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General Dynamics Reports Third-Quarter 2019 Results

- Revenue of $9.8 billion, up 7.3% year-over-year

- Operating earnings of $1.2 billion, up 7.1% year-over-year

- Diluted earnings per share from continuing operations of $3.14, up 8.7% year-over-year

- First Gulfstream G600 deliveries

RESTON, Va., Oct. 23, 2019 /PRNewswire/ -- General Dynamics (GD) today reported third-quarter 2019 revenue of $9.8 billion, operating earnings of $1.2 billion, net earnings from continuing operations of $913 million and diluted earnings per share from continuing operations of $3.14, up 25 cents from the year-ago quarter.

"Margins advanced nicely in the quarter due to Gulfstream's continuing ability to efficiently transition its production to new models, coupled with solid operating performance at the defense businesses," said Phebe N. Novakovic, chairman and chief executive officer. "Our continued focus on operating excellence and driving cost efficiencies, coupled with new business opportunities, should enable us to build on these results."

Operating performance
Operating margin was 12.5 percent in the quarter, up 110 basis points sequentially. Customer deliveries of the Gulfstream G600 began in August, less than two months after receiving FAA type and production certificates.

Cash
Net cash provided by operating activities in the quarter totaled $1.1 billion. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $847 million.

Capital deployment
The company paid $295 million in dividends and repaid approximately $450 million of its outstanding commercial paper in the third quarter. Capital expenditures totaled $244 million, up $76 million from the year-ago quarter, driven by continued strategic investments in Marine Systems.

Backlog
Total backlog at the end of third-quarter 2019 was $67.4 billion. Estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $35.6 billion. Total estimated contract value, the sum of all backlog components, was $103 billion.

Orders
Order activity remained strong across the aerospace and defense portfolios, with a book-to-bill of 1-to-1 on 7.3 percent year-over-year revenue growth. Significant awards in the defense portfolios in the quarter included $1.3 billion from the Canadian government for production of armored combat support vehicles; $1.1 billion from the U.S. Navy for design and construction of two Expeditionary Sea Base auxiliary support ships and a $550 million option for an additional ship; $390 million from the Navy for Advanced Nuclear Plant Studies in support of the Columbia-class submarine program; $155 million from the U.S. Army for various munitions and ordnance; $325 million to provide program management and engineering services to the Cybersecurity and Infrastructure Security Agency's emergency communications infrastructure; and $265 million from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.

About General Dynamics
Headquartered in Reston, 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. General Dynamics employs more than 100,000 people worldwide and generated $36.2 billion in revenue in 2018. More information is available at www.gd.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 2019 financial results conference call at 9 a.m. EDT on Wednesday, October 23, 2019. The webcast will be a listen-only audio event available at www.gd.com. An on-demand replay of the webcast will be available one hour after the end of the call and end on October 30. To hear a recording of the conference call by telephone, please call 1-877-344-7529 (international:1-412-317-0088) passcode 10135319. Charts furnished to investors and securities analysts in connection with General Dynamics' announcement of its financial results for third-quarter 2019 are available at www.gd.com.

 

 

EXHIBIT A

CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS




Three Months Ended 




Variance



September 29, 2019


September 30, 2018


$


%

Revenue 


$

9,761



$

9,094



$

667



7.3

%

Operating costs and expenses 


(8,545)



(7,959)



(586)




Operating earnings 


1,216



1,135



81



7.1

%

Interest, net 


(114)



(114)






Other, net 


(12)



2



(14)




Earnings from continuing operations before income tax 


1,090



1,023



67



6.5

%

Provision for income tax, net 


(177)



(159)



(18)




Earnings from continuing operations 


913



864



49



5.7

%

Discontinued operations, net of tax 




(13)



13




Net earnings 


$

913



$

851



$

62



7.3

%

Earnings per share—basic 













     Continuing operations  


$

3.17



$

2.92



$

0.25



8.6

%

     Discontinued operations 




(0.04)



0.04





     Net earnings 


$

3.17



$

2.88



$

0.29



10.1

%

Basic weighted average shares outstanding 


288.4



295.3






Earnings per share—diluted 













     Continuing operations  


$

3.14



$

2.89



$

0.25



8.7

%

     Discontinued operations 




(0.04)



0.04




     Net earnings 


$

3.14



$

2.85



$

0.29



10.2

%

Diluted weighted average shares outstanding 


290.9



299.1






 

 

