Exhibit 99.1
| 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
January 27, 2017
General Dynamics Reports Fourth-Quarter, Full-Year 2016 Results
| • | Earnings from continuing operations up 5.6% to $807 million for fourth-quarter and up 3.3% to $3.1 billion for full-year 2016 |
| • | Diluted EPS up 9.2% to $2.62 in fourth-quarter and full-year up 8.7% to $9.87 |
| • | Operating margin in fourth-quarter of 13.6%, a 30 basis-point improvement, and full-year 2016 of 13.7%, a 40 basis-point improvement |
| • | Return on sales of 9.8% in the quarter and full year |
FALLS CHURCH, Va. - General Dynamics (NYSE: GD) today reported fourth-quarter 2016 earnings from continuing operations of $807 million, a 5.6 percent increase over fourth-quarter 2015, on revenue of $8.2 billion. Diluted earnings per share from continuing operations were $2.62 compared to $2.40 in the year-ago quarter, a 9.2 percent increase.
Full-year Results
Full-year earnings from continuing operations were $3.1 billion, a 3.3 percent increase from 2015 on revenue of $31.4 billion. Diluted earnings per share from continuing operations were up 8.7 percent at $9.87 compared to $9.08 in 2015.
“The quarter is solid showing strong growth over the year-ago quarter in both revenue and earnings and the same was true on a sequential basis. These themes played out throughout the business groups as well,” said Phebe Novakovic, chairman and chief executive officer. “The year was strong with growth in earnings, margins, return on sales and an 8.7 percent increase in EPS over the prior year."
Margin
Company-wide operating margin was 13.6 percent for the fourth quarter, 30 basis points higher than the fourth-quarter 2015 margin, with expansion in Aerospace, Information Systems and Technology and Marine Systems. For the full year of 2016, operating margin was 13.7 percent, 40 basis points higher than the full-year 2015 margin.
Segment Highlights:
Aerospace
The Aerospace group reported fourth-quarter 2016 revenue of $2.22 billion, operating earnings of $436 million and operating margin of 19.6 percent. Compared to fourth-quarter 2015, revenue was up 3.8 percent, earnings were up 6.3 percent and margin
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was up 50 basis points. The group had solid order activity in the quarter and Gulfstream's two new large-cabin business jets continue to progress ahead of schedule, including the first flight of the G600 in December.
Combat Systems
Combat Systems reported fourth-quarter 2016 revenue of $1.68 billion, operating earnings of $259 million and operating margin of 15.4 percent. Compared to fourth-quarter 2015, revenue was up 10.5 percent, earnings were up 10.7 percent and margin was steady as the group continued its strong program and operating performance. The group booked multiple significant contracts in the quarter, including a $320 million contract from the U.S. Army for double-V-hulled Stryker vehicles.
Information Systems and Technology
The Information Systems and Technology group reported fourth-quarter 2016 revenue of $2.28 billion, operating earnings of $244 million and operating margin of 10.7 percent. Compared to fourth-quarter 2015, revenue was up 5.7 percent, earnings were up 6.1 percent and margin was up 10 basis points. The group had a book-to-bill ratio (orders divided by revenue) of approximately one-to-one for the year, demonstrating continued demand for its products and services in a cost-competitive market.
Marine Systems
Marine Systems reported fourth-quarter 2016 revenue of $2.04 billion, operating earnings of $186 million and operating margin of 9.1 percent. Compared to fourth-quarter 2015, revenue was up 3 percent, earnings were up 8.1 percent and margin was up 40 basis points. The group continues to execute on its extensive backlog and was awarded significant contracts in the quarter, including $375 million from the U.S. Navy for the design and construction of a fifth Expeditionary Sea Base auxiliary support ship.
Cash
Net cash provided by operating activities for the full year totaled $2.2 billion. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $1.8 billion for the year.
Backlog
General Dynamics’ total backlog at the end of 2016 was $59.8 billion. There was strong demand in the quarter across the company's portfolio. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25 billion. Total potential contract value, the sum of all backlog components, was $84.8 billion at the end of the year.
Outlook
The company will provide its 2017 financial outlook on the financial results conference call, held at 9 a.m. EST, on Friday,
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January 27, 2017. Additional exhibits (Exhibit K, K-1, K-2 and K-3) are included in this release with 2016 results reflecting the new revenue recognition standard, Accounting Standards Codification (ASC) Topic 606, which the company adopted on January 1, 2017. These exhibits provide comparable information to help investors understand the 2017 financial outlook.
