General Dynamics (GD)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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Form 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) January 27, 2010 (January 27, 2010)

GENERAL DYNAMICS CORPORATION

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(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		1-3671		13-1673581
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

2941 Fairview Park Drive, Suite 100, Falls Church, Virginia		22042-4513
( Address of Principal Executive Offices)		(Zip Code)

(703) 876-3000

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(Registrant’s Telephone Number, Including Area Code)

Not Applicable

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(Former Name or Former Address, If Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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Item 2.02 Results of Operations and Financial Condition

On January 27, 2010, General Dynamics announced its financial results for the quarter and year ended December 31, 2009. A copy of the press release is being furnished as Exhibit 99.1 to this Form 8-K and is hereby incorporated by reference.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits (furnished only)

 

99.1

General Dynamics press release dated January 27, 2010, with respect to the company’s financial results for the quarter and year ended December 31, 2009.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: January 27, 2010

 

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Exhibit 99.1

News

 

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January 27, 2010

Contact: Rob Doolittle

Tel: 703 876 3199

rdoolitt@generaldynamics.com

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

 

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

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Cash generation exceeds earnings from continuing operations

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Management provides 2010 full-year EPS guidance

FALLS CHURCH, Va. – 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.

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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.

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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.

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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

 

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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

 

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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	%

 

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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	%

 

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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

 

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EXHIBIT F

PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

DOLLARS IN MILLIONS

 

		Twelve Months Ended
		December 31, 2009				December 31, 2008
Cash flows from operating activities:
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			5				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

 

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EXHIBIT G

PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS

 

		Fourth Quarter 2009								Fourth Quarter 2008
		Quarter				Year-to-date				Quarter				Year-to-date
Non-GAAP Financial Measures:
Free cash flow from operations:
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.

 

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EXHIBIT H

BACKLOG (UNAUDITED)

DOLLARS IN MILLIONS

 

Fourth Quarter 2009				Funded			Unfunded			Total Backlog			Estimated Potential Contract Value*			Total Potential 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.

 

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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

 

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Approximately $2.2 billion from the U.S. Army for Light Armored Vehicles for a Foreign Military Sale (FMS).

 

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Approximately $190 from the Army for the Stryker wheeled armored vehicle modernization program, bringing the total contract value to over $210.

 

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Approximately $160 from the Army to build M1A1 Situational Awareness (SA) tanks for Iraq. The contract has a potential value of approximately $200.

 

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Approximately $130 from the Army for design and engineering work and enhancements for Stryker vehicles in support of Operating Enduring Freedom.

Marine Systems

 

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Approximately $80 from the U.S. Navy for management and support of nuclear-maintenance work for submarines.

 

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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

 

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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.

 

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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.

 

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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.

 

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An IDIQ contract from the Federal Aviation Administration with a potential value of approximately $220 to maintain its legacy telephony system.

 

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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			1				21				19				69
Total			20				41				94				156
Outfitted Deliveries (units):
Large aircraft			18				21				78				87
Mid-size aircraft			3				17				32				65
Total			21				38				110				152
Pre-owned Activity:
Units			1				—				6				2
Revenues (millions)		$	5			$	1			$	124			$	18
Operating earnings (millions)		$	(5	)		$	(22	)		$	(37	)		$	(19	)

 

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