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General Dynamics Reports Second-Quarter 2017 Results
[July 26, 2017]

General Dynamics Reports Second-Quarter 2017 Results


FALLS CHURCH, Va., July 26, 2017 /PRNewswire/ --

  • Operating earnings up 2.8% to $1.1 billion
  • Operating margin of 13.8%, a 60 basis-point improvement
  • Earnings from continuing operations up 4.9% to $749 million
  • Diluted earnings per share up 6.5% to $2.45

General Dynamics (NYSE: GD) today reported second-quarter 2017 diluted earnings per share (EPS) of $2.45 compared to $2.30 in the year-ago quarter, a 6.5 percent increase. Net earnings were $749 million, on revenue of $7.7 billion.

"General Dynamics' strong second quarter performance reflects our focus on operations and executing on our programs," said Phebe N. Novakovic, chairman and chief executive officer. "We are confident in our outlook for the future, built on a solid defense backlog and continued good order activity across the portfolio of Gulfstream business jets."

Margin
With three of the company's four business groups expanding margins over the year-ago period, company-wide operating margin for the second quarter of 2017 was 13.8 percent, a 60 basis-point increase when compared to 13.2 percent in second-quarter 2016.

Cash
Net cash provided by operating activities in the quarter totaled $477 million, up 21 percent from the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $386 million.

Capital Deployment
The company repurchased 2.7 million of its outstanding shares in the second quarter. Year-to-date, the company has repurchased 4.6 million outstanding shares. 

Backlog
General Dynamics' total backlog at the end of second-quarter 2017 was $58.6 billion. There was order activity across the Gulfstream product portfolio and strong demand for defense products, including another quarter of a book-to-bill ratio (orders divided by revenue) greater than one-to-one in the Information Systems and Technology group. The estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $24.4 billion. Total potential contract value, the sum of all backlog components, was $83 billion at the end of the quarter.

Guidance
The company is increasing its full-year EPS guidance from $9.50 - $9.55 to $9.70 - $9.75.

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 second-quarter 2017 financial results conference call at 9 a.m. EDT on Wednesday, July 26, 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 July 26 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 10110468. The phone replay will be available from July 26 through August 3, 2017.

 



EXHIBIT A


CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

















Three Months Ended


Variance


July 2, 2017


July 3, 2016*


$


%

Revenue

$

7,675



$

7,774



$

(99)



(1.3)

%

Operating costs and expenses

6,619



6,747



(128)




Operating earnings

1,056



1,027



29



2.8

%

Interest, net

(24)



(23)



(1)




Other, net



1



(1)




Earnings before income tax

1,032



1,005



27



2.7

%

Provision for income tax, net

283



291



(8)




Net earnings

$

749



$

714



$

35



4.9

%

Earnings per share—basic

$

2.50



$

2.35



$

0.15



6.4

%

Basic weighted average shares outstanding

299.8



304.5








Earnings per share—diluted

$

2.45



$

2.30



$

0.15



6.5

%

Diluted weighted average shares outstanding

305.3



310.2








* Prior-period information has been restated for the adoption of Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which we adopted in the second quarter of 2016, and 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

















Six Months Ended


Variance


July 2, 2017


July 3, 2016*


$


%

Revenue

$

15,116



$

15,250



$

(134)



(0.9)

%

Operating costs and expenses

13,025



13,299



(274)




Operating earnings

2,091



1,951



140



7.2

%

Interest, net

(49)



(45)



(4)




Other, net



11



(11)




Earnings from continuing operations before income tax

2,042



1,917



125



6.5

%

Provision for income tax, net

530



549



(19)




Earnings from continuing operations

1,512



1,368



144



10.5

%

Discontinued operations



(13)



13




Net earnings

$

1,512



$

1,355



$

157



11.6

%

Earnings per share—basic








Continuing operations

$

5.03



$

4.47



$

0.56



12.5

%

Discontinued operations



(0.04)



0.04




Net earnings

$

5.03



$

4.43



$

0.60



13.5

%

Basic weighted average shares outstanding

300.8



306.2






Earnings per share—diluted








Continuing operations

$

4.94



$

4.39



$

0.55



12.5

%

Discontinued operations



(0.04)



0.04




Net earnings

$

4.94



$

4.35



$

0.59



13.6

%

Diluted weighted average shares outstanding

306.3



311.8








* 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


July 2, 2017


July 3, 2016*


$


%

Revenue:








Aerospace

$

2,078



$

2,284



$

(206)



(9.0)

