GENERAL DYNAMICS CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 26, 2017

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Exhibit 99.1 
 
 gdlogo-20170702.gif
2941 Fairview Park Drive, Suite 100
 
 
Falls Church, VA 22042-4513
 
News
www.generaldynamics.com
 

Contact: Lucy Ryan
Tel: 703 876 3631
lryan@generaldynamics.com

July 26, 2017

General Dynamics Reports Second-Quarter 2017 Results

•
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

FALLS CHURCH, Va. – 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.




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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.

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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.




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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.



 




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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.


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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.

 

 


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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.

 

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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.

 

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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.

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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.



 



 






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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.

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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.


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