General Dynamics Reports Third-Quarter 2013 Results

- Diluted EPS increases 8.2 percent over third-quarter 2012

- Operating margins grow to 12.3 percent

23 Oct, 2013, 07:00 ET from General Dynamics

FALLS CHURCH, Va., Oct. 23, 2013 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported third-quarter 2013 net earnings of $651 million, or $1.84 per share on a diluted basis, on revenues of $7.8 billion. This compares to 2012 third-quarter net earnings of $600 million, or $1.70 per diluted share, on revenues of $7.9 billion. Third-quarter 2013 operating earnings rose $52 million to $957 million, a 5.7 percent increase over the year-ago quarter.

Margins

Company-wide operating margins for the third quarter of 2013 were 12.3 percent, 90 basis points higher than third-quarter 2012 margins, reflecting operating-performance improvement in the company's Aerospace, Combat Systems and Information Systems and Technology groups over the year-ago period. Marine Systems' margins remained steady from second quarter to third quarter 2013 on the strength of current program performance, although they declined as expected from the year-ago period due to the completion of the long-running T-AKE program.

Cash

Net cash provided by operating activities in third-quarter 2013 totaled $467 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $364 million in the quarter.

Capital Deployment

The company repurchased 1.6 million shares of outstanding common stock in the third quarter. Year-to-date, the company has repurchased 9.2 million shares. At its October meeting the company's board of directors authorized management to repurchase up to 10 million additional shares.

Backlog

Total backlog at the end of third-quarter 2013 was $47.9 billion, and the estimated potential contract value was an additional $27.4 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 $75.4 billion at the end of the quarter.

Significant awards received in the quarter include $200 million to continue production and support of double-V-hulled Stryker combat vehicles for the U.S. Army, $150 million for continued production of Abrams tanks for a foreign customer and $140 million for equipment and services in support of the Army's Warfighter Information Network-Tactical (WIN-T). Marine Systems was contracted to design and manufacture two commercial product carriers, and received a $280 million award for repair and maintenance of U.S. Navy LHA- and LHD-class ships.

"General Dynamics performed well in the third quarter, reflecting our focus on the basics of operational excellence," said Phebe N. Novakovic, chairman and chief executive officer. "We remain committed to creating value by meeting our obligations to our customers while continuously improving the way we do business."

General Dynamics, headquartered in Falls Church, Virginia, employs approximately 95,700 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. EDT on Wednesday, October 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 by 12 p.m. on October 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 69201108. The phone replay will be available from 1 p.m. October 23 through October 30, 2013.

 

EXHIBIT A

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Third Quarter

Variance

2012

2013

$

%

Revenues

$          7,934

$        7,796

$         (138)

(1.7)%

Operating costs and expenses

7,029

6,839

190

Operating earnings

905

957

52

5.7 %

Interest, net

(39)

(22)

17

Other, net

(3)

5

8

Earnings before income taxes

863

940

77

8.9 %

Provision for income taxes

263

289

(26)

Net earnings

$             600

$            651

$             51

8.5 %

Earnings per share - basic

$            1.71

$           1.86

$          0.15

8.8 %

Basic weighted average shares outstanding

350.5

349.3

Earnings per share - diluted

$            1.70

$           1.84

$          0.14

8.2 %

Diluted weighted average shares outstanding

352.8

352.9

 

EXHIBIT B

CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Nine Months

Variance

2012

2013

$

%

Revenues

$        23,435

$      23,111

$         (324)

(1.4)%

Operating costs and expenses

20,700

20,347

353

Operating earnings

2,735

2,764

29

1.1 %

Interest, net

(115)

(63)

52

Other, net

(8)

6

14

Earnings before income taxes

2,612

2,707

95

3.6 %

Provision for income taxes

814

845

(31)

Net earnings

$          1,798

$        1,862

$             64

3.6 %

Earnings per share - basic

$            5.08

$           5.31

$          0.23

4.5 %

Basic weighted average shares outstanding

354.2

350.8

Earnings per share - diluted

$            5.04

$           5.27

$          0.23

4.6 %

Diluted weighted average shares outstanding

356.5

353.1

 

EXHIBIT C

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Third Quarter

Variance

2012

2013

$

%

Revenues:

Aerospace

$          1,836

$        2,152

$           316

17.2 %

Combat Systems

1,956

1,367

(589)