%

Combat Systems

1,414



1,297



117



9.0

%

Information Systems and Technology

2,104



2,215



(111)



(5.0)

%

Marine Systems

2,079



1,978



101



5.1

%

Total

$

7,675



$

7,774



$

(99)



(1.3)

%

Operating earnings:








Aerospace

$

425



$

424



$

1



0.2

%

Combat Systems

225



205



20



9.8

%

Information Systems and Technology

240



234



6



2.6

%

Marine Systems

178



172



6



3.5

%

Corporate

(12)



(8)



(4)



(50.0)

%

Total

$

1,056



$

1,027



$

29



2.8

%

Operating margin:








Aerospace

20.5

%


18.6

%





Combat Systems

15.9

%


15.8

%





Information Systems and Technology

11.4

%


10.6

%





Marine Systems

8.6

%


8.7

%





Total

13.8

%


13.2

%







* 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

















Six Months Ended


Variance


July 2, 2017


July 3, 2016*


$


%

Revenue:








Aerospace

$

4,152



$

4,065



$

87



2.1

%

Combat Systems

2,701



2,542



159



6.3

%

Information Systems and Technology

4,250



4,543



(293)



(6.4)

%

Marine Systems

4,013



4,100



(87)



(2.1)

%

Total

$

15,116



$

15,250



$

(134)



(0.9)

%

Operating earnings:








Aerospace

$

868



$

756



$

112



14.8

%

Combat Systems

430



392



38



9.7

%

Information Systems and Technology

476



471



5



1.1

%

Marine Systems

339



356



(17)



(4.8)

%

Corporate

(22)



(24)



2



8.3

%

Total

$

2,091



$

1,951



$

140



7.2

%

Operating margin:








Aerospace

20.9

%


18.6

%





Combat Systems

15.9

%


15.4

%





Information Systems and Technology

11.2

%


10.4

%





Marine Systems

8.4

%


8.7

%





Total

13.8

%


12.8

%







* 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










July 2, 2017


December 31, 2016*

ASSETS




Current assets:




Cash and equivalents

$

1,856



$

2,334


Accounts receivable

3,690



3,399


Unbilled receivables

5,045



4,212


Inventories

5,839



5,817


Other current assets

696



772


Total current assets

17,126



16,534


Noncurrent assets:




Property, plant and equipment, net

3,424



3,477


Intangible assets, net

685



678


Goodwill

11,679



11,445


Other assets

879



1,038


Total noncurrent assets

16,667



16,638


Total assets

$

33,793



$

33,172


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




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

$

989



$

900


Accounts payable

2,620



2,538


Customer advances and deposits

6,822



6,827


Other current liabilities

3,072



3,185


Total current liabilities

13,503



13,450


Noncurrent liabilities:




Long-term debt

2,989



2,988


Other liabilities

6,349



6,433


Total noncurrent liabilities

9,338



9,421


Shareholders' equity:




Common stock

482



482


Surplus

2,796



2,819


Retained earnings

25,546



24,543


Treasury stock

(14,950)



(14,156)


Accumulated other comprehensive loss

(2,922)



(3,387)


Total shareholders' equity

10,952



10,301


Total liabilities and shareholders' equity

$

33,793



$

33,172




* Prior-period information has been restated for the adoption of 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










Six Months Ended


July 2, 2017


July 3, 2016*

Cash flows from operating activities—continuing operations:




Net earnings

$

1,512



$

1,355


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




Depreciation of property, plant and equipment

182



181


Amortization of intangible assets

38



50


Equity-based compensation expense

49



51


Deferred income tax provision

93



10


Discontinued operations



13


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




Accounts receivable

(291)



(38)


Unbilled receivables

(815)



(523)


Inventories

(14)



(84)


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




Accounts payable

82



157


Customer advances and deposits

(29)



(455)


Other, net

203



156


Net cash provided by operating activities

1,010



873


Cash flows from investing activities:




Capital expenditures

(153)



(134)


Other, net

(42)



(51)


Net cash used by investing activities

(195)



(185)


Cash flows from financing activities:




Purchases of common stock

(901)



(1,189)


Dividends paid

(483)



(447)


Other, net

108



96


Net cash used by financing activities

(1,276)



(1,540)


Net cash used by discontinued operations

(17)



(34)


Net decrease in cash and equivalents

(478)



(886)


Cash and equivalents at beginning of period

2,334



2,785


Cash and equivalents at end of period

$

1,856



$

1,899




* 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)




Second Quarter




Second Quarter



Other Financial Information:








