General Dynamics Reports Third-Quarter 2018 Results
FALLS CHURCH, Va., Oct. 24, 2018 /PRNewswire/ --
-- Revenue up 20% year-over-year to $9.1 billion -- Earnings from continuing operations up 13.1% to $864 million -- Diluted EPS from continuing operations up 14.7% year-over-year to $2.89
General Dynamics (NYSE: GD) today reported third-quarter 2018 earnings from continuing operations of $864 million, a 13.1 percent increase over third-quarter 2017. Revenue increased 20 percent to $9.1 billion. While a large portion of the growth was attributed to the acquisition of CSRA, revenue in all segments grew.
Diluted earnings per share (EPS) from continuing operations were $2.89 compared to $2.52 in the year-ago quarter, a 14.7 percent increase.
"We took action this quarter to streamline our portfolio, drive out risk from our supply chain and deliver increasingly sophisticated products and services to our customers in an efficient and timely manner," said Phebe Novakovic, chairman and chief executive officer. "We remain committed to generating steady and sustainable results from our businesses."
Significant activities this quarter included the delivery of the Virginia-class submarine SSN 790 (future USS South Dakota), the keel-laying of the first John Lewis-class fleet replenishment oiler and the continued integration of CSRA.
Margin
Company-wide operating margin for the third quarter of 2018 was 12.5 percent, a 70 basis-point increase over second-quarter 2018.
Cash
Net cash provided by operating activities in the quarter totaled $790 million, compared to $872 million in the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $622 million, after a $255 million discretionary pension plan contribution.
Capital Deployment
The company repurchased 450,000 of its outstanding shares in the third quarter of 2018. Year-to-date, the company has repurchased 2.5 million outstanding shares.
Backlog
The company's total backlog at the end of third-quarter 2018 was $69.5 billion, up 4.9 percent from second-quarter 2018. The estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $34.7 billion. Total potential contract value, the sum of all backlog components, was $104.2 billion at the end of the quarter, a new record.
Order activity was robust across the company with a 1.4-to-1 total book-to-bill ratio, defined as orders divided by revenue. Significant awards in the quarter included $3.9 billion from the U.S. Navy for the construction of four Arleigh Burke-class (DDG-51) guided-missile destroyers; $580 from the Navy for surface ship maintenance and modernization work; $480 from the Navy to continue design and development work for the Columbia-class submarine program; $210 from the Centers for Medicare & Medicaid Services for benefits recovery services, cloud hosting and IT support; $170 from the Navy for combat and seaframe control systems for Littoral Combat Ships; and $150 from the U.S. Army for equipment to support the Army's mobile communications network. In addition, the Army awarded a $3.9 billion maximum-potential-value IDIQ contract for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.
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 third-quarter 2018 financial results conference call at 9 a.m. EDT on Wednesday, October 24, 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 October 24 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 10125284. The phone replay will be available through October 31, 2018.
EXHIBIT A CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED) DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS Three Months Ended Variance September 30, 2018 October 1, 2017* $ % --- Revenue $ 9,094 $ 7,580 $ 1,514 20.0 % Operating costs and expenses (7,959) (6,517) (1,442) Operating earnings 1,135 1,063 72 6.8 % Interest, net (114) (27) (87) Other, net 2 (9) 11 Earnings from continuing operations before income tax 1,023 1,027 (4) (0.4) % Provision for income tax, net (159) (263) 104 Earnings from continuing operations 864 764 100 13.1 % Discontinued operations, net of tax (13) (13) Net earnings $ 851 $ 764 $ 87 11.4 % Earnings per share-basic Continuing operations $ 2.92 $ 2.56 $ 0.36 14.1 % Discontinued operations (0.04) (0.04) Net earnings $ 2.88 $ 2.56 $ 0.32 12.5 % Basic weighted average shares outstanding 295.3 298.1 Earnings per share-diluted Continuing operations $ 2.89 $ 2.52 $ 0.37 14.7 % Discontinued operations (0.04) (0.04) Net earnings $ 2.85 $ 2.52 $ 0.33 13.1 % Diluted weighted average shares outstanding 299.1 303.8
