General Dynamics Reports Third-Quarter 2018 Results

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FALLS CHURCH, Va., Oct. 24, 2018 /PRNewswire/ —

  • Revenue up 20% year-over-year to $9.1 billion
  • Earnings from continuing operations up 13.1% to $864 million
  • Diluted EPS from continuing operations up 14.7% year-over-year to $2.89

General Dynamics (NYSE: GD) today reported third-quarter 2018 earnings from continuing operations of $864 million, a 13.1 percent increase over third-quarter 2017. Revenue increased 20 percent to $9.1 billion. While a large portion of the growth was attributed to the acquisition of CSRA, revenue in all segments grew.

Diluted earnings per share (EPS) from continuing operations were $2.89 compared to $2.52 in the year-ago quarter, a 14.7 percent increase.

“We took action this quarter to streamline our portfolio, drive out risk from our supply chain and deliver increasingly sophisticated products and services to our customers in an efficient and timely manner,” said Phebe Novakovic, chairman and chief executive officer. “We remain committed to generating steady and sustainable results from our businesses.”

Significant activities this quarter included the delivery of the Virginia-class submarine SSN 790 (future USS South Dakota), the keel-laying of the first John Lewis-class fleet replenishment oiler and the continued integration of CSRA.

Margin
Company-wide operating margin for the third quarter of 2018 was 12.5 percent, a 70 basis-point increase over second-quarter 2018.

Cash
Net cash provided 2018 operating activities in the quarter totaled $790 million, compared to $872 million in the year-ago quarter. Free cash flow from operations, defined as net cash provided 2018 operating activities less capital expenditures, was $622 million, after a $255 million discretionary pension plan contribution.

Capital Deployment
The company repurchased 450,000 of its outstanding shares in the third quarter of 2018. Year-to-date, the company has repurchased 2.5 million outstanding shares.  

Backlog
The company’s total backlog at the end of third-quarter 2018 was $69.5 billion, up 4.9 percent from second-quarter 2018. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $34.7 billion. Total potential contract value, the sum of all backlog components, was $104.2 billion at the end of the quarter, a new record.

Order activity was robust across the company with a 1.4-to-1 total book-to-bill ratio, defined as orders divided 2018 revenue. Significant awards in the quarter included $3.9 billion from the U.S. Navy for the construction of four Arleigh Burke-class (DDG-51) guided-missile destroyers; $580 from the Navy for surface ship maintenance and modernization work; $480 from the Navy to continue design and development work for the Columbia-class submarine program; $210 from the Centers for Medicare & Medicaid Services for benefits recovery services, cloud hosting and IT support; $170 from the Navy for combat and seaframe control systems for Littoral Combat Ships; and $150 from the U.S. Army for equipment to support the Army’s mobile communications network.  In addition, the Army awarded a $3.9 billion maximum-potential-value IDIQ contract for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.

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; IT services; C4ISR 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 third-quarter 2018 financial results conference call at 9 a.m. EDT on Wednesday, October 24, 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 2018 12 p.m. on October 24 and will continue for 12 months. To hear a recording of the conference call 2018 telephone, please call 877-344-7529 (international: 412-317-0088); passcode 10125284.  The phone replay will be available through October 31, 2018.

EXHIBIT A

CONSOLIDATED STATEMENT OF EARNINGS – (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Three Months Ended

Variance

September 30, 2018

October 1, 2017*

$

%

Revenue

$

9,094

$

7,580

$

1,514

20.0

%

Operating costs and expenses

(7,959)

(6,517)

(1,442)

Operating earnings

1,135

1,063

72

6.8

%

Interest, net

(114)

(27)

(87)

Other, net

2

(9)

11

Earnings from continuing operations before income tax

1,023

1,027

(4)

(0.4)

%

Provision for income tax, net

(159)

(263)

104

Earnings from continuing operations

864

764

100

13.1

%

Discontinued operations, net of tax

(13)

(13)

Net earnings

$

851

$

764

$

87

11.4

%

Earnings per share—basic

Continuing operations

$

2.92

$

2.56

$

0.36

14.1

%

Discontinued operations

(0.04)

(0.04)

Net earnings

$

2.88

$

2.56

$

0.32

12.5

%

Basic weighted average shares outstanding

295.3

298.1

Earnings per share—diluted

Continuing operations

$

2.89

$

2.52

$

0.37

14.7

%

Discontinued operations

(0.04)

(0.04)

Net earnings

$

2.85

$

2.52

$

0.33

13.1

%

Diluted weighted average shares outstanding

299.1

303.8

*

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.