Debt-to-equity (b)

36.3

%




32.5

%



Debt-to-capital (c)

26.6

%




24.5

%



Book value per share (d)

$

36.57





$

34.65




Total income tax payments

$

332





$

439




Company-sponsored research and development (e)

$

134





$

121




Shares outstanding

299,461,802





305,278,868












Non-GAAP Financial Measures:









2017


2016


Second Quarter


Six Months


Second Quarter


Six Months

Free cash flow from operations:








Net cash provided by operating activities

$

477



$

1,010



$

393



$

873


Capital expenditures

(91)



(153)



(69)



(134)


Free cash flow from operations (f)

$

386



$

857



$

324



$

739



 

 

(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
Backlog


Estimated
Potential
Contract Value (a)


Total Potential
Contract
Value

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


First Quarter 2017:











Aerospace


$

12,446



$

133



$

12,579



$

1,929



$

14,508


Combat Systems


17,058



523



17,581



4,970



22,551


Information Systems and Technology


6,682



2,038



8,720



13,994



22,714


Marine Systems


17,071



4,413



21,484



3,756



25,240


Total


$

53,257



$

7,107



$

60,364



$

24,649



$

85,013


Second Quarter 2016 (b):











Aerospace


$

13,418



$

126



$

13,544



$

2,221



$

15,765


Combat Systems


18,094



478



18,572



4,812



23,384


Information Systems and Technology


7,509



2,292



9,801



14,560



24,361


Marine Systems


15,868



7,260



23,128



4,237



27,365


Total


$

54,889



$

10,156



$

65,045



$

25,830



$

90,875



(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


SECOND QUARTER 2017 SIGNIFICANT ORDERS - (UNAUDITED)

DOLLARS IN MILLIONS


We received the following significant orders during the second quarter of 2017:


Combat Systems:



$110 to provide munitions to a customer in the Middle East.



$75 to provide munitions to the U.S. Air Force and U.S. Army.



$45 from the Army in support of the Stryker wheeled combat vehicle program, including the production of vehicles with a 30-millimeter cannon.



$40 to produce gun systems for the F-35 Joint Strike Fighter.



$30 to continue the conversion of M1A2 tanks to the M1A2S configuration for the Kingdom of Saudi Arabia and for engineering and logistics support services for the U.S. Army's Abrams family of vehicles.


Information Systems and Technology:



$165 from the Centers for Medicare & Medicaid Services for contact center services.



$125 from the Army for ruggedized computing equipment under the Common Hardware Systems-4 (CHS-4) program.



$105 from the U.S. Navy for combat and seaframe control systems on an Independence-variant Littoral Combat Ship (LCS). Options for the systems on three additional ships added $270 to the group's estimated potential contract value.



$60 to provide support for live and virtual operations under the Warfighter Field Operations Customer Support (FOCUS) program.



$50 to provide engineering, manufacturing and development in support of the Navy's Air and Missile Defense Radar (AMDR) program.



$40 from the Navy to provide training and training-related program support services for the Center for Surface Combat Systems (CSCS). This contract has a potential value of approximately $245 over five years.



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



$35 from the Army to provide continued software support and engineering for the Warfighter Information Network-Tactical (WIN-T) Increment 2 program.



$35 from the U.S. Geological Survey to perform hardware and software upgrades for the Landsat 8 satellite program.


Marine Systems:



$565 from the Navy for design work on the Columbia-class submarine program and Advanced Nuclear Plant Studies (ANPS) in support of the program.



$110 from the Navy to procure long-lead materials for two Virginia-class submarines under Block V of the program.



$105 from the Navy for maintenance, modernization and repair work on the USS Makin Island, an LHD-class amphibious assault ship.



$55 for initial design and construction work for the second ship in the TAO-205 next-generation fleet oiler program.



$45 from the Navy to provide maintenance, modernization and repair services for submarines located at Naval Submarine Base New London in Connecticut.



$35 from the Navy for on-board repair parts for two Virginia-class submarines under Block IV of the program.

 

 


EXHIBIT J


AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)
















Second Quarter


Six Months



2017


2016*


2017


2016*

Gulfstream Aircraft Deliveries (units):









Large-cabin aircraft


23



29



46



49


Mid-cabin aircraft


7



7



14



15


Total


30



36



60



64


Pre-owned Deliveries (units):


2



4



3



5




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


 

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

 

View original content with multimedia:http://www.prnewswire.com/news-releases/general-dynamics-reports-second-quarter-2017-results-300494040.html

SOURCE General Dynamics


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