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Press release from PR Newswire

General Dynamics Reports Second-Quarter 2012 Results

Wednesday, July 25, 2012

General Dynamics Reports Second-Quarter 2012 Results07:00 EDT Wednesday, July 25, 2012- Operating earnings increase to $970 million - Company-wide operating margins expand to 12.2 percentFALLS CHURCH, Va., July 25, 2012 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported second-quarter 2012 earnings from continuing operations of $634 million, or $1.77 per share on a fully diluted basis, compared with 2011 second-quarter earnings from continuing operations of $666 million, or $1.79 per share fully diluted. Revenues in the quarter were $7.9 billion.  Net earnings for the second quarter of 2012 were $634 million, compared to $653 million in the second quarter of 2011.MarginsCompany-wide operating margins for the second quarter of 2012 were 12.2 percent, which reflected 90-basis-point increases in each of the Aerospace, Combat Systems and Marine Systems groups over the year-ago period.  Operating margins in the Information Systems and Technology group were 8.9 percent. CashNet cash provided by operating activities in the quarter totaled $789 million.  Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $703 million in second-quarter 2012, or approximately 111 percent of earnings from continuing operations.BacklogFunded backlog declined slightly in the second quarter, compared to first-quarter 2012.  However, demand for information technology (IT) services was strong in the quarter, and other significant awards received included an indefinite delivery, indefinite quantity (IDIQ) contract from the Federal Aviation Administration for air traffic control radios which has a maximum potential value of $365 million over 10 years; a $270 million order for Hydra-70 rockets in support of Army requirements; $115 million for conversion of additional Stryker vehicles to the new double-V-hulled configuration and contractor logistics support; and a $125 million contract for continued development of the U.S. Navy's next-generation ballistic-missile submarine (SSBN(X)). The company's total backlog at the end of second-quarter 2012 was $52.4 billion, and the estimated potential contract value was an additional $26.2 billion, representing management's estimate of value under unfunded IDIQ contracts and unexercised options.  The sum of all backlog components exceeded $78 billion at the end of the quarter."General Dynamics' operating results in the second quarter reflect our continued focus on disciplined execution and effective cash conversion across the corporation," said Jay L. Johnson, chairman and chief executive officer.  "Heading into the second half of 2012, I remain very confident in our continued ability to execute.  However, given the impact of first-half award delays in IS&T's tactical communications business, as well as the likelihood of further delays in the second half, I believe it is prudent to revise the full-year earnings guidance range downward to $7.00 to $7.10 per share, fully diluted."General Dynamics, headquartered in Falls Church, Virginia, employs approximately 93,500 people worldwide.  The company is a market leader in business aviation; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and information systems and technologies.  More information about the company is available on the Internet at 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. Eastern Daylight Time on Wednesday, July 25, 2012.  The webcast will be a listen-only audio event, available at  An on-demand replay of the webcast will be available by noon on July 25 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 12521089.  The phone replay will be available from noon July 25 until midnight August 1, 2012.EXHIBIT ACONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTSSecond QuarterVariance20112012$%Revenues$          7,879$        7,922$             430.5 %Operating costs and expenses6,9306,952(22)Operating earnings949970212.2 %Interest, net(31)(37)(6)Other, net41(5)(46)Earnings from continuing operations  before income taxes959 928(31)(3.2)%Provision for income taxes293294(1)Earnings from continuing operations$             666$            634$           (32)(4.8)%Discontinued operations, net of tax(13)-13Net earnings$             653$            634$           (19)(2.9)%Earnings per share - basic    Continuing operations$            1.81$           1.79$        (0.02)(1.1)%    Discontinued operations$          (0.04)$                 -$          0.04    Net earnings$            1.77$           1.79$          0.021.1 %Basic weighted average  shares outstanding (in millions)368.0355.0Earnings per share - diluted    Continuing operations$            1.79$           1.77$        (0.02)(1.1)%    Discontinued operations$          (0.03)$                 -$          0.03    Net earnings$            1.76$           1.77$          0.010.6 %Diluted weighted average  shares outstanding (in millions)371.4357.4       EXHIBIT BCONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTSSix MonthsVariance20112012$%Revenues$        15,677$      15,501$         (176)(1.1)%Operating costs and expenses13,79913,671128Operating earnings1,8781,830(48)(2.6)%Interest, net(65)(76)(11)Other, net42(5)(47)Earnings from continuing operations  before income taxes1,855 1,749(106)(5.7)%Provision for income taxes57155120Earnings from continuing operations$          1,284$        1,198$           (86)(6.7)%Discontinued operations, net of tax(13)-13Net