General Dynamics Reports First-Quarter 2019 Results

EXHIBIT A

CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Three Months Ended

Variance

March 31, 2019

April 1, 2018

$

%

Revenue

$

9,261

$

7,535

$

1,726

22.9

%

Operating costs and expenses

(8,247)

(6,527)

(1,720)

Operating earnings

1,014

1,008

6

0.6

%

Interest, net

(117)

(27)

(90)

Other, net

18

(21)

39

Earnings before income tax

915

960

(45)

(4.7)

%

Provision for income tax, net

(170)

(161)

(9)

Net earnings

$

745

$

799

$

(54)

(6.8)

%

Earnings per share—basic

$

2.59

$

2.70

$

(0.11)

(4.1)

%

Basic weighted average shares outstanding

287.9

296.4

Earnings per share—diluted

$

2.56

$

2.65

$

(0.09)

(3.4)

%

Diluted weighted average shares outstanding

290.9

301.1

EXHIBIT B

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Three Months Ended

Variance

March 31, 2019

April 1, 2018

$

%

Revenue:

Aerospace

$

2,240

$

1,825

$

415

22.7

%

Combat Systems

1,636

1,440

196

13.6

%

Information Technology

2,169

1,138

1,031

90.6

%

Mission Systems

1,158

1,098

60

5.5

%

Marine Systems

2,058

2,034

24

1.2

%

Total

$

9,261

$

7,535

$

1,726

22.9

%

Operating earnings:

Aerospace

$

328

$

346

$

(18)

(5.2)

%

Combat Systems

206

224

(18)

(8.0)

%

Information Technology

156

101

55

54.5

%

Mission Systems

148

146

2

1.4

%

Marine Systems

180

184

(4)

(2.2)

%

Corporate

(4)

7

(11)

(157.1)

%

Total

$

1,014

$

1,008

$

6

0.6

%

Operating margin:

Aerospace

14.6

%

19.0

%

Combat Systems

12.6

%

15.6

%

Information Technology

7.2

%

8.9

%

Mission Systems

12.8

%

13.3

%

Marine Systems

8.7

%

9.0

%

Total

10.9

%

13.4

%

EXHIBIT C

CONSOLIDATED BALANCE SHEET

DOLLARS IN MILLIONS

(Unaudited)

March 31, 2019

December 31, 2018

ASSETS

Current assets:

Cash and equivalents

$

673

$

963

Accounts receivable

3,718

3,759

Unbilled receivables

7,367

6,576

Inventories

6,185

5,977

Other current assets

924

914

Total current assets

18,867

18,189

Noncurrent assets:

Property, plant and equipment, net

4,054

3,978

Intangible assets, net

2,518

2,585

Goodwill

19,668

19,594

Other assets

2,359

1,062

Total noncurrent assets

28,599

27,219

Total assets

$

47,466

$

45,408

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

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

$

2,097

$

973

Accounts payable

3,008

3,179

Customer advances and deposits

6,695

7,270

Other current liabilities

3,582

3,317

Total current liabilities

15,382

14,739

Noncurrent liabilities:

Long-term debt

11,451

11,444

Other liabilities

8,399

7,493

Total noncurrent liabilities

19,850

18,937

Shareholders' equity:

Common stock

482

482

Surplus

2,937

2,946

Retained earnings

29,781

29,326

Treasury stock

(17,283)

(17,244)

Accumulated other comprehensive loss

(3,683)

(3,778)

Total shareholders' equity

12,234

11,732

Total liabilities and shareholders' equity

$

47,466

$

45,408

EXHIBIT D

CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Three Months Ended

March 31, 2019

April 1, 2018

Cash flows from operating activities—continuing operations:

Net earnings

$

745

$

799

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

Depreciation of property, plant and equipment

114

89

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

91

20

Equity-based compensation expense

40

29

Deferred income tax provision

(10)

4

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

Accounts receivable

49

(150)

Unbilled receivables

(873)

(608)

Inventories

(210)

(236)

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

Accounts payable

(167)

(358)

Customer advances and deposits

(623)

(149)

Other, net

49

64

Net cash used by operating activities

(795)

(496)

Cash flows from investing activities:

Capital expenditures

(181)

(104)

Other, net

(6)

(1)

Net cash used by investing activities

(187)

(105)

Cash flows from financing activities:

Proceeds from commercial paper, net

1,010

2,494

Dividends paid

(268)

(250)

Purchases of common stock

(133)

(267)

Other, net

88

(25)

Net cash provided by financing activities

697

1,952

Net cash used by discontinued operations

(5)

(2)

Net (decrease) increase in cash and equivalents

(290)

1,349

Cash and equivalents at beginning of period

963

2,983

Cash and equivalents at end of period

$

673

$

4,332

EXHIBIT E

PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

2019

2018

First Quarter

First Quarter

Other Financial Information:

Debt-to-equity (a)

110.7

%

55.0

%

Debt-to-capital (b)

52.5

%

35.5

%

Book value per share (c)

$

42.35

$

39.64

Income tax (payments) refunds, net

$

(37)

$

4

Company-sponsored research and development (d)

$

122

$

140

Shares outstanding

288,871,990

297,033,427

Non-GAAP Financial Measures:

2019

2018

First Quarter

First Quarter

Earnings before interest, taxes, depreciation and amortization:

Net earnings

$

745

$

799

Interest, net

117

27

Provision for income tax, net

170

161

Depreciation of property, plant and equipment

114

89

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

91

20

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

$

1,237

$

1,096

Free cash flow from operations:

Net cash used by operating activities

$

(795)

$

(496)

Capital expenditures

(181)

(104)

Free cash flow from operations (f)

$

(976)

$

(600)

(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 F

BACKLOG - (UNAUDITED)

DOLLARS IN MILLIONS

Funded

Unfunded

Total

Backlog

Estimated

Potential

Contract Value*

Total Potential

Contract

Value

First Quarter 2019:

Aerospace

$

11,924

$

244

$

12,168

$

2,080

$

14,248

Combat Systems

15,475

515

15,990

4,185

20,175

Information Technology

4,770

3,584

8,354

16,666

25,020

Mission Systems

5,081

234

5,315

7,186

12,501

Marine Systems

19,935

7,446

27,381

3,831

31,212

Total

$

57,185

$

12,023

$

69,208

$

33,948

$

103,156

Fourth Quarter 2018:

Aerospace

$

11,208

$

167

$

11,375

$

3,130

$

14,505

Combat Systems

16,174

424

16,598

4,187

20,785

Information Technology

4,717

3,248

7,965

17,066

25,031

Mission Systems

4,890

445

5,335

7,409

12,744

Marine Systems

18,837

7,761

26,598

3,703

30,301

Total

$

55,826

$

12,045

$

67,871

$

35,495

$

103,366

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 Technology

2,190

1,275

3,465

11,367

14,832

Mission Systems

4,549

800

5,349

4,420

9,769

Marine Systems

18,310

5,458

23,768

4,271

28,039

Total

$

54,073

$

8,069

$

62,142

$

25,475

$

87,617

*  

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 G-1

FIRST QUARTER 2019 SIGNIFICANT ORDERS - (UNAUDITED)

DOLLARS IN MILLIONS

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

Combat Systems:

•

$225 from the U.S. Army for inventory management and support services for the Stryker fleet.

•

$160 from the Army for various munitions.

•

$145 from the Army for systems technical support on the Abrams and Stryker programs.

•

$65 from the Army for design and prototype development of the Abrams tank System Enhancement Package Version 4 (SEPv4).

Information Technology:

•

An IDIQ contract from the U.S. Navy to provide cyber mission engineering support services. The program has a maximum potential contract value of $900 among ten awardees.

•

$580 for several key contracts to provide services to classified customers.

•

An IDIQ contract from the Defense Threat Reduction Agency (DTRA) to provide IT support services and capabilities. The program has a maximum potential contract value of $535 among five awardees.

•

An IDIQ contract from the Department of Defense (DoD) to provide cybersecurity, planning, execution and analysis services to the Joint Chiefs of Staff's J7 training activities. The program has a maximum potential contract value of $500 among six awardees.

•

A blanket purchase agreement of $490 from the Defense Information Systems Agency (DISA) to operate, maintain, deploy and manage Pentagon and regional government-furnished network infrastructures.

•  

$125 to provide turnkey training and simulation services for the Army's Aviation Center of Excellence in Fort Rucker, Alabama.

•

$60 from the U.S. Air Force Central Command for communications technical support services in Asia.

•

 $55 from the National Geospatial-Intelligence Agency (NGA) for IT lifecycle management and virtual desktop services.

•

$50 from the U.S. Department of Veterans Affairs to provide managed services to improve service desk interactions with end users.

Mission Systems:

•

$115 from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.

•

$55 to provide development and maintenance services for the Army's Consolidated Project Management (CPM) Next program.

•

$55 from the Navy for the production of Digital Modular Radios (DMR).

•

$45 from the Army for the production of the Prophet Enhanced Tactical Signals Intelligence System.

•

$40 for additional equipment to support the Army's mobile communications network.

EXHIBIT G-2

FIRST QUARTER 2019 SIGNIFICANT ORDERS - (UNAUDITED)

DOLLARS IN MILLIONS

Marine Systems:

•

$2 billion from the Navy for long-lead materials for Block V Virginia-class submarines.

•

$300 from the Navy to provide maintenance and repair services for the Arleigh Burke-class (DDG-51) guided-missile destroyer, Wasp-class amphibious assault ship and Nimitz-class aircraft carrier programs.

•

$210 from the Navy for planning, scheduling and technical support for maintenance activities on the USS South Dakota, a Virginia-class submarine.

•

$70 from the Navy for planning yard services for the DDG-51 destroyer program.

•    

$40 from the Navy to provide non-nuclear maintenance and repair services for submarines located at the Naval Submarine Support Facility in New London, Connecticut.

EXHIBIT H

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

First Quarter

2019

2018

Gulfstream Aircraft Deliveries (units):

Large-cabin aircraft

27

19

Mid-cabin aircraft

7

7

Total

34

26

Pre-owned Aircraft Deliveries (units):

4

1

Aerospace Book-to-Bill:

Orders

$

3,131

$

1,445

Revenue (excluding pre-owned aircraft sales)

2,198

1,817

Book-to-Bill Ratio*

1.42x

0.80x

* 

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