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General Dynamics Reports Strong Performance in Second Quarter 2009

Posted on: Wednesday, 29 July 2009, 06:30 CDT

FALLS CHURCH, Va., July 29 /PRNewswire-FirstCall/ -- General Dynamics (NYSE: GD) today reported second-quarter 2009 earnings from continuing operations of $621 million, or $1.61 per share on a fully diluted basis, compared to 2008 second-quarter earnings from continuing operations of $641 million, or $1.60 per share fully diluted. The second-quarter 2008 results included a one-time 9-cent-per-share tax benefit. Revenues in the most-recent quarter grew to $8.1 billion, increasing 10.9 percent over second-quarter 2008 revenues of $7.3 billion. Operating earnings in the second quarter of 2009 grew by 2.6 percent over the previous year's performance to $945 million.

Net earnings for the second quarter of 2009 were $618 million, compared to $641 million in the year-ago period. Net earnings on a per-share, fully diluted basis were $1.60 in the current quarter, unchanged year-over-year.

For the first six months of 2009, revenues were $16.4 billion, compared with $14.3 billion in the first half of 2008. Half-year earnings from continuing operations and net earnings were unchanged year-over-year at $1.2 billion. Earnings per share from continuing operations on a fully diluted basis for the first six months of 2009 were $3.14 per share, an increase of 4.3 percent when compared to 2008.

Margins

Each of the company's four business groups produced higher margin rates in second-quarter 2009 than in the first quarter. Notably, Aerospace margins grew 150 basis points. Company-wide, operating margins for the second quarter of 2009 were 11.7 percent, an increase of 70 basis points over the previous quarter.

Backlog

The company's total backlog at the end of the quarter was $67.6 billion, a 22.2 percent increase over the $55.3 billion total backlog reported at the end of the second-quarter 2008. Funded backlog at the end of second-quarter 2009 increased 5.3 percent from one year ago, to $47.7 billion. In addition, the estimated potential contract value, which represents management's estimate of value under unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, grew to $17.7 billion at the end of second-quarter 2009 from 2008.

Cash

Net cash provided by operating activities from continuing operations in the second quarter totaled $609 million. Free cash flow from operations, defined as net cash provided by operating activities from continuing operations less capital expenditures, was $520 million for the period. For the first half of 2009, net cash provided by operating activities from continuing operations was $763 million, and free cash flow from operations was $593 million.

"General Dynamics continued to demonstrate the strength of our portfolio in the second quarter of 2009," said Jay L. Johnson, president and chief executive officer. "Revenues grew in each of the company's four operating segments, and our operating earnings of $945 million were the highest in company history. Our commitment to financial performance and continuously improving execution generated very strong results.

"Based on the company's year-to-date performance and our understanding of what the remainder of 2009 will bring, we are raising our earlier guidance for full-year 2009 earnings from continuing operations, to $6.05 to $6.15 per share, fully diluted," Johnson said.

General Dynamics, headquartered in Falls Church, Virginia, employs approximately 92,000 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, 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 second-quarter securities analyst conference call, scheduled for 11:30 a.m. Eastern Time on Wednesday, July 29, 2009. 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. July 29 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 83347521. The phone replay will be available from 1:30 p.m. July 29 until midnight August 5, 2009.

EXHIBIT A

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS Second Quarter Variance 2009 2008 $ % ---- ---- ---- ---- Revenues $8,100 $7,303 $797 10.9 % Operating costs and expenses 7,155 6,382 (773) ----- ----- ---- Operating earnings 945 921 24 2.6 % Interest, net (38) (12) (26) Other, net - - - --- --- --- Earnings from continuing operations before income taxes 907 909 (2) (0.2)% Provision for income taxes 286 268 (18) --- --- --- Earnings from continuing operations $621 $641 $(20) (3.1)% ==== ==== ==== Discontinued operations, net of tax (3) - (3) --- --- --- Net earnings $618 $641 $(23) (3.6)% ==== ==== ==== Earnings per share - basic Continuing operations $1.61 $1.61 $- 0.0 % Discontinued operations $(0.01) $- $(0.01) ------ -- ------ Net earnings $1.60 $1.61 $(0.01) (0.6)% ===== ===== ====== Basic weighted average shares outstanding (in millions) 385.0 398.5 ===== ===== Earnings per share - diluted Continuing operations $1.61 $1.60 $0.01 0.6 % Discontinued operations $(0.01) $- $(0.01) ------ --- ------ Net earnings $1.60 $1.60 $- 0.0 % ===== ===== === Diluted weighted average shares outstanding (in millions) 387.0 401.8 ===== =====

