Market Overview

General Dynamics Reports Third-Quarter 2012 Results

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- Strong Aerospace activity drives revenues

- Cash from operations improves across the company

FALLS CHURCH, Va., Oct. 24, 2012 /PRNewswire/ -- General Dynamics (NYSE: GD) today reported third-quarter 2012 earnings from continuing operations of $600 million, or $1.70 per share on a fully diluted basis, compared with 2011 third-quarter earnings from continuing operations of $665 million, or $1.83 per share fully diluted. Revenues in the quarter were $7.9 billion.  Net earnings for third-quarter 2012 were $600 million, or $1.70 per share fully diluted.

Margins

Company-wide operating margins for third-quarter 2012 were 11.4 percent, compared to 12.7 percent in third-quarter 2011.  Margins in the most recent quarter include the impact of a $25 million charge in the Information Systems and Technology group to revalue a portion of its ruggedized-computer inventory.

Cash

Net cash provided by operating activities totaled $704 million in the quarter.  Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $594 million or approximately 99 percent of earnings from continuing operations.

Backlog

The company's total backlog at the end of third-quarter 2012 was $51.5 billion, and the estimated potential contract value was an additional $26.1 billion, representing management's estimate of value under unfunded IDIQ contracts and unexercised options.

Demand in the quarter was particularly strong for Aerospace products, including orders for every type of Gulfstream aircraft.  Significant defense awards included a $340 million order to procure additional Warfighter Information Network-Tactical (WIN-T) equipment for U.S. Army units, $70 million for 13,000 additional Handheld, Manpack, Small Form Fit (HMS) Rifleman radios and accessories, and a $395 million contract for engineering development efforts for modernization of the Abrams main battle tank.

"General Dynamics made notable progress on several core programs in the third quarter, including certification of the Gulfstream G650 and G280, and successful evaluations of key tactical communications systems leading to additional production awards," said Jay L. Johnson, chairman and chief executive officer.  "The entire team at General Dynamics remains focused on efficient execution and maximizing profitability."

General Dynamics, headquartered in Falls Church, Virginia, employs approximately 93,700 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, 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 securities analyst conference call at 9 a.m. Eastern Daylight Time on Wednesday, October 24, 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 October 24 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 56400777.  The phone replay will be available from noon October 24 until midnight October 31, 2012.

 

EXHIBIT A



















CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS























Third Quarter



Variance





2011



2012



$



%



















Revenues



$          7,853



$        7,934



$             81



1.0 %

Operating costs and expenses



6,855



7,029



(174)























Operating earnings



998



905



(93)



(9.3)%



















Interest, net



(38)



(39)



(1)





Other, net



(8)



(3)



5























Earnings from continuing operations before income taxes



952



863



(89)



(9.3)%



























Provision for income taxes



287



263



24























Earnings from continuing operations



$             665



$            600



$           (65)



(9.8)%



















Discontinued operations, net of tax



(13)



-



13























Net earnings



$             652



$            600



$           (52)



(8.0)%



















Earnings per share - basic

















    Continuing operations



$            1.84



$           1.71



$        (0.13)



(7.1)%

    Discontinued operations



$          (0.03)



$                 -



$          0.03





    Net earnings



$            1.81



$           1.71



$        (0.10)



(5.5)%



















Basic weighted average shares outstanding (in millions)



359.7



350.5







































Earnings per share - diluted

















    Continuing operations



$            1.83



$           1.70



$        (0.13)



(7.1)%

    Discontinued operations



$          (0.03)



$                 -



$          0.03





    Net earnings



$            1.80



$           1.70



$        (0.10)



(5.6)%



















Diluted weighted average shares outstanding (in millions)



362.9



352.8







































 

EXHIBIT B



















CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS























Nine Months



Variance





2011



2012



$



%



















Revenues



$        23,530



$      23,435



$           (95)



(0.4)%

Operating costs and expenses



20,654



20,700



(46)























Operating earnings



2,876



2,735



(141)



(4.9)%



















Interest, net



(103)



(115)



(12)





Other, net



34



(8)



(42)























Earnings from continuing operations before income taxes



2,807



 

2,612



(195)



(6.9)%



























Provision for income taxes



858



814



44























Earnings from continuing operations



$          1,949



$        1,798



$         (151)



(7.7)%



















Discontinued operations, net of tax



(26)



-



26























Net earnings



$          1,923



$        1,798



$         (125)



(6.5)%



















Earnings per share - basic

















    Continuing operations



$            5.31



$           5.08



$        (0.23)



(4.3)%

    Discontinued operations



$          (0.07)



$                 -



$          0.07





    Net earnings



$            5.24



$           5.08



$        (0.16)



(3.1)%



















Basic weighted average shares outstanding (in millions)



366.8



 

354.2



































Earnings per share - diluted

















    Continuing operations



$            5.26



$           5.04



$        (0.22)



(4.2)%

    Discontinued operations



$          (0.07)



$                 -



$          0.07





    Net earnings



$            5.19



$           5.04



$        (0.15)



