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Press release from PR Newswire

General Dynamics Reports Third-Quarter 2012 Results

Wednesday, October 24, 2012

General Dynamics Reports Third-Quarter 2012 Results07:00 EDT Wednesday, October 24, 2012- Strong Aerospace activity drives revenues - Cash from operations improves across the companyFALLS CHURCH, Va., Oct. 24, 2012 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported third-quarter 2012 earnings from continuing operations of $600 million, or $1.70 per share on a fully diluted basis, compared with 2011 third-quarter earnings from continuing operations of $665 million, or $1.83 per share fully diluted. Revenues in the quarter were $7.9 billion.  Net earnings for third-quarter 2012 were $600 million, or $1.70 per share fully diluted.MarginsCompany-wide operating margins for third-quarter 2012 were 11.4 percent, compared to 12.7 percent in third-quarter 2011.  Margins in the most recent quarter include the impact of a $25 million charge in the Information Systems and Technology group to revalue a portion of its ruggedized-computer inventory.CashNet cash provided by operating activities totaled $704 million in the quarter.  Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $594 million or approximately 99 percent of earnings from continuing operations.BacklogThe company's total backlog at the end of third-quarter 2012 was $51.5 billion, and the estimated potential contract value was an additional $26.1 billion, representing management's estimate of value under unfunded IDIQ contracts and unexercised options.Demand in the quarter was particularly strong for Aerospace products, including orders for every type of Gulfstream aircraft.  Significant defense awards included a $340 million order to procure additional Warfighter Information Network-Tactical (WIN-T) equipment for U.S. Army units, $70 million for 13,000 additional Handheld, Manpack, Small Form Fit (HMS) Rifleman radios and accessories, and a $395 million contract for engineering development efforts for modernization of the Abrams main battle tank."General Dynamics made notable progress on several core programs in the third quarter, including certification of the Gulfstream G650 and G280, and successful evaluations of key tactical communications systems leading to additional production awards," said Jay L. Johnson, chairman and chief executive officer.  "The entire team at General Dynamics remains focused on efficient execution and maximizing profitability." General Dynamics, headquartered in Falls Church, Virginia, employs approximately 93,700 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 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 third-quarter securities analyst conference call at 9 a.m. Eastern Daylight Time on Wednesday, October 24, 2012.  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 noon on October 24 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 56400777.  The phone replay will be available from noon October 24 until midnight October 31, 2012. EXHIBIT ACONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTSThird QuarterVariance20112012$%Revenues$          7,853$        7,934$             811.0 %Operating costs and expenses6,8557,029(174)Operating earnings998905(93)(9.3)%Interest, net(38)(39)(1)Other, net(8)(3)5Earnings from continuing operations before income taxes952863(89)(9.3)%Provision for income taxes28726324Earnings from continuing operations$             665$            600$           (65)(9.8)%Discontinued operations, net of tax(13)-13Net earnings$             652$            600$           (52)(8.0)%Earnings per share - basic    Continuing operations$            1.84$           1.71$        (0.13)(7.1)%    Discontinued operations$          (0.03)$                 -$          0.03    Net earnings$            1.81$           1.71$        (0.10)(5.5)%Basic weighted average shares outstanding (in millions)359.7350.5Earnings per share - diluted    Continuing operations$            1.83$           1.70$        (0.13)(7.1)%    Discontinued operations$          (0.03)$                 -$          0.03    Net earnings$            1.80$           1.70$        (0.10)(5.6)%Diluted weighted average shares outstanding (in millions)362.9352.8 EXHIBIT BCONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTSNine MonthsVariance20112012$%Revenues$        23,530$      23,435$           (95)(0.4)%Operating costs and expenses20,65420,700(46)Operating earnings2,8762,735(141)(4.9)%Interest, net(103)(115)(12)Other, net34(8)(42)Earnings from continuing operations before income taxes2,807 2,612(195)(6.9)%Provision for income taxes85881444Earnings from continuing operations$          1,949$        1,798$         (151)(7.7)%Discontinued operations, net of tax(26)-26Net earnings$          1,923$        1,798$         (125)(6.5)%Earnings per share - basic    Continuing operations$            5.31$           5.08$        (0.23)(4.3)%    Discontinued operations$          (0.07)$                 -$          0.07    Net earnings$            5.24$           