| General Dynamics Reports Strong Earnings, Backlog Growth in Second Quarter 2008 |
- EPS from continuing operations increases 26 percent - Sales, earnings and operating margins increase company-wide - Full-year EPS guidance increased FALLS CHURCH, Va., July 23 /PRNewswire-FirstCall/ -- General Dynamics (NYSE: GD) today reported second-quarter 2008 earnings from continuing operations of $641 million, or $1.60 per share on a fully diluted basis, compared with 2007 second-quarter earnings from continuing operations of $518 million, or $1.27 per share fully diluted. Revenues grew to $7.3 billion in the quarter, a 10.8 percent increase over second-quarter 2007 revenues of $6.6 billion. Net earnings were equal to earnings from continuing operations of $641 million. Cash Net cash provided by operating activities in the quarter totaled $1 billion. Free cash flow from operations, defined as net cash provided by operating activities from continuing operations less capital expenditures, was $910 million for the period, or 142 percent of net earnings. For the first half of 2008, net cash provided by operating activities was $1.5 billion, while free cash flow from operations was $1.3 billion. Margins Company-wide operating margins for the second quarter of 2008 increased 110 basis points over the second quarter of 2007, to 12.6 percent. Backlog The company's funded backlog grew by approximately $5.2 billion or 12.9 percent in the second quarter of 2008, on strong orders for new aircraft in the Aerospace group, as well as demand for tanks, combat vehicles, tactical communications systems and information technology services. Compared to first- quarter 2008, company-wide total backlog grew by 11.2 percent. Taxes The company's 2008 second-quarter financial results include a $35 million benefit from the favorable settlement of a tax-refund suit; this factor increased earnings by approximately 9 cents per share in the quarter. Operational Highlights Sales, earnings and operating margins increased in all four General Dynamics business groups in the second quarter. The Combat Systems group experienced increased sales in its armored vehicle and tank programs compared to the year-ago period and significant margin growth. New-aircraft volume in the Aerospace group, increased shipbuilding activity in Marine Systems and continued strong demand for tactical communications and computing systems in the Information Systems and Technology sector also contributed to the overall strong performance. "General Dynamics' performance continued to be strong in the second quarter of 2008," said Nicholas D. Chabraja, chairman and chief executive officer. "Sales, earnings and operating margins increased in all four business segments compared to the year-ago period, cash generation was exceptionally strong and the robust backlog suggests continued healthy demand for the products and services of each business area. "Growth in the Aerospace backlog is a reflection of continued demand for the entire existing product line and extremely strong demand for the new Gulfstream G650. We are very pleased to see this interest in the new plane and view that as an indicator of Gulfstream's ability to anticipate and exceed its customers' product expectations. "On the basis of these results and a clearer sense of what the remainder of 2008 will bring, we expect full-year 2008 earnings from continuing operations to be in the range of $6.00 to $6.05 per share, fully diluted," Chabraja said. General Dynamics, headquartered in Falls Church, Virginia, employs approximately 84,600 people worldwide and reported $27.2 billion in revenue in 2007. The company is a market leader in business aviation; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and mission-critical 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, scheduled for 11:30 a.m. Eastern Time on Wednesday, July 23, 2008. 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 3 p.m. July 23 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 16780091. The phone replay will be available from 3 p.m. July 23 until midnight July 30, 2008.