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. 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 certain risks and uncertainties, which 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 any 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 fourth-quarter and full-year 2016 financial results conference call at 9 a.m. EST on Friday, January 27, 2017. 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 January 27 and will continue for 12 months. To hear a recording of the conference call by telephone, please call 877-344-7529 (international: 412-317-0088); passcode 10099610. The phone replay will be available from 3 p.m. January 27 through February 3, 2017.
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EXHIBIT A
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
| Three Months Ended December 31 | Variance | |||||||||||||
| 2016 | 2015 | $ | % | |||||||||||
| Revenue | $ | 8,233 | $ | 7,809 | $ | 424 | 5.4 | % | ||||||
| Operating costs and expenses | 7,116 | 6,773 | 343 | |||||||||||
| Operating earnings | 1,117 | 1,036 | 81 | 7.8 | % | |||||||||
| Interest, net | (23 | ) | (19 | ) | (4 | ) | ||||||||
| Other, net | — | 2 | (2 | ) | ||||||||||
| Earnings from continuing operations before income tax | 1,094 | 1,019 | 75 | 7.4 | % | |||||||||
| Provision for income tax, net | 287 | 255 | 32 | |||||||||||
| Earnings from continuing operations | 807 | 764 | 43 | 5.6 | % | |||||||||
| Discontinued operations, net of tax | (10 | ) | — | (10 | ) | |||||||||
| Net earnings | $ | 797 | $ | 764 | $ | 33 | 4.3 | % | ||||||
| Earnings per share—basic | ||||||||||||||
| Continuing operations | $ | 2.67 | $ | 2.44 | $ | 0.23 | 9.4 | % | ||||||
| Discontinued operations | (0.04 | ) | — | (0.04 | ) | |||||||||
| Net earnings | $ | 2.63 | $ | 2.44 | $ | 0.19 | 7.8 | % | ||||||
| Basic weighted average shares outstanding | 302.5 | 313.3 | ||||||||||||
| Earnings per share—diluted | ||||||||||||||
| Continuing operations | $ | 2.62 | $ | 2.40 | $ | 0.22 | 9.2 | % | ||||||
| Discontinued operations | (0.04 | ) | — | (0.04 | ) | |||||||||
| Net earnings | $ | 2.58 | $ | 2.40 | $ | 0.18 | 7.5 | % | ||||||
| Diluted weighted average shares outstanding | 308.5 | 318.3 | ||||||||||||
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EXHIBIT B
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
| Year Ended December 31 | Variance | |||||||||||||
| 2016 | 2015 | $ | % | |||||||||||
| Revenue | $ | 31,353 | $ | 31,469 | $ | (116 | ) | (0.4 | )% | |||||
| Operating costs and expenses | 27,044 | 27,291 | (247 | ) | ||||||||||
| Operating earnings | 4,309 | 4,178 | 131 | 3.1 | % | |||||||||
| Interest, net | (91 | ) | (83 | ) | (8 | ) | ||||||||
| Other, net | 13 | 7 | 6 | |||||||||||
| Earnings from continuing operations before income tax | 4,231 | 4,102 | 129 | 3.1 | % | |||||||||
| Provision for income tax, net | 1,169 | 1,137 | 32 | |||||||||||
| Earnings from continuing operations | 3,062 | 2,965 | 97 | 3.3 | % | |||||||||
| Discontinued operations, net of tax | (107 | ) | — | (107 | ) | |||||||||
| Net earnings | $ | 2,955 | $ | 2,965 | $ | (10 | ) | (0.3 | )% | |||||
| Earnings per share—basic | ||||||||||||||
| Continuing operations | $ | 10.05 | $ | 9.23 | $ | 0.82 | 8.9 | % | ||||||
| Discontinued operations | (0.35 | ) | — | (0.35 | ) | |||||||||
| Net earnings | $ | 9.70 | $ | 9.23 | $ | 0.47 | 5.1 | % | ||||||
| Basic weighted average shares outstanding | 304.7 | 321.3 | ||||||||||||
| Earnings per share—diluted | ||||||||||||||
| Continuing operations | $ | 9.87 | $ | 9.08 | $ | 0.79 | 8.7 | % | ||||||
| Discontinued operations | (0.35 | ) | — | (0.35 | ) | |||||||||
| Net earnings | $ | 9.52 | $ | 9.08 | $ | 0.44 | 4.8 | % | ||||||
| Diluted weighted average shares outstanding | 310.4 | 326.7 | ||||||||||||
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EXHIBIT C
REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
| Three Months Ended December 31 | Variance | ||||||||||||||
| 2016 | 2015 | $ | % | ||||||||||||
| Revenue: | |||||||||||||||
| Aerospace | $ | 2,224 | $ | 2,142 | $ | 82 | 3.8 | % | |||||||
