General Dynamics Reports Strong Results for Fourth Quarter, Full-Year 2009

- Operating margins increase in Q4 as company maintains focus on effective execution

- Cash generation exceeds earnings from continuing operations

- Management provides 2010 full-year EPS guidance

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

FALLS CHURCH, Va., Jan. 27 /PRNewswire-FirstCall/ -- General Dynamics (NYSE: GD) today reported 2009 fourth-quarter earnings from continuing operations of $618 million, or $1.58 per share on a fully diluted basis, compared to 2008 fourth-quarter earnings from continuing operations of $630 million, or $1.62 per share fully diluted.  Full-year 2009 earnings from continuing operations were $2.41 billion, or $6.20 per share on a fully diluted basis, compared to $2.48 billion and $6.22 per share, respectively, for 2008.  Revenue was $7.9 billion in the fourth quarter and $32 billion for the full-year, an increase of 9.2 percent over full-year 2008.  

Margins

Company-wide operating margins increased to 12 percent for the fourth quarter of 2009, driven by improved performance at each of the company's defense businesses.  Notably, operating margins increased in Combat Systems by 160 basis points; Marine Systems and Information Systems and Technology also improved margin performance, by 50 and 80 basis points, respectively, in the quarter.

Cash

Net cash provided by operating activities totaled $1.5 billion in the fourth quarter and $2.86 billion for the full year.  Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $1.36 billion in the quarter and $2.47 billion for the year.  Free cash flow as a percentage of earnings from continuing operations was 103 percent for the year.

Backlog

The company's total backlog was $65.5 billion at the end of the fourth quarter, reflecting increases in both Aerospace and Combat Systems over the end of the third quarter.  In Aerospace, new-aircraft order activity continued to be strong in the fourth quarter.  Combat Systems received significant orders in the quarter as well, including a $2.2 billion contract for a foreign military sale of light armored vehicles, and $320 million for design, engineering, modernization and enhancements of Stryker vehicles for the U.S. Army.

Funded backlog at the end of fourth-quarter 2009 was $45.9 billion.  In addition, the estimated potential contract value, representing management's estimate of the value of unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $17.6 billion at year-end 2009.  Total potential contract value, the sum of all backlog components, was $83.1 billion at the end of the year.

Net Earnings

General Dynamics' net earnings for the fourth quarter of 2009 were $614 million, compared to fourth-quarter 2008 net earnings of $612 million.  Net earnings for the full year were $2.39 billion in 2009, compared to $2.46 billion in 2008.

"General Dynamics performed well in 2009," said Jay L. Johnson, president and chief executive officer.  "The strength of our diverse portfolio was evident as continuing customer demand for our defense-related products balanced the impact of the global economic challenges on business aviation.  By marrying that strength with our commitment to financial performance and effective execution, the business generated strong margins and excellent cash flow in the fourth quarter and for the full year.

"Based on the company's performance in 2009 and our current understanding of the year ahead, we expect 2010 earnings to be in the range of $6.40 to $6.50 per share, fully diluted," Johnson said.

General Dynamics, headquartered in Falls Church, Virginia, employs approximately 91,700 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, understandings, 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 2009 securities analyst conference call, scheduled for 11:30 a.m. Eastern Time on Wednesday, January 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 2:30 p.m. January 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 28124007.  The phone replay will be available from 2:30 p.m. January 27 until midnight February 3, 2010.

EXHIBIT A

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Fourth Quarter

Variance

2009

2008

$

%

Revenues

$        7,898   

$          7,852   

$             46   

0.6 %

Operating costs and expenses

6,947   

6,914   

(33)  

Operating earnings

951   

938   

13   

1.4 %

Interest, net

(43)  

(24)  

(19)  

Other, net

1   

14   

(13)  

Earnings from continuing operations

 before income taxes

909   

928   

(19)  

(2.0)%

Provision for income taxes

291   

298   

7   

Earnings from continuing operations

$            618   

$             630   

$           (12)  

(1.9)%

Discontinued operations, net of tax

(4)  

(18)  

14   

Net earnings

$            614   

$             612   

$               2   

0.3 %

Earnings per share - basic

   Continuing operations

$           1.60   

$            1.62   

$        (0.02)  

