Defense Sector Leads Third-Quarter Performance for General Dynamics
- Overall revenues grow 8.1 percent
- Demand continues for vehicles, ammunition, IT and engineering services
- Full-year EPS guidance increased
- Press Release
- Source: General Dynamics
- On 7:30 am EDT, Wednesday October 28, 2009
FALLS CHURCH, Va., Oct. 28 /PRNewswire-FirstCall/ -- General Dynamics (NYSE: GD - News) today reported 2009 third-quarter earnings from continuing operations of $575 million, or $1.48 per share on a fully diluted basis, compared to 2008 third-quarter earnings from continuing operations of $634 million, or $1.59 per share fully diluted. Revenues rose to $7.7 billion in the quarter, an 8.1 percent increase over third-quarter 2008 revenues of $7.1 billion. Net earnings in the third quarter of 2009 were $572 million. Financial performance in the quarter was impacted by a previously announced five-week production furlough in July and August at the company's Gulfstream Aerospace subsidiary, taken in response to global economic conditions.
Related Quotes
| Symbol | Price | Change |
|---|---|---|
| GD | 66.47 | +0.09 |
Cash
Net cash provided by operating activities from continuing operations was $594 million for the third quarter. Free cash flow from operations, defined as net cash provided by operating activities from continuing operations less capital expenditures, was $513 million, or 89 percent of earnings from continuing operations.
Backlog
Total backlog at the end of the third quarter 2009 was $66.2 billion. Backlog grew in the Combat Systems and Information Systems and Technology segments in the quarter, reflecting continued strong demand for the company's vehicle and ammunition products and information-technology services. New orders received included $950 million for production, support and reset of Stryker infantry combat vehicles for the U.S. Army, as well as ammunition orders for U.S. and allied customers. Demand for information-technology (IT) services and engineering support for military platforms produced a book-to-bill ratio of greater than 1 in the Information Systems and Technology segment. In addition to the backlog, the estimated potential contract value, representing management's estimate of value under unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, grew to $18.2 billion at the end of third-quarter 2009.
Performance Highlights
Revenues and operating earnings grew in all three of the company's defense-related segments in the third quarter of 2009. Combat Systems increased revenues by 26.9 percent in the quarter and operating earnings by 20.6 percent. In Information Systems and Technology, revenues grew 8.8 percent and operating earnings increased 9.6 percent while Marine Systems increased revenue by 8.1 percent and operating earnings by 10.7 percent in third quarter 2009.
"The enduring strength of General Dynamics' diverse portfolio is apparent in the company's third-quarter 2009 financial results," said company President and Chief Executive Officer Jay L. Johnson. "The company performed well despite the impact of reduced aircraft production at Gulfstream Aerospace. Continuing customer demand for our defense-related products coupled with our commitment to financial performance and effective execution produced strong margins and cash generation in the quarter.
"Based on the strength of the third-quarter results, we are increasing our guidance for full-year 2009 earnings from continuing operations to $6.15 to $6.20 per share, fully diluted," Johnson said.
General Dynamics, headquartered in Falls Church, Va., employs approximately 92,300 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.
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 third-quarter 2009 securities analyst conference call, scheduled for 11:30 a.m. Eastern Time on Wednesday, October 28, 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. October 28 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 26735283. The phone replay will be available from 1:30 p.m. October 28 until midnight November 4, 2009.
