Press Release

General Dynamics Reports Strong Performance in Third Quarter 2010
- Earnings from continuing operations increase by 12.9 percent to $649 million
- Management raises guidance for full-year EPS

FALLS CHURCH, Va., Oct 27, 2010 /PRNewswire via COMTEX/ --

General Dynamics (NYSE: GD) today reported third-quarter 2010 earnings from continuing operations of $649 million, or $1.70 per share on a fully diluted basis, compared to 2009 third-quarter earnings from continuing operations of $575 million, or $1.48 per share fully diluted. Revenues in the quarter were $8 billion. Operating earnings grew by 10.5 percent over third-quarter 2009, to $966 million.

Net earnings for the third quarter of 2010 were $650 million, compared to $572 million in the year-ago period. Net earnings on a per-share, fully diluted basis were $1.70 in the current quarter, an increase of 15.6 percent over the year-ago period.

Margins

Company-wide operating margins in the quarter were 12.1 percent, an increase of 80 basis points over third-quarter 2009. Aerospace and Combat Systems margins drove that improvement, increasing 420 and 150 basis points respectively.

Backlog

The company's funded backlog at the end of the quarter was $45.6 billion and total backlog was $61.8 billion. Orders received reflected continuing demand for the company's aerospace and defense products alike.

Significant orders in the quarter included awards for production of double-V hulled Stryker combat vehicles, ammunition, reactive armor and crew-served weapon systems; lead-yard services for the DDG-51 destroyer program; and long-lead materials and design services for the new class of Mobile Landing Platform ships. In the Information Systems and Technology group, customer demand continued for tactical networking systems and rugged computing products, as well as information-technology infrastructure and support services.

In addition to the total backlog, the company's estimated potential contract value was $20.8 billion at the end of third-quarter 2010, reflecting management's estimate of the value of unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options.

Cash

Net cash provided by operating activities in the third quarter totaled $880 million. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $784 million for the period.

"General Dynamics continues to demonstrate its ability to effectively execute on its programs," said Jay L. Johnson, chairman and chief executive officer. "Margins remain strong across the corporation, and the quality of earnings was underscored by strong free cash flow. This solid operating performance reflects our continued focus on increasing efficiency, improving productivity and driving cost out of our businesses.

"As a result of our performance this quarter, we are increasing our expectations for full-year 2010 earnings from continuing operations to the range of $6.70 to $6.75 per share, fully diluted," Johnson said.

General Dynamics, headquartered in Falls Church, Virginia, employs approximately 90,000 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. 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 are 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 11:30 a.m. Eastern Time on Wednesday, October 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 1:30 p.m. October 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 28839776. The phone replay will be available from 1:30 p.m. October 27 until midnight November 3, 2010.

EXHIBIT A


CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS












Third Quarter


Variance



2010


2009


$


%










Revenues


$ 8,011


$ 7,719


$ 292


3.8 %

Operating costs and expenses


7,045


6,845


(200)












Operating earnings


966


874


92


10.5 %










Interest, net


(38)


(40)


2



Other, net


-


(6)


6












Earnings from continuing operations









before income taxes


928


828


100


12.1 %










Provision for income taxes


279


253


(26)












Earnings from continuing operations


$ 649


$ 575


$ 74


12.9 %










Discontinued operations, net of tax


1


(3)


4












Net earnings


$ 650


$ 572


$ 78


13.6 %










Earnings per share - basic









Continuing operations


$ 1.71


$ 1.49


$ 0.22


14.8 %

Discontinued operations


$ -


$ (0.01)


$ 0.01



Net earnings


$ 1.71


$ 1.48


$ 0.23


15.5 %










Basic weighted average









shares outstanding (in millions)


379.1


385.2














Earnings per share - diluted









Continuing operations


$ 1.70


$ 1.48


$ 0.22


14.9 %

Discontinued operations


$ -


$ (0.01)


$ 0.01



Net earnings


$ 1.70


$ 1.47


$ 0.23


15.6 %










Diluted weighted average









shares outstanding (in millions)


382.5


388.1














EXHIBIT B


CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS












Nine Months


Variance



2010


2009


$


%










Revenues


$ 23,865


$ 24,083


$ (218)


(0.9)%

Operating costs and expenses


20,996


21,359


363












Operating earnings


2,869


2,724


145


5.3 %










Interest, net


(124)


(117)


(7)



Other, net


2


(3)


5












Earnings from continuing operations









before income taxes


2,747


2,604


143


5.5 %










Provision for income taxes


848


815


(33)












Earnings from continuing operations


$ 1,899


$ 1,789


$ 110


6.1 %










Discontinued operations, net of tax


(4)


(9)


5












Net earnings


$ 1,895


$ 1,780


$ 115


6.5 %










Earnings per share - basic









Continuing operations


$ 4.96


$ 4.64


$ 0.32


6.9 %

Discontinued operations


$ (0.01)


$ (0.02)


$ 0.01



Net earnings


$ 4.95


$ 4.62


$ 0.33


7.1 %










Basic weighted average









shares outstanding (in millions)


382.7


385.4














Earnings per share - diluted









Continuing operations


$ 4.91


$ 4.62


$ 0.29


6.3 %

Discontinued operations


$ (0.01)


$ (0.02)


$ 0.01



Net earnings


$ 4.90


$ 4.60


$ 0.30


6.5 %










Diluted weighted average









shares outstanding (in millions)


386.7


387.2














EXHIBIT C


REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS












Third Quarter


Variance



2010


2009


$


%

Revenues:


















Aerospace


$ 1,291


$ 1,120


$ 171


15.3 %










Combat Systems


2,069


2,347


(278)


