General Dynamics Reports Strong Performance in Third Quarter 2010

- Earnings from continuing operations increase by 12.9 percent to $649 million

- Management raises guidance for full-year EPS

Oct 27, 2010, 07:30 ET from General Dynamics

FALLS CHURCH, Va., Oct. 27 /PRNewswire-FirstCall/ -- General Dynamics (NYSE: GD) today reported third-quarter 2010 earnings from continuing operations of $649 million, or $1.70 per share on a fully diluted basis, compared to 2009 third-quarter earnings from continuing operations of $575 million, or $1.48 per share fully diluted. Revenues in the quarter were $8 billion.  Operating earnings grew by 10.5 percent over third-quarter 2009, to $966 million.  

Net earnings for the third quarter of 2010 were $650 million, compared to $572 million in the year-ago period.  Net earnings on a per-share, fully diluted basis were $1.70 in the current quarter, an increase of 15.6 percent over the year-ago period.

Margins

Company-wide operating margins in the quarter were 12.1 percent, an increase of 80 basis points over third-quarter 2009.  Aerospace and Combat Systems margins drove that improvement, increasing 420 and 150 basis points respectively.  

Backlog

The company's funded backlog at the end of the quarter was $45.6 billion and total backlog was $61.8 billion.  Orders received reflected continuing demand for the company's aerospace and defense products alike.

Significant orders in the quarter included awards for production of double-V hulled Stryker combat vehicles, ammunition, reactive armor and crew-served weapon systems; lead-yard services for the DDG-51 destroyer program; and long-lead materials and design services for the new class of Mobile Landing Platform ships.  In the Information Systems and Technology group, customer demand continued for tactical networking systems and rugged computing products, as well as information-technology infrastructure and support services.

In addition to the total backlog, the company's estimated potential contract value was $20.8 billion at the end of third-quarter 2010, reflecting management's estimate of the value of unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options.  

Cash

Net cash provided by operating activities in the third quarter totaled $880 million.  Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $784 million for the period.

"General Dynamics continues to demonstrate its ability to effectively execute on its programs," said Jay L. Johnson, chairman and chief executive officer.  "Margins remain strong across the corporation, and the quality of earnings was underscored by strong free cash flow.  This solid operating performance reflects our continued focus on increasing efficiency, improving productivity and driving cost out of our businesses.

"As a result of our performance this quarter, we are increasing our expectations for full-year 2010 earnings from continuing operations to the range of $6.70 to $6.75 per share, fully diluted," Johnson said.

General Dynamics, headquartered in Falls Church, Virginia, employs approximately 90,000 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.  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 are 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 11:30 a.m. Eastern Time on Wednesday, October 27, 2010.  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 1:30 p.m. October 27 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 28839776.  The phone replay will be available from 1:30 p.m. October 27 until midnight November 3, 2010.

EXHIBIT A

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Third Quarter

Variance

2010

2009

$

%

Revenues

$  8,011

$  7,719

$   292

3.8 %

Operating costs and expenses

7,045

6,845

(200)

Operating earnings

966

874

92

10.5 %

Interest, net

(38)

(40)

2

Other, net

-

(6)

6

Earnings from continuing operations

 before income taxes

928

828

100

12.1 %

Provision for income taxes

279

253

(26)

Earnings from continuing operations

$     649

$     575

$     74

12.9 %

Discontinued operations, net of tax

1

(3)

4

Net earnings

$     650

$     572

$     78

13.6 %

Earnings per share - basic

   Continuing operations

$    1.71

$    1.49

$  0.22

14.8 %

   Discontinued operations

$         -

$  (0.01)

$  0.01

   Net earnings

$    1.71

$    1.48

$  0.23

15.5 %

Basic weighted average

 shares outstanding (in millions)

379.1

385.2

Earnings per share - diluted

   Continuing operations

$    1.70

$    1.48

$  0.22

14.9 %

   Discontinued operations

$         -

$  (0.01)