EXHIBIT A
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Third Quarter Variance
2009 2008 $ %
---- ---- - -
Revenues $7,719 $7,140 $579 8.1 %
Operating costs and
expenses 6,845 6,207 (638)
----- ----- ----
Operating earnings 874 933 (59) (6.3)%
Interest, net (40) (11) (29)
Other, net (6) - (6)
-- - --
Earnings from continuing
operations before
income taxes 828 922 (94) (10.2)%
Provision for income taxes 253 288 35
--- --- --
Earnings from continuing
operations $575 $634 $(59) (9.3)%
==== ==== ====
Discontinued operations,
net of tax (3) - (3)
-- - --
Net earnings $572 $634 $(62) (9.8)%
==== ==== ====
Earnings per share -
basic
Continuing operations $1.49 $1.60 $(0.11) (6.9)%
Discontinued operations $(0.01) $- $(0.01)
------ -- ------
Net earnings $1.48 $1.60 $(0.12) (7.5)%
===== ===== ======
Basic weighted average
shares outstanding
(in millions) 385.2 396.7
===== =====
Earnings per share -
diluted
Continuing operations $1.48 $1.59 $(0.11) (6.9)%
Discontinued operations $(0.01) $- $(0.01)
------ -- ------
Net earnings $1.47 $1.59 $(0.12) (7.5)%
===== ===== ======
Diluted weighted
average shares outstanding
(in millions) 388.1 399.8
===== =====
EXHIBIT B
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Nine Months Variance
2009 2008 $ %
---- ---- - -
Revenues $24,083 $21,448 $2,635 12.3%
Operating costs and
expenses 21,359 18,733 (2,626)
------ ------ ------
Operating earnings 2,724 2,715 9 0.3 %
Interest, net (117) (42) (75)
Other, net (3) 3 (6)
-- - --
Earnings from continuing
operations before
income taxes 2,604 2,676 (72) (2.7)%
Provision for income taxes 815 828 13
--- --- --
Earnings from continuing
operations $1,789 $1,848 $(59) (3.2)%
====== ====== ====
Discontinued operations,
net of tax (9) (1) (8)
-- -- --
Net earnings $1,780 $1,847 $(67) (3.6)%
====== ====== ====
Earnings per share - basic
Continuing operations $4.64 $4.63 $0.01 0.2%
Discontinued operations $(0.02) $- $(0.02)
------ -- ------
Net earnings $4.62 $4.63 $(0.01) (0.2)%
===== ===== ======
Basic weighted average
shares outstanding
(in millions) 385.4 398.7
===== =====
Earnings per share -
diluted
Continuing operations $4.62 $4.60 $0.02 0.4 %
Discontinued operations $(0.02) $- $(0.02)
------ -- ------
Net earnings $4.60 $4.60 $- 0.0 %
===== ===== ==
Diluted weighted average
shares outstanding
(in millions) 387.2 401.8
===== =====
EXHIBIT C
REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)
DOLLARS IN MILLIONS
Third Quarter Variance
2009 2008 $ %
---- ---- - -
Revenues:
---------
Aerospace $1,120 $1,372 $(252) (18.4)%
Combat Systems 2,347 1,850 497 26.9 %
Marine Systems 1,518 1,404 114 8.1 %
Information Systems and
Technology 2,734 2,514 220 8.8 %
----- ----- ---
Total $7,719 $7,140 $579 8.1 %
====== ====== ====
Operating earnings:
-------------------
Aerospace $125 $281 $(156) (55.5)%
Combat Systems 316 262 54 20.6 %
Marine Systems 155 140 15 10.7 %
Information Systems and
Technology 296 270 26 9.6 %
Corporate (18) (20) 2 10.0 %
--- --- -
Total $874 $933 $(59) (6.3)%
==== ==== ====
Operating margins:
------------------
Aerospace 11.2 % 20.5 %
Combat Systems 13.5 % 14.2 %
Marine Systems 10.2 % 10.0 %
Information Systems and
Technology 10.8 % 10.7 %
Total 11.3 % 13.1 %
EXHIBIT D
REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)
DOLLARS IN MILLIONS
Nine Months Variance
2009 2008 $ %
---- ---- - -
Revenues:
---------
Aerospace $3,990 $3,980 $10 0.3 %
Combat Systems 7,159 5,862 1,297 22.1 %
Marine Systems 4,812 4,176 636 15.2 %
Information Systems and
Technology 8,122 7,430 692 9.3 %
----- ----- ---
Total $24,083 $21,448 $2,635 12.3 %
======= ======= ======
Operating earnings:
-------------------
Aerospace $540 $757 $(217) (28.7)%
Combat Systems 895 803 92 11.5 %
Marine Systems 486 389 97 24.9 %
Information Systems and
Technology 869 822 47 5.7 %
Corporate (66) (56) (10) (17.9)%
--- --- ---
Total $2,724 $2,715 $9 0.3 %
====== ====== ==
Operating margins:
------------------
Aerospace 13.5 % 19.0 %
Combat Systems 12.5 % 13.7 %
Marine Systems 10.1 % 9.3 %
Information Systems and
Technology 10.7 % 11.1 %
Total 11.3 % 12.7 %
EXHIBIT E
PRELIMINARY CONSOLIDATED BALANCE SHEET (UNAUDITED)
DOLLARS IN MILLIONS
October 4, 2009 December 31, 2008
--------------- -----------------
ASSETS
Current assets:
Cash and equivalents $1,409 $1,621
Accounts receivable 3,851 3,469
Contracts in process 4,472 4,341
Inventories 2,112 2,029
Other current assets 384 490
-------------------- --- ---
Total current assets 12,228 11,950