earnings$          1,271$        1,198$           (73)(5.7)%Earnings per share - basic    Continuing operations$            3.47$           3.37$        (0.10)(2.9)%    Discontinued operations$          (0.04)$                -$          0.04    Net earnings$            3.43$           3.37$        (0.06)(1.7)%Basic weighted average  shares outstanding (in millions)370.3356.0Earnings per share - diluted    Continuing operations$            3.43$           3.34$        (0.09)(2.6)%    Discontinued operations$          (0.03)$                -$          0.03    Net earnings$            3.40$           3.34$        (0.06)(1.8)%Diluted weighted average  shares outstanding (in millions)373.9358.4   EXHIBIT CREVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)DOLLARS IN MILLIONSSecond QuarterVariance20112012$%Revenues:Aerospace$ 1,376$ 1,592$ 21615.7 %Combat Systems2,1212,149281.3 %Marine Systems1,5761,653774.9 %Information Systems andTechnology2,8062,528(278)(9.9)%Total$ 7,879$ 7,922$ 430.5 %Operating earnings:Aerospace$ 209$ 257$ 4823.0 %Combat Systems299322237.7 %Marine Systems1611832213.7 %Information Systems andTechnology299226(73)(24.4)%Corporate(19)(18)15.3 %Total$ 949$ 970$ 212.2 %Operating margins:Aerospace15.2 %16.1 %Combat Systems14.1 %15.0 %Marine Systems10.2 %11.1 %Information Systems andTechnology10.7 %8.9 %Total12.0 %12.2 %   EXHIBIT DREVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)DOLLARS IN MILLIONSSix MonthsVariance20112012$%Revenues:Aerospace$ 2,729$ 3,215$ 48617.8 %Combat Systems4,0764,060(16)(0.4)%Marine Systems3,2523,25860.2 %Information Systems andTechnology5,6204,968(652)(11.6)%Total$ 15,677$ 15,501$ (176)(1.1)%Operating earnings:Aerospace$ 439$ 528$ 8920.3 %Combat Systems576525(51)(8.9)%Marine Systems3283684012.2 %Information Systems andTechnology575444(131)(22.8)%Corporate(40)(35)512.5 %Total$ 1,878$ 1,830$ (48)(2.6)%Operating margins:Aerospace16.1 %16.4 %Combat Systems14.1 %12.9 %Marine Systems10.1 %11.3 %Information Systems andTechnology10.2 %8.9 %Total12.0 %11.8 %   EXHIBIT EPRELIMINARY CONSOLIDATED BALANCE SHEETSDOLLARS IN MILLIONS(Unaudited)December 31, 2011July 1, 2012ASSETSCurrent assets:Cash and equivalents$                         2,649$                   2,540Accounts receivable4,4524,571Contracts in process5,1684,916Inventories2,3102,648Other current assets789852Total current assets15,36815,527Noncurrent assets:Property, plant and equipment, net3,2843,248Intangible assets, net1,8131,738Goodwill13,57613,762Other assets842928Total noncurrent assets19,51519,676Total assets$                       34,883$                35,203LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Short-term debt and current portion of long-term debt$                              23$                   1,028Accounts payable2,8952,559Customer advances and deposits5,0115,398Other current liabilities3,2163,194Total current liabilities11,14512,179Noncurrent liabilities:Long-term debt3,9072,905Other liabilities6,5996,457Total noncurrent liabilities10,5069,362Shareholders' equity:Common stock482482Surplus1,8881,939Retained earnings18,91719,751Treasury stock(5,743)(6,208)Accumulated other comprehensive loss (2,312)(2,302)Total shareholders' equity13,23213,662Total liabilities and shareholders' equity$                       34,883$                35,203 EXHIBIT FPRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)DOLLARS IN MILLIONSSix Months EndedCash flows from operating activities:July 3, 2011July 1, 2012Net earnings$ 1,271$ 1,198Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation of property, plant and equipment172189Amortization of intangible assets116115Stock-based compensation expense6469Excess tax benefit from stock-based compensation(21)(22)Deferred income tax provision343Discontinued operations, net of tax13-(Increase) decrease in assets, net of effects of business acquisitions:Accounts receivable(385)(110)Contracts in process(132)194Inventories(224)(316)Increase (decrease) in liabilities, net of effects of business acquisitions:Accounts payable(103)(342)Customer advances and deposits283226Other, net(9)(1)Net cash provided by operating activities1,0791,203Cash flows from investing activities:Capital expenditures(152)(176)Business acquisitions, net of cash acquired-(165)Purchases of held-to-maturity securities(278)(160)Maturities of held-to-maturity securities22119Purchases of available-for-sale securities(257)(100)Other, net21576Net cash used by investing activities(251)(506)Cash flows from financing activities:Purchases of common stock(1,121)(592)Dividends paid(333)(353)Proceeds from option exercises175111Other, net(2)28Net cash used by financing activities(1,281)(806)Net cash used by discontinued operations(3)-Net decrease in cash and equivalents(456)(109)Cash and equivalents at beginning of period2,6132,649Cash and equivalents at end of period$ 2,157$ 2,540   EXHIBIT GPRELIMINARY FINANCIAL INFORMATION (UNAUDITED)DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTSSecond QuarterSecond Quarter20112012Non-GAAP Financial Measures:Free cash flow from operations: Quarter  Year-to-date  Quarter  Year-to-date Net cash provided by operating activities$                           751$                 1,079$                   789$             1,203Capital expenditures (91)(152)(86)(176)Free cash flow from operations (A)$                           660$                    927$                   703$             1,027Return on invested capital:Earnings from continuing operations$                        2,662$               2,466 After-tax interest