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 Total Estimated Total Potential
Backlog Potential Contract
Contract Value (a) Value
------------------ -----
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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SOURCE General Dynamics