EXHIBIT B

CONSOLIDATED STATEMENT OF EARNINGS – (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Nine Months Ended

Variance

September 30, 2018 (a)

October 1, 2017 (b)

$

%

Revenue

$

25,815

$

22,696

$

3,119

13.7

%

Operating costs and expenses

(22,584)

(19,520)

(3,064)

Operating earnings

3,231

3,176

55

1.7

%

Interest, net

(244)

(76)

(168)

Other, net

(34)

(31)

(3)

Earnings from continuing operations before income tax

2,953

3,069

(116)

(3.8)

%

Provision for income tax, net

(504)

(793)

289

Earnings from continuing operations

2,449

2,276

173

7.6

%

Discontinued operations, net of tax

(13)

(13)

Net earnings

$

2,436

$

2,276

$

160

7.0

%

Earnings per share—basic

Continuing operations

$

8.27

$

7.59

$

0.68

9.0

%

Discontinued operations

(0.04)

(0.04)

Net earnings

$

8.23

$

7.59

$

0.64

8.4

%

Basic weighted average shares outstanding

296.0

299.9

Earnings per share—diluted

Continuing operations

$

8.16

$

7.45

$

0.71

9.5

%

Discontinued operations

(0.04)

(0.04)

Net earnings

$

8.12

$

7.45

$

0.67

9.0

%

Diluted weighted average shares outstanding

300.1

305.5

(a)

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.

(b)

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

EXHIBIT C

REVENUE AND OPERATING EARNINGS BY SEGMENT – (UNAUDITED)

DOLLARS IN MILLIONS

Three Months Ended

Variance

September 30, 2018

October 1, 2017*

$

%

Revenue:

Aerospace

$

2,031

$

1,995

$

36

1.8

%

Combat Systems

1,523

1,500

23

1.5

%

Information Technology

2,307

1,068

1,239

116.0

%

Mission Systems

1,230

1,086

144

13.3

%

Marine Systems

2,003

1,931

72

3.7

%

Total

$

9,094

$

7,580

$

1,514

20.0

%

Operating earnings:

Aerospace

$

376

$

381

$

(5)

(1.3)

%

Combat Systems

241

247

(6)

(2.4)

%

Information Technology

157

101

56

55.4

%

Mission Systems

179

152

27

17.8

%

Marine Systems

169

179

(10)

(5.6)

%

Corporate

13

3

10

333.3

%

Total

$

1,135

$

1,063

$

72

6.8

%

Operating margin:

Aerospace

18.5

%

19.1

%

Combat Systems

15.8

%

16.5

%

Information Technology

6.8

%

9.5

%

Mission Systems

14.6

%

14.0

%

Marine Systems

8.4

%

9.3

%

Total

12.5

%

14.0

%

*

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

EXHIBIT D

REVENUE AND OPERATING EARNINGS BY SEGMENT – (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months Ended

Variance

September 30, 2018 (a)

October 1, 2017 (b)

$

%

Revenue:

Aerospace

$

5,751

$

6,147

$

(396)

(6.4)

%

Combat Systems

4,497

4,201

296

7.0

%

Information Technology

5,887

3,178

2,709

85.2

%

Mission Systems

3,475

3,226

249

7.7

%

Marine Systems

6,205

5,944

261

4.4

%

Total

$

25,815

$

22,696

$

3,119

13.7

%

Operating earnings:

Aerospace

$

1,108

$

1,241

$

(133)

(10.7)

%

Combat Systems

701

677

24

3.5

%

Information Technology

414

278

136

48.9

%

Mission Systems

478

451

27

6.0

%

Marine Systems

548

518

30

5.8

%

Corporate

(18)

11

(29)

(263.6)

%

Total

$

3,231

$

3,176

$

55

1.7

%

Operating margin:

Aerospace

19.3

%

20.2

%

Combat Systems

15.6

%

16.1

%

Information Technology

7.0

%

8.7

%

Mission Systems

13.8

%

14.0

%

Marine Systems

8.8

%

8.7

%

Total

12.5

%

14.0

%

(a)

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.