(1.2)%

   Discontinued operations

$         (0.01)  

$          (0.05)  

$          0.04   

   Net earnings

$           1.59   

$            1.57   

$          0.02   

1.3 %

Basic weighted average

 shares outstanding (in millions)

385.8   

389.0   

Earnings per share - diluted

   Continuing operations

$           1.58   

$            1.62   

$        (0.04)  

(2.5)%

   Discontinued operations

$         (0.01)  

$          (0.05)  

$          0.04   

   Net earnings

$           1.57   

$            1.57   

$             -   

0.0 %

Diluted weighted average

 shares outstanding (in millions)

390.1   

389.6   

EXHIBIT B

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Twelve Months

Variance

2009

2008

$

%

Revenues

$      31,981   

$        29,300   

$        2,681   

9.2 %

Operating costs and expenses

28,306   

25,647   

(2,659)  

Operating earnings

3,675   

3,653   

22   

0.6 %

Interest, net

(160)  

(66)  

(94)  

Other, net

(2)  

17   

(19)  

Earnings from continuing operations

 before income taxes

3,513   

3,604   

(91)  

(2.5)%

Provision for income taxes

1,106   

1,126   

20   

Earnings from continuing operations

$        2,407   

$          2,478   

$           (71)  

(2.9)%

Discontinued operations, net of tax

(13)  

(19)  

6   

Net earnings

$        2,394   

$          2,459   

$           (65)  

(2.6)%

Earnings per share - basic

   Continuing operations

$           6.24   

$            6.26   

$        (0.02)  

(0.3)%

   Discontinued operations

$         (0.03)  

$          (0.05)  

$          0.02   

   Net earnings

$           6.21   

$            6.21   

$             -   

0.0 %

Basic weighted average

 shares outstanding (in millions)

385.5   

396.2   

Earnings per share - diluted

   Continuing operations

$           6.20   

$            6.22   

$        (0.02)  

(0.3)%

   Discontinued operations

$         (0.03)  

$          (0.05)  

$          0.02   

   Net earnings

$           6.17   

$            6.17   

$             -   

0.0 %

Diluted weighted average

 shares outstanding (in millions)

387.9   

398.7   

EXHIBIT C

REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS

Fourth Quarter

Variance

2009

2008

$

%

Revenues:

Aerospace

$        1,181   

$          1,532   

$         (351)  

(22.9)%

Combat Systems

2,486   

2,332   

154   

6.6 %

Marine Systems

1,551   

1,380   

171   

12.4 %

Information Systems and

Technology

2,680   

2,608   

72   

2.8 %

Total

$        7,898   

$          7,852   

$             46   

0.6 %

Operating earnings:

Aerospace

$            167   

$             264   

$           (97)  

(36.7)%

Combat Systems

367   

308   

59   

19.2 %

Marine Systems

156   

132   

24   

18.2 %

Information Systems and

Technology

282   

253   

29   

11.5 %

Corporate

(21)  

(19)  

(2)  

(10.5)%

Total

$            951   

$             938   

$             13   

1.4 %

Operating margins:

Aerospace

14.1 %

17.2 %

Combat Systems

14.8 %

13.2 %

Marine Systems

10.1 %

9.6 %

Information Systems and

Technology

10.5 %

9.7 %

Total

12.0 %

11.9 %

EXHIBIT D

REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS

Twelve Months

Variance

2009

2008

$

%

Revenues:

Aerospace

$        5,171   

$          5,512   

$         (341)  

(6.2)%

Combat Systems

9,645   

8,194   

1,451   

17.7 %

Marine Systems

6,363   

5,556   

807   

14.5 %

Information Systems and

Technology

10,802   

10,038   

764   

7.6 %

Total

$      31,981   

$        29,300   

$        2,681   

9.2 %

Operating earnings:

Aerospace

$            707   

$          1,021   

$         (314)  

(30.8)%

Combat Systems

1,262   

1,111   

151   

13.6 %

Marine Systems

642   

521   

121   

23.2 %

Information Systems and

Technology

1,151   

1,075   

76   

7.1 %

Corporate

(87)  

(75)  

(12)  

(16.0)%

Total

$        3,675   

$          3,653   

$             22   

0.6 %

Operating margins:

Aerospace

13.7 %

18.5 %

Combat Systems

13.1 %

13.6 %

Marine Systems

10.1 %

9.4 %

Information Systems and

Technology

10.7 %

10.7 %

Total

11.5 %

12.5 %

EXHIBIT E

PRELIMINARY CONSOLIDATED BALANCE SHEET (UNAUDITED)

DOLLARS IN MILLIONS

December 31, 2009

December 31, 2008

ASSETS

Current assets:

Cash and equivalents

$                       2,263 

$                    1,621 

Accounts receivable

3,678 

3,469 

Contracts in process

4,449 

4,341 

Inventories

2,126 

2,029 

Other current assets

733 

490 

Total current assets

13,249 

11,950 

Noncurrent assets:

Property, plant and equipment, net

2,912 

2,872 

Intangible assets, net

2,098 

1,617 

Goodwill

12,269 

11,413 

Other assets

549 

521 

Total noncurrent assets

17,828 

16,423 

Total assets

$                     31,077 

$                  28,373 

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

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

$                          705 

$                       911 

Accounts payable

2,365 

2,443 

Customer advances and deposits

4,313 

4,154 

Other current liabilities

2,988 

2,852 

Total current liabilities

10,371 

10,360 

Noncurrent liabilities:

Long-term debt

3,159 

3,113 

Other liabilities

5,124 

4,847 

Commitments and contingencies

Total noncurrent liabilities

8,283 

7,960 

Shareholders' equity:

Common stock

482 

482 

Surplus

1,518 

1,346 

Retained earnings

15,093 

13,287 

Treasury stock

(3,463)

(3,349)

Accumulated other comprehensive loss

(1,207)

(1,713)

Total shareholders' equity

12,423 

10,053 

Total liabilities and shareholders' equity

$                     31,077 

$                  28,373 

EXHIBIT F

PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

DOLLARS IN MILLIONS

Twelve Months Ended

Cash flows from operating activities:

December 31, 2009

December 31, 2008

Net earnings

$                         2,394 

$                        2,459 

Adjustments to reconcile net earnings to net cash provided by

operating activities:

Depreciation of property, plant and equipment

344 

301 

Amortization of intangible assets

218 

146 

Stock-based compensation expense

117 

105 

Excess tax benefit from stock-based compensation

(5)

(31)

Deferred income tax provision

227 

196 

Discontinued operations, net of tax

13 

19 

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

Accounts receivable

(151)

(386)

Contracts in process

(112)

73 

Inventories

(72)

(183)

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

Accounts payable

(92)

(38)

Customer advances and deposits

145 

849 

Other current liabilities

(306)

(203)

Other, net

135 

(183)

Net cash provided by operating activities

2,855 

3,124 

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(811)

(3,224)

Capital expenditures

(385)

(490)

Purchases of held-to-maturity securities

(337)

Sales/maturities of available-for-sale securities

254 

1,423 

Purchases of available-for-sale securities

(152)

(1,406)

Proceeds from sale of assets, net

43 

34 

Other, net

(4)

Net cash used by investing activities

(1,392)

(3,663)

Cash flows from financing activities:

Net proceeds from (repayment of) commercial paper

(904)

904 

Proceeds from fixed-rate notes

747 

995 

Dividends paid

(577)

(533)

Purchases of common stock

(209)

(1,522)

Proceeds from option exercises

142 

144 

Excess tax benefit from stock-based compensation

31 

Repayment of fixed-rate notes

(500)

Repayment of senior notes

(150)

Other, net

(10)

(87)

Net cash used by financing activities

(806)

(718)

Net cash used by discontinued operations

(15)

(13)

Net increase (decrease) in cash and equivalents

642 

(1,270)

Cash and equivalents at beginning of period

1,621 

2,891 

Cash and equivalents at end of period

$                         2,263 

$                        1,621 

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS

Fourth Quarter

Fourth Quarter

2009

2008

Non-GAAP Financial Measures:

Free cash flow from operations:

Quarter

Year-to-date

Quarter

Year-to-date

Net cash provided by operating activities

$                      1,498   

$               2,855   

$                   805   

$               3,124   

Capital expenditures

(134)  

(385)  

(176)  

(490)  

Free cash flow from operations (A)

