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Press release from PR Newswire

General Dynamics Reports Second-Quarter 2013 Results

Wednesday, July 24, 2013

General Dynamics Reports Second-Quarter 2013 Results

07:00 EDT Wednesday, July 24, 2013

- Diluted EPS increases 2.3 percent over second-quarter 2012
- Operating margins remain above 12 percent
- Strong Aerospace activity drives revenues and earnings

FALLS CHURCH, Va., July 24, 2013 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported second-quarter 2013 net earnings of $640 million, or $1.81 per share on a diluted basis, compared to 2012 second-quarter net earnings of $634 million, or $1.77 per diluted share. Second-quarter 2013 revenues were $7.9 billion.

Margins

Company-wide operating margins for the second quarter of 2013 were 12.1 percent, consistent with second-quarter 2012 margins. Each of the company's four segments delivered margin expansion over the first quarter of 2013.

Cash

Net cash provided by operating activities in second-quarter 2013 totaled $579 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $486 million in the quarter.

Capital Deployment

The company repurchased 6.6 million outstanding shares in the second quarter. Year-to-date, the company has repurchased 7.6 million outstanding shares.

Backlog

Total backlog at the end of second-quarter 2013 was $49.4 billion, and the estimated potential contract value was an additional $27.7 billion, representing management's estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options. Total potential contract value, the sum of all backlog components, was $77.1 billion at the end of the quarter.

Aerospace received orders for every Gulfstream aircraft model in second-quarter 2013, demonstrating continued demand across its portfolio of business-jet products. Additional significant awards received in the quarter include a $2.8 billion contract from the U.S. Navy for construction of four DDG 51-class destroyers, with an option for a fifth ship; a contract with a commercial customer for the design and construction of four Jones Act-compliant product carrier ships; $560 million from the Centers for Medicare & Medicaid Services for customer contact-center services; and $180 million to extend the company's technology development effort on the U.S. Army's Ground Combat Vehicle program.

"General Dynamics' performance in the second quarter shows the results of our focus on operational excellence and discipline in our execution," said Phebe N. Novakovic, chairman and chief executive officer. "We are committed to being the highest-value producer in each of the markets we serve, and to creating additional value through continuous improvement and shareholder-friendly capital deployment."

General Dynamics, headquartered in Falls Church, Virginia, employs approximately 90,100 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 second-quarter securities analyst conference call at 9 a.m. EDT on Wednesday, July 24, 2013. 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 July 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 18852921. The phone replay will be available from 12 p.m. July 24 through July 31, 2013.

 

EXHIBIT A

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Second Quarter

Variance

2012

2013

$

%

Revenues

$          7,922

$        7,911

$           (11)

(0.1)%

Operating costs and expenses

6,952

6,951

1

Operating earnings

970

960

(10)

(1.0)%

Interest, net

(37)

(18)

19

Other, net

(5)

1

6

Earnings before income taxes

928

943

15

1.6 %

Provision for income taxes

294

303

(9)

Net earnings

$             634

$            640

$               6

0.9 %

Earnings per share - basic

$            1.79

$           1.82

$          0.03

1.7 %

Basic weighted average shares outstanding

355.0

351.1

Earnings per share - diluted

$            1.77

$           1.81

$          0.04

2.3 %

Diluted weighted average shares outstanding

357.4

352.9

 

 

EXHIBIT B

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Six Months

Variance

2012

2013

$

%

Revenues

$        15,501

$      15,315

$         (186)

(1.2)%

Operating costs and expenses

13,671

13,508

163

Operating earnings

1,830

1,807

(23)

(1.3)%

Interest, net

(76)

(41)

35

Other, net

(5)

1

6

Earnings before income taxes

1,749

1,767

18

1.0 %

Provision for income taxes

551

556

(5)

Net earnings

$          1,198

$        1,211

$             13

1.1 %

Earnings per share - basic

$            3.37

$           3.45

$          0.08

2.4 %

Basic weighted average shares outstanding

356.0

351.5

Earnings per share - diluted

$            3.34

$           3.43

$          0.09

2.7 %

Diluted weighted average shares outstanding

358.4

353.2

 

 

EXHIBIT C

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Second Quarter

Variance

2012

2013

$

%

Revenues:

Aerospace

$          1,592

$        2,053

$           461

29.0 %

Combat Systems

2,149

1,549

(600)

(27.9)%

Marine Systems

1,653

1,759

106

6.4 %

Information Systems and Technology

2,528

2,550

22

0.9 %

Total

$          7,922

$        7,911

$           (11)

(0.1)%

Operating earnings:

Aerospace

$             257

$            389

$           132

51.4 %

Combat Systems

322

218

(104)

(32.3)%

Marine Systems

183

178

(5)

