General Dynamics Reports Fourth-Quarter, Full-Year 2015 Results

27 Jan, 2016, 09:00 ET from General Dynamics

FALLS CHURCH, Va., Jan. 27, 2016 /PRNewswire/ --

  • Full-year operating earnings growth in every group
  • Operating margin in the quarter and full-year of 13.3% 
  • Earnings from continuing operations up 3.7% to $764 million for the fourth quarter and 10.9% to $3 billion for 2015 
  • Diluted EPS from continuing operations up 9.6% to $2.40 in the quarter and up 16% at $9.08 for 2015 
  • Return on sales of 9.8% in the quarter and 9.4% for the year

General Dynamics (NYSE: GD) today reported fourth-quarter 2015 earnings from continuing operations of $764 million, a 3.7 percent increase over fourth-quarter 2014, on revenue of $7.8 billion. Diluted earnings per share from continuing operations were $2.40 compared to $2.19 in the year-ago quarter, a 9.6 percent increase.

Full-year Results

Full-year earnings from continuing operations rose to $3 billion from $2.7 billion in 2014, a 10.9 percent increase. Diluted earnings per share from continuing operations were up 16 percent at $9.08 compared to $7.83 in 2014. Revenue for 2015 was up 2 percent, to $31.5 billion.

"General Dynamics had another record-setting year of financial performance, with operating earnings, margins, earnings from continuing operations, EPS and return on sales at the highest levels in the company's history," said Phebe Novakovic, chairman and chief executive officer.  "We have a healthy and stable backlog with the defense businesses executing on recent program wins, and Aerospace's backlog is growing year-over-year reflecting strong order activity throughout 2015.

"Over the past 36 months, this management team has demonstrated the value of focusing on operations, managing the business for cash and earnings, and growing return on invested capital. The company's accomplishments in 2015 illustrate the strength of our approach and support our commitment to disciplined growth."

Revenue

Revenue for the fourth quarter of 2015 was $7.8 billion. For the full year of 2015, revenue was $31.5 billion, a 2 percent increase compared to 2014. The Aerospace and Marine Systems groups increased revenue in 2015, with Marine Systems growing by more than 9 percent.

Margin

Company-wide operating margin for fourth-quarter and full-year 2015 was 13.3 percent. Margins grew 50 basis points over the fourth quarter of 2014 and 70 basis points for the full year, with expansion in Aerospace, Combat Systems and Information Systems and Technology during the year.

Cash

Net cash provided by operating activities for the full year totaled $2.5 billion. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $1.9 billion for the year.

Backlog

General Dynamics' total backlog at the end of 2015 was $66.1 billion. It was another strong quarter for the Aerospace group, with order activity in each of the Gulfstream products and across their global market. The estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $24.5 billion. Total potential contract value, the sum of all backlog components, was $90.6 billion at the end of the year.

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 securities analyst conference call at 11:30 a.m. EST on Wednesday, January 27, 2016. 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 3 p.m. on January 27 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 22028571. The phone replay will be available from 3 p.m. January 27 through March 3, 2016.

 

 

EXHIBIT A

 

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Fourth Quarter

Variance

2015

2014

$

%

Revenue

$

7,809

$

8,362

$

(553)

(6.6)

%

Operating costs and expenses

6,773

7,295

522

Operating earnings

1,036

1,067

(31)

(2.9)

%

Interest, net

(19)

(19)

Other, net

2

(3)

5

Earnings from continuing operations before income tax

1,019

1,045

(26)

(2.5)

%

Provision for income tax, net

255

308

53

Earnings from continuing operations

$

764

$

737

$

27

3.7

%

Discontinued operations, net of tax

(36)

36

Net earnings

$

764

$

701

$

63

9.0

%

Earnings per share—basic

Continuing operations

$

2.44

$

2.23

$

0.21

9.4

%

Discontinued operations

$

$

(0.11)

$

0.11

Net earnings

$

2.44

$

2.12

$

0.32

15.1

%

Basic weighted average shares outstanding

313.3

330.0

Earnings per share—diluted

Continuing operations

$

2.40

$

2.19

$

0.21

9.6

%

Discontinued operations

$

$

(0.10)

$

0.10

Net earnings

$

2.40

$

2.09

$

0.31

14.8

%

Diluted weighted average shares outstanding

318.3

335.8

 

 

EXHIBIT B

 

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Twelve Months

Variance

2015

2014

$

%

Revenue

$

31,469

$

30,852

$

617

2.0

%

Operating costs and expenses

27,291

26,963

(328)

Operating earnings

4,178

3,889

289

7.4

%

Interest, net

(83)

(86)

3

Other, net

7

(1)

8

Earnings from continuing operations before income tax

4,102

3,802

300

7.9

%

Provision for income tax, net

1,137

1,129

(8)

Earnings from continuing operations

$

2,965

$

2,673

$

292

10.9

%

Discontinued operations, net of tax

(140)

140

Net earnings

$

2,965

$

2,533

$

432

17.1

%

Earnings per share—basic

Continuing operations

$

9.23

$

7.97

$

1.26

15.8

%

Discontinued operations

$

$

(0.41)

