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General Dynamics Reports Second-Quarter 2012 Results
PR Newswire
Jul 25, 2012
FALLS CHURCH, Va., July 25, 2012 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported second-quarter 2012 earnings from continuing operations of $634 million, or $1.77 per share on a fully diluted basis, compared with 2011 second-quarter earnings from continuing operations of $666 million, or $1.79 per share fully diluted. Revenues in the quarter were $7.9 billion. Net earnings for the second quarter of 2012 were $634 million, compared to $653 million in the second quarter of 2011.
Margins
Company-wide operating margins for the second quarter of 2012 were 12.2 percent, which reflected 90-basis-point increases in each of the Aerospace, Combat Systems and Marine Systems groups over the year-ago period. Operating margins in the Information Systems and Technology group were 8.9 percent.
Cash
Net cash provided by operating activities in the quarter totaled $789 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $703 million in second-quarter 2012, or approximately 111 percent of earnings from continuing operations.
Backlog
Funded backlog declined slightly in the second quarter, compared to first-quarter 2012. However, demand for information technology (IT) services was strong in the quarter, and other significant awards received included an indefinite delivery, indefinite quantity (IDIQ) contract from the Federal Aviation Administration for air traffic control radios which has a maximum potential value of $365 million over 10 years; a $270 million order for Hydra-70 rockets in support of Army requirements; $115 million for conversion of additional Stryker vehicles to the new double-V-hulled configuration and contractor logistics support; and a $125 million contract for continued development of the U.S. Navy's next-generation ballistic-missile submarine (SSBN(X)).
The company's total backlog at the end of second-quarter 2012 was $52.4 billion, and the estimated potential contract value was an additional $26.2 billion, representing management's estimate of value under unfunded IDIQ contracts and unexercised options. The sum of all backlog components exceeded $78 billion at the end of the quarter.
"General Dynamics' operating results in the second quarter reflect our continued focus on disciplined execution and effective cash conversion across the corporation," said Jay L. Johnson, chairman and chief executive officer.
"Heading into the second half of 2012, I remain very confident in our continued ability to execute. However, given the impact of first-half award delays in IS&T's tactical communications business, as well as the likelihood of further delays in the second half, I believe it is prudent to revise the full-year earnings guidance range downward to $7.00 to $7.10 per share, fully diluted."
General Dynamics, headquartered in Falls Church, Virginia, employs approximately 93,500 people worldwide. The company is a market leader in business aviation; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and information systems and technologies. More information about the company is available on the Internet at www.generaldynamics.com.
Certain statements made in this press release, including any statements as to future results of operations and financial projections, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are based on management's expectations, estimates, projections and assumptions. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors. Additional information regarding these factors is contained in the company's filings with the Securities and Exchange Commission, including, without limitation, its Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q.
All forward-looking statements speak only as of the date they were made. The company does not undertake any obligation to update or publicly release any revisions to any forward-looking statements to reflect events, circumstances or changes in expectations after the date of this press release.
WEBCAST INFORMATION: General Dynamics will webcast its second-quarter securities analyst conference call at 9 a.m. Eastern Daylight Time on Wednesday, July 25, 2012. The webcast will be a listen-only audio event, available at www.generaldynamics.com. An on-demand replay of the webcast will be available by noon on July 25 and will continue for 12 months. To hear a recording of the conference call by telephone, please call 888-286-8010 (international: 617-801-6888); passcode 12521089. The phone replay will be available from noon July 25 until midnight August 1, 2012.