5.08$        (0.16)(3.1)%Basic weighted average shares outstanding (in millions)366.8 354.2Earnings per share - diluted    Continuing operations$            5.26$           5.04$        (0.22)(4.2)%    Discontinued operations$          (0.07)$                 -$          0.07    Net earnings$            5.19$           5.04$        (0.15)(2.9)%Diluted weighted average shares outstanding (in millions)370.2 356.5 EXHIBIT CREVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)DOLLARS IN MILLIONSThird QuarterVariance20112012$%Revenues:Aerospace$          1,412$        1,836$           42430.0 %Combat Systems2,1401,956(184)(8.6)%Marine Systems1,6211,670493.0 %Information Systems and Technology2,6802,472(208)(7.8)%Total$          7,853$        7,934$             811.0 %Operating earnings:Aerospace$             217$            261$             4420.3 %Combat Systems319274(45)(14.1)%Marine Systems173186137.5 %Information Systems and Technology310201(109)(35.2)%Corporate(21)(17)419.0 %Total$             998$            905$           (93)(9.3)%Operating margins:Aerospace15.4 %14.2 %Combat Systems14.9 %14.0 %Marine Systems10.7 %11.1 %Information Systems and Technology11.6 %8.1 %Total12.7 %11.4 % EXHIBIT DREVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)DOLLARS IN MILLIONSNine MonthsVariance20112012$%Revenues:Aerospace$          4,141$        5,051$           91022.0 %Combat Systems6,2166,016(200)(3.2)%Marine Systems4,8734,928551.1 %Information Systems and Technology8,3007,440(860)(10.4)%Total$        23,530$      23,435$           (95)(0.4)%Operating earnings:Aerospace$             656$            789$           13320.3 %Combat Systems895799(96)(10.7)%Marine Systems5015545310.6 %Information Systems and Technology885645(240)(27.1)%Corporate(61)(52)914.8 %Total$          2,876$        2,735$         (141)(4.9)%Operating margins:Aerospace15.8 %15.6 %Combat Systems14.4 %13.3 %Marine Systems10.3 %11.2 %Information Systems and Technology10.7 %8.7 %Total12.2 %11.7 % EXHIBIT EPRELIMINARY CONSOLIDATED BALANCE SHEETSDOLLARS IN MILLIONS(Unaudited)December 31, 2011September 30, 2012ASSETSCurrent assets:Cash and equivalents$                         2,649$                       2,874Accounts receivable4,4524,339Contracts in process5,1685,031Inventories2,3102,661Other current assets789688Total current assets15,36815,593Noncurrent assets:Property, plant and equipment, net3,2843,345Intangible assets, net1,8131,734Goodwill13,57613,986Other assets842845Total noncurrent assets19,51519,910Total assets$                       34,883$                     35,503LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Short-term debt and current portion of long-term debt$                              23$                       1,001Accounts payable2,8952,540Customer advances and deposits5,0115,523Other current liabilities3,2163,129Total current liabilities11,14512,193Noncurrent liabilities:Long-term debt3,9072,924Other liabilities6,5996,114Total noncurrent liabilities10,5069,038Shareholders' equity:Common stock482482Surplus1,8881,971Retained earnings18,91720,170Treasury stock(5,743)(6,194)Accumulated other comprehensive loss(2,312)(2,157)Total shareholders' equity13,23214,272Total liabilities and shareholders' equity$                       34,883$                     35,503 EXHIBIT FPRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)DOLLARS IN MILLIONSNine Months EndedCash flows from operating activities:October 3, 2011September 30, 2012Net earnings$                 1,923$                       1,798Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation of property, plant and equipment259286Amortization of intangible assets176172Stock-based compensation expense96104Excess tax benefit from stock-based compensation(22)(24)Deferred income tax provision6353Discontinued operations, net of tax26-(Increase) decrease in assets, net of effects of business acquisitions:Accounts receivable(143)139Contracts in process(252)91Inventories(346)(340)Increase (decrease) in liabilities, net of effects of business acquisitions:Accounts payable(171)(368)Customer advances and deposits(7)257Other current and noncurrent liabilities(257)(184)Other, net(129)(77)Net cash provided by operating activities1,2161,907Cash flows from investing activities:Business acquisitions, net of cash acquired(1,143)(426)Capital expenditures(273)(286)Purchases of held-to-maturity securities(428)(260)Sales of held-to-maturity securities-211Maturities of held-to-maturity securities32254Purchases of available-for-sale securities(350)(201)Maturities of available-for-sale securities22796Other, net188144Net cash used by investing activities(1,457)(668)Cash flows from financing activities:Purchases of common stock(1,449)(602)Dividends paid(504)(533)Proceeds from option exercises186121Proceeds from fixed-rate notes 1,497-Repayment of fixed-rate notes(750)-Net proceeds from commercial paper200-Other, net(6)2Net cash used by financing activities(826)(1,012)Net cash used by discontinued operations(6)(2)Net increase (decrease) in cash and equivalents(1,073)225Cash and