(b)

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

EXHIBIT E

CONSOLIDATED BALANCE SHEET

DOLLARS IN MILLIONS

(Unaudited)

September 30, 2018

December 31, 2017

ASSETS

Current assets:

Cash and equivalents

$

1,010

$

2,983

Accounts receivable

3,736

3,617

Unbilled receivables

7,564

5,240

Inventories

6,247

5,303

Other current assets

1,401

1,185

Total current assets

19,958

18,328

Noncurrent assets:

Property, plant and equipment, net

4,244

3,517

Intangible assets, net

2,667

702

Goodwill

19,486

11,914

Other assets

608

585

Total noncurrent assets

27,005

16,718

Total assets

$

46,963

$

35,046

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

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

$

1,678

$

2

Accounts payable

3,033

3,207

Customer advances and deposits

7,327

6,992

Other current liabilities

3,651

2,898

Total current liabilities

15,689

13,099

Noncurrent liabilities:

Long-term debt

11,403

3,980

Other liabilities

7,116

6,532

Total noncurrent liabilities

18,519

10,512

Shareholders’ equity:

Common stock

482

482

Surplus

2,914

2,872

Retained earnings

28,691

26,444

Treasury stock

(15,971)

(15,543)

Accumulated other comprehensive loss

(3,361)

(2,820)

Total shareholders’ equity

12,755

11,435

Total liabilities and shareholders’ equity

$

46,963

$

35,046

EXHIBIT F

CONSOLIDATED STATEMENT OF CASH FLOWS – (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months Ended

September 30, 2018

October 1, 2017

Cash flows from operating activities—continuing operations:

Net earnings

$

2,436

$

2,276

Adjustments to reconcile net earnings to net cash provided 2018 operating activities:

Depreciation of property, plant and equipment

352

269

Amortization of intangible assets

190

57

Equity-based compensation expense

110

93

Deferred income tax (benefit) provision

(66)

155

Discontinued operations, net of tax

13

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

Accounts receivable

472

26

Unbilled receivables

(1,625)

(1,361)

Inventories

(854)

57

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

Accounts payable

(324)

167

Customer advances and deposits

112

(296)

Income taxes payable

250

223

Other, net

15

216

Net cash provided 2018 operating activities

1,081

1,882

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(10,039)

(364)

Capital expenditures

(447)

(273)

Other, net

169

52

Net cash used 2018 investing activities

(10,317)

(585)

Cash flows from financing activities:

Proceeds from fixed-rate notes

6,461

985

Proceeds from (repayments of) commercial paper, net

1,668

(2)

Proceeds from floating-rate notes

1,000

Dividends paid

(801)

(735)

Purchases of common stock

(533)

(1,172)

Repayment of CSRA accounts receivable purchase agreement

(450)

Other, net

(68)

43

Net cash provided (used) 2018 financing activities

7,277

(881)

Net cash used 2018 discontinued operations

(14)

(28)

Net (decrease) increase in cash and equivalents

(1,973)

388

Cash and equivalents at beginning of period

2,983

2,334

Cash and equivalents at end of period

$

1,010

$

2,722

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION – (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

2018

2017

Third Quarter

Third Quarter

Other Financial Information:

Debt-to-equity (a)

102.6

%

42.2

%

Debt-to-capital (b)

50.6

%

29.7

%

Book value per share (c)

$

43.07

$

38.73

Income tax payments, net

$

150

$

70

Company-sponsored research and development (d)

$

126

$

120

Shares outstanding

296,149,755

298,582,883

Non-GAAP Financial Measure:

2018

2017

Third Quarter

Nine Months

Third Quarter

Nine Months

Free cash flow from operations:

Net cash provided 2018 operating activities

$

790

$

1,081

$

872

$

1,882

Capital expenditures

(168)

(447)

(120)

(273)

Free cash flow from operations (e)

$

622

$

634

$

752

$

1,609

(a)

Debt-to-equity ratio is calculated as total debt divided 2018 total equity as of the end of the period.

(b)

Debt-to-capital ratio is calculated as total debt divided 2018 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 2018 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 2018 operating activities.