(30.1)%

Marine Systems

1,670

1,697

27

1.6 %

Information Systems and Technology

2,472

2,580

108

4.4 %

Total

$          7,934

$        7,796

$         (138)

(1.7)%

Operating earnings:

Aerospace

$             261

$            369

$           108

41.4 %

Combat Systems

274

224

(50)

(18.2)%

Marine Systems

186

170

(16)

(8.6)%

Information Systems and Technology

201

216

15

7.5 %

Corporate

(17)

(22)

(5)

(29.4)%

Total

$             905

$            957

$             52

5.7 %

Operating margins:

Aerospace

14.2 %

17.1 %

Combat Systems

14.0 %

16.4 %

Marine Systems

11.1 %

10.0 %

Information Systems and Technology

8.1 %

8.4 %

Total

11.4 %

12.3 %

 

EXHIBIT D

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months

Variance

2012

2013

$

%

Revenues:

Aerospace

$          5,051

$        5,983

$           932

18.5 %

Combat Systems

6,016

4,469

(1,547)

(25.7)%

Marine Systems

4,928

5,082

154

3.1 %

Information Systems and Technology

7,440

7,577

137

1.8 %

Total

$        23,435

$      23,111

$         (324)

(1.4)%

Operating earnings:

Aerospace

$             789

$        1,068

$           279

35.4 %

Combat Systems

799

657

(142)

(17.8)%

Marine Systems

554

507

(47)

(8.5)%

Information Systems and Technology

645

599

(46)

(7.1)%

Corporate

(52)

(67)

(15)

(28.8)%

Total

$          2,735

$        2,764

$             29

1.1 %

Operating margins:

Aerospace

15.6 %

17.9 %

Combat Systems

13.3 %

14.7 %

Marine Systems

11.2 %

10.0 %

Information Systems and Technology

8.7 %

7.9 %

Total

11.7 %

12.0 %

 

EXHIBIT E

PRELIMINARY CONSOLIDATED BALANCE SHEETS

DOLLARS IN MILLIONS

(Unaudited)

December 31, 2012

September 29, 2013

ASSETS

Current assets:

Cash and equivalents

$                         3,296

$                       4,065

Accounts receivable

4,204

4,365

Contracts in process

4,964

5,113

Inventories

2,776

2,986

Other current assets

504

589

Total current assets

15,744

17,118

Noncurrent assets:

Property, plant and equipment, net

3,403

3,365

Intangible assets, net

1,383

1,248

Goodwill

12,048

12,008

Other assets

1,731

1,732

Total noncurrent assets

18,565

18,353

Total assets

$                       34,309

$                     35,471

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$                         2,469

$                       2,443

Customer advances and deposits

6,042

6,266

Other current liabilities

3,109

3,356

Total current liabilities

11,620

12,065

Noncurrent liabilities:

Long-term debt

3,908

3,908

Other liabilities

7,391

6,893

Total noncurrent liabilities

11,299

10,801

Shareholders' equity:

Common stock

482

482

Surplus

1,988

2,161

Retained earnings

17,860

19,131

Treasury stock

(6,165)

(6,500)

Accumulated other comprehensive loss

(2,775)

(2,669)

Total shareholders' equity

11,390

12,605

Total liabilities and shareholders' equity

$                       34,309

$                     35,471

 

EXHIBIT F

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months Ended

September 30, 2012

September 29, 2013

Cash flows from operating activities:

Net earnings

$                      1,798

$                     1,862

Adjustments to reconcile net earnings to net cash provided by 

  operating activities -

  Depreciation of property, plant and equipment

286

288

  Amortization of intangible assets

172

127

  Stock-based compensation expense

104

90

  Excess tax benefit from stock-based compensation

(24)

(19)

  Deferred income tax provision

53

47

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

  Accounts receivable

139

(166)

  Contracts in process

91

(119)

  Inventories

(340)

(218)

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

  Accounts payable

(368)

(26)

  Customer advances and deposits

257

16

  Other current liabilities

(105)

(167)

Other, net

(156)

(165)

Net cash provided by operating activities

1,907

1,550

Cash flows from investing activities:

Capital expenditures

(286)

(271)

Business acquisitions, net of cash acquired

(426)

(1)

Other, net

44

56

Net cash used by investing activities

(668)

(216)

Cash flows from financing activities:

Purchases of common stock

(602)

(696)

Proceeds from option exercises

121

484

Dividends paid

(533)

(394)