EXHIBIT B

CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS Six Months Variance 2009 2008 $ % ---- ---- ---- ----- Revenues $16,364 $14,308 $2,056 14.4 % Operating costs and expenses 14,514 12,526 (1,988) ------ ------ ------ Operating earnings 1,850 1,782 68 3.8 % Interest, net (77) (31) (46) Other, net 3 3 - --- --- --- Earnings from continuing operations before income taxes 1,776 1,754 22 1.3 % Provision for income taxes 562 540 (22) --- --- --- Earnings from continuing operations $1,214 $1,214 $- 0.0 % ====== ====== == Discontinued operations, net of tax (6) (1) (5) -- -- -- Net earnings $1,208 $1,213 $(5) (0.4)% ====== ====== === Earnings per share - basic Continuing operations $3.15 $3.04 $0.11 3.6 % Discontinued operations $(0.02) $- $(0.02) ------ -- ------ Net earnings $3.13 $3.04 $0.09 3.0 % ===== ===== ===== Basic weighted average shares outstanding (in millions) 385.4 399.6 ===== ===== Earnings per share - diluted Continuing operations $3.14 $3.01 $0.13 4.3 % Discontinued operations $(0.02) $- $(0.02) ------ -- ------ Net earnings $3.12 $3.01 $0.11 3.7 % ===== ===== ===== Diluted weighted average shares outstanding (in millions) 386.8 402.8 ===== =====

EXHIBIT C

REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED) DOLLARS IN MILLIONS Second Quarter Variance 2009 2008 $ % ---- ---- ---- ---- Revenues: --------- Aerospace $1,415 $1,329 $86 6.5 % Combat Systems 2,405 2,015 390 19.4 % Marine Systems 1,625 1,394 231 16.6 % Information Systems and Technology 2,655 2,565 90 3.5 % ----- ----- -- Total $8,100 $7,303 $797 10.9 % ====== ====== ==== Operating earnings: ------------------- Aerospace $215 $240 $(25) (10.4)% Combat Systems 300 282 18 6.4 % Marine Systems 168 127 41 32.3 % Information Systems and Technology 284 292 (8) (2.7)% Corporate (22) (20) (2) (10.0)% --- --- -- Total $945 $921 $24 2.6 % ==== ==== === Operating margins: ------------------ Aerospace 15.2 % 18.1 % Combat Systems 12.5 % 14.0 % Marine Systems 10.3 % 9.1 % Information Systems and Technology 10.7 % 11.4 % Total 11.7 % 12.6 %

EXHIBIT D

REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED) DOLLARS IN MILLIONS Six Months Variance 2009 2008 $ % ---- ---- ---- ---- Revenues: --------- Aerospace $2,870 $2,608 $262 10.0 % Combat Systems 4,812 4,012 800 19.9 % Marine Systems 3,294 2,772 522 18.8 % Information Systems and Technology 5,388 4,916 472 9.6 % ----- ----- --- Total $16,364 $14,308 $2,056 14.4 % ======= ======= ====== Operating earnings: ------------------- Aerospace $415 $476 $(61) (12.8)% Combat Systems 579 541 38 7.0 % Marine Systems 331 249 82 32.9 % Information Systems and Technology 573 552 21 3.8 % Corporate (48) (36) (12) (33.3)% --- --- --- Total $1,850 $1,782 $68 3.8 % ====== ====== === Operating margins: ------------------ Aerospace 14.5 % 18.3 % Combat Systems 12.0 % 13.5 % Marine Systems 10.0 % 9.0 % Information Systems and Technology 10.6 % 11.2 % Total 11.3 % 12.5 %