EXHIBIT A
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Second Quarter Variance
2011 2012 $ %
---- ---- --- ---
Revenues $7,879 $7,922 $43 0.5 %
Operating costs and expenses 6,930 6,952 (22)
----- ----- ---
Operating earnings 949 970 21 2.2 %
Interest, net (31) (37) (6)
Other, net 41 (5) (46)
--- --- ---
Earnings from continuing operations
before income taxes 959 928 (31) (3.2)%
Provision for income taxes 293 294 (1)
--- --- ---
Earnings from continuing operations $666 $634 $(32) (4.8)%
==== ==== ====
Discontinued operations, net of tax (13) - 13
--- --- ---
Net earnings $653 $634 $(19) (2.9)%
==== ==== ====
Earnings per share - basic
Continuing operations $1.81 $1.79 $(0.02) (1.1)%
Discontinued operations $(0.04) $ - $0.04
------ ------------------- -----
Net earnings $1.77 $1.79 $0.02 1.1 %
===== ===== =====
Basic weighted average
shares outstanding (in millions) 368.0 355.0
===== =====
Earnings per share - diluted
Continuing operations $1.79 $1.77 $(0.02) (1.1)%
Discontinued operations $(0.03) $ - $0.03
------ -------------------
Net earnings $1.76 $1.77 $0.01 0.6 %
===== ===== =====
Diluted weighted average
shares outstanding (in millions) 371.4 357.4
===== =====
EXHIBIT B
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Six Months Variance
2011 2012 $ %
---- ---- --- ---
Revenues $15,677 $15,501 $(176) (1.1)%
Operating costs and expenses 13,799 13,671 128
------ ------ ---
Operating earnings 1,878 1,830 (48) (2.6)%
Interest, net (65) (76) (11)
Other, net 42 (5) (47)
--- --- ---
Earnings from continuing operations
before income taxes 1,855 1,749 (106) (5.7)%
Provision for income taxes 571 551 20
--- --- ---
Earnings from continuing operations $1,284 $1,198 $(86) (6.7)%
====== ====== ====
Discontinued operations, net of tax (13) - 13
--- --- ---
Net earnings $1,271 $1,198 $(73) (5.7)%
====== ====== ====
Earnings per share - basic
Continuing operations $3.47 $3.37 $(0.10) (2.9)%
Discontinued operations $(0.04) $ - $0.04
------ ------------------ -----
Net earnings $3.43 $3.37 $(0.06) (1.7)%
===== ===== ======
Basic weighted average
shares outstanding (in millions) 370.3 356.0
===== =====
Earnings per share - diluted
Continuing operations $3.43 $3.34 $(0.09) (2.6)%
Discontinued operations $(0.03) $ - $0.03
------ ------------------
Net earnings $3.40 $3.34 $(0.06) (1.8)%
===== ===== ======
Diluted weighted average
shares outstanding (in millions)
373.9 358.4
===== =====
EXHIBIT C
REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)
DOLLARS IN MILLIONS
Second Quarter Variance
2011 2012 $ %
---- ---- --- ---
Revenues:
---------
Aerospace $1,376 $1,592 $216 15.7 %
Combat Systems 2,121 2,149 28 1.3 %
Marine Systems 1,576 1,653 77 4.9 %
Information Systems and
Technology
2,806 2,528 (278) (9.9)%
----- ----- ----
Total $7,879 $7,922 $43 0.5 %
====== ====== ===
Operating earnings:
-------------------
Aerospace $209 $257 $48 23.0 %
Combat Systems 299 322 23 7.7 %
Marine Systems 161 183 22 13.7 %
Information Systems and
Technology
299 226 (73) (24.4)%
Corporate (19) (18) 1 5.3 %
Total $949 $970 $21 2.2 %
==== ==== ===
Operating margins:
------------------
Aerospace 15.2 % 16.1 %
Combat Systems 14.1 % 15.0 %
Marine Systems 10.2 % 11.1 %
Information Systems and
Technology
10.7 % 8.9 %
Total 12.0 % 12.2 %
EXHIBIT D
REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)
DOLLARS IN MILLIONS
Six Months Variance
2011 2012 $ %
---- ---- --- ---
Revenues:
---------
Aerospace $2,729 $3,215 $486 17.8 %
Combat Systems 4,076 4,060 (16) (0.4)%
Marine Systems 3,252 3,258 6 0.2 %
Information Systems and
Technology
5,620 4,968 (652) (11.6)%
----- ----- ----
Total $15,677 $15,501 $(176) (1.1)%
======= ======= =====
Operating earnings:
-------------------
Aerospace $439 $528 $89 20.3 %
Combat Systems 576 525 (51) (8.9)%
Marine Systems 328 368 40 12.2 %
Information Systems and
Technology
575 444 (131) (22.8)%
Corporate (40) (35) 5 12.5 %
Total $1,878 $1,830 $(48) (2.6)%
====== ====== ====
Operating margins:
------------------
Aerospace 16.1 % 16.4 %
Combat Systems 14.1 % 12.9 %
Marine Systems 10.1 % 11.3 %
Information Systems and
Technology
10.2 % 8.9 %
Total 12.0 % 11.8 %
EXHIBIT E
PRELIMINARY CONSOLIDATED BALANCE SHEETS
DOLLARS IN MILLIONS
(Unaudited)
December 31, 2011 July 1, 2012
----------------- ------------
ASSETS
Current assets:
Cash and equivalents $2,649 $2,540
Accounts receivable 4,452 4,571
Contracts in process 5,168 4,916
Inventories 2,310 2,648
Other current assets 789 852
--------------------
Total current assets 15,368 15,527
-------------------- ------ ------
Noncurrent assets:
Property, plant and equipment, net 3,284 3,248
Intangible assets, net 1,813 1,738
Goodwill 13,576 13,762
Other assets 842 928
------------
Total noncurrent assets 19,515 19,676
----------------------- ------ ------
Total assets $34,883 $35,203
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $23 $1,028
Accounts payable 2,895 2,559
Customer advances and deposits 5,011 5,398
Other current liabilities 3,216 3,194
-------------------------
Total current liabilities 11,145 12,179
------------------------- ------ ------
Noncurrent liabilities:
Long-term debt 3,907 2,905
Other liabilities 6,599 6,457
