GENERAL DYNAMICS CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 27, 2016

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Exhibit 99.1 
 
2941 Fairview Park Drive
 
 
Suite 100
 
 
Falls Church, VA 22042-4513
www.generaldynamics.com
 
News
April 27, 2016
Contact: Lucy Ryan
Tel: 703 876 3631
lryan@generaldynamics.com

General Dynamics Reports First-Quarter 2016 Results

•
Diluted earnings per share from continuing operations up 9.3% to $2.34
•
Operating margin of 13.6%, a 40 basis-point improvement
•
Operating earnings up 2.5% to $1.05 billion
•
Earnings from continuing operations up 2% to $730 million

FALLS CHURCH, Va. - General Dynamics (NYSE: GD) today reported first-quarter 2016 earnings from continuing operations of $730 million, a 2 percent increase over first-quarter 2015, on revenue of $7.7 billion. Diluted earnings per share from continuing operations were $2.34 compared to $2.14 in the year-ago quarter, a 9.3 percent increase.

“General Dynamics delivered a strong first quarter, with all four groups contributing to our outstanding operating performance,” said Phebe N. Novakovic, chairman and chief executive officer of General Dynamics. “We generated positive operating leverage and achieved the sixth straight quarter with operating earnings of more than one billion dollars.”

Margin
Company-wide operating margin for the first quarter of 2016 was 13.6 percent, a 40 basis-point increase when compared to 13.2 percent in first-quarter 2015. Three of the company's four business groups expanded margins over the year-ago period.

Cash
Net cash provided by operating activities in the quarter totaled $439 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $374 million.

Capital Deployment
The company repurchased 7.8 million of its outstanding shares in the first quarter. In addition, in March, the board of directors increased the company’s quarterly dividend by 10.1 percent to $0.76 per share, representing the company’s 19th consecutive annual dividend increase.




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Backlog
General Dynamics’ total backlog at the end of first-quarter 2016 was $64.7 billion. There was order activity across the Gulfstream product portfolio and strong demand for defense products, which resulted in a book-to-bill ratio (orders divided by revenue) of one-to-one in the Combat Systems group and 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 $24.5 billion. Total potential contract value, the sum of all backlog components, was $89.2 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 2015 were $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 first-quarter securities analyst conference call at 9 a.m. EDT on Wednesday, April 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 April 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 89290991. The phone replay will be available from 3 p.m. April 27 through May 3, 2016.





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EXHIBIT A
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
 
 
First Quarter
 
Variance
 
2016
 
 
2015
 
$
 
%
Revenue
$
7,724

 
 
$
7,784

 
$
(60
)
 
(0.8
)%
Operating costs and expenses
6,671

 
 
6,757

 
86

 
 
Operating earnings
1,053

 
 
1,027

 
26

 
2.5
 %
Interest, net
(22
)
 
 
(21
)
 
(1
)
 
 
Other, net
10

 
 
3

 
7

 
 
Earnings from continuing operations before income tax
1,041

 
 
1,009

 
$
32

 
3.2
 %
Provision for income tax, net
311

 
 
293

 
(18
)
 
 
Earnings from continuing operations
$
730

 
 
$
716

 
$
14

 
2.0
 %
Discontinued operations
(13
)
*
 
—

 
(13
)
 
 
Net earnings
$
717

 
 
$
716

 
$
1

 
0.1
 %
Earnings per share—basic
 
 
 
 
 
 
 
 
Continuing operations
$
2.37

 
 
$
2.18

 
$
0.19

 
8.7
 %
Discontinued operations
$
(0.04
)
*
 
$
—

 
$
(0.04
)
 
 
Net earnings
$
2.33

 
 
$
2.18

 
$
0.15

 
6.9
 %
Basic weighted average shares outstanding
307.9

 
 
329.2

 
 
 
 
Earnings per share—diluted
 
 
 
 
 
 
 
 
Continuing operations
$
2.34

 
 
$
2.14

 
$
0.20

 
9.3
 %
Discontinued operations
$
(0.04
)
*
 
$
—

 
$
(0.04
)
 
 
Net earnings
$
2.30

 
 
$
2.14

 
$
0.16

 
7.5
 %
Diluted weighted average shares outstanding
312.3

 
 
334.7

 
 
 
 
*
In the first quarter of 2016, we recognized a final adjustment to the loss on the sale of our axle business in the Combat Systems group. The business was sold in 2015.


