GENERAL DYNAMICS CORPORATION FALLS CHURCH, Va., Jan. 27, 2017 /PRNewswire/ --
-- 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
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 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, 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.
EXHIBIT A
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Three Months Ended Variance
December 31
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
===== =====
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
===== =====
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%
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%
EXHIBIT E
CONSOLIDATED BALANCE SHEETS
DOLLARS IN MILLIONS
(Unaudited)
December 31, December 31,
2016 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
======= =======
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.
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 $94 $94
development (e)
Shares outstanding 302,418,528 312,987,277
Non-GAAP Financial Measures:
----------------------------
2016 2015 (f)
---- -------
Fourth Twelve Fourth Twelve
Quarter Months Quarter 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.
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.
EXHIBIT H
BACKLOG - (UNAUDITED)
DOLLARS IN MILLIONS
Funded Unfunded Total Estimated Total Potential
Backlog Potential Contract
Contract Value* 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.
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.
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
----------- === === === ===
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.
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.
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.
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.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/general-dynamics-reports-fourth-quarter-full-year-2016-results-300397843.html
SOURCE General Dynamics
