GENERAL DYNAMICS CORPORATION 
FALLS CHURCH, Va., July 27, 2016 /PRNewswire/ --
-- Record-setting operating performance:
-- Operating margin of 14%, a 30 basis-point improvement
-- Diluted earnings per share of $2.44, up 7.5%
-- Return on sales of 9.9%
-- Seventh consecutive quarter with operating earnings of more than one
billion dollars
-- EPS guidance increased from $9.20 to $9.70
General Dynamics (NYSE: GD) today reported second-quarter 2016 diluted earnings per share of $2.44 compared to $2.27 in the year-ago quarter, a 7.5 percent increase. Net earnings were $758 million, on revenue of $7.7 billion.
"General Dynamics delivered unprecedented operating performance this quarter," said Phebe N. Novakovic, chairman and chief executive officer of General Dynamics. "We are executing on our programs and focused on operations, leading to strong earnings and record-setting operating margin."
Margin
With three of the company's four business groups expanding margins over the year-ago period, company-wide operating margin for the second quarter of 2016 was 14 percent, a 30 basis-point increase when compared to 13.7 percent in second-quarter 2015. Excluding a $23 million non-recurring gain on the sale of a business in the second quarter of 2015, margin expanded 60 basis points.
Cash
Net cash provided by operating activities in the quarter totaled $393 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $324 million.
Capital Deployment
The company repurchased 1.1 million of its outstanding shares in the second quarter. Year-to-date, the company has repurchased 8.9 million outstanding shares.
Backlog
General Dynamics' total backlog at the end of second-quarter 2016 was $63.2 billion. There was order activity across the Gulfstream product portfolio and continued demand for defense products, including another quarter of a book-to-bill ratio (orders divided by revenue) greater than one-to-one in the Information Systems and Technology group.
The estimated potential contract value, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25.8 billion. Marine Systems' estimated potential contract value more than doubled from the prior quarter to $4.2 billion, with the contract for the U.S. Navy's next generation of oilers. Total potential contract value, the sum of all backlog components, was $89.1 billion at the end of the quarter.
Guidance
Given the strong performance in the first half of 2016, the company is increasing full-year EPS guidance for continuing operations from $9.20 to $9.70.
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 2015 revenue was $31.5 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 second-quarter securities analyst conference call at 9 a.m. EDT on Wednesday, July 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 12 p.m. on July 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 48758658. The phone replay will be available from 3 p.m. July 27 through August 3, 2016.
EXHIBIT A
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Second Quarter Variance
2016 2015 $ %
---- ---- --- ---
Revenue $7,665 $7,882 $(217) (2.8) %*
Operating costs and expenses 6,595 6,801 206
----- ----- ---
Operating earnings 1,070 1,081 (11) (1.0)%
Interest, net (23) (20) (3)
Other, net 1 - 1
--- --- ---
Earnings before income tax 1,048 1,061 $(13) (1.2)%
Provision for income tax, net 290 309 19
Net earnings $758 $752 $6 0.8%
==== ==== ===
Earnings per share-basic $2.49 $2.31 $0.18 7.8%
Basic weighted average shares outstanding 304.5 326.2
===== =====
Earnings per share-diluted $2.44 $2.27 $0.17 7.5%
Diluted weighted average shares outstanding 310.2 331.4
===== =====
Includes 40 basis point
negative impact from the
translation of international
operations' revenue into U.S.
* dollars.
EXHIBIT B
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Six Months Variance
2016 2015 $ %
---- ---- --- ---
Revenue $15,389 $15,666 $(277) (1.8) %*
Operating costs and expenses 13,266 13,558 292
------ ------ ---
Operating earnings 2,123 2,108 15 0.7%
Interest, net (45) (41) (4)
Other, net 11 3 8
--- --- ---
Earnings from continuing operations before income tax 2,089 2,070 19 0.9%
Provision for income tax, net 601 602 1
--- --- ---
Earnings from continuing operations $1,488 $1,468 $20 1.4%
====== ====== ===
Discontinued operations (13) - (13)
--- --- ---
Net earnings $1,475 $1,468 $7 0.5%
====== ====== ===
Earnings per share-basic
Continuing operations $4.86 $4.48 $0.38 8.5%
Discontinued operations $(0.04) $ - $(0.04)
------ --- --- ------
Net earnings $4.82 $4.48 $0.34 7.6%
===== ===== =====
Basic weighted average shares outstanding 306.2 327.7
===== =====
Earnings per share-diluted
Continuing operations $4.77 $4.41 $0.36 8.2%
Discontinued operations $(0.04) $ - $(0.04)
------ --- --- ------
Net earnings $4.73 $4.41 $0.32 7.3%
===== ===== =====
Diluted weighted average shares outstanding 311.8 333.0
===== =====
Includes 70 basis point
negative impact from the
translation of international
operations' revenue into U.S.