EXHIBIT B

CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS



Nine Months Ended



Variance


September 29, 2019


September 30, 2018*


$


%

Revenue

$

28,577



$

25,815



$

2,762



10.7

%

Operating costs and expenses

(25,257)



(22,584)



(2,673)




Operating earnings

3,320



3,231



89



2.8

%

Interest, net

(350)



(244)



(106)




Other, net

18



(34)



52




Earnings from continuing operations before income tax

2,988



2,953



35



1.2

%

Provision for income tax, net

(524)



(504)



(20)




Earnings from continuing operations

2,464



2,449



15



0.6

%

Discontinued operations, net of tax



(13)



13




Net earnings

$

2,464



$

2,436



$

28



1.1

%

Earnings per share—basic











     Continuing operations

$

8.55



$

8.27



$

0.28



3.4

%

     Discontinued operations



(0.04)



0.04




     Net earnings

$

8.55



$

8.23



$

0.32



3.9

%

Basic weighted average shares outstanding

288.1



296.0







Earnings per share—diluted











     Continuing operations

$

8.47



$

8.16



$

0.31



3.8

%

     Discontinued operations



(0.04)



0.04




     Net earnings

$

8.47



$

8.12



$

0.35



4.3

%

Diluted weighted average shares outstanding

290.8



300.1








*

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.

 

 

EXHIBIT C

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS



Three Months Ended



Variance


September 29, 2019


September 30, 2018


$


%

Revenue:








Aerospace

$

2,495



$

2,031



$

464



22.8

%

Combat Systems

1,740



1,523



217



14.2

%

Information Technology

2,071



2,307



(236)



(10.2)

%

Mission Systems

1,220



1,230



(10)



(0.8)

%

Marine Systems

2,235



2,003



232



11.6

%

Total

$

9,761



$

9,094



$

667



7.3

%

Operating earnings:








Aerospace

$

393



$

376



$

17



4.5

%

Combat Systems

264



241



23



9.5

%

Information Technology

146



157



(11)



(7.0)

%

Mission Systems

185



179



6



3.4

%

Marine Systems

209



169



40



23.7

%

Corporate

19



13



6



46.2

%

Total

$

1,216



$

1,135



$

81



7.1

%

Operating margin:








Aerospace

15.8

%


18.5

%





Combat Systems

15.2

%


15.8

%





Information Technology

7.0

%


6.8

%





Mission Systems

15.2

%


14.6

%





Marine Systems

9.4

%


8.4

%





Total

12.5

%


12.5

%





 

 

EXHIBIT D

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS



Nine Months Ended



Variance


September 29, 2019


September 30, 2018*


$


%

Revenue:








Aerospace

$

6,871



$

5,751



$

1,120



19.5

%

Combat Systems

5,035



4,497



538



12.0

%

Information Technology

6,398



5,887



511



8.7

%

Mission Systems

3,655



3,475



180



5.2

%

Marine Systems

6,618



6,205



413



6.7

%

Total

$

28,577



$

25,815



$

2,762



10.7

%

Operating earnings:








Aerospace

$

1,052



$

1,108



$

(56)



(5.1)

%

Combat Systems

712



701



11



1.6

%

Information Technology

456



414



42



10.1

%

Mission Systems

495



478



17



3.6

%

Marine Systems

586



548



38



6.9

%

Corporate

19



(18)



37



205.6

%

Total

$

3,320



$

3,231



$

89



2.8

%

Operating margin:








Aerospace

15.3

%


19.3

%





Combat Systems

14.1

%


15.6

%





Information Technology

7.1

%


7.0

%





Mission Systems

13.5

%


13.8

%





Marine Systems

8.9

%


8.8

%





Total

11.6

%


12.5

%







*

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.

 

 

EXHIBIT E

CONSOLIDATED BALANCE SHEET

DOLLARS IN MILLIONS



(Unaudited)




September 29, 2019


December 31, 2018

ASSETS




Current assets:




Cash and equivalents

$

974



$

963


Accounts receivable

3,489



3,759


Unbilled receivables

8,077



6,576


Inventories

6,573



5,977


Other current assets

1,038



914


Total current assets

20,151



18,189


Noncurrent assets:




Property, plant and equipment, net

4,217



3,978


Intangible assets, net

2,376



2,585


Goodwill

19,617



19,594


Other assets

2,427



1,062


Total noncurrent assets

28,637



27,219


Total assets

$

48,788



$

45,408


LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




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

$

4,661



$

973


Accounts payable

2,999



3,179


Customer advances and deposits

6,854



7,270


Other current liabilities

3,713



3,317


Total current liabilities

18,227



14,739


Noncurrent liabilities:




