GENERAL DYNAMICS CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - October 25, 2017

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Exhibit 99.1 
 
 gdlogo-20171001.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

October 25, 2017

General Dynamics Reports Third-Quarter 2017 Results

•
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

FALLS CHURCH, Va. – 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.




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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.





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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.

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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.




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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.



 




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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.


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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.

 

 


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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.

 

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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.

 

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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.

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EXHIBIT H
BACKLOG - (UNAUDITED)
DOLLARS IN MILLIONS
 
 
 
Funded
 
Unfunded
 
Total
Backlog
 
Estimated
Potential
Contract Value (a)
 
Total Potential
Contract
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.



 



 






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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.

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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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