equivalents at beginning of period2,6132,649Cash and equivalents at end of period$                 1,540$                       2,874 EXHIBIT GPRELIMINARY FINANCIAL INFORMATION (UNAUDITED)DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTSThird QuarterThird Quarter20112012Non-GAAP Financial Measures:Free cash flow from operations: Quarter  Year-to-date  Quarter  Year-to-date Net cash provided by operating activities$                    137$                 1,216$                       704$             1,907Capital expenditures (121)(273)(110)(286)Free cash flow from operations (A)$                      16$                    943$                       594$             1,621Return on invested capital:Earnings from continuing operations$                 2,678$                    2,401 After-tax interest expense105112 After-tax amortization expense162159Net operating profit after taxes2,9452,672Average debt and equity17,04817,693Return on invested capital (B)17.3%15.1%Other Financial Information:Return on equity (C)19.6%17.5%Debt-to-equity (D)30.3%27.5%Debt-to-capital (E)23.3%21.6%Book value per share (F)$                  38.24$                    40.42Total taxes paid$                     270$                       299Company-sponsored research  and development (G)$                     127 $                       149Employment 94,70093,700Sales per employee (H)$              356,600$                346,900Shares outstanding356,112,755353,069,806(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 PotentialContract Value*Third Quarter 2012 Funded  Unfunded TotalBacklog Total PotentialContract ValueAerospace$                 15,827$                    215$            16,042$                    -$             16,042Combat Systems8,2591,1019,3602,62711,987Marine Systems10,9095,03615,9451,38217,327Information Systems and Technology8,2241,88710,11122,05232,163Total$               43,219$               8,239$          51,458$           26,061$           77,519Second Quarter 2012Aerospace$                 16,058$                    241$            16,299$                      -$             16,299Combat Systems8,8549059,7593,09012,849Marine Systems11,6665,33917,0051,37718,382Information Systems and Technology7,3481,9519,29921,77431,073Total$               43,926$               8,436$          52,362$           26,241$           78,603Third Quarter 2011Aerospace$                 18,306$                    318$            18,624$                      -$             18,624Combat Systems9,0781,30410,3823,76314,145Marine Systems10,2698,61118,8802,04420,924Information Systems and Technology8,2482,38910,63721,42932,066Total$               45,901$             12,622$          58,523$           27,236$           85,759*  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 ITHIRD QUARTER 2012 SIGNIFICANT ORDERS (UNAUDITED)DOLLARS IN MILLIONSWe received the following significant contract orders during the third quarter of 2012:Combat Systems$395 from the U.S. Army to begin engineering development efforts for the Abrams main battle tank modernization program.  $135 from the Canadian government to supply various calibers of ammunition. $50 from the Army to produce M31A2 propellant.Marine Systems$105 from the U.S. Navy to renovate and modernize the dock landing ship USS Comstock (LSD 45). $95 from the Navy for advance planning and preliminary execution of fire-restoration efforts on USS Miami (SSN 755).Information Systems and Technology$340 from the Army under the Warfighter Information Network-Tactical (WIN-T) program for Increment 2 equipment production. $265 for wireless network systems and support from several commercial customers.   $95 from the Army for ruggedized computing equipment under the Common Hardware Systems-4 (CHS-4) program. $85 from the U.S. Air Force for networking and computing products and support under the Network-Centric Solutions (NETCENTS) program. $80 from the U.S. Department of State to provide supply chain management services.  The program has a maximum potential value of $1.2 billion over 5 years. $75 from the Army under the WIN-T program for Increment 1 technical support services and upgrades. $70 from the Army for production of over 13,000 Rifleman radios and accessory kits under the Joint Tactical Radio System (JTRS) Handheld, Manpack and Small Form-Fit (HMS) program. $65 for the Army's Warfighter Field Operations Customer Support (FOCUS) program to provide support for live, virtual and constructive training operations. $65 to supply 64 radio-telescope antennas for South Africa's MeerKAT radio telescope program. EXHIBIT JAEROSPACE SUPPLEMENTAL DATA (UNAUDITED)Third QuarterNine Months2011201220112012Gulfstream Green Deliveries (units):Large aircraft20286078Mid-size aircraft561210Total25347288Gulfstream Outfitted Deliveries (units):Large aircraft20175852Mid-size aircraft6-145Total26177257Pre-owned Deliveries (units):2141SOURCE General DynamicsFor further information: Media: Rob Doolittle, General Dynamics, +1-703-876-3199, or Investors: Amy Gilliland, General Dynamics, +1-703-876-3748