(2.7)%

Information Systems and Technology

226

198

(28)

(12.4)%

Corporate

(18)

(23)

(5)

(27.8)%

Total

$             970

$            960

$           (10)

(1.0)%

Operating margins:

Aerospace

16.1 %

18.9 %

Combat Systems

15.0 %

14.1 %

Marine Systems

11.1 %

10.1 %

Information Systems and Technology

8.9 %

7.8 %

Total

12.2 %

12.1 %

 

 

EXHIBIT D

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Six Months

Variance

2012

2013

$

%

Revenues:

Aerospace

$          3,215

$        3,831

$           616

19.2 %

Combat Systems

4,060

3,102

(958)

(23.6)%

Marine Systems

3,258

3,385

127

3.9 %

Information Systems and Technology

4,968

4,997

29

0.6 %

Total

$        15,501

$      15,315

$         (186)

(1.2)%

Operating earnings:

Aerospace

$             528

$            699

$           171

32.4 %

Combat Systems

525

433

(92)

(17.5)%

Marine Systems

368

337

(31)

(8.4)%

Information Systems and Technology

444

383

(61)

(13.7)%

Corporate

(35)

(45)

(10)

(28.6)%

Total

$          1,830

$        1,807

$           (23)

(1.3)%

Operating margins:

Aerospace

16.4 %

18.2 %

Combat Systems

12.9 %

14.0 %

Marine Systems

11.3 %

10.0 %

Information Systems and Technology

8.9 %

7.7 %

Total

11.8 %

11.8 %

 

 

EXHIBIT E

PRELIMINARY CONSOLIDATED BALANCE SHEETS

DOLLARS IN MILLIONS

(Unaudited)

December 31, 2012

June 30, 2013

ASSETS

Current assets:

Cash and equivalents

$                         3,296

$                       3,757

Accounts receivable

4,204

4,289

Contracts in process

4,964

5,110

Inventories

2,776

2,935

Other current assets

504

447

Total current assets

15,744

16,538

Noncurrent assets:

Property, plant and equipment, net

3,403

3,351

Intangible assets, net

1,383

1,270

Goodwill

12,048

11,909

Other assets

1,731

1,663

Total noncurrent assets

18,565

18,193

Total assets

$                       34,309

$                     34,731

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$                         2,469

$                       2,444

Customer advances and deposits

6,042

6,113

Other current liabilities

3,109

3,284

Total current liabilities

11,620

11,841

Noncurrent liabilities:

Long-term debt

3,908

3,907

Other liabilities

7,391

7,227

Total noncurrent liabilities

11,299

11,134

Shareholders' equity:

Common stock

482

482

Surplus

1,988

2,043

Retained earnings

17,860

18,677

Treasury stock

(6,165)

(6,557)

Accumulated other comprehensive loss

(2,775)

(2,889)

Total shareholders' equity

11,390

11,756

Total liabilities and shareholders' equity

$                       34,309

$                     34,731

 

 

EXHIBIT F

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Six Months Ended

July 1, 2012

June 30, 2013

Cash flows from operating activities:

   Net earnings

$                 1,198

$                       1,211

   Adjustments to reconcile net earnings to net cash provided by 

      operating activities:

      Depreciation of property, plant and equipment

189

191

      Amortization of intangible assets

115

89

      Stock-based compensation expense

69

61

      Excess tax benefit from stock-based compensation

(22)

(16)

      Deferred income tax provision

3

42

   (Increase) decrease in assets, net of effects of business acquisitions:

      Accounts receivable

(110)

(90)

      Contracts in process

194

(125)

      Inventories

(316)

(167)

   Increase (decrease) in liabilities, net of effects of business acquisitions:

      Accounts payable

(342)

(25)

      Customer advances and deposits

226

(54)

      Income taxes payable

67

50

      Other current liabilities

(114)

(156)

   Other, net

46

72

   Net cash provided by operating activities

1,203

1,083

Cash flows from investing activities:

   Capital expenditures

(176)

(168)

   Purchases of available-for-sale securities

(100)

(43)

   Business acquisitions, net of cash acquired

(165)

(1)

   Other, net

(65)

48

   Net cash used by investing activities

(506)

(164)

Cash flows from financing activities:

   Purchases of common stock

(592)

(485)

   Proceeds from option exercises

111

212

   Dividends paid

(353)

(198)

   Other, net

28

16

   Net cash used by financing activities

(806)

(455)

   Net cash used by discontinued operations

-

(3)

Net (decrease) increase in cash and equivalents

(109)

461

Cash and equivalents at beginning of period

2,649

3,296

Cash and equivalents at end of period

$                 2,540

$                       3,757

 

 

