General Dynamics Reports Second-Quarter 2015 Results

Jul 29, 2015, 07:30 ET from General Dynamics

FALLS CHURCH, Va., July 29, 2015 /PRNewswire/ --

  • Compared to second-quarter 2014:
    • Revenue up 5.5% to $7.9 billion
    • Operating earnings up 13.9% to $1.08 billion; margins increased to 13.7%
    • Earnings from continuing operations up 16.4% to $752 million
    • Earnings per fully diluted share up 20.7% to $2.27

  • Company increases full-year guidance

General Dynamics (NYSE: GD) today reported second-quarter 2015 earnings from continuing operations of $752 million, a 16.4 percent increase over second-quarter 2014, on revenue of $7.9 billion. Diluted earnings per share (EPS) were $2.27 per share compared to $1.88 in second-quarter 2014, a 20.7 percent increase.

"General Dynamics' performance was rock solid this quarter, rounding out a strong first half. We continue to have impressive operating leverage with operating earnings at more than $1 billion, up 13.9 percent over the prior year's quarter," said Phebe N. Novakovic, chairman and chief executive officer. "Year to date, our revenue is up 6.3 percent across the business with organic growth in all four segments, including the defense segments."

Margins

Company-wide operating margins for the second quarter of 2015 were 13.7 percent, with margin expansion in three of the company's four business groups compared to the second quarter of 2014.

Cash

Net cash provided by operating activities in the quarter totaled $603 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $511 million.

Capital Deployment

The company repurchased 7.5 million of its outstanding shares in the second quarter. Year-to-date, the company has repurchased 12.1 million outstanding shares.

Backlog

General Dynamics' backlog remained steady at the end of second-quarter 2015, with funded backlog at $55.4 billion and total backlog of $70 billion. Aerospace backlog increased by seven percent in the quarter, with strong order activity across the product line. Information Systems and Technology also had several notable orders in the quarter leading to higher backlog. Estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25.6 billion. Total potential contract value, the sum of all backlog components, was $95.6 billion at the end of the quarter.

Guidance

The company is increasing full-year EPS guidance for continuing operations from $8.05 - $8.10 to $8.70 - $8.80.

General Dynamics, headquartered in Falls Church, Virginia, is a market leader in business aviation; combat vehicles, weapons systems and munitions; shipbuilding; and communications and information technology systems. More information about the company 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 second-quarter securities analyst conference call at 9 a.m. EDT on Wednesday, July 29, 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 1 p.m. on July 29 and will continue for 12 months. To hear a recording of the conference call by telephone, please call 888-286-8010 (international: 617-801-6888); passcode 66737646. The phone replay will be available from 1 p.m. July 29 through August 5, 2015.

 

 

EXHIBIT A

 

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Second Quarter

Variance

2015

2014

$

%

Revenues

$

7,882

$

7,474

$

408

5.5

%

Operating costs and expenses

6,801

6,525

(276)

Operating earnings

1,081

949

132

13.9

%

Interest, net

(20)

(24)

4

Earnings before income tax

1,061

925

$

136

14.7

%

Provision for income tax, net

309

279

(30)

Earnings from continuing operations

$

752

$

646

$

106

16.4

%

Discontinued operations, net of tax

(105)

105

Net earnings

$

752

$

541

211

39.0

%

Earnings per share—basic

Continuing operations

$

2.31

$

1.92

$

0.39

20.3

%

Discontinued operations

$

$

(0.31)

$

0.31

Net earnings

$

2.31

$

1.61

$

0.70

43.5

%

Basic weighted average shares outstanding

326.2

336.7

Earnings per share—diluted

Continuing operations

$

2.27

$

1.88

$

0.39

20.7

%

Discontinued operations

$

$

(0.30)

$

0.30

Net earnings

$

2.27

$

1.58

$

0.69

43.7

%

Diluted weighted average shares outstanding

331.4

342.8

 

 

EXHIBIT B

 

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Six Months

Variance

2015

2014

$

%

Revenues

$

15,666

$

14,739

$

927

6.3

%

Operating costs and expenses

13,558

12,916

(642)

Operating earnings

2,108

1,823

285

15.6

%

Interest, net

(41)

(46)

5

Other, net

3

1

2

Earnings before income tax

2,070

1,778

292

16.4

%

Provision for income tax, net

602

536

(66)

Earnings from continuing operations

$

1,468

$

1,242

$

226

18.2

%

Discontinued operations, net of tax

(106)

106

Net earnings

$

1,468

$

1,136

$

332

29.2

%

Earnings per share—basic

Continuing operations

$

4.48

$

3.66

$

0.82

22.4

%

Discontinued operations

$

$

(0.31)