* 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 Nine Months Ended Variance September 30, 2018 (a) October 1, 2017 (b) $ % --- Revenue $ 25,815 $ 22,696 $ 3,119 13.7 % Operating costs and expenses (22,584) (19,520) (3,064) Operating earnings 3,231 3,176 55 1.7 % Interest, net (244) (76) (168) Other, net (34) (31) (3) Earnings from continuing operations before income tax 2,953 3,069 (116) (3.8) % Provision for income tax, net (504) (793) 289 Earnings from continuing operations 2,449 2,276 173 7.6 % Discontinued operations, net of tax (13) (13) Net earnings $ 2,436 $ 2,276 $ 160 7.0 % Earnings per share-basic Continuing operations $ 8.27 $ 7.59 $ 0.68 9.0 % Discontinued operations (0.04) (0.04) Net earnings $ 8.23 $ 7.59 $ 0.64 8.4 % Basic weighted average shares outstanding 296.0 299.9 Earnings per share-diluted Continuing operations $ 8.16 $ 7.45 $ 0.71 9.5 % Discontinued operations (0.04) (0.04) Net earnings $ 8.12 $ 7.45 $ 0.67 9.0 % Diluted weighted average shares outstanding 300.1 305.5
(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 September 30, 2018 October 1, 2017* $ % --- Revenue: --- Aerospace $ 2,031 $ 1,995 $ 36 1.8 % Combat Systems 1,523 1,500 23 1.5 % Information Technology 2,307 1,068 1,239 116.0 % Mission Systems 1,230 1,086 144 13.3 % Marine Systems 2,003 1,931 72 3.7 % Total $ 9,094 $ 7,580 $ 1,514 20.0 % Operating earnings: --- Aerospace $ 376 $ 381 $ (5) (1.3) % Combat Systems 241 247 (6) (2.4) % Information Technology 157 101 56 55.4 % Mission Systems 179 152 27 17.8 % Marine Systems 169 179 (10) (5.6) % Corporate 13 3 10 333.3 % Total $ 1,135 $ 1,063 $ 72 6.8 % Operating margin: --- Aerospace 18.5 19.1 % % Combat Systems 15.8 16.5 % % Information Technology 6.8 9.5 % % Mission Systems 14.6 14.0 % % Marine Systems 8.4 9.3 % % Total 12.5 14.0 % %
* 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 Nine Months Ended Variance September 30, 2018 (a) October 1, 2017 (b) $ % --- Revenue: --- Aerospace $ 5,751 $ 6,147 $ (396) (6.4) % Combat Systems 4,497 4,201 296 7.0 % Information Technology 5,887 3,178 2,709 85.2 % Mission Systems 3,475 3,226 249 7.7 % Marine Systems 6,205 5,944 261 4.4 % Total $ 25,815 $ 22,696 $ 3,119 13.7 % Operating earnings: --- Aerospace $ 1,108 $ 1,241 $ (133) (10.7) % Combat Systems 701 677 24 3.5 % Information Technology 414 278 136 48.9 % Mission Systems 478 451 27 6.0 % Marine Systems 548 518 30 5.8 % Corporate (18) 11 (29) (263.6) % Total $ 3,231 $ 3,176 $ 55 1.7 % Operating margin: --- Aerospace 19.3 20.2 % % Combat Systems 15.6 16.1 % % Information Technology 7.0 % 8.7 % Mission Systems 13.8 14.0 % % Marine Systems 8.8 % 8.7 % 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) September 30, 2018 December 31, 2017 --- ASSETS Current assets: Cash and equivalents $ 1,010 $ 2,983 Accounts receivable 3,736 3,617 Unbilled receivables 7,564 5,240 Inventories 6,247 5,303 Other current assets 1,401 1,185 Total current assets 19,958 18,328 Noncurrent assets: Property, plant and equipment, net 4,244 3,517 Intangible assets, net 2,667 702 Goodwill 19,486 11,914 Other assets 608 585 Total noncurrent assets 27,005 16,718 Total assets $ 46,963 $ 35,046 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt and current portion of long-term debt $ 1,678 $ 2 Accounts payable 3,033 3,207 Customer advances and deposits 7,327 6,992 Other current liabilities 3,651 2,898 Total current liabilities 15,689 13,099 Noncurrent liabilities: Long-term debt 11,403 3,980 Other liabilities 7,116 6,532 Total noncurrent liabilities 18,519 10,512 Shareholders' equity: Common stock 482 482 Surplus 2,914 2,872 Retained earnings 28,691 26,444 Treasury stock (15,971) (15,543) Accumulated other comprehensive loss (3,361) (2,820) Total shareholders' equity 12,755 11,435 Total liabilities and shareholders' equity $ 46,963 $ 35,046
EXHIBIT F CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED) DOLLARS IN MILLIONS Nine Months Ended September 30, 2018 October 1, 2017 --- Cash flows from operating activities-continuing operations: Net earnings $ 2,436 $ 2,276 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 352 269 Amortization of intangible assets 190 57 Equity-based compensation expense 110 93 Deferred income tax (benefit) provision (66) 155 Discontinued operations, net of tax 13 (Increase) decrease in assets, net of effects of business acquisitions: Accounts receivable 472 26 Unbilled receivables (1,625) (1,361) Inventories (854) 57 Increase (decrease) in liabilities, net of effects of business acquisitions: Accounts payable (324) 167 Customer advances and deposits 112 (296) Income taxes payable 250 223 Other, net 15 216 Net cash provided by operating activities 1,081 1,882 Cash flows from investing activities: Business acquisitions, net of cash acquired (10,039) (364) Capital expenditures (447) (273) Other, net 169 52 Net cash used by investing activities (10,317) (585) Cash flows from financing activities: Proceeds from fixed-rate notes 6,461 985 Proceeds from (repayments of) commercial paper, net 1,668 (2) Proceeds from floating-rate notes 1,000 Dividends paid (801) (735) Purchases of common stock (533) (1,172) Repayment of CSRA accounts receivable purchase agreement (450) Other, net (68) 43 Net cash provided (used) by financing activities 7,277 (881) Net cash used by discontinued operations (14) (28) Net (decrease) increase in cash and equivalents (1,973) 388 Cash and equivalents at beginning of period 2,983 2,334 Cash and equivalents at end of period $ 1,010 $ 2,722