$  0.01

   Net earnings

$    1.70

$    1.47

$  0.23

15.6 %

Diluted weighted average

 shares outstanding (in millions)

382.5

388.1

EXHIBIT B

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Nine Months

Variance

2010

2009

$

%

Revenues

$ 23,865

$   24,083

$  (218)

(0.9)%

Operating costs and expenses

20,996

21,359

363

Operating earnings

2,869

2,724

145

5.3 %

Interest, net

(124)

(117)

(7)

Other, net

2

(3)

5

Earnings from continuing operations

 before income taxes

2,747

2,604

143

5.5 %

Provision for income taxes

848

815

(33)

Earnings from continuing operations

$    1,899

$     1,789

$    110

6.1 %

Discontinued operations, net of tax

(4)

(9)

5

Net earnings

$    1,895

$     1,780

$    115

6.5 %

Earnings per share - basic

   Continuing operations

$      4.96

$       4.64

$   0.32

6.9 %

   Discontinued operations

$    (0.01)

$     (0.02)

$   0.01

   Net earnings

$      4.95

$       4.62

$   0.33

7.1 %

Basic weighted average

 shares outstanding (in millions)

382.7

385.4

Earnings per share - diluted

   Continuing operations

$      4.91

$       4.62

$   0.29

6.3 %

   Discontinued operations

$    (0.01)

$     (0.02)

$   0.01

   Net earnings

$      4.90

$       4.60

$   0.30

6.5 %

Diluted weighted average

 shares outstanding (in millions)

386.7

387.2

EXHIBIT C

REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS

Third Quarter

Variance

2010

2009

$

%

Revenues:

Aerospace

$ 1,291

$   1,120

$   171

15.3 %

Combat Systems

2,069

2,347

(278)

(11.8)%

Marine Systems

1,700

1,518

182

12.0 %

Information Systems and

Technology

2,951

2,734

217

7.9 %

Total

$ 8,011

$   7,719

$   292

3.8 %

Operating earnings:

Aerospace

$     199

$      125

$     74

59.2 %

Combat Systems

311

316

(5)

(1.6)%

Marine Systems

169

155

14

9.0 %

Information Systems and

Technology

306

296

10

3.4 %

Corporate

(19)

(18)

(1)

(5.6)%

Total

$     966

$      874

$     92

10.5 %

Operating margins:

Aerospace

15.4 %

11.2 %

Combat Systems

15.0 %

13.5 %

Marine Systems

9.9 %

10.2 %

Information Systems and

Technology

10.4 %

10.8 %

Total

12.1 %

11.3 %

EXHIBIT D

REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months

Variance

2010

2009

$

%

Revenues:

Aerospace

$    4,031

$     3,990

$      41

1.0 %

Combat Systems

6,182

7,159

(977)

(13.6)%

Marine Systems

4,976

4,812

164

3.4 %

Information Systems and

Technology

8,676

8,122

554

6.8 %

Total

$  23,865

$   24,083

$   (218)

(0.9)%

Operating earnings:

Aerospace

$       650

$        540

$    110

20.4 %

Combat Systems

875

895

(20)

(2.2)%

Marine Systems

497

486

11

2.3 %

Information Systems and

Technology

908

869

39

4.5 %

Corporate

(61)

(66)

5

7.6 %

Total

$    2,869

$     2,724

$    145

5.3 %

Operating margins:

Aerospace

16.1 %

13.5 %

Combat Systems

14.2 %

12.5 %

Marine Systems

10.0 %

10.1 %

Information Systems and

Technology

10.5 %

10.7 %

Total

12.0 %

11.3 %

EXHIBIT E

PRELIMINARY CONSOLIDATED BALANCE SHEET (UNAUDITED)

DOLLARS IN MILLIONS

October 3, 2010

December 31, 2009

ASSETS

Current assets:

Cash and equivalents

$                       1,843

$                    2,263

Accounts receivable

3,874

3,678

Contracts in process

4,986

4,449

Inventories

1,986

2,126

Other current assets

701

733

Total current assets

13,390

13,249

Noncurrent assets:

Property, plant and equipment, net

2,918

2,912

Intangible assets, net

2,011

2,098

Goodwill

12,544

12,269

Other assets

620

549

Total noncurrent assets

18,093

17,828

Total assets

$                     31,483

$                  31,077

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

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

$                          774

$                       705

Accounts payable

2,571

2,365

Customer advances and deposits

4,080

4,313

Other current liabilities

2,886

2,988

Total current liabilities

10,311

10,371

Noncurrent liabilities:

Long-term debt

2,430

3,159

Other liabilities

5,160

5,124

Commitments and contingencies

Total noncurrent liabilities

7,590

8,283

Shareholders' equity:

Common stock

482

482

Surplus

1,662

1,518

Retained earnings

16,504

15,093

Treasury stock

(4,077)

(3,463)

Accumulated other comprehensive loss

(989)

(1,207)

Total shareholders' equity

13,582

12,423

Total liabilities and shareholders' equity

$                     31,483

$                  31,077

EXHIBIT F

PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

DOLLARS IN MILLIONS

Nine Months Ended

Cash flows from operating activities:

October 3, 2010

October 4, 2009

Net earnings

$                1,895

$                 1,780

Adjustments to reconcile net earnings to net cash provided by

operating activities:

Depreciation of property, plant and equipment

257

257

Amortization of intangible assets

167

161

Stock-based compensation expense

88

87

Excess tax benefit from stock-based compensation

(19)

-

Deferred income tax provision

65

189

Discontinued operations, net of tax

4

9

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

Accounts receivable

(178)

(324)

Contracts in process

(478)

(80)

Inventories

149

(56)

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

Accounts payable

201

(146)

Customer advances and deposits

(331)

(238)

Other current liabilities

(336)

(218)

Other, net

83

(64)

Net cash provided by operating activities

1,567

1,357

Cash flows from investing activities:

Maturities of held-to-maturity securities

599

-

Purchases of held-to-maturity securities

(452)

-

Business acquisitions, net of cash acquired

(233)

(805)

Capital expenditures

(219)

(251)

Purchases of available-for-sale securities

(199)

(129)

Maturities of available-for-sale securities

120

174

Other, net

123

90

Net cash used by investing activities

(261)

(921)

Cash flows from financing activities:

Purchases of common stock

(726)

(109)

(Repayment of) proceeds from fixed-rate notes

(700)

747

Dividends paid

(471)

(430)

Proceeds from option exercises

159

68

Repayment of commercial paper

-

(904)

Other, net

16

(8)

Net cash used by financing activities

(1,722)

(636)

Net cash used by discontinued operations - operating activities

(4)

(12)

Net decrease in cash and equivalents

(420)

(212)

Cash and equivalents at beginning of period

2,263

1,621

Cash and equivalents at end of period

$                1,843

$                 1,409

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS

Third Quarter

Third Quarter

2010

2009

Non-GAAP Financial Measures:

Free cash flow from operations:

Quarter

Year-to-date

Quarter

Year-to-date

Net cash provided by operating activities

$                    880

$                  1,567

$                   594

$                    1,357

Capital expenditures

(96)

(219)

(81)

(251)

Free cash flow from operations (A)

$                    784

$                  1,348

$                   513

$                    1,106

Return on invested capital:

Earnings from continuing operations

$                2,517

$                2,419

After-tax interest expense

121

109

After-tax amortization expense

154

140

Net operating profit after taxes

2,792

2,668

Average debt and equity

16,400

14,600

Return on invested capital (B)

17.0%

18.3%

Other Financial Information:

Return on equity (C)

19.9%

21.9%

Debt-to-equity (D)

23.6%

33.0%

Debt-to-capital (E)

19.1%

24.8%

Book value per share (F)

$                35.96

$                30.37

Total taxes paid

$                    227

$                   144

Company-sponsored research and development (G)

$                    115

$                   140

Employment

89,800

92,300

Sales per employee (H)