(2.9)%



















Diluted weighted average shares outstanding (in millions)



370.2



 

356.5







































 

EXHIBIT C





















REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS



























Third Quarter



Variance







2011



2012



$



%

Revenues:







































Aerospace





$          1,412



$        1,836



$           424



30.0 %





















Combat Systems





2,140



1,956



(184)



(8.6)%





















Marine Systems





1,621



1,670



49



3.0 %





















Information Systems and Technology





2,680



2,472



(208)



(7.8)%































Total





$          7,853



$        7,934



$             81



1.0 %





















Operating earnings:







































Aerospace





$             217



$            261



$             44



20.3 %





















Combat Systems





319



274



(45)



(14.1)%





















Marine Systems





173



186



13



7.5 %





















Information Systems and Technology





310



201



(109)



(35.2)%































Corporate





(21)



(17)



4



19.0 %





















Total





$             998



$            905



$           (93)



(9.3)%





















Operating margins:







































Aerospace





15.4 %



14.2 %





























Combat Systems





14.9 %



14.0 %





























Marine Systems





10.7 %



11.1 %





























Information Systems and Technology





11.6 %



8.1 %











































Total





12.7 %



11.4 %









 

EXHIBIT D





















REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS



























Nine Months



Variance







2011



2012



$



%

Revenues:







































Aerospace





$          4,141



$        5,051



$           910



22.0 %





















Combat Systems





6,216



6,016



(200)



(3.2)%





















Marine Systems





4,873



4,928



55



1.1 %





















Information Systems and Technology





8,300



7,440



(860)



(10.4)%































Total





$        23,530



$      23,435



$           (95)



(0.4)%





















Operating earnings:







































Aerospace





$             656



$            789



$           133



20.3 %





















Combat Systems





895



799



(96)



(10.7)%





















Marine Systems





501



554



53



10.6 %





















Information Systems and Technology





885



645



(240)



(27.1)%































Corporate





(61)



(52)



9



14.8 %





















Total





$          2,876



$        2,735



$         (141)



(4.9)%





















Operating margins:







































Aerospace





15.8 %



15.6 %





























Combat Systems





14.4 %



13.3 %





























Marine Systems





10.3 %



11.2 %





























Information Systems and Technology





10.7 %



8.7 %











































Total





12.2 %



11.7 %





























 

EXHIBIT E











PRELIMINARY CONSOLIDATED BALANCE SHEETS

DOLLARS IN MILLIONS









(Unaudited)





December 31, 2011



September 30, 2012

ASSETS









Current assets:









Cash and equivalents



$                         2,649



$                       2,874

Accounts receivable



4,452



4,339

Contracts in process



5,168



5,031

Inventories



2,310



2,661

Other current assets



789



688

Total current assets



15,368



15,593











Noncurrent assets:









Property, plant and equipment, net



3,284



3,345

Intangible assets, net



1,813



1,734

Goodwill



13,576



13,986

Other assets



842



845

Total noncurrent assets



19,515



19,910

Total assets



$                       34,883



$                     35,503

LIABILITIES AND SHAREHOLDERS' EQUITY









Current liabilities:









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



$                              23



$                       1,001

Accounts payable



2,895



2,540

Customer advances and deposits



5,011



5,523

Other current liabilities



3,216



3,129

Total current liabilities



11,145



12,193











Noncurrent liabilities:









Long-term debt



3,907



2,924

Other liabilities



6,599



6,114

Total noncurrent liabilities



10,506



9,038











Shareholders' equity:









Common stock



482



482

Surplus



1,888



1,971

Retained earnings



18,917



20,170

Treasury stock



(5,743)



(6,194)

Accumulated other comprehensive loss



(2,312)



(2,157)

Total shareholders' equity



13,232



14,272

Total liabilities and shareholders' equity



$                       34,883



$                     35,503











 

EXHIBIT F











PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

DOLLARS IN MILLIONS















Nine Months Ended

Cash flows from operating activities:



October 3, 2011



September 30, 2012

Net earnings



$                 1,923



$                       1,798

Adjustments to reconcile net earnings to net cash provided by operating activities:

















Depreciation of property, plant and equipment



259



286

Amortization of intangible assets



176



172

Stock-based compensation expense



96



104

Excess tax benefit from stock-based compensation



(22)



(24)

Deferred income tax provision



63



53

Discontinued operations, net of tax



26



-

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









Accounts receivable



(143)



139

Contracts in process



(252)



91

Inventories



(346)



(340)

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









Accounts payable



(171)



(368)

Customer advances and deposits



(7)



257

Other current and noncurrent liabilities



(257)



(184)

Other, net



(129)



(77)

Net cash provided by operating activities



1,216



1,907











Cash flows from investing activities:









Business acquisitions, net of cash acquired



(1,143)



(426)

Capital expenditures



(273)



(286)

Purchases of held-to-maturity securities



(428)



(260)

Sales of held-to-maturity securities



-



211

Maturities of held-to-maturity securities



322



54

Purchases of available-for-sale securities



(350)



(201)