$

0.31

Net earnings

$

4.48

$

3.35

$

1.13

33.7

%

Basic weighted average shares outstanding

327.7

339.5

Earnings per share—diluted

Continuing operations

$

4.41

$

3.60

$

0.81

22.5

%

Discontinued operations

$

$

(0.31)

$

0.31

Net earnings

$

4.41

$

3.29

$

1.12

34.0

%

Diluted weighted average shares outstanding

333.0

345.4

 

 

EXHIBIT C

 

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Second Quarter

Variance

2015

2014

$

%

Revenues:

Aerospace

$

2,258

$

1,995

$

263

13.2

%

Combat Systems

1,408

1,465

(57)

(3.9)

%

Information Systems and Technology

2,215

2,163

52

2.4

%

Marine Systems

2,001

1,851

150

8.1

%

Total

$

7,882

$

7,474

$

408

5.5

%

Operating earnings:

Aerospace

$

439

$

384

$

55

14.3

%

Combat Systems

226

220

6

2.7

%

Information Systems and Technology

237

188

49

26.1

%

Marine Systems

187

174

13

7.5

%

Corporate

(8)

(17)

9

52.9

%

Total

$

1,081

$

949

$

132

13.9

%

Operating margins:

Aerospace

19.4

%

19.2

%

Combat Systems

16.1

%

15.0

%

Information Systems and Technology

10.7

%

8.7

%

Marine Systems

9.3

%

9.4

%

Total

13.7

%

12.7

%

 

 

EXHIBIT D

 

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Six Months

Variance

2015

2014

$

%

Revenues:

Aerospace

$

4,366

$

4,120

$

246

6.0

%

Combat Systems

2,771

2,723

48

1.8

%

Information Systems and Technology

4,585

4,444

141

3.2

%

Marine Systems

3,944

3,452

492

14.3

%

Total

$

15,666

$

14,739

$

927

6.3

%

Operating earnings:

Aerospace

$

870

$

788

$

82

10.4

%

Combat Systems

430

359

71

19.8

%

Information Systems and Technology

454

371

83

22.4

%

Marine Systems

375

340

35

10.3

%

Corporate

(21)

(35)

14

40.0

%

Total

$

2,108

$

1,823

$

285

15.6

%

Operating margins:

Aerospace

19.9

%

19.1

%

Combat Systems

15.5

%

13.2

%

Information Systems and Technology

9.9

%

8.3

%

Marine Systems

9.5

%

9.8

%

Total

13.5

%

12.4

%

 

 

EXHIBIT E

 

CONSOLIDATED BALANCE SHEETS

DOLLARS IN MILLIONS

(Unaudited)

July 5, 2015

December 31, 2014

ASSETS

Current assets:

Cash and equivalents

$

4,032

$

4,388

Accounts receivable

3,595

4,050

Contracts in process

4,273

4,591

Inventories

3,359

3,221

Other current assets

514

1,157

Total current assets

15,773

17,407

Noncurrent assets:

Property, plant and equipment, net

3,329

3,329

Intangible assets, net

841

912

Goodwill

11,644

11,731

Other assets

2,067

1,976

Total noncurrent assets

17,881

17,948

Total assets

$

33,654

$

35,355

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

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

$

2

$

501

Accounts payable

2,275

2,057

Customer advances and deposits

6,104

7,335

Other current liabilities

4,327

3,858

Total current liabilities

12,708

13,751

Noncurrent liabilities:

Long-term debt

3,411

3,410

Other liabilities

6,259

6,365

Total noncurrent liabilities

9,670

9,775

Shareholders' equity:

Common stock

482

482

Surplus

2,657

2,548

Retained earnings

22,143

21,127

Treasury stock

(10,914)

(9,396)

Accumulated other comprehensive loss

(3,092)

(2,932)

Total shareholders' equity

11,276

11,829

Total liabilities and shareholders' equity

$

33,654

$

35,355

 

 

EXHIBIT F

 

CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Six Months Ended

July 5, 2015

June 29, 2014

Cash flows from operating activities—continuing operations:

Net earnings

$

1,468

$

1,136

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

Depreciation of property, plant and equipment

184

191

Amortization of intangible assets

59

61

Equity-based compensation expense

71

64

Excess tax benefit from stock-based compensation

(57)

(54)

Deferred income tax provision

21

64

Discontinued operations, net of tax

106

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

Accounts receivable

455

(104)

Contracts in process

330

(130)

Inventories

(149)

(278)

