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General Dynamics Reports Third-Quarter 2015 Results

October 28, 2015 7:30 AM

FALLS CHURCH, Va., Oct. 28, 2015 /PRNewswire/ --

  • Revenue up 3.1% to $7.99 billion
  • Operating earnings up 3.5% to $1.03 billion
  • Earnings from continuing operations up 5.6% to $733 million
  • Diluted earnings per share from continuing operations up 11.2% to $2.28

General Dynamics (NYSE: GD) today reported third-quarter 2015 earnings from continuing operations of $733 million, a 5.6 percent increase over third-quarter 2014, on revenue of $7.99 billion. Diluted earnings per share from continuing operations were $2.28 compared to $2.05 in the year-ago quarter, an 11.2 percent increase.

"General Dynamics had another solid quarter," said Phebe Novakovic, chairman and chief executive officer. "This is our fourth consecutive quarter with more than $1 billion in operating earnings, and we expect to maintain this momentum as we see the results of our focus on operating discipline, lower cost structure and execution on our strong backlog."

Margin

Company-wide operating margin for the third quarter of 2015 was 12.9 percent, with margin expansion in the Aerospace and Information Systems and Technology groups when compared to third-quarter 2014.

Cash

Net cash provided by operating activities in the quarter totaled $822 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $652 million.

Capital Deployment

The company repurchased 7.15 million of its outstanding shares in the third quarter. Year-to-date, the company has repurchased 19.28 million outstanding shares.

Backlog

General Dynamics' total backlog at the end of third-quarter 2015 was $68.7 billion. The Aerospace group continued to experience steady demand in the quarter with order activity for each of the products in the Gulfstream portfolio. Also, each of the defense businesses had significant orders in the quarter. The estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25.5 billion. Total potential contract value, the sum of all backlog components, was $94.3 billion at the end of the quarter.

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. The company's revenues in 2014 were $30.9 billion. 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 third-quarter securities analyst conference call at 9 a.m. EDT on Wednesday, October 28, 2015. 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 October 28 and will continue for 12 months. To hear a recording of the conference call by telephone, please call 855-859-2056 (international: 404-537-3406); passcode 59471842. The phone replay will be available from 1 p.m. October 28 through November 4, 2015.

EXHIBIT A

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Third Quarter

Variance

2015

2014

$

%

Revenue

$

7,994

$

7,751

$

243

3.1

%

Operating costs and expenses

6,960

6,752

(208)

Operating earnings

1,034

999

35

3.5

%

Interest, net

(23)

(21)

(2)

Other, net

2

1

1

Earnings from continuing operations before income tax

1,013

979

$

34

3.5

%

Provision for income tax, net

280

285

5

Earnings from continuing operations

$

733

$

694

$

39

5.6

%

Discontinued operations, net of tax

—

2

(2)

Net earnings

$

733

$

696

37

5.3

%

Earnings per share—basic

Continuing operations

$

2.31

$

2.09

$

0.22

10.5

%

Discontinued operations

$

—

$

0.01

$

(0.01)

Net earnings

$

2.31

$

2.10

$

0.21

10.0

%

Basic weighted average shares outstanding

316.7

331.8

Earnings per share—diluted

Continuing operations

$

2.28

$

2.05

$

0.23

11.2

%

Discontinued operations

$

—

$

0.01

$

(0.01)

Net earnings

$

2.28

$

2.06

$

0.22

10.7

%

Diluted weighted average shares outstanding

321.9

338.2

EXHIBIT B

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Nine Months

Variance

2015

2014

$

%

Revenue

$

23,660

$

22,490

$

1,170

5.2

%

Operating costs and expenses

20,518

19,668

(850)

Operating earnings

3,142

2,822

320

11.3

%

Interest, net

(64)

(67)

3

Other, net

5

2

3

Earnings from continuing operations before income tax

3,083

2,757

326

11.8

%

Provision for income tax, net

882

821

(61)

Earnings from continuing operations

$

2,201

$

1,936

$

265

13.7

%

Discontinued operations, net of tax

—

(104)

104

Net earnings

$

2,201

$

1,832

$

369

20.1

%

Earnings per share—basic

Continuing operations

$

6.79

$

5.75

$

1.04

18.1

%

Discontinued operations

$

—

$

(0.31)

$

0.31

Net earnings

$

6.79

$

5.44

$

1.35

24.8

%

Basic weighted average shares outstanding

324.0

336.9

Earnings per share—diluted

Continuing operations

$

6.68

$

5.64

$

1.04

18.4

%

Discontinued operations

$

—

$

(0.30)

$

0.30

Net earnings

$

6.68

$

5.34

$

1.34

25.1

%

Diluted weighted average shares outstanding

329.4

343.1

EXHIBIT C

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Third Quarter

Variance

2015

2014

$

%

Revenue:

Aerospace

$

2,343

$

2,289

$

54

2.4

%

Combat Systems

1,345

1,395

(50)

(3.6)

%

Information Systems and Technology

2,219

2,247

(28)