-------------------- ------ ------
Noncurrent assets:
Property, plant and equipment, net 2,874 2,872
Intangible assets, net 1,846 1,617
Goodwill 12,410 11,413
Other assets 417 521
------------ --- ---
Total noncurrent assets 17,547 16,423
----------------------- ------ ------
Total assets $29,775 $28,373
------------ ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion
of long-term debt $705 $911
Accounts payable 2,316 2,443
Customer advances and deposits 4,078 4,154
Other current liabilities 2,728 2,852
------------------------- ----- -----
Total current liabilities 9,827 10,360
------------------------- ----- ------
Noncurrent liabilities:
Long-term debt 3,159 3,113
Other liabilities 5,071 4,847
Commitments and contingencies
-----------------------------
Total noncurrent liabilities 8,230 7,960
---------------------------- ----- -----
Shareholders' equity:
Common stock 482 482
Surplus 1,457 1,346
Retained earnings 14,626 13,287
Treasury stock (3,412) (3,349)
Accumulated other comprehensive loss (1,435) (1,713)
------------------------------------ ------ ------
Total shareholders' equity 11,718 10,053
-------------------------- ------ ------
Total liabilities and shareholders'
equity $29,775 $28,373
----------------------------------- ------- -------
EXHIBIT F
PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
DOLLARS IN MILLIONS
Nine Months Ended
-----------------------------------
Cash flows from October 4, 2009 September 28, 2008
operating activities:
------------------------- --------------- ------------------
Net earnings $1,780 $1,847
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation 257 223
Amortization 161 103
Stock-based compensation expense 87 78
Deferred income tax provision 189 83
Discontinued operations, net of tax 9 1
(Increase) decrease in assets,
net of effects of business acquisitions:
Accounts receivable (324) (207)
Contracts in process (80) (18)
Inventories (56) (125)
Increase (decrease) in liabilities,
net of effects of business acquisitions:
Accounts payable (146) (259)
Customer advances and deposits (238) 759
Other current liabilities (218) (139)
Other, net (64) (27)
---------- --- ---
Net cash provided by operating
activities from continuing operations 1,357 2,319
Net cash used by discontinued
operations - operating activities (12) (5)
------------------------ --- --
Net cash provided by operating activities 1,345 2,314
--------------------- ----- -----
Cash flows from investing activities:
Business acquisitions, net of
cash acquired (805) (303)
Capital expenditures (251) (314)
Sales/maturities of
available-for-sale securities 234 1,341
Purchases of available-for-sale
securities (129) (1,365)
Other, net 30 31
---------- -- --
Net cash used by investing activities (921) (610)
--------------------- ---- ----
Cash flows from financing activities:
Repayments of commercial paper, net (904) -
Proceeds from fixed-rate notes 747 -
Dividends paid (430) (397)
Purchases of common stock (109) (1,047)
Proceeds from option exercises 68 148
Repayment of fixed-rate notes - (500)
Repayment of senior notes - (150)
Other, net (8) (32)
---------- -- ---
Net cash used by financing activities (636) (1,978)
--------------------- ---- ------
Net decrease in cash and equivalents (212) (274)
Cash and equivalents at beginning of period 1,621 2,891
----------------------- ----- -----
Cash and equivalents at end of period $1,409 $2,617
----------------------- ------ ------
EXHIBIT G
PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)
DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS
Third Quarter Third 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 $594 $1,357 $863 $2,319
Capital expenditures (81) (251) (114) (314)
Free cash flow from
operations (A) $513 $1,106 $749 $2,005
Return on invested capital:
Earnings from continuing
operations $2,419 $2,426
After-tax interest
expense 109 90
After-tax
amortization
expense 140 94
------------ ------------
Net operating profit
after taxes 2,668 2,610
Average debt and
equity 14,600 14,316
------------ ------------
Return on invested
capital (B) 18.3% 18.2%
============ ============
Other Financial Information:
----------------------------
Return on equity ( C ) 21.9% 20.6%
Debt-to-equity (D) 33.0% 17.6%
Debt-to-capital (E) 24.8% 15.0%
Book value per share (F) $30.37 $30.94
Total taxes paid $144 $212
Company-sponsored
research and
development (G) $140 $115
Employment 92,300 85,600
