General Dynamics 2015 Annual Report Download - page 3

Dear Fellow Shareholder:
In 2015, General Dynamics had a year of solid growth, operating
excellence and record-setting financial results. Our focus on
continuous improvement throughout our operations and the wise
deployment of capital yielded the highest operating earnings, operating
margin, return on sales and earnings per diluted share in the
company’s history. Revenue increased 2 percent in 2015 over the prior
year with growth in both the aerospace and defense businesses. In
addition to delivering strong financial results, we booked new orders
across our portfolio, adding to the already robust backlog and providing
additional growth for the future.
Operating earnings increased 7.4 percent in 2015 to $4.2 billion on
sales of $31.5 billion. Our operating margin of 13.3 percent was 70
basis points higher than 2014. We earned a return on sales of
9.4 percent, a return on invested capital of 17.4 percent, a return on
assets of 8.8 percent and a return on equity of 26.4 percent, all up
from the prior year. Our earnings per diluted share of $9.08 increased
by 16 percent from 2014. As you can see in our financial statements,
2015 was a very strong year for General Dynamics.
Net cash in 2015 from operating activities totaled $2.5 billion, and
free cash flow, defined as net cash provided by operating activities
from continuing operations less capital expenditures, was $1.9 billion.
Your company continued making internal investments where
appropriate for future growth, including support for new programs in
the Aerospace and Marine Systems groups. We also paid $873 million
in dividends and repurchased 22.8 million shares of common stock for
$3.2 billion.
Overall, 2015 was a year of outstanding operational execution with
contributions from each of our business segments. Aerospace
increased revenue by 2.3 percent, earnings by 5.9 percent and
operating margin by 70 basis points. The group demonstrated strong
operating leverage and also had good order intake for Gulfstream
aircraft across the portfolio of new and in-production models.
At Combat Systems, earnings were up 2.3 percent, a 60 basis point
improvement in operating margin. Revenue was down modestly from the
prior year due to foreign currency translation from the strong U.S. dollar.
Marine Systems had very strong revenue growth of 9.6 percent
compared to 2014, which in turn was a significant growth year. Marine
Systems operating earnings increased by 3.6 percent, resulting in a
9.1 percent margin for the year. The Information Systems and
Technology group improved its margin 150 basis points on a 15 percent
increase in operating earnings on slightly lower revenue.
Throughout the year, we experienced continued demand for our
products and services, adding new wins to our backlog across the
portfolio. The actions we have taken to right-size and restructure our
defense businesses over the past several years lowered our expenses
and increased our competitive advantage. Considering the 58 percent
increase in backlog in 2014, our current competitive structure and the
continued interest and need for our aerospace offerings, we are very well
positioned in our markets. This robust backlog provides stability into the
future and we expect to execute on it in 2016 and beyond with the same
operational focus and diligence we have demonstrated over the past
three years.
In closing, our commitment to improving margins, generating cash
and increasing return on invested capital, resulted in strong financial
results. For 2016, we will remain committed to this proven strategy; we
will deliver on our durable backlog while maintaining focus on operational
excellence and continue disciplined capital deployment. As we look to
the future, in 2017 and beyond, we expect to achieve meaningful growth
and higher earnings for our businesses and shareholders.
Phebe N. Novakovic
Chairman and Chief Executive Officer
March 14, 2016