GENERAL DYNAMICS CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 25, 2018

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Exhibit 99.1 
 
 gdlogo-20180401.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

April 25, 2018

General Dynamics Reports First-Quarter 2018 Results

•
Diluted earnings per share from continuing operations of $2.65, up 6.9%
•
Net earnings of $799 million, up 4.7%
•
Return on sales of 10.6%
•
1.3% revenue growth with particular strength in our defense businesses

FALLS CHURCH, Va. – General Dynamics (NYSE: GD) today reported first-quarter 2018 net earnings of $799 million, a 4.7 percent increase over first-quarter 2017, on revenue of $7.5 billion. Diluted earnings per share from continuing operations were $2.65 compared to $2.48 in the year-ago quarter, a 6.9 percent increase.

“General Dynamics delivered solid first-quarter results, with growth in revenue, net earnings and EPS,” said Phebe Novakovic, chairman and chief executive officer of General Dynamics. “This is a strong start to 2018 and we remain confident in our outlook.”

Margin
Company-wide operating margin for the first quarter of 2018 was 13.4 percent, compared to 14.1 percent in first-quarter 2017. Consolidated operating margin was up 60 basis points, compared to 12.8 percent in fourth-quarter 2017.

Capital Deployment
The company repurchased 1.2 million of its outstanding shares in the first quarter. In addition, in March, the board of directors increased the company’s quarterly dividend to $0.93 per share, representing the 21st consecutive annual dividend increase. The 10.7 percent increase is consistent with increases over the past five years.

Backlog
General Dynamics’ total backlog at the end of first-quarter 2018 was $62.1 billion. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25.5 billion. Total potential contract value, the sum of all backlog components, was $87.6 billion at the end of the quarter.



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There was order activity across the Gulfstream product portfolio and strong demand for defense products. Significant awards in the quarter include a contract with a total potential value of $1 billion to deliver Piranha 5 wheeled armored vehicles to the Romanian Armed Forces, $695 million from the U.S. Navy for long-lead materials for Block V Virginia-class submarines, $420 million from the Navy for a second John Lewis-class ship, $355 million from the U.S. Army for continued production and support of Stryker vehicles and $215 million from NASA for the Space Network Ground Segment Sustainment project to modernize NASA’s ground infrastructure systems for its satellite network.

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 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 first-quarter 2018 financial results conference call at 9 a.m. EDT on Wednesday, April 25, 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 April 25 and will continue for 12 months. To hear a recording of the conference call by telephone, please call 877-344-7529 (international: 1-412-317-0088); passcode 10119160. The phone replay will be available from April 25 through May 2, 2018.


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EXHIBIT A
CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
 
 
Three Months Ended
 
Variance
 
April 1, 2018
 
April 2, 2017*
 
$
 
%
Revenue
$
7,535

 
$
7,441

 
$
94

 
1.3
 %
Operating costs and expenses
6,527

 
6,395

 
132

 
 
Operating earnings
1,008

 
1,046

 
(38
)
 
(3.6
)%
Interest, net
(27
)
 
(25
)
 
(2
)
 
 
Other, net
(21
)
 
(11
)
 
(10
)
 
 
Earnings before income tax
960

 
1,010

 
(50
)
 
(5.0
)%
Provision for income tax, net
161

 
247

 
(86
)
 
 
Net earnings
$
799

 
$
763

 
$
36

 
4.7
 %
Earnings per share—basic

$
2.70

 
$
2.53

 
$
0.17

 
6.7
 %
Basic weighted average shares outstanding
296.4

 
301.8

 


 


Earnings per share—diluted

$
2.65

 
$
2.48

 
$
0.17

 
6.9
 %
Diluted weighted average shares outstanding
301.1

 
307.3

 
 
 
 

* 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.




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EXHIBIT B
REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
 
 
Three Months Ended
 
Variance
 
April 1, 2018
 
April 2, 2017*
 
$
 
%
Revenue:
 
 
 
 
 
 
 
Aerospace
$
1,825

 
$
2,074

 
$
(249
)
 
(12.0
)%
Combat Systems
1,440

 
1,287

 
153

 
11.9
 %
Information Systems and Technology
2,236

 
2,146

 
90

 
4.2
 %
Marine Systems
2,034

 
1,934

 
100

 
5.2
 %
Total
$
7,535

 
$
7,441

 
$
94

 
1.3
 %
Operating earnings:
 
 
 
 
 
 
 
Aerospace
$
346

 
$
439

 
$
(93
)
 