| Combat Systems | 1,684 | 1,524 | 160 | 10.5 | % | ||||||||||
| Information Systems and Technology | 2,284 | 2,161 | 123 | 5.7 | % | ||||||||||
| Marine Systems | 2,041 | 1,982 | 59 | 3.0 | % | ||||||||||
| Total | $ | 8,233 | $ | 7,809 | $ | 424 | 5.4 | % | |||||||
| Operating earnings: | |||||||||||||||
| Aerospace | $ | 436 | $ | 410 | $ | 26 | 6.3 | % | |||||||
| Combat Systems | 259 | 234 | 25 | 10.7 | % | ||||||||||
| Information Systems and Technology | 244 | 230 | 14 | 6.1 | % | ||||||||||
| Marine Systems | 186 | 172 | 14 | 8.1 | % | ||||||||||
| Corporate | (8 | ) | (10 | ) | 2 | 20.0 | % | ||||||||
| Total | $ | 1,117 | $ | 1,036 | $ | 81 | 7.8 | % | |||||||
| Operating margin: | |||||||||||||||
| Aerospace | 19.6 | % | 19.1 | % | |||||||||||
| Combat Systems | 15.4 | % | 15.4 | % | |||||||||||
| Information Systems and Technology | 10.7 | % | 10.6 | % | |||||||||||
| Marine Systems | 9.1 | % | 8.7 | % | |||||||||||
| Total | 13.6 | % | 13.3 | % | |||||||||||
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EXHIBIT D
REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
| Year Ended December 31 | Variance | ||||||||||||||
| 2016 | 2015 | $ | % | ||||||||||||
| Revenue: | |||||||||||||||
| Aerospace | $ | 8,362 | $ | 8,851 | $ | (489 | ) | (5.5 | )% | ||||||
| Combat Systems | 5,602 | 5,640 | (38 | ) | (0.7 | )% | |||||||||
| Information Systems and Technology | 9,187 | 8,965 | 222 | 2.5 | % | ||||||||||
| Marine Systems | 8,202 | 8,013 | 189 | 2.4 | % | ||||||||||
| Total | $ | 31,353 | $ | 31,469 | $ | (116 | ) | (0.4 | )% | ||||||
| Operating earnings: | |||||||||||||||
| Aerospace | $ | 1,718 | $ | 1,706 | $ | 12 | 0.7 | % | |||||||
| Combat Systems | 914 | 882 | 32 | 3.6 | % | ||||||||||
| Information Systems and Technology | 992 | 903 | 89 | 9.9 | % | ||||||||||
| Marine Systems | 725 | 728 | (3 | ) | (0.4 | )% | |||||||||
| Corporate | (40 | ) | (41 | ) | 1 | 2.4 | % | ||||||||
| Total | $ | 4,309 | $ | 4,178 | $ | 131 | 3.1 | % | |||||||
| Operating margin: | |||||||||||||||
| Aerospace | 20.5 | % | 19.3 | % | |||||||||||
| Combat Systems | 16.3 | % | 15.6 | % | |||||||||||
| Information Systems and Technology | 10.8 | % | 10.1 | % | |||||||||||
| Marine Systems | 8.8 | % | 9.1 | % | |||||||||||
| Total | 13.7 | % | 13.3 | % | |||||||||||
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EXHIBIT E
CONSOLIDATED BALANCE SHEETS
DOLLARS IN MILLIONS
| (Unaudited) | ||||||||
| December 31, 2016 | December 31, 2015 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and equivalents | $ | 2,334 | $ | 2,785 | ||||
| Accounts receivable | 3,611 | 3,446 | ||||||
| Contracts in process | 5,282 | 4,357 | ||||||
| Inventories | 3,523 | 3,366 | ||||||
| Other current assets | 697 | 617 | ||||||
| Total current assets | 15,447 | 14,571 | ||||||
| Noncurrent assets: | ||||||||
| Property, plant and equipment, net | 3,467 | 3,466 | ||||||
| Intangible assets, net | 678 | 763 | ||||||
| Goodwill | 11,445 | 11,443 | ||||||
| Other assets | 1,835 | 1,754 | ||||||
| Total noncurrent assets | 17,425 | 17,426 | ||||||
| Total assets | $ | 32,872 | $ | 31,997 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term debt and current portion of long-term debt | $ | 900 | $ | 501 | ||||
| Accounts payable | 2,538 | 1,964 | ||||||
| Customer advances and deposits | 4,939 | 5,674 | ||||||
| Other current liabilities | 4,469 | 4,306 | ||||||
| Total current liabilities | 12,846 | 12,445 | ||||||
| Noncurrent liabilities: | ||||||||
| Long-term debt | 2,988 | 2,898 | ||||||
| Other liabilities | 6,062 | 5,916 | ||||||
| Total noncurrent liabilities | 9,050 | 8,814 | ||||||
| Shareholders' equity: | ||||||||
| Common stock | 482 | 482 | ||||||
| Surplus | 2,819 | 2,730 | ||||||
| Retained earnings | 25,227 | 23,204 | ||||||
| Treasury stock | (14,156 | ) | (12,392 | ) | ||||
| Accumulated other comprehensive loss | (3,396 | ) | (3,286 | ) | ||||
| Total shareholders' equity | 10,976 | 10,738 | ||||||
| Total liabilities and shareholders' equity | $ | 32,872 | $ | 31,997 | ||||
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EXHIBIT F
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