EXHIBIT E

PRELIMINARY CONSOLIDATED BALANCE SHEET (UNAUDITED) DOLLARS IN MILLIONS July 5, 2009 December 31, 2008 ------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $1,614 $1,621 Accounts receivable 3,649 3,469 Contracts in process 4,408 4,341 Inventories 2,138 2,029 Other current assets 489 490 ------------------------------------------------------------------------- Total current assets 12,298 11,950 ------------------------------------------------------------------------- Noncurrent assets: Property, plant and equipment, net 2,857 2,872 Intangible assets, net 1,566 1,617 Goodwill 11,739 11,413 Other assets 398 521 ------------------------------------------------------------------------- Total noncurrent assets 16,560 16,423 ------------------------------------------------------------------------- Total assets $28,858 $28,373 ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt and current portion of long-term debt $55 $911 Accounts payable 2,427 2,443 Customer advances and deposits 3,862 4,154 Other current liabilities 2,916 2,852 ------------------------------------------------------------------------- Total current liabilities 9,260 10,360 ------------------------------------------------------------------------- Noncurrent liabilities: Long-term debt 3,860 3,113 Other liabilities 4,737 4,847 Commitments and contingencies ------------------------------------------------------------------------- Total noncurrent liabilities 8,597 7,960 ------------------------------------------------------------------------- Shareholders' equity: Common stock 482 482 Surplus 1,414 1,346 Retained earnings 14,201 13,287 Treasury stock (3,437) (3,349) Accumulated other comprehensive loss (1,659) (1,713) ------------------------------------------------------------------------- Total shareholders' equity 11,001 10,053 ------------------------------------------------------------------------- Total liabilities and shareholders' equity $28,858 $28,373 -------------------------------------------------------------------------

EXHIBIT F

PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) DOLLARS IN MILLIONS Six Months Ended ----------------------------- Cash flows from operating activities: July 5, 2009 June 29, 2008 ------------ ------------- Net earnings $1,208 $1,213 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 171 146 Amortization 108 67 Stock-based compensation expense 58 50 Excess tax benefit from stock- based compensation (1) (24) Deferred income tax provision 86 26 Discontinued operations, net of tax 6 1 (Increase) decrease in assets, net of effects of business acquisitions: Accounts receivable (149) (83) Contracts in process (77) (163) Inventories (115) (73) Increase (decrease) in liabilities, net of effects of business acquisitions: Accounts payable (18) (207) Customer advances and deposits (430) 548 Other current liabilities (163) (27) Other, net 79 (18) ------------------------------------------------------------------------ Net cash provided by operating activities from continuing operations 763 1,456 Net cash used by discontinued operations - operating activities (9) (5) ------------------------------------------------------------------------ Net cash provided by operating activities 754 1,451 ------------------------------------------------------------------------ Cash flows from investing activities: Capital expenditures (170) (200) Business acquisitions, net of cash acquired (165) (66) Sales/maturities of available-for-sale securities 154 1,186 Purchases of available-for-sale securities (107) (1,247) Other, net 1 31 ------------------------------------------------------------------------ Net cash used by investing activities (287) (296) ------------------------------------------------------------------------ Cash flows from financing activities: Repayments of commercial paper, net (853) - Proceeds from fixed-rate notes 747 - Dividends paid (283) (257) Purchases of common stock (109) (660) Proceeds from option exercises 30 89 Repayment of fixed-rate notes - (500) Other, net (6) 22 ------------------------------------------------------------------------ Net cash used by financing activities (474) (1,306) ------------------------------------------------------------------------ Net decrease in cash and equivalents (7) (151) Cash and equivalents at beginning of period 1,621 2,891 ------------------------------------------------------------------------ Cash and equivalents at end of period $1,614 $2,740 ------------------------------------------------------------------------

EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION (UNAUDITED) DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS Second Quarter Second 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 from continuing operations $609 $763 $1,025 $1,456 Capital expenditures (89) (170) (115) (200) --------------------------- -------------------- Free cash flow from operations (A) $520 $593 $910 $1,256 =========================== ==================== Return on invested capital: Earnings from continuing operations $2,478 $2,336 After-tax interest expense 100 93 After-tax amortization expense 128 94 -------------- -------------- Net operating profit after taxes 2,706 2,523 Average debt and equity 14,378 14,143 -------------- -------------- Return on invested capital (B) 18.8% 17.8% ============== ============== Other Financial Information: ---------------------------- Return on equity ( C ) 22.3% 20.4% Debt-to-equity (D) 35.6% 18.8% Debt-to-capital (E) 26.2% 15.8% Book value per share (F) $28.57 $30.66 Total taxes paid $429 $475 Company-sponsored research and development (G) $119 $124 Employment 92,000 84,600 Sales per employee (H) $349,300 $342,900 Shares outstanding 385,090,596 397,327,979 (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 from continuing operations. (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 Potential Total Contract Contract Second Quarter 2009 Funded Unfunded Backlog Value* Value ------------------- ------- -------- ------- -------- ------- Aerospace $19,306 $570 $19,876 $1,633 $21,509 Combat Systems 11,494 1,364 12,858 2,451 15,309 Marine Systems 8,645 15,724 24,369 1,241 25,610 Information Systems and Technology 8,208 2,297 10,505 12,372 22,877 ------- -------- ------- -------- ------- Total $47,653 $19,955 $67,608 $17,697 $85,305 ======= ======== ======= ======== ======= First Quarter 2009 ------------------ Aerospace $20,179 $590 $20,769 $2,071 $22,840 Combat Systems 11,746 2,724 14,470 2,112 16,582 Marine Systems 9,431 16,031 25,462 1,208 26,670 Information Systems and Technology 7,795 2,629 10,424 12,556 22,980 ------- -------- ------- -------- ------- Total $49,151 $21,974 $71,125 $17,947 $89,072 ======= ======== ======= ======== ======= Second Quarter 2008 ------------------- Aerospace $18,195 $634 $18,829 $2,309 $21,138 Combat Systems 10,611 3,263 13,874 2,610 16,484 Marine Systems 8,899 3,239 12,138 2,167 14,305 Information Systems and Technology 7,531 2,950 10,481 10,348 20,829 ------- -------- ------- -------- ------- Total $45,236 $10,086 $55,322 $17,434 $72,756 ======= ======== ======= ======== ======= * 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

SECOND QUARTER 2009 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

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

Combat Systems

• Approximately $320 from the U.S. Army for the production of Stryker wheeled armored vehicles and related support.
  

• Approximately $75 from the Army for the production of M2HB machine guns. This contract has a potential value of approximately $400.
  

Marine Systems

• Approximately $410 from the U.S. Navy for our second Littoral Combat Ship (LCS).
  

Information Systems and Technology

• Approximately $180 in orders under the Common Hardware/Software III (CHS-3) program, bringing the total contract value to $1.9 billion. CHS-3 provides commercial and ruggedized computers, network equipment and software to the U.S. armed forces and other U.S. federal agencies worldwide.
  

• Approximately $12 to develop the antenna feed for the next-generation military satellite communications terminals under the Army's Modernization of Enterprise Terminals (MET) program. This contract has a potential value of $200.
  

• Combined orders totaling approximately $375 under the BOWMAN communications program for the United Kingdom to upgrade the system's capabilities and provide long-term technical support including repair, field services and spares.
  

EXHIBIT J

GULFSTREAM SUPPLEMENTAL DATA (UNAUDITED) Second Quarter Six Months 2009 2008 2009 2008 ---- ---- ---- ---- Green Deliveries (units): ------------------------- Large aircraft 20 22 42 44 Mid-size aircraft 6 17 15 32 ---- ---- ---- ---- Total 26 39 57 76 ==== ==== ==== ==== Outfitted Deliveries (units): ----------------------------- Large aircraft 22 24 40 44 Mid-size aircraft 9 16 25 32 ---- ---- ---- ---- Total 31 40 65 76 ==== ==== ==== ==== Pre-owned Activity: ------------------- Units 2 1 2 2 ==== ==== ==== ==== Revenues (millions) $57 $8 $57 $17 Operating earnings (millions) $(2) $1 $(23) $2 ==== ==== ==== ==== Gulfstream margins including pre-owned activity 17.9% 18.1% 16.9% 18.4% ==== ==== ==== ==== Gulfstream margins excluding pre-owned activity 19.1% 18.1% 18.3% 18.5% ==== ==== ==== ====

SOURCE General Dynamics

Source: PR Newswire

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