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

Accounts payable

222

270

Customer advances and deposits

(1,252)

25

Other, net

(4)

(57)

Net cash provided by operating activities

1,348

1,294

Cash flows from investing activities—continuing operations:

Maturities of held-to-maturity securities

500

Proceeds from sales of assets

259

3

Capital expenditures

(190)

(162)

Other, net

(18)

14

Net cash provided (used) by investing activities

551

(145)

Cash flows from financing activities—continuing operations:

Purchases of common stock

(1,565)

(2,691)

Repayment of fixed-rate notes

(500)

Dividends paid

(432)

(411)

Proceeds from stock options exercises

198

415

Other, net

60

54

Net cash used by financing activities

(2,239)

(2,633)

Net cash (used) provided by discontinued operations

(16)

24

Net decrease in cash and equivalents

(356)

(1,460)

Cash and equivalents at beginning of period

4,388

5,301

Cash and equivalents at end of period

$

4,032

$

3,841

 

 

EXHIBIT G

 

PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS

Second Quarter 2015

Second Quarter 2014

Other Financial Information:

Debt-to-equity (a)

30.3

%

29.8

%

Debt-to-capital (b)

23.2

%

23.0

%

Book value per share (c)

$

34.94

$

39.24

Total taxes paid

$

530

$

214

Company-sponsored research and development (d)

$

101

$

98

Shares outstanding

322,727,167

334,315,950

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

$

603

$

1,348

$

866

$

1,294

Capital expenditures

(92)

(190)

(75)

(162)

Free cash flow from operations (e)

$

511

$

1,158

$

791

$

1,132

 

(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

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

First Quarter 2015

Aerospace

$

12,947

$

147

$

13,094

$

2,699

$

15,793

Combat Systems

18,942

462

19,404

5,459

24,863

Information Systems and Technology

6,842

1,815

8,657

15,296

23,953

Marine Systems

17,248

12,138

29,386

2,143

31,529

Total

$

55,979

$

14,562

$

70,541

$

25,597

$

96,138

Second Quarter 2014

Aerospace

$

12,556

$

172

$

12,728

$

1,920

$

14,648

Combat Systems

15,363

852

16,215

8,074

24,289

Information Systems and Technology

7,343

1,602

8,945

16,477

25,422

Marine Systems

15,458

17,747

33,205

1,938

35,143

Total

$

50,720

$

20,373

$

71,093

$

28,409

$

99,502

*

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/20150728/247512-INFO 

 

 

EXHIBIT H-2

 

BACKLOG AND ESTIMATED CONTRACT VALUE BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

    

Photo - http://photos.prnewswire.com/prnh/20150728/247663-INFO 

 

 

EXHIBIT I

SECOND QUARTER 2015 SIGNIFICANT ORDERS (UNAUDITED) DOLLARS IN MILLIONS

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

Combat Systems

  • $125 from the U.S. Army for production of Hydra-70 rockets.
  • $50 from the Army for contractor logistics support on the Abrams main battle tank program.
  • An IDIQ contract from the Army to demilitarize munitions. The program has a maximum potential value of $225 over five years among two awardees.

Information Systems and Technology

  • $350 from the Army to build Warfighter Information Network – Tactical (WIN-T) Increment 2 systems and for engineering and development work under Increment 3 of the program.
  • $290 from the Centers for Medicare & Medicaid Services for contact-center services.
  • $225 from the U.S. Department of State to provide supply chain management services.
  • $190 from the Army for ruggedized computing equipment under the CHS-4 program.
  • $105 from the U.S. Navy for the procurement of material to support production of guidance and missile hardware for the D5 Life Extension Program.

Marine Systems

  • $155 from the U.S. Navy for design work on the next-generation ballistic missile submarine.
  • $85 from the Navy to provide support, materials and facilities to maintain and modernize twelve Littoral Combat Ships (LCS).
  • $45 from the Navy for planning efforts in support of maintenance and modernization work on USS Montpelier, a Los Angeles-class attack submarine. The contract has a potential value of $260 if all options are exercised.

 

 

EXHIBIT J

 

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

Second Quarter

Six Months

2015

2014

2015

2014

Gulfstream Green Deliveries (units):

Large-cabin aircraft

29

26

56

55

Mid-cabin aircraft

7

7

14

13

Total

36

33

70

68

Gulfstream Outfitted Deliveries (units):

Large-cabin aircraft

33

26

58

59

Mid-cabin aircraft

8

12

15

18

Total

41

38

73

77

Pre-owned Deliveries (units):

4

5

 

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

SOURCE General Dynamics



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