$                      1,364   

$               2,470   

$                   629   

$               2,634   

Return on invested capital:

Earnings from continuing operations

$                      2,407   

$                2,478   

After-tax interest expense

117   

91   

After-tax amortization expense

149   

100   

Net operating profit after taxes

2,673   

2,669   

Average debt and equity

15,003   

14,390   

Return on invested capital (B)

17.8%

18.5%

Other Financial Information:

Return on equity (C)

21.7%

21.4%

Debt-to-equity (D)

31.1%

40.0%

Debt-to-capital (E)

23.7%

28.6%

Book value per share (F)

$                      32.21   

$                26.00   

Total taxes paid

$                          246   

$                   113   

Company-sponsored research

and development (G)

$                          123   

$                   125   

Employment

91,700   

92,300   

Sales per employee (H)

$                  346,500   

$            342,600   

Shares outstanding

385,704,691   

386,710,589   

(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

Fourth Quarter 2009

Funded

Unfunded

Backlog

Contract Value*

Contract Value

Aerospace

$      18,891

$               433

$   19,324

$               1,361

$             20,685

Combat Systems

11,431

1,985

13,416

2,327

15,743

Marine Systems

7,111

15,362

22,473

1,072

23,545

Information Systems and

Technology

8,423

1,909

10,332

12,815

23,147

Total

$    45,856

$        19,689

$ 65,545

$           17,575

$           83,120

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

Fourth Quarter 2008

Aerospace

$      21,861

$               618

$   22,479

$               2,342

$             24,821

Combat Systems

12,127

2,831

14,958

2,732

17,690

Marine Systems

10,482

15,963

26,445

1,510

27,955

Information Systems and

Technology

7,242

3,003

10,245

10,263

20,508

Total

$    51,712

$        22,415

$ 74,127

$           16,847

$           90,974

*  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 aircraft fleet customers' options to purchase new aircraft.  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

FOURTH QUARTER 2009 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

We received the following significant contract orders during the fourth quarter of 2009:

Combat Systems

  • Approximately $2.2 billion from the U.S. Army for Light Armored Vehicles for a Foreign Military Sale (FMS).
  • Approximately $190 from the Army for the Stryker wheeled armored vehicle modernization program, bringing the total contract value to over $210.
  • Approximately $160 from the Army to build M1A1 Situational Awareness (SA) tanks for Iraq. The contract has a potential value of approximately $200.
  • Approximately $130 from the Army for design and engineering work and enhancements for Stryker vehicles in support of Operating Enduring Freedom.

Marine Systems

  • Approximately $80 from the U.S. Navy for management and support of nuclear-maintenance work for submarines.
  • Approximately $80 from the Navy for additional engineering services associated with the detail design and construction of the DDG-1000 Zumwalt-class destroyer. The contract award has a potential value of approximately $190.

Information Systems and Technology

  • Approximately $210 from the Army for initial outfitting and transition support of the newly renovated Walter Reed National Military Medical Center and the newly constructed Fort Belvoir Community Hospital. The contract has a potential value of over $320.
  • A task order worth approximately $110 from the Army to modernize classroom training technology under the Information Technology Enterprise Technology Solutions-2 Services (ITES-2S) indefinite delivery, indefinite quantity (IDIQ) contract.
  • An IDIQ contract from the Army with a potential value of $200 to develop the Consolidated Product-Line Management system, which will improve the Army's ability to manage its live combat training system product lines.
  • An IDIQ contract from the Federal Aviation Administration with a potential value of approximately $220 to maintain its legacy telephony system.

EXHIBIT J

GULFSTREAM SUPPLEMENTAL DATA (UNAUDITED)

Fourth Quarter

Twelve Months

2009

2008

2009

2008

Green Deliveries (units):

Large aircraft

19 

20 

75 

87 

Mid-size aircraft

21 

19 

69 

Total

20 

41 

94 

156 

Outfitted Deliveries (units):

Large aircraft

18 

21 

78 

87 

Mid-size aircraft

17 

32 

65 

Total

21 

38 

110 

152 

Pre-owned Activity:

Units

Revenues (millions)

$            5 

$            1 

$       124 

$          18 

Operating earnings (millions)

$          (5)

$         (22)

$        (37)

$         (19)

SOURCE General Dynamics



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