* dollars.
EXHIBIT C
REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
Second Quarter Variance
2016 2015 $ %
---- ---- --- ---
Revenue:
--------
Aerospace $2,134 $2,258 $(124) (5.5)%
Combat Systems 1,315 1,408 (93) (6.6)%
Information Systems and Technology 2,229 2,215 14 0.6%
Marine Systems 1,987 2,001 (14) (0.7)%
----- ----- ---
Total $7,665 $7,882 $(217) (2.8)%
====== ====== =====
Operating earnings:
-------------------
Aerospace $434 $439 $(5) (1.1)%
Combat Systems 219 226 (7) (3.1)%
Information Systems and Technology 244 237 7 3.0%
Marine Systems 181 187 (6) (3.2)%
Corporate (8) (8) - - %
--- --- ---
Total $1,070 $1,081 $(11) (1.0)%
====== ====== ====
Operating margin:
-----------------
Aerospace 20.3% 19.4%
Combat Systems 16.7% 16.1%
Information Systems and Technology 10.9% 10.7%
Marine Systems 9.1% 9.3%
Total 14.0% 13.7%
EXHIBIT D
REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
Six Months Variance
2016 2015 $ %
---- ---- --- ---
Revenue:
--------
Aerospace $4,121 $4,366 $(245) (5.6)%
Combat Systems 2,588 2,771 (183) (6.6)%
Information Systems and Technology 4,562 4,585 (23) (0.5)%
Marine Systems 4,118 3,944 174 4.4%
----- ----- ---
Total $15,389 $15,666 $(277) (1.8)%
======= ======= =====
Operating earnings:
-------------------
Aerospace $845 $870 $(25) (2.9)%
Combat Systems 436 430 6 1.4%
Information Systems and Technology 492 454 38 8.4%
Marine Systems 373 375 (2) (0.5)%
Corporate (23) (21) (2) (9.5)%
--- --- ---
Total $2,123 $2,108 $15 0.7%
====== ====== ===
Operating margin:
-----------------
Aerospace 20.5% 19.9%
Combat Systems 16.8% 15.5%
Information Systems and Technology 10.8% 9.9%
Marine Systems 9.1% 9.5%
Total 13.8% 13.5%
EXHIBIT E
CONSOLIDATED BALANCE SHEETS
DOLLARS IN MILLIONS
(Unaudited)
July 3, 2016 December 31,
2015
------------ -------------
ASSETS
Current assets:
Cash and
equivalents $1,899 $2,785
Accounts
receivable 3,539 3,446
Contracts
in
process 4,996 4,357
Inventories 3,520 3,366
Other
current
assets 432 617
--- ---
Total
current
assets 14,386 14,571
------ ------
Noncurrent assets:
Property,
plant and
equipment,
net 3,440 3,466
Intangible
assets,
net 733 763
Goodwill 11,572 11,443
Other
assets 1,638 1,754
----- -----
Total
noncurrent
assets 17,383 17,426
Total
assets $31,769 $31,997
======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-
term debt
and
current
portion
of long-
term debt $537 $501
Accounts
payable 2,128 1,964
Customer
advances
and
deposits 5,365 5,674
Other
current
liabilities 4,105 4,306
----- -----
Total
current
liabilities 12,135 12,445
------ ------
Noncurrent liabilities:
Long-term
debt 2,899 2,898
Other
liabilities 5,740 5,916
----- -----
Total
noncurrent
liabilities 8,639 8,814
----- -----
Shareholders' equity:
Common
stock 482 482
Surplus 2,756 2,730
Retained
earnings 24,213 23,204
Treasury
stock (13,491) (12,392)
Accumulated
other
comprehensive
loss (2,965) (3,286)
------ ------
Total
shareholders'
equity 10,995 10,738
Total
liabilities
and
shareholders'
equity $31,769 $31,997
======= =======
EXHIBIT F
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
DOLLARS IN MILLIONS
Six Months Ended
----------------
July 3, 2016 July 5, 2015
------------ ------------
Cash flows from operating activities-continuing operations:
Net earnings $1,475 $1,468
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of property, plant and equipment 182 184
Amortization of intangible assets 50 59
Equity-based compensation expense 51 71
Deferred income tax provision 62 21
Discontinued operations 13 -
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable (83) 455
Contracts in process (619) 330
Inventories (150) (149)
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable 157 222
Customer advances and deposits (423) (1,252)
Other, net 158 24
--- ---
Net cash provided by operating activities 873 1,433
--- -----
Cash flows from investing activities:
Capital expenditures (134) (190)
Maturities of held-to-maturity securities - 500
Proceeds from sales of assets 4 259
Other, net (55) (18)
--- ---
Net cash (used) provided by investing activities (185) 551
---- ---
Cash flows from financing activities:
Purchases of common stock (1,189) (1,565)
Dividends paid (447) (432)
Proceeds from stock option exercises 92 198
Repayment of fixed-rate notes - (500)