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Second Quarter Variance
2008 2007 $ %
NET SALES $7,303 $6,591 $712 10.8%
OPERATING COSTS AND EXPENSES 6,382 5,831 (551)
OPERATING EARNINGS 921 760 161 21.2%
Interest, Net (12) (21) 9
Other, Net - 1 (1)
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 909 740 169 22.8%
Provision for Income Taxes 268 222 (46)
EARNINGS FROM CONTINUING OPERATIONS $641 $518 $123 23.7%
Discontinued Operations, Net of Tax - (5) 5
NET EARNINGS $641 $513 $128 25.0%
EARNINGS PER SHARE - BASIC
Continuing Operations $1.61 $1.28 $0.33 25.8%
Discontinued Operations $- $(0.01) $0.01
Net Earnings $1.61 $1.27 $0.34 26.8%
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING (IN MILLIONS) 398.5 405.1
EARNINGS PER SHARE - DILUTED
Continuing Operations $1.60 $1.27 $0.33 26.0%
Discontinued Operations $- $(0.01) $0.01
Net Earnings $1.60 $1.26 $0.34 27.0%
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING (IN MILLIONS) 401.8 408.9
Exhibit A
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Six Months Variance
2008 2007 $ %
NET SALES $14,308 $12,891 $1,417 11.0%
OPERATING COSTS AND EXPENSES 12,526 11,450 (1,076)
OPERATING EARNINGS 1,782 1,441 341 23.7%
Interest, Net (31) (47) 16
Other, Net 3 2 1
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,754 1,396 358 25.6%
Provision for Income Taxes 540 438 (102)
EARNINGS FROM CONTINUING OPERATIONS $1,214 $958 $256 26.7%
Discontinued Operations, Net of Tax (1) (11) 10
NET EARNINGS $1,213 $947 $266 28.1%
EARNINGS PER SHARE - BASIC
Continuing Operations $3.04 $2.36 $0.68 28.8%
Discontinued Operations $- $(0.03) $0.03
Net Earnings $3.04 $2.33 $0.71 30.5%
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING (IN MILLIONS) 399.6 405.4
EARNINGS PER SHARE - DILUTED
Continuing Operations $3.01 $2.34 $0.67 28.6%
Discontinued Operations $- $(0.03) $0.03
Net Earnings $3.01 $2.31 $0.70 30.3%
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING (IN MILLIONS) 402.8 409.2
Exhibit B
NET SALES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)
DOLLARS IN MILLIONS
Second Quarter Variance
2008 2007 $ %
NET SALES:
AEROSPACE $1,329 $1,208 $121 10.0%
COMBAT SYSTEMS 2,015 1,712 303 17.7%
MARINE SYSTEMS 1,394 1,272 122 9.6%
INFORMATION SYSTEMS AND
TECHNOLOGY 2,565 2,399 166 6.9%
TOTAL $7,303 $6,591 $712 10.8%
OPERATING EARNINGS:
AEROSPACE $240 $199 $41 20.6%
COMBAT SYSTEMS 282 191 91 47.6%
MARINE SYSTEMS 127 112 15 13.4%
INFORMATION SYSTEMS AND
TECHNOLOGY 292 269 23 8.6%
CORPORATE (20) (11) (9) (81.8)%
TOTAL $921 $760 $161 21.2%
OPERATING MARGINS:
AEROSPACE 18.1% 16.5%
COMBAT SYSTEMS 14.0% 11.2%
MARINE SYSTEMS 9.1% 8.8%
INFORMATION SYSTEMS AND
TECHNOLOGY 11.4% 11.2%
TOTAL 12.6% 11.5%
Exhibit C
NET SALES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)
DOLLARS IN MILLIONS
Six Months Variance
2008 2007 $ %
NET SALES:
AEROSPACE $2,608 $2,302 $306 13.3%
COMBAT SYSTEMS 4,012 3,280 732 22.3%
MARINE SYSTEMS 2,772 2,529 243 9.6%
INFORMATION SYSTEMS AND
TECHNOLOGY 4,916 4,780 136 2.8%
TOTAL $14,308 $12,891 $1,417 11.0%
OPERATING EARNINGS:
AEROSPACE $476 $372 $104 28.0%
COMBAT SYSTEMS 541 365 176 48.2%
MARINE SYSTEMS 249 210 39 18.6%
INFORMATION SYSTEMS AND
TECHNOLOGY 552 519 33 6.4%
CORPORATE (36) (25) (11) (44.0)%
TOTAL $1,782 $1,441 $341 23.7%
OPERATING MARGINS:
AEROSPACE 18.3% 16.2%
COMBAT SYSTEMS 13.5% 11.1%
MARINE SYSTEMS 9.0% 8.3%
INFORMATION SYSTEMS AND
TECHNOLOGY 11.2% 10.9%
TOTAL 12.5% 11.2%
Exhibit D
PRELIMINARY CONSOLIDATED BALANCE SHEET (UNAUDITED)
DOLLARS IN MILLIONS
June 29, 2008 December 31, 2007
ASSETS
Current Assets:
Cash and equivalents $2,740 $2,891
Accounts receivable 2,962 2,874
Contracts in process 4,505 4,337
Inventories 1,672 1,621
Other current assets 569 575
Total Current Assets 12,448 12,298
Noncurrent Assets:
Property, plant and equipment, net 2,546 2,472
Intangible assets, net 920 972
Goodwill 8,986 8,942
Other assets 1,189 1,049
Total Noncurrent Assets 13,641 13,435
Total Assets $26,089 $25,733
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion
of long-term debt $172 $673
Accounts payable 2,115 2,318
Customer advances and deposits 3,776 3,440
Other current liabilities 2,643 2,733
Total Current Liabilities 8,706 9,164
Noncurrent Liabilities:
Long-term debt 2,117 2,118
Other liabilities 3,082 2,683
