General Dynamics Reports Third-Quarter 2019 Results
RESTON, Va., Oct. 23, 2019 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported third-quarter 2019 revenue of $9.8 billion, operating earnings of $1.2 billion, net earnings from continuing operations of $913 million and diluted earnings per share from continuing operations of $3.14, up 25 cents from the year-ago quarter.
"Margins advanced nicely in the quarter due to Gulfstream's continuing ability to efficiently transition its production to new models, coupled with solid operating performance at the defense businesses," said Phebe N. Novakovic, chairman and chief executive officer. "Our continued focus on operating excellence and driving cost efficiencies, coupled with new business opportunities, should enable us to build on these results."
Operating performance
Operating margin was 12.5 percent in the quarter, up 110 basis points sequentially. Customer deliveries of the Gulfstream G600 began in August, less than two months after receiving FAA type and production certificates.
Cash
Net cash provided by operating activities in the quarter totaled $1.1 billion. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $847 million.
Capital deployment
The company paid $295 million in dividends and repaid approximately $450 million of its outstanding commercial paper in the third quarter. Capital expenditures totaled $244 million, up $76 million from the year-ago quarter, driven by continued strategic investments in Marine Systems.
Backlog
Total backlog at the end of third-quarter 2019 was $67.4 billion. Estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $35.6 billion. Total estimated contract value, the sum of all backlog components, was $103 billion.
Orders
Order activity remained strong across the aerospace and defense portfolios, with a book-to-bill of 1-to-1 on 7.3 percent year-over-year revenue growth. Significant awards in the defense portfolios in the quarter included $1.3 billion from the Canadian government for production of armored combat support vehicles; $1.1 billion from the U.S. Navy for design and construction of two Expeditionary Sea Base auxiliary support ships and a $550 million option for an additional ship; $390 million from the Navy for Advanced Nuclear Plant Studies in support of the Columbia-class submarine program; $155 million from the U.S. Army for various munitions and ordnance; $325 million to provide program management and engineering services to the Cybersecurity and Infrastructure Security Agency's emergency communications infrastructure; and $265 million from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.
About General Dynamics
Headquartered in Reston, 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. General Dynamics employs more than 100,000 people worldwide and generated $36.2 billion in revenue in 2018. More information is available at www.gd.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 2019 financial results conference call at 9 a.m. EDT on Wednesday, October 23, 2019. The webcast will be a listen-only audio event available at www.gd.com. An on-demand replay of the webcast will be available one hour after the end of the call and end on October 30. To hear a recording of the conference call by telephone, please call 1-877-344-7529 (international: 1-412-317-0088) passcode 10135319. Charts furnished to investors and securities analysts in connection with General Dynamics' announcement of its financial results for third-quarter 2019 are available at www.gd.com.
EXHIBIT A
CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Three Months Ended
Variance
September 29, 2019 September 30, 2018
$ %
Revenue $
9,761 $
9,094 $
667 7.3
%
Operating costs and expenses (8,545) (7,959) (586)
Operating earnings 1,216 1,135 81 7.1
%
Interest, net (114) (114)
Other, net (12) 2 (14)
Earnings from continuing operations before income tax 1,090 1,023 67 6.5
%
Provision for income tax, net (177) (159) (18)
Earnings from continuing operations 913 864 49 5.7
%
Discontinued operations, net of tax (13) 13
Net earnings $
913 $
851 $
62 7.3
%
Earnings per share-basic
Continuing operations $
3.17 $
2.92 $
0.25 8.6
%
Discontinued operations (0.04) 0.04
Net earnings $
3.17 $
2.88 $
0.29 10.1
%
Basic weighted average shares outstanding 288.4 295.3
Earnings per share-diluted
Continuing operations $
3.14 $
2.89 $
0.25 8.7
%
Discontinued operations (0.04) 0.04
Net earnings $
3.14 $
2.85 $
0.29 10.2
%
Diluted weighted average shares outstanding 290.9 299.1
EXHIBIT B
CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Nine Months Ended
Variance
September 29, 2019 September 30, 2018*
$ %
Revenue $
28,577 $
25,815 $
2,762 10.7
%
Operating costs and expenses (25,257) (22,584) (2,673)
Operating earnings 3,320 3,231 89 2.8
%
Interest, net (350) (244) (106)
Other, net 18 (34) 52
Earnings from continuing operations before income tax 2,988 2,953 35 1.2
%
Provision for income tax, net (524) (504) (20)
Earnings from continuing operations 2,464 2,449 15 0.6
%
Discontinued operations, net of tax - (13) 13
Net earnings $
2,464 $
2,436 $
28 1.1
%
Earnings per share-basic
Continuing operations $
8.55 $
8.27 $
0.28 3.4
%
Discontinued operations - (0.04) 0.04
Net earnings $
8.55 $
8.23 $
0.32 3.9
%
Basic weighted average shares outstanding 288.1 296.0
Earnings per share-diluted
Continuing operations $
8.47 $
8.16 $
0.31 3.8
%
Discontinued operations - (0.04) 0.04
Net earnings $
8.47 $
8.12 $
0.35 4.3
%
Diluted weighted average shares outstanding 290.8 300.1
* 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.
