GENERAL DYNAMICS CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - 8-K - GENERAL DYNAMICS CORP	gd-201507058k.htm

Exhibit 99.1



2941 Fairview Park Drive
Suite 100
Falls Church, VA 22042-4513 www.generaldynamics.com		News

July 29, 2015

Contact: Lucy Ryan

Tel: 703 876 3631

lryan@generaldynamics.com

General Dynamics Reports Second-Quarter 2015 Results


•	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

FALLS CHURCH, Va. - 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.

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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. EST 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.

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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

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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

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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		%

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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		%

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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

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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

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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.

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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.

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EXHIBIT H-1

BACKLOG AND ESTIMATED CONTRACT VALUE - (UNAUDITED)

DOLLARS IN MILLIONS

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EXHIBIT H-2

BACKLOG AND ESTIMATED CONTRACT VALUE BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Funded Backlog

Unfunded Backlog

Estimated Potential Contract Value

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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.

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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	—

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