(21.2
)%
Combat Systems
224

 
205

 
19

 
9.3
 %
Information Systems and Technology
247

 
236

 
11

 
4.7
 %
Marine Systems
184

 
161

 
23

 
14.3
 %
Corporate
7

 
5

 
2

 
40.0
 %
Total
$
1,008

 
$
1,046

 
$
(38
)
 
(3.6
)%
Operating margin:
 
 
 
 
 
 
 
Aerospace
19.0
%
 
21.2
%
 
 
 
 
Combat Systems
15.6
%
 
15.9
%
 
 
 
 
Information Systems and Technology
11.0
%
 
11.0
%
 
 
 
 
Marine Systems
9.0
%
 
8.3
%
 
 
 
 
Total
13.4
%
 
14.1
%
 
 
 
 

* Prior-period information has been restated for the adoption of ASU 2017-07, which we adopted on January 1, 2018.


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EXHIBIT C
CONSOLIDATED BALANCE SHEET
DOLLARS IN MILLIONS
 
 
(Unaudited)
 
 
 
April 1, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
4,332

 
$
2,983

Accounts receivable
3,769

 
3,617

Unbilled receivables
5,865

 
5,240

Inventories
5,543

 
5,303

Other current assets
955

 
1,185

Total current assets
20,464

 
18,328

Noncurrent assets:
 
 
 
Property, plant and equipment, net
3,533

 
3,517

Intangible assets, net
702

 
702

Goodwill
11,955

 
11,914

Other assets
565

 
585

Total noncurrent assets
16,755

 
16,718

Total assets
$
37,219

 
$
35,046

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
2,498

 
$
2

Accounts payable
2,851

 
3,207

Customer advances and deposits
7,095

 
6,992

Other current liabilities
2,798

 
2,898

Total current liabilities
15,242

 
13,099

Noncurrent liabilities:
 
 
 
Long-term debt
3,981

 
3,980

Other liabilities
6,222

 
6,532

Total noncurrent liabilities
10,203

 
10,512

Shareholders’ equity:
 
 
 
Common stock
482

 
482

Surplus
2,820

 
2,872

Retained earnings
27,605

 
26,444

Treasury stock
(15,742
)
 
(15,543
)
Accumulated other comprehensive loss
(3,391
)
 
(2,820
)
Total shareholders’ equity
11,774

 
11,435

Total liabilities and shareholders’ equity
$
37,219

 
$
35,046




 

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EXHIBIT D
CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)
DOLLARS IN MILLIONS
 
  
Three Months Ended
 
April 1, 2018
 
April 2, 2017
Cash flows from operating activities—continuing operations:
 
 
 
Net earnings
$
799

 
$
763

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation of property, plant and equipment
89

 
92

Amortization of intangible assets
20

 
19

Equity-based compensation expense
29

 
23

Deferred income tax provision
4

 
45

(Increase) decrease in assets, net of effects of business acquisitions:
 
 
 
Accounts receivable
(150
)
 
(84
)
Unbilled receivables
(608
)
 
(338
)
Inventories
(236
)
 
2

Increase (decrease) in liabilities, net of effects of business acquisitions:
 
 
 
Accounts payable
(358
)
 
(72
)
Customer advances and deposits
(149
)
 
(95
)
Income taxes payable
167

 
202

Other current liabilities
(128
)
 
(76
)
Other, net
25

 
52

Net cash (used) provided by operating activities
(496
)
 
533

Cash flows from investing activities:
 
 
 
Capital expenditures
(104
)
 
(62
)
Other, net
(1
)
 
(23
)
Net cash used by investing activities
(105
)
 
(85
)
Cash flows from financing activities:
 
 
 
Proceeds from commercial paper, net
2,494

 
—

Purchases of common stock
(267
)
 
(354
)
Dividends paid
(250
)
 
(230
)
Other, net
(25
)
 
(22
)
Net cash provided (used) by financing activities
1,952

 
(606
)
Net cash used by discontinued operations
(2
)
 
(8
)
Net increase (decrease) in cash and equivalents
1,349

 
(166
)
Cash and equivalents at beginning of period
2,983

 
2,334

Cash and equivalents at end of period
$
4,332

 
$
2,168



 

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EXHIBIT E
PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
 
 
 
 
2018
 
2017
 
 
First Quarter
 
First Quarter
Other Financial Information:
 
 
 
 
Debt-to-equity (a)
 
55.0
%
 
36.7
%
Debt-to-capital (b)
 
35.5
%
 
26.9
%
Book value per share (c)
 
$
39.64

 
$
35.08

Income tax refunds, net
 
$
4

 
$
4

Company-sponsored research and development (d)
 
$
140

 
$
113

Shares outstanding
 
297,033,427

 
301,685,448

 
 
 
 
 
Non-GAAP Financial Measure:
 
 
 
 
Free cash flow from operations:
 
 
 
 
Net cash (used) provided by operating activities
 
$
(496
)
 
$
533

Capital expenditures
 
(104
)
 
(62
)
Free cash flow from operations (e)
 
$
(600
)
 
$
471


(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.