EXHIBIT C
REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
Three Months Ended
Variance
September 29, 2019 September 30, 2018
$ %
Revenue:
---
Aerospace $
2,495 $
2,031 $
464 22.8
%
Combat Systems 1,740 1,523 217 14.2
%
Information Technology 2,071 2,307 (236) (10.2)
%
Mission Systems 1,220 1,230 (10) (0.8)
%
Marine Systems 2,235 2,003 232 11.6
%
Total $
9,761 $
9,094 $
667 7.3
%
Operating earnings:
---
Aerospace $
393 $
376 $
17 4.5
%
Combat Systems 264 241 23 9.5
%
Information Technology 146 157 (11) (7.0)
%
Mission Systems 185 179 6 3.4
%
Marine Systems 209 169 40 23.7
%
Corporate 19 13 6 46.2
%
Total $
1,216 $
1,135 $
81 7.1
%
Operating margin:
---
Aerospace 15.8
% 18.5
%
Combat Systems 15.2
% 15.8
%
Information Technology 7.0
% 6.8
%
Mission Systems 15.2
% 14.6
%
Marine Systems 9.4
% 8.4
%
Total 12.5
% 12.5
%
EXHIBIT D
REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
Nine Months Ended
Variance
September 29, 2019 September 30, 2018*
$ %
Revenue:
---
Aerospace $
6,871 $
5,751 $
1,120 19.5
%
Combat Systems 5,035 4,497 538 12.0
%
Information Technology 6,398 5,887 511 8.7
%
Mission Systems 3,655 3,475 180 5.2
%
Marine Systems 6,618 6,205 413 6.7
%
Total $
28,577 $
25,815 $
2,762 10.7
%
Operating earnings:
---
Aerospace $
1,052 $
1,108 $
(56) (5.1)
%
Combat Systems 712 701 11 1.6
%
Information Technology 456 414 42 10.1
%
Mission Systems 495 478 17 3.6
%
Marine Systems 586 548 38 6.9
%
Corporate 19 (18) 37 205.6
%
Total $
3,320 $
3,231 $
89 2.8
%
Operating margin:
---
Aerospace 15.3
% 19.3
%
Combat Systems 14.1
% 15.6
%
Information Technology 7.1
% 7.0
%
Mission Systems 13.5
% 13.8
%
Marine Systems 8.9
% 8.8
%
Total 11.6
% 12.5
%
* 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.