Commitments and contingencies
Total Noncurrent Liabilities 5,199 4,801
Shareholders' Equity:
Common stock 482 482
Surplus 1,255 1,141
Retained earnings 12,313 11,379
Treasury stock (2,545) (1,881)
Accumulated other comprehensive income 679 647
Total Shareholders' Equity 12,184 11,768
Total Liabilities and Shareholders' Equity $26,089 $25,733
Exhibit E
PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
DOLLARS IN MILLIONS
Six Months Ended
Cash Flows from Operating Activities: June 29, 2008 July 1, 2007
Net earnings $1,213 $947
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 146 132
Amortization 67 75
Stock-based compensation expense 50 41
Excess tax benefit from stock-based
compensation (24) (26)
Deferred income tax provision 26 53
Discontinued operations, net of tax 1 11
(Increase) decrease in assets, net of
effects of business acquisitions:
Accounts receivable (83) (186)
Contracts in process (163) (188)
Inventories (73) (100)
Increase (decrease) in liabilities,
net of effects of business
acquisitions:
Accounts payable (207) (159)
Customer advances and deposits 548 417
Other current liabilities (27) (54)
Other, net (18) (36)
Net Cash Provided by Operating
Activities from Continuing
Operations 1,456 927
Net Cash Used by Discontinued
Operations - Operating Activities (5) (8)
Net Cash Provided by Operating
Activities 1,451 919
Cash Flows from Investing Activities:
Purchases of available-for-sale securities (1,247) (48)
Sales/maturities of available-for-
sale securities 1,186 42
Capital expenditures (200) (166)
Business acquisitions, net of cash acquired (66) (299)
Proceeds from sale of assets, net 30 93
Other, net 1 (1)
Net Cash Used by Investing Activities (296) (379)
Cash Flows from Financing Activities:
Purchases of common stock (660) (153)
Repayment of fixed-rate notes (500) -
Dividends paid (257) (210)
Proceeds from option exercises 89 102
Excess tax benefit from stock-based
compensation 24 26
Other, net (2) (115)
Net Cash Used by Financing Activities (1,306) (350)
Net (Decrease)/Increase in Cash and
Equivalents (151) 190
Cash and Equivalents at Beginning of Period 2,891 1,604
Cash and Equivalents at End of Period $2,740 $1,794
Exhibit F
PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)
DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS
Second Quarter Second Quarter
2008 2007
Non-GAAP Financial Measures:
Free Cash Flow from Operations:
Year-to- Year-to-
Net Cash Provided by Quarter date Quarter date
Operating Activities from
Continuing Operations $1,025 $1,456 $405 $927
Capital Expenditures (115) (200) (113) (166)
Free Cash Flow from
Operations (A) $910 $1,256 $292 $761
Return on Invested Capital:
Earnings from Continuing
Operations $2,336 $1,861
After-Tax Interest Expense 93 100
After-Tax Amortization
Expense 94 104
Net Operating Profit after
Taxes 2,523 2,065
Average Debt and Equity 14,143 12,839
Return on Invested Capital (B) 17.8% 16.1%
Other Financial Information:
Return on Equity ( C ) 20.4% 19.0%
Debt-to-Equity (D) 18.8% 26.3%
Debt-to-Capital (E) 15.8% 20.8%
Book Value per Share (F) $30.66 $26.19
Total Taxes Paid $475 $339
Company Sponsored
Research and Development (G) $124 $95
Employment 84,600 82,900
Sales Per Employee (H) $342,900 $311,600
Shares Outstanding 397,327,979 405,623,702
(A) The company's management believes free cash flow from operations is
a measurement that is useful to investors, because it portrays the
company's ability to generate cash from its core businesses for such
purposes as repaying maturing debt, funding business acquisitions
and paying dividends. The company uses free cash flow from
operations to assess the quality of its 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) The company's management believes return on invested capital is a
measurement that is useful to investors, because it reflects the
company's ability to generate returns from the capital it has
deployed in its operations. The company uses ROIC to evaluate
investment decisions and as a performance measure in evaluating
management. The company defines 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 the company's 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 net sales for the
latest 12-month period by the company's average number of employees
during that period.