DOLLARS IN MILLIONS
| Year Ended December 31 | ||||||||
| 2016 | 2015* | |||||||
| Cash flows from operating activities—continuing operations: | ||||||||
| Net earnings | $ | 2,955 | $ | 2,965 | ||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
| Depreciation of property, plant and equipment | 366 | 366 | ||||||
| Amortization of intangible assets | 88 | 116 | ||||||
| Equity-based compensation expense | 100 | 110 | ||||||
| Deferred income tax provision | 376 | 167 | ||||||
| Discontinued operations, net of tax | 107 | — | ||||||
| (Increase) decrease in assets, net of effects of business acquisitions: | ||||||||
| Accounts receivable | (161 | ) | 604 | |||||
| Contracts in process | (1,033 | ) | 231 | |||||
| Inventories | (154 | ) | (156 | ) | ||||
| Increase (decrease) in liabilities, net of effects of business acquisitions: | ||||||||
| Accounts payable | 567 | (89 | ) | |||||
| Customer advances and deposits | (825 | ) | (1,756 | ) | ||||
| Other current liabilities | (30 | ) | (52 | ) | ||||
| Other, net | (158 | ) | 101 | |||||
| Net cash provided by operating activities | 2,198 | 2,607 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (392 | ) | (569 | ) | ||||
| Maturities of held-to-maturity securities | — | 500 | ||||||
Proceeds from sales of assets | 9 | 291 | ||||||
| Other, net | (43 | ) | (22 | ) | ||||
| Net cash (used) provided by investing activities | (426 | ) | 200 | |||||
| Cash flows from financing activities: | ||||||||
| Purchases of common stock | (1,996 | ) | (3,233 | ) | ||||
| Proceeds from fixed-rate notes | 992 | — | ||||||
| Dividends paid | (911 | ) | (873 | ) | ||||
| Repayment of fixed-rate notes | (500 | ) | (500 | ) | ||||
| Proceeds from stock option exercises | 292 | 268 | ||||||
| Other, net | (46 | ) | (29 | ) | ||||
| Net cash used by financing activities | (2,169 | ) | (4,367 | ) | ||||
| Net cash used by discontinued operations | (54 | ) | (43 | ) | ||||
| Net decrease in cash and equivalents | (451 | ) | (1,603 | ) | ||||
| Cash and equivalents at beginning of year | 2,785 | 4,388 | ||||||
| Cash and equivalents at end of year | $ | 2,334 | $ | 2,785 | ||||
| * | Prior period information has been restated to reflect the reclassification of certain items in accordance with Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which we adopted in the second quarter of 2016. |
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EXHIBIT G
PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
| 2016 | 2015 | |||||||||||||||
| Fourth Quarter | Fourth Quarter | |||||||||||||||
| Other Financial Information: | ||||||||||||||||
Return on equity (a) | 28.0 | % | 26.4 | % | ||||||||||||
| Debt-to-equity (b) | 35.4 | % | 31.7 | % | ||||||||||||
| Debt-to-capital (c) | 26.2 | % | 24.0 | % | ||||||||||||
| Book value per share (d) | $ | 36.29 | $ | 34.31 | ||||||||||||
| Total taxes paid | $ | 282 | $ | 95 | ||||||||||||
| Company-sponsored research and development (e) | $ | 94 | $ | 94 | ||||||||||||
| Shares outstanding | 302,418,528 | 312,987,277 | ||||||||||||||
| Non-GAAP Financial Measures: | ||||||||||||||||
| 2016 | 2015 (f) | |||||||||||||||
| Fourth Quarter | Twelve Months | Fourth Quarter | Twelve Months | |||||||||||||
| Free cash flow from operations: | ||||||||||||||||
| Net cash provided by operating activities | $ | 826 | $ | 2,198 | $ | 337 | $ | 2,607 | ||||||||
| Capital expenditures | (148 | ) | (392 | ) | (209 | ) | (569 | ) | ||||||||
| Free cash flow from operations (g) | $ | 678 | $ | 1,806 | $ | 128 | $ | 2,038 | ||||||||
| Return on invested capital: | ||||||||||||||||
| Earnings from continuing operations | $ | 3,062 | $ | 2,965 | ||||||||||||
| After-tax interest expense | 64 | 64 | ||||||||||||||
| After-tax amortization expense | 57 | 75 | ||||||||||||||
| Net operating profit after taxes | 3,183 | 3,104 | ||||||||||||||
| Average invested capital | 17,619 | 17,858 | ||||||||||||||
| Return on invested capital (h) | 18.1 | % | 17.4 | % | ||||||||||||
Notes describing the calculation of the other financial information and a reconciliation of non-GAAP financial measures are on the following page.