Maturities of available-for-sale securities



227



96

Other, net



188



144

Net cash used by investing activities



(1,457)



(668)











Cash flows from financing activities:









Purchases of common stock



(1,449)



(602)

Dividends paid



(504)



(533)

Proceeds from option exercises



186



121

Proceeds from fixed-rate notes 



1,497



-

Repayment of fixed-rate notes



(750)



-

Net proceeds from commercial paper



200



-

Other, net



(6)



2

Net cash used by financing activities



(826)



(1,012)











Net cash used by discontinued operations



(6)



(2)











Net increase (decrease) in cash and equivalents



(1,073)



225

Cash and equivalents at beginning of period



2,613



2,649

Cash and equivalents at end of period



$                 1,540



$                       2,874











 

EXHIBIT G

























PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS

































Third Quarter







Third 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



$                    137



$                 1,216



$                       704



$             1,907



Capital expenditures 



(121)



(273)



(110)



(286)



Free cash flow from operations (A)



$                      16



$                    943



$                       594



$             1,621



























Return on invested capital:



















Earnings from continuing operations



$                 2,678







$                    2,401







 After-tax interest expense



105







112







 After-tax amortization expense



162







159







Net operating profit after taxes



2,945







2,672







Average debt and equity



17,048







17,693







Return on invested capital (B)



17.3%







15.1%































Other Financial Information:



















Return on equity (C)



19.6%







17.5%































Debt-to-equity (D)



30.3%







27.5%































Debt-to-capital (E)



23.3%







21.6%































Book value per share (F)



$                  38.24







$                    40.42































Total taxes paid



$                     270







$                       299































Company-sponsored research 

 and development (G)



$                     127







 

$                       149









































Employment 



94,700







93,700































Sales per employee (H)



$              356,600







$                346,900































Shares outstanding



356,112,755







353,069,806































(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 

Potential

Contract Value*







Third Quarter 2012



 

Funded 



 

Unfunded 



Total

Backlog 





Total Potential

Contract Value















Aerospace



$                 15,827



$                    215



$            16,042



$                    -



$             16,042



























Combat Systems



8,259



1,101



9,360



2,627



11,987



























Marine Systems



10,909



5,036



15,945



1,382



17,327



























Information Systems and Technology



8,224



1,887



10,111



22,052



32,163







































Total



$               43,219



$               8,239



$          51,458



$           26,061



$           77,519



















































Second Quarter 2012























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



















































Third Quarter 2011























Aerospace



$                 18,306



$                    318



$            18,624



$                      -



$             18,624



























Combat Systems



9,078



1,304



10,382



3,763



14,145



























Marine Systems



10,269



8,611



18,880



2,044



20,924



























Information Systems and Technology



8,248



2,389



10,637



21,429



32,066







































Total



$               45,901



$             12,622



$          58,523



$           27,236



$           85,759



















































*  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



THIRD QUARTER 2012 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

We received the following significant contract orders during the third quarter of 2012:

Combat Systems

  • $395 from the U.S. Army to begin engineering development efforts for the Abrams main battle tank modernization program. 
  • $135 from the Canadian government to supply various calibers of ammunition.
  • $50 from the Army to produce M31A2 propellant.

Marine Systems

  • $105 from the U.S. Navy to renovate and modernize the dock landing ship USS Comstock (LSD 45).
  • $95 from the Navy for advance planning and preliminary execution of fire-restoration efforts on USS Miami (SSN 755).

Information Systems and Technology

  • $340 from the Army under the Warfighter Information Network-Tactical (WIN-T) program for Increment 2 equipment production.
  • $265 for wireless network systems and support from several commercial customers.  
  • $95 from the Army for ruggedized computing equipment under the Common Hardware Systems-4 (CHS-4) program.
  • $85 from the U.S. Air Force for networking and computing products and support under the Network-Centric Solutions (NETCENTS) program.
  • $80 from the U.S. Department of State to provide supply chain management services.  The program has a maximum potential value of $1.2 billion over 5 years.
  • $75 from the Army under the WIN-T program for Increment 1 technical support services and upgrades.
  • $70 from the Army for production of over 13,000 Rifleman radios and accessory kits under the Joint Tactical Radio System (JTRS) Handheld, Manpack and Small Form-Fit (HMS) program.
  • $65 for the Army's Warfighter Field Operations Customer Support (FOCUS) program to provide support for live, virtual and constructive training operations.
  • $65 to supply 64 radio-telescope antennas for South Africa's MeerKAT radio telescope program.

 

EXHIBIT J



















AEROSPACE SUPPLEMENTAL DATA (UNAUDITED)























Third Quarter



Nine Months





2011



2012



2011



2012

Gulfstream Green Deliveries (units):



































Large aircraft



20



28



60



78



















Mid-size aircraft



5



6



12



10



















Total



25



34



72



88



















Gulfstream Outfitted Deliveries (units):



































Large aircraft



20



17



58



52



















Mid-size aircraft



6



-



14



5



















Total



26



17



72



57



















Pre-owned Deliveries (units):



2



1



4



1



















SOURCE General Dynamics

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