$

0.41

Net earnings

$

9.23

$

7.56

$

1.67

22.1

%

Basic weighted average shares outstanding

321.3

335.2

Earnings per share—diluted

Continuing operations

$

9.08

$

7.83

$

1.25

16.0

%

Discontinued operations

$

$

(0.41)

$

0.41

Net earnings

$

9.08

$

7.42

$

1.66

22.4

%

Diluted weighted average shares outstanding

326.7

341.3

 

 

EXHIBIT C

 

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Fourth Quarter

Variance

2015

2014

$

%

Revenue:

Aerospace

$

2,142

$

2,240

$

(98)

(4.4)

%

Combat Systems

1,524

1,614

(90)

(5.6)

%

Information Systems and Technology

2,161

2,468

(307)

(12.4)

%

Marine Systems

1,982

2,040

(58)

(2.8)

%

Total

$

7,809

$

8,362

$

(553)

(6.6)

%

Operating earnings:

Aerospace

$

410

$

412

$

(2)

(0.5)

%

Combat Systems

234

271

(37)

(13.7)

%

Information Systems and Technology

230

212

18

8.5

%

Marine Systems

172

193

(21)

(10.9)

%

Corporate

(10)

(21)

11

52.4

%

Total

$

1,036

$

1,067

$

(31)

(2.9)

%

Operating margin:

Aerospace

19.1

%

18.4

%

Combat Systems

15.4

%

16.8

%

Information Systems and Technology

10.6

%

8.6

%

Marine Systems

8.7

%

9.5

%

Total

13.3

%

12.8

%

 

 

EXHIBIT D

 

REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Twelve Months

Variance

2015

2014

$

%

Revenue:

Aerospace

$

8,851

$

8,649

$

202

2.3

%

Combat Systems

5,640

5,732

(92)

(1.6)

%

Information Systems and Technology

8,965

9,159

(194)

(2.1)

%

Marine Systems

8,013

7,312

701

9.6

%

Total

$

31,469

$

30,852

$

617

2.0

%

Operating earnings:

Aerospace

$

1,706

$

1,611

$

95

5.9

%

Combat Systems

882

862

20

2.3

%

Information Systems and Technology

903

785

118

15.0

%

Marine Systems

728

703

25

3.6

%

Corporate

(41)

(72)

31

43.1

%

Total

$

4,178

$

3,889

$

289

7.4

%

Operating margin:

Aerospace

19.3

%

18.6

%

Combat Systems

15.6

%

15.0

%

Information Systems and Technology

10.1

%

8.6

%

Marine Systems

9.1

%

9.6

%

Total

13.3

%

12.6

%

 

 

EXHIBIT E

 

CONSOLIDATED BALANCE SHEETS - (UNAUDITED)

DOLLARS IN MILLIONS

December 31, 2015

December 31, 2014

ASSETS

Current assets:

Cash and equivalents

$

2,785

$

4,388

Accounts receivable

3,446

4,050

Contracts in process

4,357

4,591

Inventories

3,366

3,221

Other current assets

617

1,157

Total current assets

14,571

17,407

Noncurrent assets:

Property, plant and equipment, net

3,466

3,329

Intangible assets, net

763

912

Goodwill

11,443

11,731

Other assets

1,754

1,958

Total noncurrent assets

17,426

17,930

Total assets

$

31,997

$

35,337

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

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

$

501

$

501

Accounts payable

1,964

2,057

Customer advances and deposits

5,674

7,335

Other current liabilities

4,306

3,858

Total current liabilities

12,445

13,751

Noncurrent liabilities:

Long-term debt

2,898

3,392

Other liabilities

5,916

6,365

Total noncurrent liabilities

8,814

9,757

Shareholders' equity:

Common stock

482

482

Surplus

2,730

2,548

Retained earnings

23,204

21,127

Treasury stock

(12,392)

(9,396)

Accumulated other comprehensive loss

(3,286)

(2,932)

Total shareholders' equity

10,738

11,829

Total liabilities and shareholders' equity

$

31,997

$

35,337

Note: Prior period information has been restated to reflect the reclassification of debt issuance costs from other assets to debt in accordance with Accounting Standards Update (ASU) 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.

 

 

EXHIBIT F

 

CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Twelve Months Ended

December 31, 2015

December 31, 2014

Cash flows from operating activities—continuing operations:

Net earnings

$

2,965

$

2,533

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

Depreciation of property, plant and equipment

366

375

Amortization of intangible assets

116

121

Equity-based compensation expense

110

128

Excess tax benefit from equity-based compensation

(77)

(83)

Deferred income tax provision

167

136

Discontinued operations, net of tax

140

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

Accounts receivable

604

330

Contracts in process

231

281

Inventories

(156)

(303)

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

Accounts payable

(89)

(161)

Customer advances and deposits

(1,756)

691

Other current liabilities

(83)

(246)

Other, net

101

(214)

Net cash provided by operating activities

2,499

3,728

Cash flows from investing activities:

Capital expenditures

(569)

(521)

Maturities of held-to-maturity securities

500

Purchases of held-to-maturity securities

(500)