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EXHIBIT G (cont.)
PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
| (a) | Return on equity is calculated by dividing earnings from continuing operations for the latest 12-month period by our average equity during that period. |
| (b) | Debt-to-equity ratio is calculated as total debt divided by total equity as of the end of the period. |
| (c) | 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. |
| (d) | Book value per share is calculated as total equity divided by total outstanding shares as of the end of the period. |
| (e) | Includes independent research and development and Aerospace product-development costs. |
| (f) | Prior period information has been restated to reflect the reclassification of certain items in accordance with ASU 2016-09, which we adopted in the second quarter of 2016. |
| (g) | 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 performance measure in evaluating management. The most directly comparable GAAP measure to free cash flow from operations is net cash provided by operating activities. |
| (h) | We believe return on invested capital (ROIC) is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as earnings from continuing operations plus after-tax interest and amortization expense. Average invested capital is defined as the sum of the average debt and shareholders' equity for the year. ROIC excludes accumulated other comprehensive loss, goodwill impairments and non-economic accounting changes as they are not reflective of our operating performance. The most directly comparable GAAP measure to net operating profit after taxes is earnings from continuing operations. After-tax interest and amortization expense is calculated using the statutory tax rate of 35 percent. |
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EXHIBIT H
BACKLOG - (UNAUDITED)
DOLLARS IN MILLIONS
| Funded | Unfunded | Total Backlog | Estimated Potential Contract Value* | Total Potential Contract Value | ||||||||||||||||
| Fourth Quarter 2016 | ||||||||||||||||||||
| Aerospace | $ | 10,893 | $ | 96 | $ | 10,989 | $ | 2,127 | $ | 13,116 | ||||||||||
| Combat Systems | 17,124 | 597 | 17,721 | 4,698 | 22,419 | |||||||||||||||
Information Systems and Technology | 6,425 | 2,015 | 8,440 | 14,327 | 22,767 | |||||||||||||||
Marine Systems | 14,927 | 7,723 | 22,650 | 3,873 | 26,523 | |||||||||||||||
| Total | $ | 49,369 | $ | 10,431 | $ | 59,800 | $ | 25,025 | $ | 84,825 | ||||||||||
| Third Quarter 2016 | ||||||||||||||||||||
| Aerospace | $ | 11,415 | $ | 108 | $ | 11,523 | $ | 2,158 | $ | 13,681 | ||||||||||
| Combat Systems | 17,659 | 436 | 18,095 | 4,469 | 22,564 | |||||||||||||||
| Information Systems and Technology | 7,143 | 2,057 | 9,200 | 14,444 | 23,644 | |||||||||||||||
| Marine Systems | 15,152 | 8,001 | 23,153 | 4,172 | 27,325 | |||||||||||||||
| Total | $ | 51,369 | $ | 10,602 | $ | 61,971 | $ | 25,243 | $ | 87,214 | ||||||||||
| Fourth Quarter 2015 | ||||||||||||||||||||
| Aerospace | $ | 13,292 | $ | 106 | $ | 13,398 | $ | 2,437 | $ | 15,835 | ||||||||||
| Combat Systems | 18,398 | 597 | 18,995 | 5,059 | 24,054 | |||||||||||||||
| Information Systems and Technology | 6,827 | 1,755 | 8,582 | 14,702 | 23,284 | |||||||||||||||
| Marine Systems | 13,266 | 11,879 | 25,145 | 2,263 | 27,408 | |||||||||||||||
| Total | $ | 51,783 | $ | 14,337 | $ | 66,120 | $ | 24,461 | $ | 90,581 | ||||||||||
| * | 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 agreements with fleet customers. The actual amount of funding received in the future may be higher or lower than our estimate of potential contract value. We recognize options in backlog when the customer exercises the option and establishes a firm order. |
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EXHIBIT I
FOURTH QUARTER 2016 SIGNIFICANT ORDERS - (UNAUDITED)
DOLLARS IN MILLIONS
We received the following significant orders during the fourth quarter of 2016:
Combat Systems
| • | $320 from the U.S. Army for double-V-hulled vehicles under the Stryker Engineering Change Proposal (ECP) upgrade program and associated program management. |
| • | $260 from an international customer for the upgrade and modernization of light armored vehicles (LAVs). |
| • | $70 from the Army for munitions and ordnance. |
| • | $70 to produce Pandur armored vehicles and provide associated support services to the Austrian army. |
| • | $65 to convert Abrams M1A2 tanks to the M1A2S configuration for the Kingdom of Saudi Arabia. |
| • | $65 from the Army for contractor logistics support on the Abrams main battle tank program. |
| • | $65 to produce M3 amphibious bridging vehicles for a country in Southeast Asia. |
| • | $60 from the Irish Department of Defence for the upgrade and maintenance of Piranha III armored vehicles. |
| • | $50 from the Canadian government for various calibers of ammunition. |
| • | $45 to produce Piranha armored vehicles and provide associated support services to the Romanian army. |
Information Systems and Technology
| • | $90 from the U.S. Navy to provide fire control system modifications for ballistic-missile (SSBN) submarines. |
| • | $75 for support on the Canadian Maritime Helicopter Project (MHP). |
| • | $70 to provide support services for live and virtual training operations under the Warfighter Field Operations Customer Support (FOCUS) program. |
| • | $40 from the U.S. Census Bureau to provide contact-center systems and operations support for the 2020 Census Questionnaire Assistance program. |
| • | $35 from the Navy for missile guidance systems. |
Marine Systems
| • | $375 from the Navy for the design and construction of a fifth Expeditionary Sea Base (ESB) auxiliary support ship. |
| • | $145 from the Navy for maintenance and modernization work on the USS Montpelier, a Los Angeles-class attack submarine. |
| • | $80 from the Navy for planning yard services for the DDG-51 and FFG-7 Oliver Hazard Perry-class frigate programs. |
| • | $75 from the Navy for Advanced Nuclear Plant Studies in support of the Columbia-class submarine program (the Ohio-class submarine replacement program). |
| • | $55 from the Navy to provide ongoing lead yard services for the DDG-51 program. |
| • | $45 from the Navy to provide repair and modernization services for submarines located at Naval Submarine Base New London in Connecticut. |
| • | $40 from the Navy for maintenance and modernization work on the USS Spruance and USS Gonzalez DDG-51 destroyers. |
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EXHIBIT J
AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)
| Fourth Quarter | Twelve Months | |||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||
| Gulfstream Green Deliveries (units): | ||||||||||||
| Large-cabin aircraft | 30 | 25 | 104 | 112 | ||||||||
| Mid-cabin aircraft | 6 | 12 | 24 | 35 | ||||||||
| Total | 36 | 37 | 128 | 147 | ||||||||
| Gulfstream Outfitted Deliveries (units): | ||||||||||||
| Large-cabin aircraft | 21 | 31 | 88 | 120 | ||||||||
| Mid-cabin aircraft | 6 | 7 | 27 | 34 | ||||||||
| Total | 27 | 38 | 115 | 154 | ||||||||
| Pre-owned Deliveries (units): | 2 | 2 | 8 | 7 | ||||||||
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| General Dynamics will provide its 2017 financial outlook on the financial results conference call, held at 9 a.m. EST, on Friday, January 27, 2017. | ||||
| The following exhibits present 2016 results restated to reflect Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. | ||||
| These exhibits provide comparable information to help investors understand the 2017 financial outlook. | ||||
EXHIBIT K
REVENUE RECOGNITION ACCOUNTING CHANGE AS OF JANUARY 1, 2017
We adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, on January 1, 2017. ASC Topic 606 was issued by the Financial Accounting Standards Board (FASB), and requires the use of a five-step model for revenue recognition on our contracts.
