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General Dynamics Reports Second-Quarter 2018 Results

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General Dynamics Reports Second-Quarter 2018 Results

PR Newswire

FALLS CHURCH, Va., July 25, 2018 /PRNewswire/ --

  • Revenue up 19.7% to $9.2 billion
  • Net earnings up 4.9% to $786 million
  • Diluted EPS up 6.9% to $2.62, including $0.20 charge for CSRA transaction costs
  • Robust demand drives Gulfstream to a book-to-bill greater than one-to-one

General Dynamics (NYSE:GD) today reported second-quarter 2018 net earnings of $786 million, a 4.9 percent increase over second-quarter 2017. Revenue increased by 19.7 percent to $9.2 billion due to strong defense volumes and the acquisition of CSRA. On an organic basis, the defense businesses generated a 7.1 percent revenue increase.

Diluted earnings per share (EPS) was $2.62 compared to $2.45 in the year-ago quarter, a 6.9 percent increase. In the quarter, the company incurred one-time charges totaling $0.20 per share related to the acquisition of CSRA. Absent the charge, EPS would have been 15.1 percent higher than second-quarter 2017.

"General Dynamics delivered solid operating results and accomplished a number of key strategic objectives across the portfolio," said Phebe N. Novakovic, chairman and chief executive officer. "We closed on the CSRA acquisition, building on our core GDIT business to create a leading government IT services provider, and integration of the business is well underway. Our Combat and Marine segments continue to have reliable growth with strong operating performance. And the FAA certified the G500 and we look forward to delivering this newest Gulfstream aircraft to our customers in fourth-quarter 2018."

Margin
Company-wide operating margin for the second quarter of 2018 was 11.8 percent, including one-time transaction costs and incremental intangible asset amortization associated with the CSRA acquisition. This is compared to 13.9 percent in second-quarter 2017.

Cash
Net cash provided by operating activities in the quarter totaled $787 million, compared to $477 million from the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $612 million.

Capital Deployment
The company repurchased 0.9 million of its outstanding shares for $179 million in the second quarter. Year-to-date, the company has repurchased 2.1 million outstanding shares for $436 million

Backlog
General Dynamics' total backlog at the end of second-quarter 2018 was $66.3 billion. The estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $32.7 billion. Total potential contract value, the sum of all backlog components, was $99 billion at the end of the quarter.

Gulfstream unit orders were 21 percent higher than the year-ago quarter, with large-cabin orders accounting for approximately 75 percent of the demand.

Total backlog for the defense businesses was up 7.7 percent from the end of first-quarter 2018, due to the CSRA acquisition and strong order activity across the segments. On an organic basis, Information Technology achieved a book-to-bill ratio greater than one-to-one, and the book-to-bill ratio in Mission Systems was one-to-one. Significant awards in the quarter include $615 million from the Centers for Medicare & Medicaid Services for contact-center services, $440 million from the U.S. Army to upgrade Abrams main battle tanks, $260 million from the Army to upgrade Stryker vehicles, $225 million from the U.S. Navy for Block V Virginia-class submarines, $150 million from the Army for the production of Hydra-70 rockets and $125 million from the Navy for Common Missile Compartment work.

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; IT services; C4ISR solutions; and shipbuilding and ship repair. The company's 2017 revenue was $31 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 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 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 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 second-quarter 2018 financial results conference call at 9 a.m. EDT on Wednesday, July 25, 2018. 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 July 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 10121441. The phone replay will be available from July 25 through August 1, 2018.

 

 

 

EXHIBIT A


CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS


















Three Months Ended


Variance


July 1, 2018 (a)


July 2, 2017 (b)


$


%

Revenue

$

9,186



$

7,675



$

1,511



19.7

%

Operating costs and expenses

(8,098)



(6,608)



(1,490)




Operating earnings

1,088



1,067



21



2.0

%

Interest, net

(103)



(24)



(79)




Other, net

(15)



(11)



(4)




Earnings before income tax

970



1,032



(62)



(6.0)

%

Provision for income tax, net

(184)



(283)



99




Net earnings

$

786



$

749



$

37



4.9

%

Earnings per share—basic

$

2.65



$

2.50



$

0.15



6.0

%

Basic weighted average shares outstanding

296.2



299.8








Earnings per share—diluted

$

2.62



$

2.45



$

0.17



6.9

%

Diluted weighted average shares outstanding

300.1



305.3








(a)

2018 results include the unfavorable impact of one-time charges of approximately $70 associated with costs to complete the acquisition of CSRA Inc. In the table above, approximately $45 of compensation-related costs was reported in operating costs and expenses, and approximately $25 of transaction costs was reported in other, net.