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EXHIBIT F
BACKLOG - (UNAUDITED)
DOLLARS IN MILLIONS
 
 
 
Funded
 
Unfunded
 
Total
Backlog
 
Estimated
Potential
Contract Value (a)
 
Total Potential
Contract
Value
First Quarter 2018:
 
 
 
 
 
 
 
 
 
 
Aerospace
 
$
11,898

 
$
158

 
$
12,056

 
$
1,868

 
$
13,924

Combat Systems
 
17,126

 
378

 
17,504

 
3,549

 
21,053

Information Systems and Technology
 
6,739

 
2,075

 
8,814

 
15,787

 
24,601

Marine Systems
 
18,310

 
5,458

 
23,768

 
4,271

 
28,039

Total
 
$
54,073

 
$
8,069

 
$
62,142

 
$
25,475

 
$
87,617

Fourth Quarter 2017:
 
 
 
 
 
 
 
 
 
 
Aerospace
 
$
12,319

 
$
147

 
$
12,466

 
$
1,955

 
$
14,421

Combat Systems
 
17,158

 
458

 
17,616

 
3,154

 
20,770

Information Systems and Technology
 
6,682

 
2,192

 
8,874

 
14,875

 
23,749

Marine Systems
 
15,872

 
8,347

 
24,219

 
4,809

 
29,028

Total
 
$
52,031

 
$
11,144

 
$
63,175

 
$
24,793

 
$
87,968

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


(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 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.





 



 






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EXHIBIT G
FIRST QUARTER 2018 SIGNIFICANT ORDERS - (UNAUDITED)
DOLLARS IN MILLIONS


We received the following significant contract awards during the first quarter of 2018:
Combat Systems:
•
$445 to produce Piranha 5 wheeled armored vehicles and provide associated support services to the Romanian Armed Forces, part of a larger contract with a total potential value exceeding $1 billion.
•
$285 from the U.S. Army for inventory management and engineering and support services for the Stryker wheeled combat-vehicle fleet.
•
$155 from the Army for various calibers of ammunition.
•
$80 from the Army for technical support and engineering and logistics services for the Abrams main battle tank program.
•
$70 from the Army for the production of Stryker double-V-hull vehicles in the A1 configuration.
•
$65 to produce AGM-114R Hellfire munitions.
Information Systems and Technology:
•
$215 from the National Aeronautics and Space Administration (NASA) for the Space Network Ground Segment Sustainment (SGSS) program to modernize NASA’s ground infrastructure systems for its satellite network.
•
$120 from the U.S. Army for computing and communications equipment under the Common Hardware Systems-4 (CHS-4) program.
•
$95 from the U.S. Air Force for the Battlefield Information Collection and Exploitation System (BICES) program to provide information sharing support to coalition operations.
•
$60 to provide IT network and technical support services for the U.S. Army Intelligence and Security Command.
•
$55 from the U.S. Air Force Central Command for communications equipment and associated technical support services in Asia.
•
$50 from the National Geospatial-Intelligence Agency (NGA) for IT lifecycle management and virtual desktop services.
•
$45 to provide vehicle electronic systems and components for Prophet, the Army’s ground-based tactical signals intelligence and electronic warfare system.
•
$45 from the Army for the lightweight mobile tactical network.
•
$40 to continue managing the Army’s live training systems.
•
$30 to provide engineering and integration support for the Canadian Army’s tactical communications network, the Land Command Support System (LCSS).
Marine Systems:
•
$695 from the U.S. Navy to procure long-lead materials for four Virginia-class submarines under Block V of the program.
•
$420 from the Navy for construction of the second ship in the John Lewis-class (TAO-205) fleet oiler program.
•
$100 from the Navy for Advanced Nuclear Plant Studies in support of the Columbia-class submarine program.
•
$85 from the Navy for maintenance and modernization work on the USS Montpelier, a Los Angeles-class attack submarine.
•
$40 from the Navy to provide design and development and lead yard services for Virginia-class submarines.

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EXHIBIT H
AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)
 
 
 
First Quarter
 
 
2018
 
2017
Gulfstream Aircraft Deliveries (units):
 
 
 
 
Large-cabin aircraft
 
19

 
23

Mid-cabin aircraft
 
7

 
7

Total
 
26

 
30

Pre-owned Deliveries (units):
 
1

 
1





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