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS

Second Quarter

Second Quarter

2012

2013

Other Financial Information:

Debt-to-equity (a)

28.8%

33.2%

Debt-to-capital (b)

22.4%

24.9%

Book value per share (c)

$               38.73

$             33.60

Total taxes paid

$                  424

$                442

Company-sponsored research and development (d)

$                  130

$                120

Employment 

93,500

90,100

Sales per employee (e)

$           348,000

$        340,800

Shares outstanding

352,778,253

349,867,839

Non-GAAP Financial Measures:

Free cash flow from operations:

 Quarter 

 Year-to-date 

 Quarter 

 Year-to-date 

Net cash provided by operating activities

$                  789

$               1,203

$                579

$             1,083

Capital expenditures 

(86)

(176)

(93)

(168)

Free cash flow from operations (f)

$                  703

$               1,027

$                486

$                915

(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 bid and proposal costs and Gulfstream product-development costs.

(e) Sales per employee is calculated by dividing revenues for the latest 12-month period by our average number of employees during that period.

(f) 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.

 

 

EXHIBIT H

BACKLOG - (UNAUDITED)

DOLLARS IN MILLIONS

Estimated 

Total

Potential

Total Potential

Second Quarter 2013

Funded 

Unfunded 

Backlog 

Contract Value*

Contract Value

Aerospace

$      14,480

$               183

$   14,663

$                    -

$             14,663

Combat Systems

5,915

1,129

7,044

3,025

10,069

Marine Systems

12,771

5,149

17,920

3,900

21,820

Information Systems and Technology

7,943

1,856

9,799

20,788

30,587

Total

$    41,109

$          8,317

$ 49,426

$           27,713

$           77,139

First Quarter 2013

Aerospace

$      15,029

$               197

$   15,226

$                      -

$             15,226

Combat Systems

6,677

1,180

7,857

3,038

10,895

Marine Systems

12,551

3,108

15,659

2,324

17,983

Information Systems and Technology

8,158

1,551

9,709

19,811

29,520

Total

$    42,415

$          6,036

$ 48,451

$           25,173

$           73,624

Second Quarter 2012

Aerospace

$      16,058

$               241

$   16,299

$                      -

$             16,299

Combat Systems

8,854

905

9,759

3,090

12,849

Marine Systems

11,666

5,339

17,005

1,377

18,382

Information Systems and Technology

7,348

1,951

9,299

21,774

31,073

Total

$    43,926

$          8,436

$ 52,362

$           26,241

$           78,603

* 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 I

SECOND QUARTER 2013 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

We received the following significant contract orders during the second quarter of 2013:

Combat Systems

  • $180 from the U.S. Army to extend the technology development (TD) phase of the Ground Combat Vehicle (GCV) program by six months.
  • The production of 100 EAGLE V vehicles for Germany, with an option for 76 additional vehicles.

Marine Systems

  • $2.8 billion from the U.S. Navy for construction of four DDG-51 ships, with an option for a fifth ship.
  • $210 from the Navy for long-lead material for three Virginia-class submarines under Block IV of the program.
  • The design and construction of four product carriers from an affiliate of American Petroleum Tankers, with options to build four additional ships.

Information Systems and Technology

  • $560 from the Centers for Medicare & Medicaid Services for contact-center services, including the 1-800-MEDICARE program.
  • $80 from the Navy for support of the Trident missile D5 life-extension program, which extends the life of existing missiles by replacing and upgrading obsolete components.
  • $65 from the Centers for Medicare & Medicaid Services for infrastructure support.
  • $60 for the Army's Warfighter Field Operations Customer Support (FOCUS) program to provide support for live, virtual and constructive training operations.
  • $60 from the Army for ruggedized computing equipment under the Common Hardware Systems-4 (CHS-4) program.
  • $60 from the Army for the production and support of the Prophet Enhanced signals intelligence system.
  • $60 from the U.S. Air Force for networking and computing products and support under the Network-Centric Solutions (NETCENTS) program.
  • $55 from the Army under the Warfighter Information Network-Tactical (WIN-T) program for equipment and support services.

 

 

EXHIBIT J

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

Second Quarter

Six Months

2012

2013

2012

2013

Gulfstream Green Deliveries (units):

Large aircraft

24

30

50

55

Mid-size aircraft

2

5

4

10

Total

26

35

54

65

Gulfstream Outfitted Deliveries (units):

Large aircraft

18

30

35

55

Mid-size aircraft

3

6

5

10

Total

21

36

40

65

Pre-owned Deliveries (units):

-

3

-

5

 

SOURCE General Dynamics

For further information: Media: Rob Doolittle, General Dynamics, (703) 876-3199, or Investors: Erin Linnihan, General Dynamics, (703) 876-3583

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