Sales per employee (H) $348,900 $344,400
Shares outstanding 385,801,290 392,147,349
(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
Third Quarter 2009 Funded Unfunded Backlog Value* Value
------------------ ------- -------- -------- --------- ---------
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
======= ======== ======== ========= =========
Second Quarter 2009
-------------------
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
======= ======== ======== ========= =========
Third Quarter 2008
------------------
Aerospace $21,466 $618 $22,084 $2,278 $24,362
Combat Systems 12,540 3,300 15,840 2,625 18,465
Marine Systems 7,907 3,573 11,480 2,143 13,623
Information Systems
and Technology 7,761 3,324 11,085 10,649 21,734
------- -------- -------- --------- ---------
Total $49,674 $10,815 $60,489 $17,695 $78,184
======= ======== ======== ========= =========
* 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
THIRD QUARTER 2009 SIGNIFICANT ORDERS (UNAUDITED)
DOLLARS IN MILLIONS
We received the following significant contract orders during the third quarter of 2009:
Combat Systems
- Approximately $950 from the U.S. Army for the production of Stryker wheeled armored vehicles, related support and reset of vehicles.
- Approximately $115 from the Canadian government to supply various calibers of training and tactical ammunition.
- Approximately $80 from the Army for the production of Hydra-70 rockets. This order brings the total contract value to date to over $1 billion.
- Approximately $45 from the Army for small-caliber ammunition and other munitions in support of the Afghanistan National Forces. This contract has a potential value of $300.
- Combat Systems was selected as the prime contractor and systems integrator for the Canadian government's LAV III upgrade program. The program has a potential value of $850.
Marine Systems
- Approximately $160 from the Navy for Class Common Equipment (CCE) material for the DDG 1000 destroyer program.
- Two contracts from the U.S. Navy with a combined potential value of approximately $100 for repair work on USS Hartford, a Los Angeles-class submarine.
Information Systems and Technology
- Approximately $155 in orders under the Network-Centric Solutions (NETCENTS) program, bringing the total contract value to almost $1 billion.
- Approximately $90 under the Warfighter Field Operations Customer Support (FOCUS) program to provide life-cycle contractor and training support worldwide.
- Approximately $20 from the Navy to develop commercial-off-the-shelf software and hardware upgrades to integrate improved tactical control capabilities for multiple submarine classes. This contract has a potential value of approximately $400.
- A task order to provide enterprise information technology support to the U.S. Coast Guard under the Enterprise Acquisition Gateway for Leading-Edge Solutions (EAGLE) indefinite delivery indefinite quantity (IDIQ) contract. This task order has a potential value of approximately $140 if all options are exercised.
- One of three IDIQ contracts under the Advanced Technical Exploitation Program (ATEP), which has a potential value of $600 among all awardees, to provide intelligence analysis, software systems development and support, sensor exploitation research, and development of space-based and airborne sensor data for the U.S. Air Force.
- One of six IDIQ contracts from the Navy to provide engineering and technical services in support of hull, mechanical, electrical and electronics (HME&E) systems. The total contract has a potential value of $475 among all awardees.
EXHIBIT J
GULFSTREAM SUPPLEMENTAL DATA (UNAUDITED)
Third Quarter Nine Months
2009 2008 2009 2008
---- ---- ---- ----
Green Deliveries (units):
-------------------------
Large aircraft 14 23 56 67
Mid-size aircraft 3 16 18 48
---- ---- ---- ----
Total 17 39 74 115
==== ==== ==== ====
Outfitted Deliveries (units):
-----------------------------
Large aircraft 20 22 60 66
Mid-size aircraft 4 16 29 48
---- ---- ---- ----
Total 24 38 89 114
==== ==== ==== ====
Pre-owned Activity:
-------------------
Units 3 - 5 2
==== ==== ==== ====
Revenues (millions) $62 $- $119 $17
Operating earnings
(millions) $(9) $1 $(32) $3
==== ==== ==== ====
Gulfstream margins including
pre-owned activity 13.3% 20.5% 15.9% 19.0%
==== ==== ==== ====
Gulfstream margins excluding
pre-owned activity 15.5% 20.4% 17.6% 19.0%
==== ==== ==== ====
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