----------------- ----- -----
Total noncurrent liabilities 10,506 9,362
---------------------------- ------ -----
Shareholders' equity:
Common stock 482 482
Surplus 1,888 1,939
Retained earnings 18,917 19,751
Treasury stock (5,743) (6,208)
Accumulated other comprehensive loss (2,312) (2,302)
------------------------------------
Total shareholders' equity 13,232 13,662
-------------------------- ------ ------
Total liabilities and shareholders' equity $34,883 $35,203
------------------------------------------ ------- -------
EXHIBIT F
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
DOLLARS IN MILLIONS
Six Months Ended
----------------
Cash flows from operating activities: July 3, 2011 July 1, 2012
------------ ------------
Net earnings $1,271 $1,198
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation of property, plant and equipment 172 189
Amortization of intangible assets 116 115
Stock-based compensation expense 64 69
Excess tax benefit from stock-based compensation (21) (22)
Deferred income tax provision 34 3
Discontinued operations, net of tax 13 -
(Increase) decrease in assets, net of effects of business acquisitions:
Accounts receivable (385) (110)
Contracts in process (132) 194
Inventories (224) (316)
Increase (decrease) in liabilities, net of effects of business acquisitions:
Accounts payable (103) (342)
Customer advances and deposits 283 226
Other, net (9) (1)
Net cash provided by operating activities 1,079 1,203
----------------------------------------- ----- -----
Cash flows from investing activities:
Capital expenditures (152) (176)
Business acquisitions, net of cash acquired - (165)
Purchases of held-to-maturity securities (278) (160)
Maturities of held-to-maturity securities 221 19
Purchases of available-for-sale securities (257) (100)
Other, net 215 76
Net cash used by investing activities (251) (506)
------------------------------------- ---- ----
Cash flows from financing activities:
Purchases of common stock (1,121) (592)
Dividends paid (333) (353)
Proceeds from option exercises 175 111
Other, net (2) 28
Net cash used by financing activities (1,281) (806)
------------------------------------- ------ ----
Net cash used by discontinued operations (3) -
---------------------------------------- --- ---
Net decrease in cash and equivalents (456) (109)
Cash and equivalents at beginning of period 2,613 2,649
-------------------------------------------
Cash and equivalents at end of period $2,157 $2,540
------------------------------------- ------ ------
EXHIBIT G
PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)
DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS
Second Quarter Second Quarter
2011 2012
---- ----
Non-GAAP Financial Measures:
----------------------------
Free cash flow from operations: Quarter Year-to-date Quarter Year-to-date
------- ------------ ------- ------------
Net cash provided by operating activities $751 $1,079 $789 $1,203
Capital expenditures (91) (152) (86) (176)
Free cash flow from operations (A) $660 $927 $703 $1,027
==== ==== ==== ======
Return on invested capital:
Earnings from continuing operations $2,662 $2,466
After-tax interest expense 104 113
After-tax amortization expense 159 162
Net operating profit after taxes 2,925 2,741
Average debt and equity 16,838 17,475
Return on invested capital (B) 17.4% 15.7%
==== ====
Other Financial Information:
----------------------------
Return on equity (C) 19.7% 18.1%
Debt-to-equity (D) 22.8% 28.8%
Debt-to-capital (E) 18.6% 22.4%
Book value per share (F) $38.49 $38.73
Total taxes paid $479 $424
Company-sponsored research
and development (G) $149 $130
Employment 88,400 93,500
Sales per employee (H) $359,600 $348,800
Shares outstanding 361,764,830 352,778,253
(A) We believe free cash flow from operations is a measurement that is useful to investors because it portrays our ability to generate cash from our core businesses for such purposes as repaying maturing debt, funding business acquisitions and paying dividends. We use free cash flow from operations to assess
the quality of our earnings and as a performance measure in evaluating management. The most directly comparable GAAP measure to free cash flow from operations is net cash provided by operating activities.
(B) We believe return on invested capital (ROIC) is a measurement that is useful to investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define
ROIC as net operating profit after taxes for the latest 12-month period divided by the sum of the average debt and shareholders' equity for the same period. Net operating profit after taxes is defined as earnings from continuing operations plus after-tax interest and amortization expense. The most
directly comparable GAAP measure to net operating profit after taxes is earnings from continuing operations.
(C) Return on equity is calculated by dividing earnings from continuing operations for the latest 12-month period by our average equity during that period.
(D) Debt-to-equity ratio is calculated as total debt divided by total equity as of the end of the period.
(E) Debt-to-capital ratio is calculated as total debt divided by the sum of total debt plus total equity as of the end of the period.