Long-term debt

8,989



11,444


Other liabilities

8,059



7,493


Total noncurrent liabilities

17,048



18,937


Shareholders' equity:




Common stock

482



482


Surplus

2,999



2,946


Retained earnings

30,909



29,326


Treasury stock

(17,346)



(17,244)


Accumulated other comprehensive loss

(3,531)



(3,778)


Total shareholders' equity

13,513



11,732


Total liabilities and shareholders' equity

$

48,788



$

45,408


 

 

EXHIBIT F

CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS



Nine Months Ended


September 29, 2019


September 30, 2018

Cash flows from operating activities—continuing operations:




     Net earnings

$

2,464


$

2,436

     Adjustments to reconcile net earnings to net cash from operating activities:




          Depreciation of property, plant and equipment

352


315

          Amortization of intangible and finance lease right-of-use assets

273


227

          Equity-based compensation expense

103


110

          Deferred income tax benefit

(72)


(66)

          Discontinued operations, net of tax


13

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




          Accounts receivable

253


472

          Unbilled receivables

(1,603)


(1,625)

          Inventories

(646)


(854)

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




          Accounts payable

(164)


(324)

          Customer advances and deposits

(565)


112

     Other, net

192


265

     Net cash provided by operating activities

587


1,081

Cash flows from investing activities:




     Capital expenditures

(606)


(447)

     Business acquisitions, net of cash acquired

(19)


(10,039)

     Other, net

21


169

     Net cash used by investing activities

(604)


(10,317)

Cash flows from financing activities:




     Proceeds from commercial paper, net

947


1,668

     Dividends paid

(858)


(801)

     Purchases of common stock

(231)


(533)

     Proceeds from fixed-rate notes


6,461

     Proceeds from floating-rate notes


1,000

     Repayment of CSRA accounts receivable purchase agreement


(450)

     Other, net

207


(68)

     Net cash provided by financing activities

65


7,277

Net cash used by discontinued operations

(37)


(14)

Net increase (decrease) in cash and equivalents

11


(1,973)

Cash and equivalents at beginning of period

963


2,983

Cash and equivalents at end of period

$

974


$

1,010

 

 

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS


Other Financial Information:













September 29, 2019


December 31, 2018





Debt-to-equity (a)

101.0

%


105.8

%





Debt-to-capital (b)

50.3

%


51.4

%





Book value per share (c)

$

46.71



$

40.64






Shares outstanding

289,306,108



288,698,149















Third Quarter



Nine Months


2019


2018


2019


2018

Income tax payments, net

$

90



$

150



$

487



$

305


Company-sponsored research and
development (d)

$

110



$

126



$

352



$

356










Non-GAAP Financial Measures:









Third Quarter



Nine Months


2019


2018


2019


2018

Earnings before interest, taxes,
depreciation and amortization:








Earnings from continuing operations

$

913



$

864



$

2,464



$

2,449


Interest, net

114



114



350



244


Provision for income tax, net

177



159



524



504


Depreciation of property, plant and
equipment

120



109



352



315


Amortization of intangible and
finance lease right-of-use assets

90



106



273



227


   Earnings before interest, taxes,
   depreciation and amortization (e)

$

1,414



$

1,352



$

3,963



$

3,739










Free cash flow from operations:








Net cash provided by operating
activities

$

1,091



$

790



$

587



$

1,081


Capital expenditures

(244)



(168)



(606)



(447)


Free cash flow from operations (f)

$

847



$

622



$

(19)



$

634






(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 earnings before interest, taxes, depreciation and amortization (EBITDA) is a useful measure for investors because it provides another measure of our profitability and our ability to service our debt. We calculate EBITDA by adding back interest, taxes, depreciation and amortization to earnings from continuing operations. The most directly comparable GAAP measure to EBITDA is earnings from continuing operations.