(1.2)

%

Marine Systems

2,087

1,820

267

14.7

%

Total

$

7,994

$

7,751

$

243

3.1

%

Operating earnings:

Aerospace

$

426

$

411

$

15

3.6

%

Combat Systems

218

232

(14)

(6.0)

%

Information Systems and Technology

219

202

17

8.4

%

Marine Systems

181

170

11

6.5

%

Corporate

(10)

(16)

6

37.5

%

Total

$

1,034

$

999

$

35

3.5

%

Operating margin:

Aerospace

18.2

%

18.0

%

Combat Systems

16.2

%

16.6

%

Information Systems and Technology

9.9

%

9.0

%

Marine Systems

8.7

%

9.3

%

Total

12.9

%

12.9

%

EXHIBIT D

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months

Variance

2015

2014

$

%

Revenue:

Aerospace

$

6,709

$

6,409

$

300

4.7

%

Combat Systems

4,116

4,118

(2)

—

%

Information Systems and Technology

6,804

6,691

113

1.7

%

Marine Systems

6,031

5,272

759

14.4

%

Total

$

23,660

$

22,490

$

1,170

5.2

%

Operating earnings:

Aerospace

$

1,296

$

1,199

$

97

8.1

%

Combat Systems

648

591

57

9.6

%

Information Systems and Technology

673

573

100

17.5

%

Marine Systems

556

510

46

9.0

%

Corporate

(31)

(51)

20

39.2

%

Total

$

3,142

$

2,822

$

320

11.3

%

Operating margin:

Aerospace

19.3

%

18.7

%

Combat Systems

15.7

%

14.4

%

Information Systems and Technology

9.9

%

8.6

%

Marine Systems

9.2

%

9.7

%

Total

13.3

%

12.5

%

EXHIBIT E

CONSOLIDATED BALANCE SHEETS

DOLLARS IN MILLIONS

(Unaudited)

October 4, 2015

December 31, 2014

ASSETS

Current assets:

Cash and equivalents

$

3,372

$

4,388

Accounts receivable

3,796

4,050

Contracts in process

4,215

4,591

Inventories

3,239

3,221

Other current assets

666

1,157

Total current assets

15,288

17,407

Noncurrent assets:

Property, plant and equipment, net

3,370

3,329

Intangible assets, net

800

912

Goodwill

11,533

11,731

Other assets

1,989

1,976

Total noncurrent assets

17,692

17,948

Total assets

$

32,980

$

35,355

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

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

$

501

$

501

Accounts payable

2,387

2,057

Customer advances and deposits

5,871

7,335

Other current liabilities

4,419

3,858

Total current liabilities

13,178

13,751

Noncurrent liabilities:

Long-term debt

2,912

3,410

Other liabilities

6,156

6,365

Total noncurrent liabilities

9,068

9,775

Shareholders' equity:

Common stock

482

482

Surplus

2,697

2,548

Retained earnings

22,655

21,127

Treasury stock

(11,915)

(9,396)

Accumulated other comprehensive loss

(3,185)

(2,932)

Total shareholders' equity

10,734

11,829

Total liabilities and shareholders' equity

$

32,980

$

35,355

EXHIBIT F

CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months Ended

October 4, 2015

September 28, 2014

Cash flows from operating activities—continuing operations:

Net earnings

$

2,201

$

1,832

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

Depreciation of property, plant and equipment

272

285

Amortization of intangible assets

88

91

Equity-based compensation expense

84

94

Excess tax benefit from stock-based compensation

(69)

(66)

Deferred income tax provision

88

94

Discontinued operations, net of tax

—

104

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

Accounts receivable

254

189

Contracts in process

391

380

Inventories

(29)

(259)

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

Accounts payable

334

174

Customer advances and deposits

(1,508)

1,231

Income taxes payable

13

148

Other current and noncurrent liabilities

206

(238)

Other, net

(155)

(261)

Net cash provided by operating activities

2,170

3,798

Cash flows from investing activities:

Maturities of held-to-maturity securities

500

—

Purchases of held-to-maturity securities

—

(500)

Capital expenditures

(360)

(337)

Proceeds from sales of assets

290

7

Other, net

(12)

4

Net cash provided (used) by investing activities

418

(826)

Cash flows from financing activities:

Purchases of common stock

(2,729)

(3,117)

Dividends paid

(655)

(618)

Repayment of fixed-rate notes

(500)

—

Proceeds from stock options exercises

240

475

Other, net

71

66

Net cash used by financing activities

(3,573)

(3,194)

Net cash (used) provided by discontinued operations

(31)

26

Net decrease in cash and equivalents

(1,016)

(196)

Cash and equivalents at beginning of period

4,388

5,301

Cash and equivalents at end of period

$

3,372

$

5,105

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS

Third Quarter 2015

Third Quarter 2014

Other Financial Information:

Debt-to-equity (a)

31.8

%

30.1

%

Debt-to-capital (b)

24.1

%

23.1

%

Book value per share (c)

$

33.95

$

39.26

Total taxes paid

$

246

$

292

Company-sponsored research and development (d)

$

104

$

73

Shares outstanding

316,128,160

331,389,741

Non-GAAP Financial Measures:

2015

2014

Quarter

Year-to-date

Quarter

Year-to-date

Free cash flow from operations:

Net cash provided by operating activities

$

822

$

2,170

$

2,504

$

3,798

Capital expenditures

(170)

(360)

(175)

(337)

Free cash flow from operations (e)

$

652

$

1,810

$

2,329

$

3,461

(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 Gulfstream product-development costs.