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EXHIBIT B
REVENUE AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)
DOLLARS IN MILLIONS
 
 
First Quarter
 
Variance
 
2016
 
2015
 
$
 
%
Revenue:
 
 
 
 
 
 
 
Aerospace
$
1,987

 
$
2,108

 
$
(121
)
 
(5.7
)%
Combat Systems
1,273

 
1,363

 
(90
)
 
(6.6
)%
Information Systems and Technology
2,333

 
2,370

 
(37
)
 
(1.6
)%
Marine Systems
2,131

 
1,943

 
188

 
9.7
 %
Total
$
7,724

 
$
7,784

 
$
(60
)
 
(0.8
)%
Operating earnings:
 
 
 
 
 
 
 
Aerospace
$
411

 
$
431

 
$
(20
)
 
(4.6
)%
Combat Systems
217

 
204

 
13

 
6.4
 %
Information Systems and Technology
248

 
217

 
31

 
14.3
 %
Marine Systems
192

 
188

 
4

 
2.1
 %
Corporate
(15
)
 
(13
)
 
(2
)
 
(15.4
)%
Total
$
1,053

 
$
1,027

 
$
26

 
2.5
 %
Operating margin:
 
 
 
 
 
 
 
Aerospace
20.7
%
 
20.4
%
 
 
 
 
Combat Systems
17.0
%
 
15.0
%
 
 
 
 
Information Systems and Technology
10.6
%
 
9.2
%
 
 
 
 
Marine Systems
9.0
%
 
9.7
%
 
 
 
 
Total
13.6
%
 
13.2
%
 
 
 
 

 


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EXHIBIT C
CONSOLIDATED BALANCE SHEETS
DOLLARS IN MILLIONS
 
 
(Unaudited)
 
 
 
April 3, 2016
 
December 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
1,907

 
$
2,785

Accounts receivable
3,654

 
3,446

Contracts in process
4,705

 
4,357

Inventories
3,504

 
3,366

Other current assets
418

 
617

Total current assets
14,188

 
14,571

Noncurrent assets:
 
 
 
Property, plant and equipment, net
3,477

 
3,466

Intangible assets, net
759

 
763

Goodwill
11,595

 
11,443

Other assets
1,683

 
1,754

Total noncurrent assets
17,514

 
17,426

Total assets
$
31,702

 
$
31,997

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
501

 
$
501

Accounts payable
2,150

 
1,964

Customer advances and deposits
5,560

 
5,674

Other current liabilities
4,212

 
4,306

Total current liabilities
12,423

 
12,445

Noncurrent liabilities:
 
 
 
Long-term debt
2,899

 
2,898

Other liabilities
5,798

 
5,916

Total noncurrent liabilities
8,697

 
8,814

Shareholders' equity:
 
 
 
Common stock
482

 
482

Surplus
2,740

 
2,730

Retained earnings
23,687

 
23,204

Treasury stock
(13,386
)
 
(12,392
)
Accumulated other comprehensive loss
(2,941
)
 
(3,286
)
Total shareholders' equity
10,582

 
10,738

Total liabilities and shareholders' equity
$
31,702

 
$
31,997


 

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EXHIBIT D
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
DOLLARS IN MILLIONS
 
  
 
Three Months Ended
 
 
April 3, 2016
 
April 5, 2015
Cash flows from operating activities—continuing operations:
 
 
 
 
Net earnings
 
$
717

 
$
716

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
Depreciation of property, plant and equipment
 
90

 
94

Amortization of intangible assets
 
27

 
30

Equity-based compensation expense
 
27

 
40

Excess tax benefit from equity-based compensation
 
(15
)
 
(30
)
Deferred income tax provision
 
20

 
(8
)
Discontinued operations
 
13

 
—

(Increase) decrease in assets, net of effects of business acquisitions:
 
 
 
 
Accounts receivable
 
(195
)
 
388

Contracts in process
 
(337
)
 
152

Inventories
 
(133
)
 
(183
)
Increase (decrease) in liabilities, net of effects of business acquisitions:
 
 
 
 
Accounts payable
 
179

 
210

Customer advances and deposits
 
(209
)
 
(871
)
Income taxes payable
 
268

 
251

Other current liabilities
 
(70
)
 
