General Dynamics Reports Fourth-quarter, Full-year 2012 Results

FALLS CHURCH, Va., Jan. 23, 2013 /PRNewswire/ -- General Dynamics (NYSE: GD) today announced 2012 fourth-quarter and full-year financial results, which include significant, primarily non-cash charges recorded in the fourth quarter.  Adjusting for the impact of those charges, non-GAAP fourth-quarter 2012 earnings from continuing operations were $491 million or $1.39 per share, fully diluted.  On an unadjusted GAAP basis, the company reported a loss from continuing operations of $2.1 billion, or $6.07 per share fully diluted, for the quarter.

Adjusted 2012 full-year earnings from continuing operations were $2.3 billion, or $6.48 per share fully diluted.  On a GAAP basis the company reported a loss from continuing operations of $332 million for 2012, or $0.94 per share fully diluted.

During the fourth quarter the company recorded a $2 billion goodwill impairment related to its Information Systems and Technology (IS&T) group.  This charge recognizes the impact of slowed defense spending in the company's IS&T businesses.  The company also recorded $867 million in other charges in the quarter, including intangible asset impairments of $301 million in its Aerospace and IS&T groups, which are detailed in Exhibit C of this press release.

Phebe N. Novakovic, chairman and chief executive officer of General Dynamics, said, "General Dynamics' operating results in 2012 and the charges that we have recorded in the fourth quarter reflect the fact that some of our markets are contracting as government budgets shrink at home and abroad.  They also suggest opportunities for improvement in some areas of our performance, which we are addressing.

"General Dynamics is a strong corporation with relevant product and service offerings that are critical to our customers' missions.  We will continue to manage our business aggressively as we approach the opportunities and the challenges of the future," Novakovic said.

Revenues

Revenues were $8.1 billion in the fourth quarter of 2012 and $31.5 billion for the full year.

Margins

Company-wide operating margins on a non-GAAP basis were 10.1 percent for the fourth quarter and 11.4 percent for the year.  On a GAAP basis, company-wide operating margins were -23.5 percent for the fourth quarter and 2.6 percent for the year.

Cash

Net cash provided by operating activities, which was largely unaffected by the charges described above, totaled $780 million in the fourth quarter of 2012 and $2.7 billion for the full year. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $616 million in the quarter and $2.2 billion for the year.

Backlog

The company's total backlog was $51.3 billion at the end of 2012.  In the fourth quarter, orders were particularly strong for the Marine Systems group, including $2.4 billion in awards to continue the development of the U.S. Navy's next-generation strategic deterrent submarine, to purchase long-lead materials for three Virginia-class attack submarines, and to construct two commercial containerships.  Other notable orders received in the quarter include awards for additional Stryker infantry combat vehicles, for Abrams tanks for a foreign customer, and for the production of tactical networking equipment and radios for the U.S. Army.

Estimated potential contract value was $26.9 billion at year-end 2012, representing management's estimate of the value of unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised contract options.  Total potential contract value, the sum of all backlog components, was $78.1 billion at the end of the year.

"Looking ahead to 2013, we anticipate earnings per share from continuing operations to be in the range of $6.60 to $6.70," Novakovic said.

General Dynamics, headquartered in Falls Church, Virginia, employs approximately 92,200 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.

Use of Non-GAAP Financial Information

To supplement the review of General Dynamics Corporation's consolidated financial statements presented on a GAAP basis, the company has provided non-GAAP calculations of certain financial measures along with explanations of the company's use of these measures on Exhibits C, E, G and J to this press release.

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 fourth-quarter securities-analyst conference call at 11:30 a.m. Eastern Standard Time on Wednesday, January 23, 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 shortly after the conclusion of the call on January 23 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 19265786.  The phone replay will be available shortly after the conclusion of the call January 23 until midnight January 30. 