expense104113 After-tax amortization expense159162Net operating profit after taxes2,9252,741Average debt and equity16,83817,475Return on invested capital (B)17.4%15.7%Other Financial Information:Return on equity (C)19.7%18.1%Debt-to-equity (D)22.8%28.8%Debt-to-capital (E)18.6%22.4%Book value per share (F)$                        38.49$               38.73Total taxes paid$                           479$                   424Company-sponsored research  and development (G)$                           149$                   130Employment 88,40093,500Sales per employee (H)$                    359,600$           348,800Shares outstanding361,764,830352,778,253(A) 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. (B) We believe return on invested capital (ROIC) is a measurement that is useful to investors because it reflects our ability to generate returns from the capital we have deployed in our operations.  We use ROIC to evaluate investment decisions and as a performance measure in evaluating management.  We define ROIC as net operating profit after taxes for the latest 12-month period divided by the sum of the average debt and shareholders' equity for the same period.  Net operating profit after taxes is defined as earnings from continuing operations plus after-tax interest and amortization expense.  The most directly comparable GAAP measure to net operating profit after taxes is earnings from continuing operations. (C) Return on equity is calculated by dividing earnings from continuing operations for the latest 12-month period by our average equity during that period. (D) Debt-to-equity ratio is calculated as total debt divided by total equity as of the end of the period. (E) 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. (F) Book value per share is calculated as total equity divided by total outstanding shares as of the end of the period. (G) Includes independent research and development and bid and proposal costs and Gulfstream product-development costs. (H) Sales per employee is calculated by dividing revenues for the latest 12-month period by our average number of employees during that period.EXHIBIT HBACKLOG (UNAUDITED)DOLLARS IN MILLIONSEstimated TotalPotentialTotal PotentialSecond Quarter 2012Funded Unfunded Backlog Contract Value*Contract ValueAerospace$      16,058$               241$   16,299$                    -$             16,299Combat Systems8,8549059,7593,09012,849Marine Systems11,6665,33917,0051,37718,382Information Systems andTechnology7,3481,9519,29921,77431,073Total$    43,926$          8,436$ 52,362$           26,241$           78,603First Quarter 2012Aerospace$      16,718$               266$   16,984$                      -$             16,984Combat Systems9,6231,04210,6653,47314,138Marine Systems12,2615,75418,0151,19919,214Information Systems andTechnology7,6491,9139,56222,25631,818Total$    46,251$          8,975$ 55,226$           26,928$           82,154Second Quarter 2011Aerospace$      17,948$               340$   18,288$                      -$             18,288Combat Systems9,6571,13510,7924,37015,162Marine Systems9,1919,20918,4001,09719,497Information Systems andTechnology7,4682,1689,63615,69725,333Total$    44,264$        12,852$ 57,116$           21,164$           78,280*  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 ISECOND QUARTER 2012 SIGNIFICANT ORDERS (UNAUDITED)DOLLARS IN MILLIONSWe received the following significant contract orders during the second quarter of 2012:Combat Systems$270 from the U.S. Army for the production of Hydra-70 rockets. $170 from the Army to upgrade Abrams main battle tanks to the M1A2 System Enhancement Package (SEP) configuration and for continued technical support on the program. $115 from the Army for the double-V-hull conversion of 49 previously-delivered Stryker vehicles and contractor logistics support. Marine Systems$125 from the U.S. Navy for Advanced Nuclear Plant Studies (ANPS) in support of development of the next-generation ballistic-missile submarine (SSBN(X)). $80 from the Navy for long-lead funding for the construction of the first Virginia-class submarine under Block IV of the program. $65 from the Navy for planning yard services for the DDG-51 guided missile destroyer and FFG-7 Oliver Hazard Perry-class frigate programs.Information Systems and Technology$80 for support of the Trident missile D5 life-extension program, which extends the life of existing missiles by replacing and upgrading obsolete components. $30 from the Army under the Range Radar Replacement Program (RRRP) to develop modernized instrumentation radars at U.S Army test ranges. An award from the Centers for Medicare & Medicaid Services (CMS) to combine the Coordination of Benefits and the Medicare Secondary Payer systems.  The program has a maximum potential value of $100 over 5 years. An indefinite delivery, indefinite quantity (IDIQ) contract from the Federal Aviation Administration to deliver radios that allow air traffic control personnel to communicate with aircraft.  The program has a maximum potential value of $365 over 10 years.EXHIBIT JAEROSPACE SUPPLEMENTAL DATA (UNAUDITED)Second QuarterSix Months2011201220112012Gulfstream Green Deliveries (units):Large aircraft20244050Mid-size aircraft3274Total23264754Gulfstream Outfitted Deliveries (units):Large aircraft19183835Mid-size aircraft3385Total22214640Pre-owned Deliveries (units):2-2- SOURCE General DynamicsFor further information: Media: Rob Doolittle, General Dynamics, +1-703-876-3199, or Investors: Amy Gilliland, General Dynamics, +1-703-876-3748