EXHIBIT E
CONSOLIDATED BALANCE SHEET
DOLLARS IN MILLIONS
(Unaudited)
September 29, 2019 December 31, 2018
ASSETS
Current assets:
Cash and equivalents $
974 $
963
Accounts receivable 3,489 3,759
Unbilled receivables 8,077 6,576
Inventories 6,573 5,977
Other current assets 1,038 914
Total current assets 20,151 18,189
Noncurrent assets:
Property, plant and equipment, net 4,217 3,978
Intangible assets, net 2,376 2,585
Goodwill 19,617 19,594
Other assets 2,427 1,062
Total noncurrent assets 28,637 27,219
Total assets $
48,788 $
45,408
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $
4,661 $
973
Accounts payable 2,999 3,179
Customer advances and deposits 6,854 7,270
Other current liabilities 3,713 3,317
Total current liabilities 18,227 14,739
Noncurrent liabilities:
Long-term debt 8,989 11,444
Other liabilities 8,059 7,493
Total noncurrent liabilities 17,048 18,937
Shareholders' equity:
Common stock 482 482
Surplus 2,999 2,946
Retained earnings 30,909 29,326
Treasury stock (17,346) (17,244)
Accumulated other comprehensive loss (3,531) (3,778)
Total shareholders' equity 13,513 11,732
Total liabilities and shareholders' equity $
48,788 $
45,408
EXHIBIT F
CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)
DOLLARS IN MILLIONS
Nine Months Ended
September 29, 2019 September 30, 2018
Cash flows from operating activities-continuing operations:
Net earnings $
2,464 $
2,436
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation of property, plant and equipment 352 315
Amortization of intangible and finance lease right-of-use assets 273 227
Equity-based compensation expense 103 110
Deferred income tax benefit (72) (66)
Discontinued operations, net of tax - 13
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable 253 472
Unbilled receivables (1,603) (1,625)
Inventories (646) (854)
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable (164) (324)
Customer advances and deposits (565) 112
Other, net 192 265
Net cash provided by operating activities 587 1,081
Cash flows from investing activities:
Capital expenditures (606) (447)
Business acquisitions, net of cash acquired (19) (10,039)
Other, net 21 169
Net cash used by investing activities (604) (10,317)
Cash flows from financing activities:
Proceeds from commercial paper, net 947 1,668
Dividends paid (858) (801)
Purchases of common stock (231) (533)
Proceeds from fixed-rate notes - 6,461
Proceeds from floating-rate notes - 1,000
Repayment of CSRA accounts receivable purchase agreement - (450)
Other, net 207 (68)
Net cash provided by financing activities 65 7,277
Net cash used by discontinued operations (37) (14)
Net increase (decrease) in cash and equivalents 11 (1,973)
Cash and equivalents at beginning of period 963 2,983
Cash and equivalents at end of period $
974 $
1,010
===
EXHIBIT G
PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Other Financial Information:
---
September 29, 2019 December 31, 2018
Debt-to-equity (a) 101.0 105.8
% %
Debt-to-capital (b) 50.3 51.4
% %
Book value per share (c) $
46.71 $
40.64
Shares outstanding 289,306,108 288,698,149
Third Quarter
Nine Months
2019 2018 2019 2018
Income tax payments, net $
90 $
150 $
487 $
305
Company-sponsored research and $
110 $
126 $
352 $
356
development (d)
Non-GAAP Financial Measures:
---
Third Quarter
Nine Months
2019 2018 2019 2018
Earnings before interest, taxes,
depreciation and amortization:
Earnings from continuing operations $
913 $
864 $
2,464 $
2,449
Interest, net 114 114 350 244
Provision for income tax, net 177 159 524 504
Depreciation of property, plant and 120 109 352 315
equipment
Amortization of intangible and 90 106 273 227
finance lease right-of-use assets
Earnings before interest, taxes, $
1,414 $
1,352 $
3,963 $
3,739
depreciation and amortization (e)
Free cash flow from operations:
Net cash provided by operating $
1,091 $
790 $
587 $
1,081
activities
Capital expenditures (244) (168) (606) (447)
Free cash flow from operations (f) $
847 $
622 $
(19) $
634
(a) Debt-to-equity ratio is
calculated as total debt divided
by total equity as of the end of
the period.
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
(b) 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 earnings before
interest, taxes, depreciation and
amortization (EBITDA) is a useful
measure for investors because it
provides another measure of our
profitability and our ability to
service our debt. We calculate
EBITDA by adding back interest,
taxes, depreciation and
amortization to earnings from
continuing operations. The most
directly comparable GAAP measure
to EBITDA is earnings from
continuing operations.