(F) Book value per share is calculated as total equity divided by total outstanding shares as of the end of the period.
(G) Includes independent research and development and bid and proposal costs and Gulfstream product-development costs.
(H) Sales per employee is calculated by dividing revenues for the latest 12-month period by our average number of employees during that period.
EXHIBIT H
BACKLOG (UNAUDITED)
DOLLARS IN MILLIONS
Estimated
Total Potential Total Potential
Second Quarter 2012 Funded Unfunded Backlog Contract Value* Contract Value
------------------- ------ -------- ------- -------------- --------------
Aerospace $16,058 $241 $16,299 $ - $16,299
Combat Systems 8,854 905 9,759 3,090 12,849
Marine Systems 11,666 5,339 17,005 1,377 18,382
Information Systems and
Technology
7,348 1,951 9,299 21,774 31,073
----- ----- ----- ------ ------
Total $43,926 $8,436 $52,362 $26,241 $78,603
======= ====== ======= ======= =======
First Quarter 2012
------------------
Aerospace $16,718 $266 $16,984 $ - $16,984
Combat Systems 9,623 1,042 10,665 3,473 14,138
Marine Systems 12,261 5,754 18,015 1,199 19,214
Information Systems and
Technology
7,649 1,913 9,562 22,256 31,818
----- ----- ----- ------ ------
Total $46,251 $8,975 $55,226 $26,928 $82,154
======= ====== ======= ======= =======
Second Quarter 2011
-------------------
Aerospace $17,948 $340 $18,288 $ - $18,288
Combat Systems 9,657 1,135 10,792 4,370 15,162
Marine Systems 9,191 9,209 18,400 1,097 19,497
Information Systems and
Technology
7,468 2,168 9,636 15,697 25,333
----- ----- ----- ------ ------
Total $44,264 $12,852 $57,116 $21,164 $78,280
======= ======= ======= ======= =======
* The estimated potential contract value represents management's estimate of our future contract value under unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options associated with existing firm contracts, including options to
purchase new aircraft and long-term agreements with fleet customers, as applicable. Because the value in the unfunded IDIQ arrangements is subject to the customer's future exercise of an indeterminate quantity of orders, we recognize these contracts in backlog only
when they are funded. Unexercised options are recognized in backlog when the customer exercises the option and establishes a firm order.
EXHIBIT I
SECOND QUARTER 2012 SIGNIFICANT
ORDERS (UNAUDITED)
DOLLARS IN MILLIONS
We received the following significant contract orders during the second quarter of 2012:
Combat Systems
-- $270 from the U.S. Army for the production of Hydra-70 rockets.
-- $170 from the Army to upgrade Abrams main battle tanks to the M1A2
System Enhancement Package (SEP) configuration and for continued
technical support on the program.
-- $115 from the Army for the double-V-hull conversion of 49
previously-delivered Stryker vehicles and contractor logistics support.
Marine Systems
-- $125 from the U.S. Navy for Advanced Nuclear Plant Studies (ANPS) in
support of development of the next-generation ballistic-missile
submarine (SSBN(X)).
-- $80 from the Navy for long-lead funding for the construction of the
first Virginia-class submarine under Block IV of the program.
-- $65 from the Navy for planning yard services for the DDG-51 guided
missile destroyer and FFG-7 Oliver Hazard Perry-class frigate programs.
Information Systems and Technology
-- $80 for support of the Trident missile D5 life-extension program, which
extends the life of existing missiles by replacing and upgrading
obsolete components.
-- $30 from the Army under the Range Radar Replacement Program (RRRP) to
develop modernized instrumentation radars at U.S Army test ranges.
-- An award from the Centers for Medicare & Medicaid Services (CMS) to
combine the Coordination of Benefits and the Medicare Secondary Payer
systems. The program has a maximum potential value of $100 over 5
years.
-- An indefinite delivery, indefinite quantity (IDIQ) contract from the
Federal Aviation Administration to deliver radios that allow air traffic
control personnel to communicate with aircraft. The program has a
maximum potential value of $365 over 10 years.
EXHIBIT J
AEROSPACE SUPPLEMENTAL DATA (UNAUDITED)
Second Quarter Six Months
2011 2012 2011 2012
---- ---- ---- ----
Gulfstream
Green
Deliveries
(units):
-----------
Large
aircraft 20 24 40 50
Mid-size
aircraft 3 2 7 4
--- --- --- ---
Total 23 26 47 54
=== === === ===
Gulfstream
Outfitted
Deliveries
(units):
-----------
Large
aircraft 19 18 38 35
Mid-size
aircraft 3 3 8 5
--- --- --- ---
Total 22 21 46 40
=== === === ===
Pre-owned
Deliveries
(units): 2 - 2 -
----------- === === === ===
SOURCE General Dynamics
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