EXHIBIT H

BACKLOG – (UNAUDITED)

DOLLARS IN MILLIONS

Funded

Unfunded

Total

Backlog

Estimated

Potential

Contract Value*

Total Potential

Contract

Value

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

Second Quarter 2018:

Aerospace

$

12,187

$

157

$

12,344

$

2,282

$

14,626

Combat Systems

16,646

376

17,022

2,840

19,862

Information Technology

4,633

4,576

9,209

18,931

28,140

Mission Systems

4,636

645

5,281

4,287

9,568

Marine Systems

17,310

5,124

22,434

4,333

26,767

Total

$

55,412

$

10,878

$

66,290

$

32,673

$

98,963

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 Technology

2,425

1,705

4,130

9,641

13,771

Mission Systems

4,684

708

5,392

4,743

10,135

Marine Systems

16,791

8,247

25,038

4,826

29,864

Total

$

52,689

$

11,240

$

63,929

$

25,726

$

89,655

*

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.

EXHIBIT H-1
BACKLOG AND ESTIMATED CONTRACT VALUE – (UNAUDITED)
DOLLARS IN MILLIONS

Photo – https://mma.prnewswire.com/media/773647/EXHIBIT_H_1.jpg

EXHIBIT H-2
BACKLOG AND ESTIMATED CONTRACT VALUE BY SEGMENT – (UNAUDITED)
DOLLARS IN MILLIONS

Photo – https://mma.prnewswire.com/media/773651/EXHIBIT_H_2.jpg

EXHIBIT I

THIRD QUARTER 2018 SIGNIFICANT ORDERS – (UNAUDITED)

DOLLARS IN MILLIONS

We received the following significant contract awards during the third quarter of 2018:

Combat Systems:

$160 from the U.S. Army for munitions and ordnance, including Hydra-70 rockets.

$85 from the U.S. Air Force for various rounds of medium-caliber ammunition.

$55 to integrate a Mission Equipment Package onto Stryker vehicles to provide short range air defense capabilities.

$30 from the U.S. Defense Logistics Agency to provide spare parts for Abrams main battle tanks.

$30 to produce Patriot Advanced Capability-3 (PAC-3) guided-missile system motor cases.

Information Technology:

$330 from the U.S. Census Bureau to provide contact-center systems and operations support for the 2020 Census Questionnaire Assistance program.

$210 from the Centers for Medicare & Medicaid Services for benefits recovery services, cloud hosting and IT support.

$100 to provide logistics, sustainment and maintenance support services for the U.S. Army’s worldwide command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) systems.

$95 from the U.S. Department of State to provide visa application and issuance support services to U.S. embassies and consulates worldwide.

$95 from the U.S. Naval Air Warfare Center for design, development and support of shipboard and airborne platforms.

$90 from the U.S. Federal Emergency Management Agency (FEMA) for contact-center operations and support services.

Mission Systems:

$170 from the U.S. Navy for combat and seaframe control systems on Independence-variant Littoral Combat Ships (LCS). 

$150 for additional equipment to support the U.S. Army’s mobile communications network.

$100 from the Army for computing and communications equipment under the Common Hardware Systems-4 (CHS-4) program.

$75 from the Canadian Department of National Defence to modernize and provide in-service support for the underwater warfare sensor suite installed on Halifax-class frigates.

$75 to rebuild and repair MK6 missile guidance systems and produce MK6 circuit card assemblies for the Navy.

An IDIQ contract from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program. The program has a maximum potential value of $3.9 billion over five years.

Marine Systems:

$3.9 billion from the U.S. Navy for the construction of four Arleigh Burke-class (DDG-51) guided-missile destroyers.

$580 from the Navy for surface ship maintenance and modernization work.

$480 from the Navy to continue design and development work in support of the Columbia-class submarine program.

$55 from the Navy for the procurement and management of spare parts and equipment for the Zumwalt-class (DDG-1000) guided-missile destroyer program.

EXHIBIT J

AEROSPACE SUPPLEMENTAL DATA – (UNAUDITED)

Third Quarter

Nine Months

2018

2017

2018

2017

Gulfstream Aircraft Deliveries (units):

Large-cabin aircraft

21

21

58

67

Mid-cabin aircraft

6

9

21

23

Total

27

30

79

90

Pre-owned Aircraft Deliveries (units):

2

1

4

4

SOURCE General Dynamics

Related Links

http://www.generaldynamics.com

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