Other, net 4 (25)
--- ---
Net cash used by financing activities (1,540) (2,324)
------ ------
Net cash used by discontinued operations (34) (16)
--- ---
Net decrease in cash and equivalents (886) (356)
Cash and equivalents at beginning of period 2,785 4,388
----- -----
Cash and equivalents at end of period $1,899 $4,032
====== ======
Note: 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
Second Quarter Second Quarter
2016 2015
--------------- ---------------
Other Financial Information (a):
--------------------------------
Debt-to-equity (b) 31.3% 30.1%
Debt-to-capital (c) 23.8% 23.2%
Book value per share (d) $36.02 $34.94
Total taxes paid $439 $477
Company-sponsored research and development (e) $121 $101
Shares outstanding 305,278,868 322,727,167
Non-GAAP Financial Measures:
----------------------------
2016 2015 (f)
---- -------
Second Quarter Six Months Second Quarter Six Months
-------------- ---------- -------------- ----------
Free cash flow from operations:
Net cash provided by operating activities $393 $873 $630 $1,433
Capital expenditures (69) (134) (92) (190)
--- ---- --- ----
Free cash flow from operations (g) $324 $739 $538 $1,243
==== ==== ==== ======
(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,
which we adopted in the fourth
quarter of 2015.
(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.
EXHIBIT H
BACKLOG - (UNAUDITED)
DOLLARS IN MILLIONS
Funded Unfunded Total Estimated Total Potential
Backlog Potential Contract
Contract Value* Value
-------------- -----
Second Quarter 2016
-------------------
Aerospace $11,629 $126 $11,755 $2,221 $13,976
Combat Systems 18,032 478 18,510 4,812 23,322
Information Systems and Technology 7,508 2,292 9,800 14,560 24,360
Marine Systems 15,908 7,260 23,168 4,237 27,405
------ ----- ------ ----- ------
Total $53,077 $10,156 $63,233 $25,830 $89,063
======= ======= ======= ======= =======
First Quarter 2016
------------------
Aerospace $12,465 $147 $12,612 $2,368 $14,980
Combat Systems 18,260 565 18,825 4,959 23,784
Information Systems and Technology 7,442 1,991 9,433 15,146 24,579
Marine Systems 16,547 7,317 23,864 1,999 25,863
------ ----- ------ ----- ------
Total $54,714 $10,020 $64,734 $24,472 $89,206
======= ======= ======= ======= =======
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
======= ======= ======= ======= =======
* 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 I
SECOND QUARTER 2016 SIGNIFICANT ORDERS (UNAUDITED)
DOLLARS IN MILLIONS
We received the following significant orders during the second quarter of 2016:
Combat Systems
-- $250 from the U.S. Army for the production of Stryker vehicles with an
integrated 30-millimeter gun system.
Information Systems and Technology
-- $630 from the Centers for Medicare & Medicaid Services for
contact-center services.
-- $215 from the U.S. Department of State to provide supply chain
management services.
-- $135 from the Army for ruggedized computing equipment under the Common
Hardware Systems-4 (CHS-4) program.
-- $90 from the Army's Information Technology Agency to operate and
maintain network infrastructure.
Marine Systems
-- $640 from the U.S. Navy to design and construct the lead ship in the
next generation of fleet oilers, the John Lewis class (TAO-205). Options
for five additional ships are included in estimated potential contract
value.
-- $165 from the Navy for lead yard and design services for the
Virginia-class submarine program.
-- $105 from the Navy to procure long-lead-time material and engineering
support for the fifth Expeditionary Mobile Base (ESB) ship.
-- $55 from the Navy for design work on the Ohio-class submarine
replacement program.
EXHIBIT J
AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)
Second Quarter Six Months
2016 2015 2016 2015
---- ---- ---- ----
Gulfstream Green
Deliveries (units):
--------------------
Large-cabin aircraft 25 29 50 56
Mid-cabin aircraft 6 7 12 14
--- --- --- ---
Total 31 36 62 70
=== === === ===
Gulfstream Outfitted
Deliveries (units):
--------------------
Large-cabin aircraft 27 33 46 58
Mid-cabin aircraft 7 8 15 15
--- --- --- ---
Total 34 41 61 73
=== === === ===
Pre-owned Deliveries
(units): 4 4 5 5
-------------------- === === === ===
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SOURCE General Dynamics