(e)

We believe free cash flow from operations is a measurement that is useful to investors because it portrays our ability to generate cash from our core businesses for such purposes as repaying maturing debt, funding business acquisitions 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.

EXHIBIT H

BACKLOG - (UNAUDITED)

DOLLARS IN MILLIONS

Funded

Unfunded

Total

Backlog

Estimated

Potential

Contract Value*

Total Potential

Contract

Value

Third Quarter 2015

Aerospace

$

13,459

$

100

$

13,559

$

2,479

$

16,038

Combat Systems

18,591

658

19,249

5,261

24,510

Information Systems and Technology

7,294

2,122

9,416

15,074

24,490

Marine Systems

14,391

12,127

26,518

2,734

29,252

Total

$

53,735

$

15,007

$

68,742

$

25,548

$

94,290

Second Quarter 2015

Aerospace

$

13,893

$

125

$

14,018

$

2,474

$

16,492

Combat Systems

18,454

476

18,930

5,199

24,129

Information Systems and Technology

7,096

2,037

9,133

15,562

24,695

Marine Systems

15,993

11,952

27,945

2,345

30,290

Total

$

55,436

$

14,590

$

70,026

$

25,580

$

95,606

Third Quarter 2014

Aerospace

$

11,924

$

143

$

12,067

$

1,857

$

13,924

Combat Systems

20,879

732

21,611

5,760

27,371

Information Systems and Technology

7,421

1,452

8,873

16,520

25,393

Marine Systems

14,308

17,574

31,882

2,524

34,406

Total

$

54,532

$

19,901

$

74,433

$

26,661

$

101,094

*

The estimated potential contract value represents management's estimate of our future contract value under 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, as applicable. Because the value in the unfunded IDIQ arrangements is subject to the customer's future exercise of an indeterminate quantity of orders, we recognize these contracts in backlog only when they are funded. Unexercised options are recognized in backlog when the customer exercises the option and establishes a firm order.

EXHIBIT H-1

BACKLOG AND ESTIMATED CONTRACT VALUE - (UNAUDITED)DOLLARS IN MILLIONS

Photo - http://photos.prnewswire.com/prnh/20151027/280964-INFO

EXHIBIT H-2

BACKLOG AND ESTIMATED CONTRACT VALUE BY SEGMENT - (UNAUDITED)DOLLARS IN MILLIONS

Photo - http://photos.prnewswire.com/prnh/20151027/280992-INFO

EXHIBIT I

THIRD QUARTER 2015 SIGNIFICANT ORDERS (UNAUDITED)DOLLARS IN MILLIONS

We received the following significant orders during the third quarter of 2015:

Combat Systems

  • $610 from the U.K. Ministry of Defence to provide in-service support for the AJAX armoured fighting vehicle fleet until 2024.
  • $285 from the U.S. Army to refurbish and upgrade 150 Abrams main battle tanks to the situational awareness configuration for the Kingdom of Morocco under a Foreign Military Sales (FMS) contract.
  • $60 from the Army under the Stryker wheeled armored vehicle program for production of double-V-hulled vehicles.
  • $50 to produce various calibers of ammunition.

Information Systems and Technology

  • $340 from the Centers for Medicare & Medicaid Services for contact-center services.
  • $155 from the Army for ruggedized computing equipment under the CHS-4 program.
  • $100 from the U.S. Air Force to deliver enterprise IT services.
  • $90 from the Army under the Warfighter Field Operations Customer Support (FOCUS) program to provide support for live and virtual operations.
  • $80 from the Army under Increment 2 of the Warfighter Information Network-Tactical (WIN-T) program for additional equipment, engineering and support services.

Marine Systems

  • $265 from the U.S. Navy for design work on the Ohio-class submarine replacement program.
  • $155 from the Navy to provide design, engineering, material and logistics support and research and development activities for active U.S. submarines.
  • $50 from the Navy for the design and manufacture of two moored training ships.

EXHIBIT J

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

Third Quarter

Nine Months

2015

2014

2015

2014

Gulfstream Green Deliveries (units):

Large-cabin aircraft

31

32

87

87

Mid-cabin aircraft

9

6

23

19

Total

40

38

110

106

Gulfstream Outfitted Deliveries (units):

Large-cabin aircraft

31

25

89

84

Mid-cabin aircraft

12

6

27

24

Total

43

31

116

108

Pre-owned Deliveries (units):

—

3

5

3

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SOURCE General Dynamics

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