(b)

Prior-period information has been restated for the adoption of Accounting Standards Update (ASU) 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which we adopted on January 1, 2018.

 

 

 

EXHIBIT B


CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS


















Six Months Ended


Variance


July 1, 2018 (a)


July 2, 2017 (b)


$


%

Revenue

$

16,721



$

15,116



$

1,605



10.6

%

Operating costs and expenses

(14,625)



(13,003)



(1,622)




Operating earnings

2,096



2,113



(17)



(0.8)

%

Interest, net

(130)



(49)



(81)




Other, net

(36)



(22)



(14)




Earnings before income tax

1,930



2,042



(112)



(5.5)

%

Provision for income tax, net

(345)



(530)



185




Net earnings

$

1,585



$

1,512



$

73



4.8

%

Earnings per share—basic

$

5.35



$

5.03



$

0.32



6.4

%

Basic weighted average shares outstanding

296.3



300.8






Earnings per share—diluted

$

5.27



$

4.94



$

0.33



6.7

%

Diluted weighted average shares outstanding

300.6



306.3








(a)

2018 results include the unfavorable impact of one-time charges of approximately $75 associated with costs to complete the acquisition of CSRA Inc. In the table above, approximately $45 of compensation-related costs was reported in operating costs and expenses, and approximately $30 of transaction costs was reported in other, net.

(b)

Prior-period information has been restated for the adoption of ASU 2017-07, which we adopted on January 1, 2018.

 

 

 

EXHIBIT C


REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS


















Three Months Ended


Variance


July 1, 2018 (a)


July 2, 2017 (b)


$


%

Revenue:








Aerospace

$

1,895



$

2,078



$

(183)



(8.8)

%

Combat Systems

1,534



1,414



120



8.5

%

Information Technology

2,442



1,052



1,390



132.1

%

Mission Systems

1,147



1,052



95



9.0

%

Marine Systems

2,168



2,079



89



4.3

%

Total

$

9,186



$

7,675



$

1,511



19.7

%

Operating earnings:








Aerospace

$

386



$

421



$

(35)



(8.3)

%

Combat Systems

236



225



11



4.9

%

Information Technology

156



87



69



79.3

%

Mission Systems

153



153





%

Marine Systems

195



178



17



9.6

%

Corporate

(38)



3



(41)



(1,366.7)

%

Total

$

1,088



$

1,067



$

21



2.0

%

Operating margin:








Aerospace

20.4

%


20.3

%





Combat Systems

15.4

%


15.9

%





Information Technology

6.4

%


8.3

%





Mission Systems

13.3

%


14.5

%





Marine Systems

9.0

%


8.6

%





Total

11.8

%


13.9

%







(a)

2018 results include the unfavorable impact of approximately $45 of compensation-related one-time charges associated with costs to complete the acquisition of CSRA Inc. This amount was reported as a reduction of Corporate operating earnings in the table above.

(b)

Prior-period information has been restated for the adoption of ASU 2017-07, which we adopted on January 1, 2018.

 

 

 

EXHIBIT D


REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS


















Six Months Ended


Variance


July 1, 2018 (a)


July 2, 2017 (b)


$


%

Revenue:








Aerospace

$

3,720



$

4,152



$

(432)



(10.4)

%

Combat Systems

2,974



2,701



273



10.1

%

Information Technology

3,580



2,110



1,470



69.7

%

Mission Systems

2,245



2,140



105



4.9

%

Marine Systems

4,202



4,013



189



4.7

%

Total

$

16,721



$

15,116



$

1,605



10.6

%

Operating earnings:








Aerospace

$

732



$

860



$

(128)



(14.9)

%

Combat Systems

460



430



30



7.0

%

Information Technology

257



177



80



45.2

%

Mission Systems

299



299





%

Marine Systems

379



339



40



11.8

%

Corporate

(31)



8



(39)



(487.5)

%

Total

$

2,096



$

2,113



$

(17)



(0.8)

%

Operating margin:








Aerospace

19.7

%


20.7

%





Combat Systems

15.5

%


15.9

%





Information Technology

7.2

%


8.4

%





Mission Systems

13.3

%


14.0

%





Marine Systems

9.0

%


8.4

%





Total

12.5

%


14.0

%







(a)

2018 results include the unfavorable impact of approximately $45 of compensation-related one-time charges associated with costs to complete the acquisition of CSRA Inc. This amount was reported as a reduction of Corporate operating earnings in the table above.

(b)

Prior-period information has been restated for the adoption of ASU 2017-07, which we adopted on January 1, 2018.