Exhibit G
BACKLOG (UNAUDITED)
DOLLARS IN MILLIONS
Estimated Total
Potential Estimated
Total Contract Contract
Second Quarter 2008 Funded Unfunded Backlog Value* Value
AEROSPACE $18,195 $634 $18,829 $2,309 $21,138
COMBAT SYSTEMS 10,611 3,263 13,874 2,610 16,484
MARINE SYSTEMS 8,899 3,239 12,138 2,167 14,305
INFORMATION SYSTEMS AND
TECHNOLOGY 7,531 2,950 10,481 10,348 20,829
TOTAL $45,236 $10,086 $55,322 $17,434 $72,756
First Quarter 2008
AEROSPACE $11,802 $650 $12,452 $926 $13,378
COMBAT SYSTEMS 11,116 3,171 14,287 2,292 16,579
MARINE SYSTEMS 9,552 3,056 12,608 2,272 14,880
INFORMATION SYSTEMS AND
TECHNOLOGY 7,582 2,838 10,420 9,142 19,562
TOTAL $40,052 $9,715 $49,767 $14,632 $64,399
Second Quarter 2007
AEROSPACE $9,427 $708 $10,135 $964 $11,099
COMBAT SYSTEMS 10,712 2,131 12,843 1,785 14,628
MARINE SYSTEMS 8,290 4,376 12,666 236 12,902
INFORMATION SYSTEMS AND
TECHNOLOGY 6,980 1,971 8,951 8,031 16,982
TOTAL $35,409 $9,186 $44,595 $11,016 $55,611
* The estimated potential contract value represents management's estimate of the company's future contract value under indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options associated with existing firm contracts. Because the value in the IDIQ arrangements is subject to the customer's future exercise of an indeterminate quantity of delivery orders, the company recognizes 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 H
SECOND QUARTER 2008 SIGNIFICANT ORDERS (UNAUDITED)
DOLLARS IN MILLIONS
General Dynamics received the following significant contract orders during the second quarter of 2008: Combat Systems -- $139 from the Canadian government for Optimized Weapons Systems Support for the Wheeled Light Armoured Vehicle (WLAV). This contract has a potential value of approximately $370. -- $116 from the U.S. Army for long-lead materials to reset 204 M1A1 Abrams Integrated Management (AIM) main battle tanks. -- Combined orders worth $88 from the Army to continue performing contractor logistics support for the Stryker program. -- $58 from the Army for long-lead materials for the production of Stryker Infantry Carrier Vehicle and Nuclear, Biological and Chemical Reconnaissance Vehicle variants.
Marine Systems
-- $132 from the U.S. Navy for Post Shakedown Availability (PSA) work for six Virginia-class submarines. -- $100 from the Navy to purchase long-lead materials for the 12th T-AKE combat-logistics ship. Information Systems and Technology -- $116 to build the spacecraft for NASA's Landsat Data Continuity Mission. -- Combined orders totaling $115 under the Common Hardware/Software III program, bringing the total contract value to approximately $1.3 billion. -- $114 to develop and integrate the maritime and fixed-site joint tactical radio capabilities and provide information assurance services for the Airborne, Maritime and Fixed Site (AMF) Joint Tactical Radio System (JTRS). The contract has a potential value of over $150. -- $77 to provide life-cycle contractor support and training support for the Warfighter Field Operations Customer Support (FOCUS) program. This contract has a potential value of approximately $2 billion.
Exhibit I
AIRCRAFT DELIVERIES (UNAUDITED)
Second Quarter Six Months
2008 2007 2008 2007
GREEN (UNITS):
LARGE AIRCRAFT 22 20 44 39
MID-SIZE AIRCRAFT 17 16 32 27
TOTAL 39 36 76 66
COMPLETIONS (UNITS):
LARGE AIRCRAFT 24 20 44 40
MID-SIZE AIRCRAFT 16 16 32 26
TOTAL 40 36 76 66
PRE-OWNED:
UNITS 1 3 2 5
SALES (millions) $8 $22 $17 $43
OPERATING EARNINGS (millions) $1 $- $2 $2
AEROSPACE MARGINS EXCLUDING
PRE-OWNED ACTIVITY 18.1% 16.8% 18.3% 16.4%
Exhibit J
SOURCE General Dynamics |