 

EXHIBIT A











CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS













Fourth Quarter



Variance



2011


2012



$


%











Revenues


$          9,147


$        8,078



$      (1,069)


(11.7)%

Operating costs and expenses


8,197


9,980



(1,783)













Operating earnings (loss)


950


(1,902)



(2,852)


(300.2)%











Interest, net


(38)


(41)



(3)



Other, net


(1)


(128)



(127)













Earnings (loss) from continuing operations










  before income taxes


911


(2,071)



(2,982)


(327.3)%











Provision for income taxes


308


59



249













Earnings (loss) from continuing operations


$             603


$       (2,130)



$      (2,733)


(453.2)%











Discontinued operations, net of tax


-


-



-













Net earnings (loss)


$             603


$       (2,130)



$      (2,733)


(453.2)%











Earnings (loss) per share - basic










    Continuing operations


$            1.69


$         (6.07)



$        (7.76)


(459.2)%

    Discontinued operations


$                  -


$                 -



$               -



    Net earnings (loss)


$            1.69


$         (6.07)



$        (7.76)


(459.2)%











Basic weighted average shares outstanding 


356.2


350.9
















Earnings (loss) per share - diluted










    Continuing operations


$            1.68


$         (6.07)

*


$        (7.75)


(461.3)%

    Discontinued operations


$                  -


$                 -



$               -



    Net earnings (loss)


$            1.68


$         (6.07)

*


$        (7.75)


(461.3)%











Diluted weighted average shares outstanding


359.4


350.9

*















* Fourth quarter 2012 amounts exclude dilutive effect of stock options and restricted stock as it would be antidilutive.











 

EXHIBIT B











CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS













Twelve Months



Variance



2011


2012



$


%











Revenues


$        32,677


$      31,513



$      (1,164)


(3.6)%

Operating costs and expenses


28,851


30,680



(1,829)













Operating earnings 


3,826


833



(2,993)


(78.2)%











Interest, net


(141)


(156)



(15)



Other, net


33


(136)



(169)













Earnings from continuing operations










  before income taxes


3,718


541



(3,177)


(85.4)%











Provision for income taxes


1,166


873



293













Earnings (loss) from continuing operations


$          2,552


$          (332)



$      (2,884)


(113.0)%











Discontinued operations, net of tax


(26)


-



26













Net earnings (loss)


$          2,526


$          (332)



$      (2,858)


(113.1)%











Earnings (loss) per share - basic










    Continuing operations


$            7.01


$         (0.94)



$        (7.95)


(113.4)%

    Discontinued operations


$          (0.07)


$                -



$          0.07



    Net earnings (loss)


$            6.94


$         (0.94)



$        (7.88)


(113.5)%











Basic weighted average shares outstanding


364.1


353.3
















Earnings (loss) per share - diluted










    Continuing operations


$            6.94


$         (0.94)

 * 


$        (7.88)


(113.5)%

    Discontinued operations


$          (0.07)


$                 -



$          0.07



    Net earnings (loss)


$            6.87


$         (0.94)

 * 


$        (7.81)


(113.7)%











Diluted weighted average shares outstanding


367.5


353.3

 * 















* 2012 amounts exclude dilutive effect of stock options and restricted stock as it would be antidilutive.











 

EXHIBIT C











CALCULATION OF ADJUSTED NON-GAAP EARNINGS FROM CONTINUING OPERATIONS AND


ADJUSTED NON-GAAP DILUTED EARNINGS PER SHARE - (UNAUDITED)


DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS















Fourth Quarter



Twelve Months






2012



2012











Calculation of adjusted non-GAAP earnings from continuing operations:
















Loss from continuing operations (from Exhibits A and B, respectively)


$       (2,130)



$        (332)


Non-GAAP adjustments:









Goodwill impairment (a)




1,994



1,994


Intangible asset impairments (a)


301



301


Contract disputes accruals (b)


292



292


Restructuring-related charges (c)


98



98


Inventory-related charges (d)


53



78


Debt retirement charge (e)


123



123


Tax effects (f)




(240)



(249)











Adjusted non-GAAP earnings from continuing operations


$            491



$      2,305











Calculation of diluted (loss) earnings per share from continuing operations:
















Loss from continuing operations


$       (2,130)



$        (332)


Basic weighted average shares outstanding


350.9



353.3


    Diluted loss per share from continuing operations 


$         (6.07)

 (g) 


$       (0.94)

 (g) 










Adjusted non-GAAP earnings from continuing operations


$            491



$      2,305


Diluted weighted average shares outstanding


353.2



355.7


    Adjusted non-GAAP diluted earnings per share from continuing operations 


$           1.39



$        6.48











This Exhibit includes the following financial measures which are not calculated in accordance with generally accepted accounting principles (GAAP) in the United States – adjusted earnings from continuing operations and adjusted diluted earnings per share from continuing operations.  Each of these calculations excludes the impact of certain items and therefore, is considered a non-GAAP financial measure.  The items excluded were considered by management to be unusual and not reflective of the underlying performance of the company as explained in the notes for each item. The GAAP financial measure most directly comparable to adjusted earnings from continuing operations is loss from continuing operations and the GAAP financial measure most directly comparable to adjusted diluted earnings per share is diluted loss per share.  Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP financial measure are included above. Management uses these measures to evaluate the operating performance of the company and analyze trends.  For this reason, management believes the measures are useful supplemental information for investors to understand the company's operating results.  Notes describing each non-GAAP adjustment are on the following page.