Proceeds from sales of assets

291

102

Purchases of available-for-sale securities

(123)

(136)

Sales of available-for-sale securities

122

135

Maturities of available-for-sale securities

6

4

Other, net

(27)

(186)

Net cash provided (used) by investing activities

200

(1,102)

Cash flows from financing activities:

Purchases of common stock

(3,233)

(3,382)

Dividends paid

(873)

(822)

Repayment of fixed-rate notes

(500)

Proceeds from stock option exercises

268

547

Other, net

79

82

Net cash used by financing activities

(4,259)

(3,575)

Net cash (used) provided by discontinued operations

(43)

36

Net decrease in cash and equivalents

(1,603)

(913)

Cash and equivalents at beginning of year

4,388

5,301

Cash and equivalents at end of year

$

2,785

$

4,388

 

 

EXHIBIT G

 

PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS

Fourth Quarter 2015

Fourth Quarter 2014

Other Financial Information (a):

Return on equity (b)

26.4

%

20.2

%

Debt-to-equity (c)

31.7

%

32.9

%

Debt-to-capital (d)

24.0

%

24.8

%

Book value per share (e)

$

34.31

$

35.61

Total taxes paid

$

95

$

446

Company-sponsored research and development (f)

$

94

$

101

Shares outstanding

312,987,277

332,164,097

Non-GAAP Financial Measures (a):

2015

2014

Fourth Quarter

Twelve Months

Fourth Quarter

Twelve Months

Free cash flow from operations:

Net cash provided by operating activities

$

329

$

2,499

$

(70)

$

3,728

Capital expenditures

(209)

(569)

(184)

(521)

Free cash flow from operations (g)

$

120

$

1,930

$

(254)

$

3,207

Return on invested capital:

Earnings from continuing operations

$

2,965

$

2,673

After-tax interest expense

64

67

After-tax amortization expense

75

79

Net operating profit after taxes

3,104

2,819

Average invested capital

17,858

18,673

Return on invested capital (h)

17.4

%

15.1

%

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)

Prior period information has been restated to reflect the reclassification of debt issuance costs from other assets to debt in accordance with ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.

(b)

Return on equity is calculated by dividing earnings from continuing operations for the latest 12-month period by our average equity during that period.

(c)

Debt-to-equity ratio is calculated as total debt divided by total equity as of the end of the period.

(d)

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.

(e)

Book value per share is calculated as total equity divided by total outstanding shares as of the end of the period.

(f)

Includes independent research and development and Aerospace product-development costs.

(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

Backlog

Estimated

Potential

Contract Value*

Total Potential

Contract

Value

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

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

Fourth Quarter 2014

Aerospace

$

13,115

$

117

$

13,232

$

2,734

$

15,966

Combat Systems

19,292

506

19,798

5,522

25,320

Information Systems and Technology

7,070

1,539

8,609

16,115

24,724

Marine Systems

13,452

17,319

30,771

2,311

33,082

Total

$

52,929

$

19,481

$

72,410

$

26,682

$

99,092

*

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/20160126/326034 

 

 

EXHIBIT H-2

 

BACKLOG AND ESTIMATED CONTRACT VALUE BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Photo - http://photos.prnewswire.com/prnh/20160126/326035

 

 

EXHIBIT I

 

FOURTH QUARTER 2015 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

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

Combat Systems

  • $595 to produce over 300 armored personnel carriers (APCs) for the Danish Defence Acquisition and Logistics Organization.
  • $75 from the U.S. Army for contractor logistics support and training on the Abrams main battle tank and Heavy Equipment Recovery Combat Utility Lifting Extraction System (HERCULES) vehicle programs.

Information Systems and Technology

  • $270 from the U.S. Navy to provide fire control system modifications for ballistic-missile (SSBN) and guided-missile (SSGN) submarines.
  • $180 from the Canadian Department of National Defence for the procurement of components for a fleet of CP140 aircraft and the upgrade of data management software for the aircraft.
  • $50 to upgrade the Canadian Forces' existing fleet of Combat Net Radios.
  • An IDIQ contract from the U.S. Air Forces Central Command to provide communication systems technical support services in Asia. The contract has a maximum potential value of approximately $450 over five years if all options are exercised.

Marine Systems

  • $175 from the Navy for design work on the Ohio-class submarine replacement program.
  • $95 from the Navy for development studies, design services and lead-yard services in support of the Virginia-class submarine program.
  • $65 from the Navy for planning yard services for the DDG-51 destroyer and the FFG-7 Oliver Hazard Perry-class frigate programs.

 

 

EXHIBIT J

 

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

Fourth Quarter

Twelve Months

2015

2014

2015

2014

Gulfstream Green Deliveries (units):

Large-cabin aircraft

25

28

112

115

Mid-cabin aircraft

12

10

35

29

Total

37

38

147

144

Gulfstream Outfitted Deliveries (units):

Large-cabin aircraft

31

33

120

117

Mid-cabin aircraft

7

9

34

33

Total

38

42

154

150

Pre-owned Deliveries (units):

2

7

3

 

 

Logo - http://photos.prnewswire.com/prnh/20140428/81320

SOURCE General Dynamics



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