 

 

 

EXHIBIT E


CONSOLIDATED BALANCE SHEET

DOLLARS IN MILLIONS











(Unaudited)




July 1, 2018


December 31, 2017

ASSETS




Current assets:




Cash and equivalents

$

1,862



$

2,983


Accounts receivable

3,874



3,617


Unbilled receivables

7,125



5,240


Inventories

5,890



5,303


Other current assets

1,076



1,185


Total current assets

19,827



18,328


Noncurrent assets:




Property, plant and equipment, net

4,179



3,517


Intangible assets, net

2,738



702


Goodwill

19,738



11,914


Other assets

670



585


Total noncurrent assets

27,325



16,718


Total assets

$

47,152



$

35,046


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




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

$

2,881



$

2


Accounts payable

3,032



3,207


Customer advances and deposits

7,219



6,992


Other current liabilities

3,441



2,898


Total current liabilities

16,573



13,099


Noncurrent liabilities:




Long-term debt

11,397



3,980


Other liabilities

7,188



6,532


Total noncurrent liabilities

18,585



10,512


Shareholders' equity:




Common stock

482



482


Surplus

2,865



2,872


Retained earnings

28,115



26,444


Treasury stock

(15,910)



(15,543)


Accumulated other comprehensive loss

(3,558)



(2,820)


Total shareholders' equity

11,994



11,435


Total liabilities and shareholders' equity

$

47,152



$

35,046


 

 

 

EXHIBIT F


CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS











Six Months Ended


July 1, 2018


July 2, 2017

Cash flows from operating activities—continuing operations:




Net earnings

$

1,585



$

1,512


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




Depreciation of property, plant and equipment

223



182


Amortization of intangible assets

104



38


Equity-based compensation expense

71



52


Deferred income tax provision

(6)



93


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




Accounts receivable

344



(291)


Unbilled receivables

(1,030)



(815)


Inventories

(542)



(14)


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




Accounts payable

(324)



82


Customer advances and deposits

(159)



(29)


Other, net

25



200


Net cash provided by operating activities

291



1,010


Cash flows from investing activities:




Business acquisitions, net of cash acquired

(10,039)



(89)


Capital expenditures

(279)



(153)


Other, net

74



47


Net cash used by investing activities

(10,244)



(195)


Cash flows from financing activities:




Proceeds from fixed-rate notes

6,461




Proceeds from commercial paper, net

2,786



(1)


Proceeds from floating-rate notes

1,000




Dividends paid

(526)



(483)


Repayment of CSRA accounts receivable purchase agreement

(450)




Purchases of common stock

(436)



(901)


Other, net

3



109


Net cash provided (used) by financing activities

8,838



(1,276)


Net cash used by discontinued operations

(6)



(17)


Net decrease in cash and equivalents

(1,121)



(478)


Cash and equivalents at beginning of period

2,983



2,334


Cash and equivalents at end of period

$

1,862



$

1,856


 

 

 

EXHIBIT G


PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS





















2018




2017





Second Quarter




Second Quarter



Other Financial Information:









Debt-to-equity (a)


119.0

%




36.3

%



Debt-to-capital (b)


54.3

%




26.6

%



Book value per share (c)


$

40.48





$

36.57




Income tax payments, net


$

159





$

332




Company-sponsored research and development (d)


$

90





$

134




Shares outstanding


296,281,432





299,461,802













Non-GAAP Financial Measure:











2018


2017



Second Quarter


Six Months


Second Quarter


Six Months

Free cash flow from operations:









Net cash provided by operating activities


$

787



$

291



$

477



$

1,010


Capital expenditures


(175)



(279)



(91)



(153)


Free cash flow from operations (e)


$

612



$

12



$

386



$

857




(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)

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 Potential
Contract
Value

Second Quarter 2018:











Aerospace


$

12,187



$

157



$

12,344



$

2,282



$

14,626


Combat Systems


16,646



376



17,022



2,840



19,862


Information Technology


4,633



4,576



9,209



18,931



28,140


Mission Systems


4,636



645



5,281



4,287



9,568


Marine Systems


17,310



5,124



22,434



4,333



26,767


Total


$

55,412



$

10,878



$

66,290



$

32,673



$

98,963


First Quarter 2018:











Aerospace


$

11,898



$

158



$

12,056



$

1,868



$

13,924


Combat Systems


17,126



378



17,504



3,549



21,053


Information Technology


2,190



1,275



3,465



11,367



14,832


Mission Systems


4,549



800



5,349



4,420



9,769


Marine Systems


18,310



5,458



23,768



4,271



28,039


Total


$

54,073



$

8,069



$

62,142



$

25,475



$

87,617


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 Technology


2,200



1,442



3,642



9,541



13,183


Mission Systems


4,609



643



5,252



4,848



10,100


Marine Systems


16,033



4,374



20,407



3,282



23,689


Total


$

51,707



$

6,860



$

58,567



$

24,427



$

82,994




*

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 aircraft services agreements. 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 AND ESTIMATED CONTRACT VALUE - (UNAUDITED)
DOLLARS IN MILLIONS

EXHIBIT H-1

Photo - https://mma.prnewswire.com/media/722317/EXHIBIT_H_1.jpg

 

 

EXHIBIT H-2

BACKLOG AND ESTIMATED CONTRACT VALUE BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS

EXHIBIT H-2

Photo - https://mma.prnewswire.com/media/722318/EXHIBIT_H_2.jpg

 

 

EXHIBIT I


SECOND QUARTER 2018 SIGNIFICANT ORDERS - (UNAUDITED)

DOLLARS IN MILLIONS



We received the following significant contract awards during the second quarter of 2018:


Combat Systems:



$440 from the U.S. Army to upgrade Abrams tanks to the M1A2 System Enhancement Package Version 3 configuration.



$260 from the Army to upgrade Stryker flat-bottom vehicles to the Stryker A1 configuration.



$150 from the Army for the production of Hydra-70 rockets.



$35 for the production of Army Ground Mobility Vehicles (AGMVs) and associated kits.



$25 from the Army for munitions demilitarization.


Information Technology:



$615 from the Centers for Medicare & Medicaid Services for contact-center services.



$375 from the New York State Department of Health to provide engineering and technical improvements to the state's health benefits exchange.



$125 from the U.S. Department of State to provide supply chain management services.



$85 to provide IT hardware, software, and network and communications support services to the U.S. European Command (USEUCOM) and U.S. Africa Command (USAFRICOM).



$45 to provide support for live and virtual operations under the Warfighter Field Operations Customer Support (FOCUS) program.


Mission Systems:



$85 from the U.S. Army for computing and communications equipment under the Common Hardware Systems-4 program.



$60 to provide program management and engineering, technical, and logistics support for the Army's mobile communications network.



$45 to support the engineering and manufacturing of the Navy's Air and Missile Defense Radar (AMDR) program.



$40 from the U.S. Coast Guard to provide system sustainment support for the Rescue 21 program.



$30 from the U.S. Air Force for the Battlefield Information Collection and Exploitation System (BICES) program to provide information sharing support to coalition operations.


Marine Systems:



$225 from the U.S. Navy for long-lead materials for Block V Virginia-class submarines.



$125 from the Navy to support the Common Missile Compartment work under joint development for the U.S. Navy and the U.K. Royal Navy.



$100 from the Navy for Advanced Nuclear Plant Studies in support of the Columbia-class submarine program.



$55 from the Navy to provide ongoing lead yard services for the DDG-51 destroyer program. The contract has a potential value of approximately $305.



$40 from the Navy for planning yard services for the DDG-51 destroyer and FFG-7 frigate programs.



$40 from the Navy to provide maintenance for submarines at Naval Submarine Base New London in Connecticut.



 

 

EXHIBIT J


AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

















Second Quarter


Six Months



2018


2017


2018


2017

Gulfstream Aircraft Deliveries (units):









Large-cabin aircraft


18



23



37



46


Mid-cabin aircraft


8



7



15



14


Total


26



30



52



60


Pre-owned Aircraft Deliveries (units):


1



2



2



3


 

 

 

EXHIBIT K


INFORMATION TECHNOLOGY AND MISSION SYSTEMS HISTORICAL DATA - (UNAUDITED)

DOLLARS IN MILLIONS































2016


2017


2018


Full Year


1Q


2Q


3Q


4Q


Full Year


1Q

Revenue:














Information Technology

$

4,428



$

1,058



$

1,052



$

1,068



$

1,232



$

4,410



$

1,138


Mission Systems

4,716



1,088



1,052



1,086



1,255



4,481



1,098


Operating earnings:














Information Technology

$

340



$

90



$

87



$

101



$

95



$

373



$

101


Mission Systems

601



146



153



152



187



638



146


Operating margin:














Information Technology

7.7

%


8.5

%


8.3

%


9.5

%


7.7

%


8.5

%


8.9

%

Mission Systems

12.7

%


13.4

%


14.5

%


14.0

%


14.9

%


14.2

%


13.3

%

 

 

 

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

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SOURCE General Dynamics

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