$            348,400

$            348,900

Shares outstanding

377,743,896

385,801,290

(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 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

Third Quarter 2010

Funded

Unfunded

Backlog

Contract Value*

Contract Value

Aerospace

$   17,184

$           393

$   17,577

$                    1,361

$                18,938

Combat Systems

11,771

1,006

12,777

4,702

17,479

Marine Systems

7,972

12,620

20,592

768

21,360

Information Systems and Technology

8,666

2,219

10,885

13,978

24,863

Total

$ 45,593

$    16,238

$ 61,831

$                20,809

$              82,640

Second Quarter 2010

Aerospace

$   17,393

$           408

$   17,801

$                    1,361

$                19,162

Combat Systems

11,070

1,695

12,765

4,744

17,509

Marine Systems

8,757

12,541

21,298

768

22,066

Information Systems and Technology

8,658

1,996

10,654

14,848

25,502

Total

$ 45,878

$    16,640

$ 62,518

$                21,721

$              84,239

Third Quarter 2009

Aerospace

$   18,811

$           444

$   19,255

$                    1,361

$                20,616

Combat Systems

11,508

1,355

12,863

2,645

15,508

Marine Systems

8,011

15,479

23,490

1,170

24,660

Information Systems and Technology

8,467

2,174

10,641

13,024

23,665

Total

$ 46,797

$    19,452

$ 66,249

$                18,200

$              84,449

*  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.  Because the value in the unfunded IDIQ arrangements is subject to the customer's future exercise of an indeterminate quantity of delivery 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 2010 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

We received the following significant contract orders during the third quarter of 2010:

Combat Systems

  • Approximately $340 from the U.S. Army under the Stryker wheeled armored vehicle program for contractor logistics support and to initiate the production of double-V-shaped hull vehicles.
  • Approximately $180 from the Canadian government to supply various calibers of ammunition.
  • Approximately $135 from the Army to provide Abrams tank System Technical Support, bringing the total value in backlog to approximately $425.
  • Approximately $90 from the Army for the production of reactive armor side skirt tiles for the Bradley Fighting Vehicle System.
  • Approximately $75 from the Army for the production of M2A1 machines guns. This contract has a potential value of approximately $400.

Marine Systems

  • Approximately $115 from the U.S. Navy for long-lead material and advanced design efforts for the first ship of the Mobile Landing Platform (MLP) program.
  • Approximately $35 from the Navy to provide ongoing lead-yard services for the DDG-51 destroyer program.

Information Systems and Technology

  • Approximately $240 from the National Aeronautics and Space Administration (NASA) for the Space Network Ground Segment Sustainment (SGSS) project to modernize the ground segment of the satellite communications network used by NASA.
  • Approximately $110 in orders for networking communications products under the Network-Centric Solutions (NETCENTS) program, bringing the total value in backlog to approximately $270.
  • Approximately $110 for information-technology infrastructure associated with the Base Realignment and Closure (BRAC) facility changes.
  • Approximately $100 from the Army for ruggedized computing equipment under the Common Hardware/Software III (CHS-3) program, bringing the total value in backlog to approximately $245.
  • Approximately $80 from the National Oceanic and Atmospheric Association to design, manufacture and install antennas for the Geostationary Operational Environmental Satellites (GOES).
  • Approximately $65 from the Army under the Warfighter Information Network-Tactical (WIN-T) program for Increment 1 satellite communication equipment technical support services. This award brings the total value in backlog to approximately $795.

EXHIBIT J

AEROSPACE SUPPLEMENTAL DATA (UNAUDITED)

Third Quarter

Nine Months

2010

2009

2010

2009

Gulfstream Green Deliveries (units):

Large aircraft

17

14

57

56

Mid-size aircraft

6

3

22

18

Total

23

17

79

74

Gulfstream Outfitted Deliveries (units):

Large aircraft

19

20

54

60

Mid-size aircraft

5

4

11

29

Total

24

24

65

89

Pre-owned Deliveries (units):

2

3

6

5

SOURCE General Dynamics



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