

89,063




(a)

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 to purchase new aircraft and long-term agreements with fleet customers. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value. We recognize options in backlog when the customer exercises the option and establishes a firm order.





(b)

Prior-period information has been restated for the adoption of ASC Topic 606, which we adopted on January 1, 2017.





EXHIBIT I


THIRD QUARTER 2017 SIGNIFICANT ORDERS - (UNAUDITED)

DOLLARS IN MILLIONS



We received the following significant contract awards during the third quarter of 2017:


Combat Systems:





$310 from the U.S. Army to design, develop and integrate multiple engineering changes into the Abrams M1A2 System Enhancement Package Version 3 (SEPv3), creating a SEPv4.





$270 from the Army to produce 45 Abrams M1A2 SEPv3 tanks, deliver M1A2 components and provide associated program support.





$260 from the Army and U.S. Air Force for various calibers of ammunition and ordnance.





$220 from an international customer to produce Piranha 3+ vehicles in five variants and provide associated program support.





$195 from the Army for the production of Hydra-70 rockets.





$175 from the Army for Stryker double-V-hull vehicles.





$35 from the Army for engineering and logistics support services for the Abrams family of vehicles.


Information Systems and Technology:





$455 from the Centers for Medicare & Medicaid Services for contact center services and cloud hosting support.





$110 from the Army for computing and communications equipment under the Common Hardware Systems-4 program.





$95 from the U.S. Department of State to provide supply chain management services.





$85 for work in support of the Trident II submarine weapons system.





$70 to deploy, operate and maintain network infrastructure in support of Joint Service Provider customers.





$70 from the U.S. Naval Air Warfare Center for design, development and support of shipboard and airborne systems.





$60 from the Defense Intelligence Agency to provide computer network defense support, information assurance and enterprise communication services.





$60 from the Army to provide continued software support and engineering for the Warfighter Information Network-Tactical Increment 2 program.


Marine Systems:





$5.1 billion from the Navy to complete the design and prototype development of the lead Columbia-class submarine. This contract has a potential value of approximately $6.1 billion, which includes our estimate of materials to be provisioned on the contract.





$180 from the Navy to provide research and development and lead-yard services for Virginia-class submarines.





$85 from the Navy to provide design, engineering, material and logistics support, and research and development activities for active U.S. submarines.





$35 from the Navy to produce a large vertical array fixture for Navy submarine acoustic detection efforts. This contract has a potential value of approximately $400.





$35 from the Navy to maintain Littoral Combat Ships.





Full funding from the Navy for the planning and construction of two Arleigh Burke-class destroyers, DDG 126 and DDG 127.





EXHIBIT J


AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

















Third Quarter


Nine Months



2017


2016*


2017


2016*

Gulfstream Aircraft Deliveries (units):









Large-cabin aircraft



21



23



67



72

Mid-cabin aircraft



9



6



23



21

Total



30



29



90



93

Pre-owned Deliveries (units):



1



1



4



6


* Prior-period information has been restated for the adoption of ASC Topic 606, which we adopted on January 1, 2017.


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