ASC Topic 606 Impacts
The majority of our long-term contracts will continue to recognize revenue and earnings over time as the work progresses. Adoption of the new standard has two notable impacts:
| • | We will use the cumulative catch-up method for recognizing adjustments in estimated profit on long-term contracts. The total impact of an adjustment in estimated profit recorded to date on a contract will be recognized in the period it is identified, rather than prospectively over the remaining contract term. Adjustments in contract estimates may be larger and more variable from period to period, particularly on our contracts of greater value and with a longer performance period (for example, in our Marine Systems group). |
| • | For our contracts for the manufacture of Gulfstream business-jet aircraft, we will record revenue at a single point in time when control is transferred to the customer at entry into service as opposed to our past practice of recognizing revenue at two contractual milestones, green and outfitted aircraft delivery. |
These accounting changes impact only the timing of when we recognize revenue and earnings. They will not alter the cash flows or overall profitability of our contracts.
Adoption Method
We adopted ASC Topic 606 using the retrospective transition method. The benefit of the retrospective method of adoption is that it permits comparisons from period to period since all periods are presented on the same basis of accounting. Therefore, selected 2016 financial information is presented reflecting the adoption of ASC Topic 606 in the following exhibits to provide comparability with our 2017 forecasted results.
Prior-period (2015 and 2016) financial information will be restated in our 2017 Form 10-Q and 10-K filings, as applicable.
Other Financial Impacts
The revenue recognition accounting change is not expected to impact net cash provided by operating activities or free cash flow from operations. On the balance sheet, we anticipate some reclassifications between balance sheet accounts, but they are not expected to materially change the amount of net assets.
Additional information related to this change is contained in the company’s third-quarter 2016 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 26, 2016.
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EXHIBIT K-1
REVENUE RECOGNITION ACCOUNTING CHANGE AS OF JANUARY 1, 2017
2016 AS REPORTED AND RESTATED RESULTS - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
| 2016 REPORTED | ||||||||||||||||||||
| 1Q | 2Q | 3Q | 4Q | Full Year | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Aerospace | $ | 1,987 | $ | 2,134 | $ | 2,017 | $ | 2,224 | $ | 8,362 | ||||||||||
| Combat Systems | 1,273 | 1,315 | 1,330 | 1,684 | 5,602 | |||||||||||||||
| Information Systems and Technology | 2,333 | 2,229 | 2,341 | 2,284 | 9,187 | |||||||||||||||
| Marine Systems | 2,131 | 1,987 | 2,043 | 2,041 | 8,202 | |||||||||||||||
| Total | $ | 7,724 | $ | 7,665 | $ | 7,731 | $ | 8,233 | $ | 31,353 | ||||||||||
| Operating earnings: | ||||||||||||||||||||
| Aerospace | $ | 411 | $ | 434 | $ | 437 | $ | 436 | $ | 1,718 | ||||||||||
| Combat Systems | 217 | 219 | 219 | 259 | 914 | |||||||||||||||
| Information Systems and Technology | 248 | 244 | 256 | 244 | 992 | |||||||||||||||
| Marine Systems | 192 | 181 | 166 | 186 | 725 | |||||||||||||||
| Corporate | (15 | ) | (8 | ) | (9 | ) | (8 | ) | (40 | ) | ||||||||||
| Total | $ | 1,053 | $ | 1,070 | $ | 1,069 | $ | 1,117 | $ | 4,309 | ||||||||||
Earnings per share (a) | $ | 2.37 | $ | 2.40 | $ | 2.48 | $ | 2.62 | $ | 9.87 | ||||||||||
| 2016 RESTATED (b) | ||||||||||||||||||||
| 1Q | 2Q | 3Q | 4Q | Full Year | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Aerospace | $ | 1,781 | $ | 2,284 | $ | 1,925 | $ | 1,825 | $ | 7,815 | ||||||||||
| Combat Systems | 1,245 | 1,297 | 1,327 | 1,661 | 5,530 | |||||||||||||||
| Information Systems and Technology | 2,328 | 2,215 | 2,330 | 2,271 | 9,144 | |||||||||||||||
| Marine Systems | 2,122 | 1,978 | 2,075 | 1,897 | 8,072 | |||||||||||||||
| Total | $ | 7,476 | $ | 7,774 | $ | 7,657 | $ | 7,654 | $ | 30,561 | ||||||||||
| Operating earnings: | ||||||||||||||||||||
| Aerospace | $ | 332 | $ | 424 | $ | 377 | $ | 274 | $ | 1,407 | ||||||||||
| Combat Systems | 187 | 205 | 209 | 230 | 831 | |||||||||||||||
| Information Systems and Technology | 237 | 234 | 239 | 231 | 941 | |||||||||||||||
| Marine Systems | 184 | 172 | 197 | 42 | 595 | |||||||||||||||
| Corporate | (16 | ) | (8 | ) | (7 | ) | (9 | ) | (40 | ) | ||||||||||
| Total | $ | 924 | $ | 1,027 | $ | 1,015 | $ | 768 | $ | 3,734 | ||||||||||
| Earnings per share (a) | $ | 2.08 | $ | 2.30 | $ | 2.36 | $ | 1.89 | $ | 8.64 | ||||||||||
(a) Diluted earnings per share from continuing operations.