EXHIBIT C (cont.)











CALCULATION OF ADJUSTED NON-GAAP EARNINGS FROM CONTINUING OPERATIONS AND

ADJUSTED NON-GAAP DILUTED EARNINGS PER SHARE - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS











(a) Impairments - Represents goodwill impairment charge of $1,994 in the Information Systems and Technology group and intangible asset impairments of $191 in the Aerospace group and $110 in the Information Systems and Technology group.  Management believes that the exclusion of these items is useful because management does not consider impairment charges in evaluating the operating performance of its on-going operations.  The exclusions permit investors to evaluate the company's performance and analyze trends in a similar manner as management.











(b) Contract disputes accruals - Represents accruals of $292 for contract disputes related to the Combat Systems group's European Land Systems business, primarily with the government of Portugal.  While the company has contract disputes from time to time, management believes this item is unique due to the nature of the disputes and not reflective of the operating performance of its underlying operations.  The exclusion permits investors to evaluate the company's performance in a similar manner as management and facilitates a comparison of its operating performance to the company's past operating performance.











(c) Restructuring-related charges - Represents restructuring-related charges of $98, primarily severance costs, related to the Combat Systems group's European Land Systems business.  Management believes that the exclusion of this item is useful because management does not consider this item as reflective of its operating performance of its underlying operations.  The exclusion permits investors to evaluate the company's performance in a similar manner as management and facilitates a comparison of its operating performance to the company's past operating performance.











(d) Inventory-related charges - Represents increases to inventory reserves for obsolete inventory in the Information Systems and Technology group of $38 and in the Combat Systems group of $15 for the quarter ended December 31, 2012.  Represents increases to inventory reserves for obsolete inventory in the Information Systems and Technology group of $63 and in the Combat Systems group of $15 for the twelve months ended December 31, 2012.  The Information Systems and Technology charge was primarily for ruggedized hardware products that ceased production in 2012.  Management has adjusted for this item because it does not believe that it is indicative of its on-going operations or the on-going operating costs of its products since it does not generally build products to inventory within its defense groups.  The exclusion permits investors to evaluate the company's performance in a similar manner as management and facilitates a comparison of its operating performance to the company's past operating performance.  











(e) Debt retirement charges - Represents the premium associated with the early redemption of debt completed in December 2012.  Management has excluded this item for comparative purposes and views this charge as uniquely related to its debt refinancing completed in 2012.  By excluding this item, investors can evaluate the company's performance in a similar manner as management.











(f) Tax effects - Represents the limited tax benefit on the charges in (a) - (e) due to the non-deductible nature of a substantial portion of the charges.  The tax effects of these changes have been reflected because management evaluates performance on an after-tax basis.  This permits investors to evaluate the company's performance in a similar manner as management and compare the operating performance of the company to prior periods.  











(g) Calculated based on basic weighted average shares outstanding as the inclusion of dilutive securities (stock options and restricted stock) would have an antidilutive effect.











 

EXHIBIT D










REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS












Fourth Quarter


Variance



2011


2012


$


%

Revenues:


















Aerospace


$          1,857


$        1,861


$               4


0.2 %










Combat Systems


2,611


1,976


(635)


(24.3)%










Marine Systems


1,758


1,664


(94)


(5.3)%










Information Systems and Technology


2,921


2,577


(344)


(11.8)%










Total


$          9,147


$        8,078


$      (1,069)


(11.7)%










Operating earnings (loss):


















Aerospace


$               73


$              69


$             (4)


(5.5)%










Combat Systems


388


(136)


(524)


(135.1)%










Marine Systems


190


196


6


3.2 %










Information Systems and Technology


315


(2,014)


(2,329)


(739.4)%














Corporate


(16)


(17)


(1)


(6.3)%










Total


$             950


$       (1,902)


$      (2,852)


(300.2)%










Operating margins:


















Aerospace


3.9 %


3.7 %














Combat Systems


14.9 %


(6.9)%














Marine Systems


10.8 %


11.8 %














Information Systems and Technology


10.8 %


(78.2)%




















Total


10.4 %


(23.5)%