(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 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
Backlog Estimated
Potential Contract Value
Contract Value*
Third Quarter 2019:
---
Aerospace $
11,195 $
188 $
11,383 $
2,065 $
13,448
Combat Systems 15,069 449 15,518 4,255 19,773
Information Technology 4,782 4,381 9,163 18,063 27,226
Mission Systems 5,152 307 5,459 6,764 12,223
Marine Systems 17,801 8,072 25,873 4,497 30,370
Total $
53,999 $
13,397 $
67,396 $
35,644 $
103,040
Second Quarter 2019:
---
Aerospace $
11,932 $
213 $
12,145 $
2,079 $
14,224
Combat Systems 14,794 438 15,232 4,113 19,345
Information Technology 4,446 4,405 8,851 17,983 26,834
Mission Systems 4,925 258 5,183 6,847 12,030
Marine Systems 18,344 7,899 26,243 3,223 29,466
Total $
54,441 $
13,213 $
67,654 $
34,245 $
101,899
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
* 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 and other
agreements with existing
customers to purchase new
aircraft and aircraft
services. 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 - (UNAUDITED)
DOLLARS IN MILLIONS
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EXHIBIT H-2
BACKLOG BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
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EXHIBIT I
THIRD QUARTER 2019 SIGNIFICANT ORDERS - (UNAUDITED)
DOLLARS IN MILLIONS
We received the following significant contract awards during the third quarter of 2019:
Combat Systems:
-- $1.3 billion from the Canadian government to produce armored combat
support vehicles (ACSVs) and provide associated support services.
-- $155 from the U.S. Army for various munitions and ordnance.
-- $70 to produce gun systems for the F-35 Joint Strike Fighter.
-- $55 from the Army for various maintenance and enhancements at the Lima
Army Tank Plant in Lima, Ohio.
Information Technology:
-- An IDIQ contract to provide command, control, communications, computers,
intelligence, surveillance and reconnaissance (C4ISR) installation
services for the U.S. Navy. The program has a maximum potential value of
$2.5 billion among 6 awardees.
-- A contract to provide program management and engineering services to the
Cybersecurity and Infrastructure Security Agency's (CISA) emergency
communications infrastructure. The contract has a maximum potential
value of $325.
-- A contract from the U.S. Department of Veterans Affairs under the
Veterans Intake, Conversion and Communications Services (VICCS) program
to provide support and communication services to U.S. veterans. The
contract has a maximum potential value of $280.
-- $155 from the U.S. Department of State to provide business process
support services for the Bureau of Consular Affairs' Global Support
Strategy (GSS) program for visa services.
-- $125 to provide design, development, testing, installation, maintenance,
logistics support and modernization services for Navy airborne and
shipboard platforms.
-- $95 from the Centers for Medicare and Medicaid Services for several key
contracts, including support of the Medicare Secondary Payer (MSP)
program. These contracts have a maximum potential value of $220.
Mission Systems:
-- $265 from the Army for computing and communications equipment under the
Common Hardware Systems-5 program.
-- $95 from the Army to provide continued software support and engineering
for the Warfighter Information Network-Tactical (WIN-T) Increment 2
program.
-- $65 from the Navy to provide fire control system modifications for
ballistic-missile and guided-missile submarines.
-- $45 from the Navy to produce five Knifefish surface mine countermeasure
systems and associated support equipment.
-- $25 from the Army for the production of Prophet enhanced ground-based
signals intelligence and electronic warfare systems. The contract has a
maximum potential value of $295.
Marine Systems:
-- $1.1 billion from the Navy for design and construction of two
Expeditionary Sea Base (ESB) auxiliary support ships and an option
totaling approximately $550 for an additional ship.
-- $175 from the Navy to provide engineering, technical, design and
planning yard support services for operational strategic and attack
submarines. The program has a maximum potential value of $1 billion.
-- $390 from the Navy for Advanced Nuclear Plant Studies (ANPS) in support
of the Columbia-class submarine program.
-- $110 from the Navy to provide maintenance and repair services for the
USS Kearsarge, an amphibious assault ship.
EXHIBIT J
AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)
Third Quarter
Nine Months
2019 2018 2019 2018
Gulfstream Aircraft Deliveries (units):
---
Large-cabin aircraft 29 21 79 58
Mid-cabin aircraft 9 6 24 21
Total 38 27 103 79
Pre-owned Aircraft Deliveries (units): 4 2 9 4
---
Aerospace Book-to-Bill:
---
Orders* $
1,693 $
1,743 $
7,022 $
5,479
Revenue (excluding pre-owned aircraft sales) 2,404 1,962 6,735 5,672
Book-to-Bill Ratio 0.70x 0.89x 1.04x 0.97x
* Does not include customer
defaults, liquidated damages,
cancellations, foreign exchange
fluctuations and other backlog
adjustments.
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SOURCE General Dynamics