(b) We adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, on January 1, 2017. Our 2016 results have been restated above under ASC Topic 606 and are included to provide comparability with our 2017 forecasted results. The difference between the reported and restated results is due solely to the adoption of ASC Topic 606.
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EXHIBIT K-2
REVENUE RECOGNITION ACCOUNTING CHANGE AS OF JANUARY 1, 2017
2016 RESTATED RESULTS AND MARGINS - (UNAUDITED)
DOLLARS IN MILLIONS
| 2016 RESTATED* | ||||||||||||||||||||
| 1Q | 2Q | 3Q | 4Q | Full Year | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Aerospace | $ | 1,781 | $ | 2,284 | $ | 1,925 | $ | 1,825 | $ | 7,815 | ||||||||||
| Combat Systems | 1,245 | 1,297 | 1,327 | 1,661 | 5,530 | |||||||||||||||
| Information Systems and Technology | 2,328 | 2,215 | 2,330 | 2,271 | 9,144 | |||||||||||||||
| Marine Systems | 2,122 | 1,978 | 2,075 | 1,897 | 8,072 | |||||||||||||||
| Total | $ | 7,476 | $ | 7,774 | $ | 7,657 | $ | 7,654 | $ | 30,561 | ||||||||||
| Operating earnings: | ||||||||||||||||||||
| Aerospace | $ | 332 | $ | 424 | $ | 377 | $ | 274 | $ | 1,407 | ||||||||||
| Combat Systems | 187 | 205 | 209 | 230 | 831 | |||||||||||||||
| Information Systems and Technology | 237 | 234 | 239 | 231 | 941 | |||||||||||||||
| Marine Systems | 184 | 172 | 197 | 42 | 595 | |||||||||||||||
| Corporate | (16 | ) | (8 | ) | (7 | ) | (9 | ) | (40 | ) | ||||||||||
| Total | $ | 924 | $ | 1,027 | $ | 1,015 | $ | 768 | $ | 3,734 | ||||||||||
| Operating margin: | ||||||||||||||||||||
| Aerospace | 18.6 | % | 18.6 | % | 19.6 | % | 15.0 | % | 18.0 | % | ||||||||||
| Combat Systems | 15.0 | % | 15.8 | % | 15.7 | % | 13.8 | % | 15.0 | % | ||||||||||
| Information Systems and Technology | 10.2 | % | 10.6 | % | 10.3 | % | 10.2 | % | 10.3 | % | ||||||||||
| Marine Systems | 8.7 | % | 8.7 | % | 9.5 | % | 2.2 | % | 7.4 | % | ||||||||||
| Total | 12.4 | % | 13.2 | % | 13.3 | % | 10.0 | % | 12.2 | % | ||||||||||
* We adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, on January 1, 2017. Our 2016 results have been restated above under ASC Topic 606 and are included to provide comparability with our 2017 forecasted results. The difference between the reported and restated results is due solely to the adoption of ASC Topic 606.
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EXHIBIT K-3
REVENUE RECOGNITION ACCOUNTING CHANGE AS OF JANUARY 1, 2017
2016 GULFSTREAM AIRCRAFT DELIVERIES - (UNAUDITED)
| 1Q | 2Q | 3Q | 4Q | Full Year | |||||||||||
| Green aircraft deliveries | 31 | 31 | 30 | 36 | 128 | ||||||||||
| Outfitted aircraft deliveries* | 27 | 34 | 27 | 27 | 115 | ||||||||||
* We adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, on January 1, 2017. Under ASC Topic 606, aircraft revenue is recognized at a single point in time, generally when the customer accepts the fully outfitted aircraft. Our 2016 restated results in Exhibits K-1 and K-2 are based on outfitted aircraft deliveries as defined under ASC Topic 606.
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