EXHIBIT G PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED) DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 2018 2017 Third Quarter Third Quarter Other Financial Information: --- Debt-to-equity (a) 102.6 42.2 % % Debt-to-capital (b) 50.6 29.7 % % Book value per share (c) $ 43.07 $ 38.73 Income tax payments, net $ 150 $ 70 Company-sponsored research and development (d) $ 126 $ 120 Shares outstanding 296,149,755 298,582,883 Non-GAAP Financial Measure: --- 2018 2017 Third Quarter Nine Months Third Quarter Nine Months Free cash flow from operations: Net cash provided by operating activities $ 790 $ 1,081 $ 872 $ 1,882 Capital expenditures (168) (447) (120) (273) Free cash flow from operations (e) $ 622 $ 634 $ 752 $ 1,609
(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 Estimated Total Potential Backlog Potential Contract Contract Value* Value Third Quarter 2018: --- Aerospace $ 11,696 $ 173 $ 11,869 $ 2,239 $ 14,108 Combat Systems 15,865 395 16,260 3,857 20,117 Information Technology 5,222 4,731 9,953 17,365 27,318 Mission Systems 5,024 587 5,611 7,453 13,064 Marine Systems 16,615 9,221 25,836 3,797 29,633 Total $ 54,422 $ 15,107 $ 69,529 $ 34,711 $ 104,240 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 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 Technology 2,425 1,705 4,130 9,641 13,771 Mission Systems 4,684 708 5,392 4,743 10,135 Marine Systems 16,791 8,247 25,038 4,826 29,864 Total $ 52,689 $ 11,240 $ 63,929 $ 25,726 $ 89,655
* 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
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EXHIBIT H-2
BACKLOG AND ESTIMATED CONTRACT VALUE BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
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EXHIBIT I THIRD QUARTER 2018 SIGNIFICANT ORDERS -(UNAUDITED) DOLLARS IN MILLIONS We received the following significant contract awards during the third quarter of 2018: Combat Systems: --- -- $160 from the U.S. Army for munitions and ordnance, including Hydra-70 rockets. -- $85 from the U.S. Air Force for various rounds of medium-caliber ammunition. -- $55 to integrate a Mission Equipment Package onto Stryker vehicles to provide short range air defense capabilities. -- $30 from the U.S. Defense Logistics Agency to provide spare parts for Abrams main battle tanks. -- $30 to produce Patriot Advanced Capability-3 (PAC-3) guided-missile system motor cases. Information Technology: --- -- $330 from the U.S. Census Bureau to provide contact-center systems and operations support for the 2020 Census Questionnaire Assistance program. -- $210 from the Centers for Medicare & Medicaid Services for benefits recovery services, cloud hosting and IT support. -- $100 to provide logistics, sustainment and maintenance support services for the U.S. Army's worldwide command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) systems. -- $95 from the U.S. Department of State to provide visa application and issuance support services to U.S. embassies and consulates worldwide. -- $95 from the U.S. Naval Air Warfare Center for design, development and support of shipboard and airborne platforms. -- $90 from the U.S. Federal Emergency Management Agency (FEMA) for contact-center operations and support services. Mission Systems: --- -- $170 from the U.S. Navy for combat and seaframe control systems on Independence-variant Littoral Combat Ships (LCS). -- $150 for additional equipment to support the U.S. Army's mobile communications network. -- $100 from the Army for computing and communications equipment under the Common Hardware Systems-4 (CHS-4) program. -- $75 from the Canadian Department of National Defence to modernize and provide in-service support for the underwater warfare sensor suite installed on Halifax-class frigates. -- $75 to rebuild and repair MK6 missile guidance systems and produce MK6 circuit card assemblies for the Navy. -- An IDIQ contract from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program. The program has a maximum potential value of $3.9 billion over five years. Marine Systems: --- -- $3.9 billion from the U.S. Navy for the construction of four Arleigh Burke-class (DDG-51) guided-missile destroyers. -- $580 from the Navy for surface ship maintenance and modernization work. -- $480 from the Navy to continue design and development work in support of the Columbia-class submarine program. -- $55 from the Navy for the procurement and management of spare parts and equipment for the Zumwalt-class (DDG-1000) guided-missile destroyer program.
EXHIBIT J AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED) Third Quarter Nine Months 2018 2017 2018 2017 Gulfstream Aircraft Deliveries (units): --- Large-cabin aircraft 21 21 58 67 Mid-cabin aircraft 6 9 21 23 Total 27 30 79 90 Pre-owned Aircraft Deliveries (units): 2 1 4 4 ---
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SOURCE General Dynamics