Other, net

2

46

Net cash used by financing activities

(1,012)

(560)

Net cash used by discontinued operations

(2)

(5)

Net increase in cash and equivalents

225

769

Cash and equivalents at beginning of period

2,649

3,296

Cash and equivalents at end of period

$                      2,874

$                     4,065

 

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION - (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS

Third Quarter

Third Quarter

2012

2013

Other Financial Information:

Debt-to-equity (a)

27.5%

31.2%

Debt-to-capital (b)

21.6%

23.8%

Book value per share (c)

$               40.42

$             35.79

Total taxes paid

$                  299

$                245

Company-sponsored research and development (d)

$                  149

$                116

Employment 

93,700

95,700

Sales per employee (e)

$           346,900

$        340,000

Shares outstanding

353,069,806

352,198,231

Non-GAAP Financial Measures:

Free cash flow from operations:

 Quarter 

 Year-to-date 

 Quarter 

 Year-to-date 

Net cash provided by operating activities

$                  704

$               1,907

$                467

$             1,550

Capital expenditures 

(110)

(286)

(103)

(271)

Free cash flow from operations (f)

$                  594

$               1,621

$                364

$             1,279

(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

Third Quarter 2013

Funded 

Unfunded 

Backlog 

Contract Value*

Contract Value

Aerospace

$      13,653

$               170

$   13,823

$                    -

$             13,823

Combat Systems

6,164

954

7,118

3,622

10,740

Marine Systems

12,228

5,337

17,565

3,389

20,954

Information Systems and Technology

7,950

1,485

9,435

20,433

29,868

Total

$    39,995

$          7,946

$ 47,941

$           27,444

$           75,385

Second Quarter 2013

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

Third Quarter 2012

Aerospace

$      15,827

$               215

$   16,042

$                      -

$             16,042

Combat Systems

8,259

1,101

9,360

2,627

11,987

Marine Systems

10,909

5,036

15,945

1,382

17,327

Information Systems and Technology

8,224

1,887

10,111

22,052

32,163

Total

$    43,219

$          8,239

$ 51,458

$           26,061

$           77,519

*  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

THIRD QUARTER 2013 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

 

We received the following significant orders during the third quarter of 2013:

Combat Systems

  • $200 from the U.S. Army under the Stryker wheeled armored vehicle program for the production of 66 double-V-hulled vehicles and for contractor logistics support.
  • $185 from the Army for the production of Hydra-70 rockets and M2A1 machine gun barrel kits.
  • $150 from the Army under a foreign military sales contract to convert Abrams tanks to the Saudi M1A2S configuration for the Kingdom of Saudi Arabia.
  • $35 from the U.K. Ministry of Defence for the production of 24 Foxhound light tactical vehicles.

Marine Systems

  • $280 from the U.S. Navy for repair and maintenance services on LHA- and LHD-class ships.
  • $210 from the Navy for the design and construction of a steel deckhouse and hangar and construction of aft Peripheral Vertical Launching System (PVLS) modules on the third DDG-1000 destroyer.
  • $55 from the Navy for moored training ship platforms.
  • The design and construction of two product carriers from Seabulk Tankers, Inc.

Information Systems and Technology

  • $140 from the Army under the Warfighter Information Network-Tactical (WIN-T) program for equipment and support services.
  • $90 from the Army for ruggedized computing equipment under the Common Hardware Systems-4 (CHS-4) program.
  • $75 from the U.S. Department of State to provide supply chain management services.
  • $65 for the Army's Warfighter Field Operations Customer Support (FOCUS) program to provide support for live, virtual and constructive training operations.
  • One of 17 awards to provide cyber security services to the U.S. Department of Homeland Security and other government agencies through a General Services Administration blanket purchase agreement. The agreement has a maximum potential value of $6 billion over five years among all awardees.

 

EXHIBIT J

AEROSPACE SUPPLEMENTAL DATA - (UNAUDITED)

Third Quarter

Nine Months

2012

2013

2012

2013

Gulfstream Green Deliveries (units):

Large aircraft

28

28

78

83

Mid-size aircraft

6

6

10

16

Total

34

34

88

99

Gulfstream Outfitted Deliveries (units):

Large aircraft

17

32

52

87

Mid-size aircraft

-

6

5

16

Total

17

38

57

103

Pre-owned Deliveries (units):

1

4

1

9

 

SOURCE General Dynamics



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