General Dynamics Reports Second-Quarter 2012 Results

- Operating earnings increase to $970 million

- Company-wide operating margins expand to 12.2 percent

Jul 25, 2012, 07:00 ET from General Dynamics

FALLS 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.

Margins

Company-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.

Cash

Net 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.

Backlog

Funded 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 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. Eastern Daylight Time on Wednesday, July 25, 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 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 A

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Second Quarter

Variance

2011

2012

$

%

Revenues

$          7,879

$        7,922

$             43

0.5 %

Operating costs and expenses

6,930

6,952

(22)

Operating earnings

949

970

21

2.2 %

Interest, net

(31)

(37)

(6)

Other, net

41

(5)

(46)

Earnings from continuing operations

  before income taxes

959

 

928

(31)

(3.2)%

Provision for income taxes

293

294

(1)

Earnings from continuing operations

$             666

$            634

$           (32)

(4.8)%

Discontinued operations, net of tax

(13)

-

13

Net 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

$          0.02

1.1 %

Basic weighted average

  shares outstanding (in millions)

368.0

355.0

Earnings 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

$          0.01

0.6 %

Diluted weighted average

  shares outstanding (in millions)

371.4

357.4

  

   

EXHIBIT B

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Six Months

Variance

2011

2012

$

%

Revenues

$        15,677

$      15,501

$         (176)

(1.1)%

Operating costs and expenses

13,799

13,671

128

Operating earnings

1,878

1,830

(48)

(2.6)%

Interest, net

(65)

(76)

(11)

Other, net

42

(5)

(47)

Earnings from continuing operations

  before income taxes

1,855

 

1,749

(106)

(5.7)%

Provision for income taxes

571

551

20

Earnings from continuing operations

$          1,284

$        1,198

$           (86)

(6.7)%

Discontinued operations, net of tax

(13)

-

13

Net 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)

370.3

356.0

Earnings 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)

373.9

358.4

 

 

 

EXHIBIT C

REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS

Second Quarter

Variance

2011

2012

$

%

Revenues:

Aerospace

$ 1,376

$ 1,592

$ 216

15.7 %

Combat Systems

2,121

2,149

28

1.3 %

Marine Systems

1,576

1,653

77

4.9 %

Information Systems and

Technology

2,806

2,528

(278)

(9.9)%

Total

$ 7,879

$ 7,922

$ 43

0.5 %

Operating earnings:

Aerospace

$ 209

$ 257

$ 48

23.0 %

Combat Systems

299

322

23

7.7 %

Marine Systems

161

183

22

13.7 %

Information Systems and

Technology

299

226

(73)

(24.4)%

Corporate

(19)

(18)

1

5.3 %

Total

$ 949

$ 970

$ 21

2.2 %

Operating margins:

Aerospace

15.2 %

16.1 %

Combat Systems

14.1 %

15.0 %

Marine Systems

10.2 %

11.1 %

Information Systems and

Technology

10.7 %

8.9 %

Total

12.0 %

12.2 %

 

 

 

EXHIBIT D

REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS

Six Months

Variance

2011

2012

$

%

Revenues:

Aerospace

$ 2,729

$ 3,215

$ 486

17.8 %

Combat Systems

4,076

4,060

(16)

(0.4)%

Marine Systems

3,252

3,258

6

0.2 %

Information Systems and

Technology

5,620

4,968

(652)

(11.6)%

Total

$ 15,677

$ 15,501

$ (176)

(1.1)%

Operating earnings:

Aerospace

$ 439

$ 528

$ 89

20.3 %

Combat Systems

576

525

(51)

(8.9)%

Marine Systems

328

368

40

12.2 %

Information Systems and

Technology

575

444

(131)

(22.8)%

Corporate

(40)

(35)

5

12.5 %

Total

$ 1,878

$ 1,830

$ (48)

(2.6)%

Operating margins:

Aerospace

16.1 %

16.4 %

Combat Systems

14.1 %

12.9 %

Marine Systems

10.1 %

11.3 %

Information Systems and

Technology

10.2 %

8.9 %

Total

12.0 %

11.8 %

 

 

 

EXHIBIT E

PRELIMINARY CONSOLIDATED BALANCE SHEETS

DOLLARS IN MILLIONS

(Unaudited)

December 31, 2011

July 1, 2012

ASSETS

Current assets:

Cash and equivalents

$                         2,649

$                   2,540

Accounts receivable

4,452

4,571

Contracts in process

5,168

4,916

Inventories

2,310

2,648

Other current assets

789

852

Total current assets

15,368

15,527

Noncurrent assets:

Property, plant and equipment, net

3,284

3,248

Intangible assets, net

1,813

1,738

Goodwill

13,576

13,762

Other assets

842

928

Total noncurrent assets

19,515

19,676

Total assets

$                       34,883

$                35,203

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Short-term debt and current portion of long-term debt

$                              23

$                   1,028

Accounts payable

2,895

2,559

Customer advances and deposits

5,011

5,398

Other current liabilities

3,216

3,194

Total current liabilities

11,145

12,179

Noncurrent liabilities:

Long-term debt

3,907

2,905

Other liabilities

6,599

6,457

Total noncurrent liabilities

10,506

9,362

Shareholders' equity:

Common stock

482

482

Surplus

1,888

1,939

Retained earnings

18,917

19,751

Treasury stock

(5,743)

(6,208)

Accumulated other comprehensive loss

(2,312)

(2,302)

Total shareholders' equity

13,232

13,662

Total liabilities and shareholders' equity

$                       34,883

$                35,203

 

EXHIBIT F

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

DOLLARS IN MILLIONS

Six Months Ended

Cash flows from operating activities:

July 3, 2011

July 1, 2012

Net earnings

$ 1,271

$ 1,198

Adjustments to reconcile net earnings to net cash provided by

operating activities:

Depreciation of property, plant and equipment

172

189

Amortization of intangible assets

116

115

Stock-based compensation expense

64

69

Excess tax benefit from stock-based compensation

(21)

(22)

Deferred income tax provision

34

3

Discontinued operations, net of tax

13

-

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

Accounts receivable

(385)

(110)

Contracts in process

(132)

194

Inventories

(224)

(316)

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

Accounts payable

(103)

(342)

Customer advances and deposits

283

226

Other, net

(9)

(1)

Net cash provided by operating activities

1,079

1,203

Cash 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 securities

221

19

Purchases of available-for-sale securities

(257)

(100)

Other, net

215

76

Net 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 exercises

175

111

Other, net

(2)

28

Net 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 period

2,613

2,649

Cash and equivalents at end of period

$ 2,157

$ 2,540

 

 

 

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS

Second Quarter

Second Quarter

2011

2012

Non-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

$             1,203

Capital expenditures 

(91)

(152)

(86)

(176)

Free cash flow from operations (A)

$                           660

$                    927

$                   703

$             1,027

Return on invested capital:

Earnings from continuing operations

$                        2,662

$               2,466

 After-tax interest expense

104

113

 After-tax amortization expense

159

162

Net operating profit after taxes

2,925

2,741

Average debt and equity

16,838

17,475

Return 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

$               38.73

Total taxes paid

$                           479

$                   424

Company-sponsored research 

 and development (G)

$                           149

$                   130

Employment 

88,400

93,500

Sales per employee (H)

$                    359,600

$           348,800

Shares outstanding

361,764,830

352,778,253

(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 H

BACKLOG (UNAUDITED)

DOLLARS IN MILLIONS

Estimated 

Total

Potential

Total Potential

Second Quarter 2012

Funded 

Unfunded 

Backlog 

Contract Value*

Contract Value

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

First Quarter 2012

Aerospace

$      16,718

$               266

$   16,984

$                      -

$             16,984

Combat Systems

9,623

1,042

10,665

3,473

14,138

Marine Systems

12,261

5,754

18,015

1,199

19,214

Information Systems and

Technology

7,649

1,913

9,562

22,256

31,818

Total

$    46,251

$          8,975

$ 55,226

$           26,928

$           82,154

Second Quarter 2011

Aerospace

$      17,948

$               340

$   18,288

$                      -

$             18,288

Combat Systems

9,657

1,135

10,792

4,370

15,162

Marine Systems

9,191

9,209

18,400

1,097

19,497

Information Systems and

Technology

7,468

2,168

9,636

15,697

25,333

Total

$    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 I

SECOND QUARTER 2012 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

We 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 J

AEROSPACE SUPPLEMENTAL DATA (UNAUDITED)

Second Quarter

Six Months

2011

2012

2011

2012

Gulfstream Green Deliveries (units):

Large aircraft

20

24

40

50

Mid-size aircraft

3

2

7

4

Total

23

26

47

54

Gulfstream Outfitted Deliveries (units):

Large aircraft

19

18

38

35

Mid-size aircraft

3

3

8

5

Total

22

21

46

40

Pre-owned Deliveries (units):

2

-

2

-

 

SOURCE General Dynamics



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