General Dynamics Reports First-Quarter 2018 Results

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.

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.

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

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

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.

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. 

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.

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