(38
)
Other, net
 
57

 
(6
)
Net cash provided by operating activities
 
439

 
745

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(65
)
 
(98
)
Maturities of held-to-maturity securities
 
—

 
500

Other, net
 
(53
)
 
94

Net cash (used) provided by investing activities
 
(118
)
 
496

Cash flows from financing activities:
 
 
 
 
Purchases of common stock
 
(1,026
)
 
(620
)
Dividends paid
 
(215
)
 
(206
)
Proceeds from stock option exercises
 
33

 
87

Repayment of fixed-rate notes
 
—

 
(500
)
Other, net
 
15

 
30

Net cash used by financing activities
 
(1,193
)
 
(1,209
)
Net cash used by discontinued operations
 
(6
)
 
(8
)
Net (decrease) increase in cash and equivalents
 
(878
)
 
24

Cash and equivalents at beginning of period
 
2,785

 
4,388

Cash and equivalents at end of period
 
$
1,907

 
$
4,412


 

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EXHIBIT E
PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)
DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS
 
 
 
 
First Quarter 2016
 
First Quarter 2015
Other Financial Information (a):
 
 
 
 
Debt-to-equity (b)
 
32.1
%
 
29.5
%
Debt-to-capital (c)
 
24.3
%
 
22.8
%
Book value per share (d)
 
$
34.62

 
$
35.04

Total taxes paid
 
$
21

 
$
53

Company-sponsored research and development (e)
 
$
104

 
$
96

Shares outstanding
 
305,646,967

 
328,732,777

 
 
 
 
 
Non-GAAP Financial Measures:
 
 
 
 
 
 
 
 
Free cash flow from operations:
 
 
 
 
Net cash provided by operating activities
 
$
439

 
$
745

Capital expenditures
 
(65
)
 
(98
)
Free cash flow from operations (f)
 
$
374

 
$
647


(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)
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.

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EXHIBIT F
BACKLOG - (UNAUDITED)
DOLLARS IN MILLIONS
 
 
 
Funded
 
Unfunded
 
Total
Backlog
 
Estimated
Potential
Contract Value*
 
Total Potential
Contract
Value
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

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

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

*
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.

 



 






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EXHIBIT G
FIRST QUARTER 2016 SIGNIFICANT ORDERS (UNAUDITED)
DOLLARS IN MILLIONS
We received the following significant orders during the first quarter of 2016:
Combat Systems
•
$405 from the Swiss government to upgrade Duro tactical vehicles through 2022.
•
$180 from the U.S. Army for spare parts and inventory management and support services for the Stryker family of vehicles.
•
$60 from the Army to design, develop and produce eight prototype Stryker vehicles with an integrated 30-millimeter gun system.
Information Systems and Technology
•
$310 for several space payloads.
•
$170 for new hardware, software and equipment to upgrade the United Kingdom Ministry of Defence's Bowman tactical communication system.
•
$160 from the Army for additional equipment for the Warfighter Information Network-Tactical (WIN-T) Increment 2 program.
•
$155 from the National Geospatial-Intelligence Agency (NGA) to consolidate NGA's operations from six locations to one stand-alone location at New Campus East (NCE).
•
$140 from the Army for ruggedized computing equipment under the CHS-4 program.
•
$95 for combat and seaframe control systems on an Independence-variant Littoral Combat Ship (LCS) for the U.S. Navy.
Marine Systems
•
$155 from the Navy for the planning and execution of depot-level maintenance, alterations and modifications to the USS Essex (LHD-2).
•
$140 from the Navy for lead yard and design services for the Virginia-class submarine program.
•
$80 from the Navy for Advanced Nuclear Plant Studies (ANPS) in support of the Ohio-class submarine replacement program.




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EXHIBIT H
AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)
 
 
 
First Quarter
 
 
2016
 
2015
Gulfstream Green Deliveries (units):
 
 
 
 
Large-cabin aircraft
 
25

 
27

Mid-cabin aircraft
 
6

 
7

Total
 
31

 
34

Gulfstream Outfitted Deliveries (units):
 
 
 
 
Large-cabin aircraft
 
19

 
25

Mid-cabin aircraft
 
8

 
7

Total
 
27

 
32

Pre-owned Deliveries (units):
 
1

 
1



###

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