(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 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 H

BACKLOG - (UNAUDITED)

DOLLARS IN MILLIONS




Funded


Unfunded


Total
Backlog


Estimated

Potential

Contract Value*


Total
Estimated
Contract Value

Third Quarter 2019:











Aerospace


$

11,195



$

188



$

11,383



$

2,065



$

13,448


Combat Systems


15,069



449



15,518



4,255



19,773


Information Technology


4,782



4,381



9,163



18,063



27,226


Mission Systems


5,152



307



5,459



6,764



12,223


Marine Systems


17,801



8,072



25,873



4,497



30,370


Total


$

53,999



$

13,397



$

67,396



$

35,644



$

103,040


Second Quarter 2019:











Aerospace


$

11,932



$

213



$

12,145



$

2,079



$

14,224


Combat Systems


14,794



438



15,232



4,113



19,345


Information Technology


4,446



4,405



8,851



17,983



26,834


Mission Systems


4,925



258



5,183



6,847



12,030


Marine Systems


18,344



7,899



26,243



3,223



29,466


Total


$

54,441



$

13,213



$

67,654



$

34,245



$

101,899


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




*

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 and other agreements with existing customers to purchase new aircraft and aircraft services. 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 - (UNAUDITED)
DOLLARS IN MILLIONS

EXHIBIT_H_1_Consolidated

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EXHIBIT H-2
BACKLOG BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS

EXHIBIT_H_2_Aerospace

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EXHIBIT_H_2_Combat_Systems

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EXHIBIT_H_2_Information_Technology

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EXHIBIT_H_2_Mission_Systems

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EXHIBIT_H_2_Marine_Systems

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EXHIBIT_H_2_Key

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EXHIBIT I
THIRD QUARTER 2019 SIGNIFICANT ORDERS - (UNAUDITED)
DOLLARS IN MILLIONS

We received the following significant contract awards during the third quarter of 2019:

Combat Systems:

  • $1.3 billion from the Canadian government to produce armored combat support vehicles (ACSVs) and provide associated support services.
  • $155 from the U.S. Army for various munitions and ordnance.
  • $70 to produce gun systems for the F-35 Joint Strike Fighter.
  • $55 from the Army for various maintenance and enhancements at the Lima Army Tank Plant in Lima, Ohio.

Information Technology:

  • An IDIQ contract to provide command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) installation services for the U.S. Navy. The program has a maximum potential value of $2.5 billion among 6 awardees.
  • A contract to provide program management and engineering services to the Cybersecurity and Infrastructure Security Agency's (CISA) emergency communications infrastructure. The contract has a maximum potential value of $325.
  • A contract from the U.S. Department of Veterans Affairs under the Veterans Intake, Conversion and Communications Services (VICCS) program to provide support and communication services to U.S. veterans. The contract has a maximum potential value of $280.
  • $155 from the U.S. Department of State to provide business process support services for the Bureau of Consular Affairs' Global Support Strategy (GSS) program for visa services.
  • $125 to provide design, development, testing, installation, maintenance, logistics support and modernization services for Navy airborne and shipboard platforms.
  • $95 from the Centers for Medicare and Medicaid Services for several key contracts, including support of the Medicare Secondary Payer (MSP) program. These contracts have a maximum potential value of $220.

Mission Systems:

  • $265 from the Army for computing and communications equipment under the Common Hardware Systems-5 program.
  • $95 from the Army to provide continued software support and engineering for the Warfighter Information Network-Tactical (WIN-T) Increment 2 program.
  • $65 from the Navy to provide fire control system modifications for ballistic-missile and guided-missile submarines.
  • $45 from the Navy to produce five Knifefish surface mine countermeasure systems and associated support equipment.
  • $25 from the Army for the production of Prophet enhanced ground-based signals intelligence and electronic warfare systems. The contract has a maximum potential value of $295.

Marine Systems:

  • $1.1 billion from the Navy for design and construction of two Expeditionary Sea Base (ESB) auxiliary support ships and an option totaling approximately $550 for an additional ship.
  • $175 from the Navy to provide engineering, technical, design and planning yard support services for operational strategic and attack submarines. The program has a maximum potential value of $1 billion.
  • $390 from the Navy for Advanced Nuclear Plant Studies (ANPS) in support of the Columbia-class submarine program.
  • $110 from the Navy to provide maintenance and repair services for the USS Kearsarge, an amphibious assault ship.

 

EXHIBIT J

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)




Third Quarter



Nine Months



2019


2018


2019


2018

Gulfstream Aircraft Deliveries (units):









Large-cabin aircraft


29



21



79



58

Mid-cabin aircraft


9



6



24



21

Total


38



27



103



79

Pre-owned Aircraft Deliveries (units):


4



2



9



4










Aerospace Book-to-Bill:









Orders*


$

1,693



$

1,743



$

7,022



$

5,479

Revenue (excluding pre-owned aircraft sales)


2,404



1,962



6,735



5,672

Book-to-Bill Ratio


0.70x 



0.89x 



1.04x 



0.97x 



*

Does not include customer defaults, liquidated damages, cancellations, foreign exchange fluctuations and other backlog adjustments.

 

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