(11.8)%










Marine Systems


1,700


1,518


182


12.0 %










Information Systems and









Technology


2,951


2,734


217


7.9 %










Total


$ 8,011


$ 7,719


$ 292


3.8 %










Operating earnings:


















Aerospace


$ 199


$ 125


$ 74


59.2 %










Combat Systems


311


316


(5)


(1.6)%










Marine Systems


169


155


14


9.0 %










Information Systems and









Technology


306


296


10


3.4 %










Corporate


(19)


(18)


(1)


(5.6)%










Total


$ 966


$ 874


$ 92


10.5 %










Operating margins:


















Aerospace


15.4 %


11.2 %














Combat Systems


15.0 %


13.5 %














Marine Systems


9.9 %


10.2 %














Information Systems and









Technology


10.4 %


10.8 %














Total


12.1 %


11.3 %














EXHIBIT D


REVENUES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)

DOLLARS IN MILLIONS












Nine Months


Variance



2010


2009


$


%

Revenues:


















Aerospace


$ 4,031


$ 3,990


$ 41


1.0 %










Combat Systems


6,182


7,159


(977)


(13.6)%










Marine Systems


4,976


4,812


164


3.4 %










Information Systems and









Technology


8,676


8,122


554


6.8 %










Total


$ 23,865


$ 24,083


$ (218)


(0.9)%










Operating earnings:


















Aerospace


$ 650


$ 540


$ 110


20.4 %










Combat Systems


875


895


(20)


(2.2)%










Marine Systems


497


486


11


2.3 %










Information Systems and









Technology


908


869


39


4.5 %










Corporate


(61)


(66)


5


7.6 %










Total


$ 2,869


$ 2,724


$ 145


5.3 %










Operating margins:


















Aerospace


16.1 %


13.5 %














Combat Systems


14.2 %


12.5 %














Marine Systems


10.0 %


10.1 %














Information Systems and









Technology


10.5 %


10.7 %














Total


12.0 %


11.3 %














EXHIBIT E


PRELIMINARY CONSOLIDATED BALANCE SHEET (UNAUDITED)

DOLLARS IN MILLIONS








October 3, 2010


December 31, 2009

ASSETS





Current assets:





Cash and equivalents


$ 1,843


$ 2,263

Accounts receivable


3,874


3,678

Contracts in process


4,986


4,449

Inventories


1,986


2,126

Other current assets


701


733

Total current assets


13,390


13,249






Noncurrent assets:





Property, plant and equipment, net


2,918


2,912

Intangible assets, net


2,011


2,098

Goodwill


12,544


12,269

Other assets


620


549

Total noncurrent assets


18,093


17,828

Total assets


$ 31,483


$ 31,077

LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:





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


$ 774


$ 705

Accounts payable


2,571


2,365

Customer advances and deposits


4,080


4,313

Other current liabilities


2,886


2,988

Total current liabilities


10,311


10,371






Noncurrent liabilities:





Long-term debt


2,430


3,159

Other liabilities


5,160


5,124

Commitments and contingencies





Total noncurrent liabilities


7,590


8,283






Shareholders' equity:





Common stock


482


482

Surplus


1,662


1,518

Retained earnings


16,504


15,093

Treasury stock


(4,077)


(3,463)

Accumulated other comprehensive loss


(989)


(1,207)

Total shareholders' equity


13,582


12,423

Total liabilities and shareholders' equity


$ 31,483


$ 31,077






EXHIBIT F


PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

DOLLARS IN MILLIONS








Nine Months Ended

Cash flows from operating activities:


October 3, 2010


October 4, 2009

Net earnings


$ 1,895


$ 1,780

Adjustments to reconcile net earnings to net cash provided by





operating activities:





Depreciation of property, plant and equipment


257


257

Amortization of intangible assets


167


161

Stock-based compensation expense


88


87

Excess tax benefit from stock-based compensation


(19)


-

Deferred income tax provision


65


189

Discontinued operations, net of tax


4


9

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





Accounts receivable


(178)


(324)

Contracts in process


(478)


(80)

Inventories


149


(56)

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





Accounts payable


201


(146)

Customer advances and deposits


(331)


(238)

Other current liabilities


(336)


(218)

Other, net


83


(64)

Net cash provided by operating activities


1,567


1,357






Cash flows from investing activities:





Maturities of held-to-maturity securities


599


-

Purchases of held-to-maturity securities


(452)


-

Business acquisitions, net of cash acquired


(233)


(805)

Capital expenditures


(219)


(251)

Purchases of available-for-sale securities


(199)


(129)

Maturities of available-for-sale securities


120


174

Other, net


123


90

Net cash used by investing activities


(261)


(921)






Cash flows from financing activities:





Purchases of common stock


(726)


(109)

(Repayment of) proceeds from fixed-rate notes


(700)


747

Dividends paid


(471)


(430)

Proceeds from option exercises


159


68

Repayment of commercial paper


-


(904)

Other, net


16


(8)

Net cash used by financing activities


(1,722)


(636)






Net cash used by discontinued operations - operating activities


(4)


(12)






Net decrease in cash and equivalents


(420)


(212)

Cash and equivalents at beginning of period


2,263


1,621

Cash and equivalents at end of period


$ 1,843


$ 1,409











EXHIBIT G


PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)

DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS












Third Quarter




Third Quarter





2010




2009



Non-GAAP Financial Measures:


















Free cash flow from operations:


Quarter


Year-to-date


Quarter


Year-to-date

Net cash provided by operating activities


$ 880


$ 1,567


$ 594


$ 1,357

Capital expenditures


(96)


(219)


(81)


(251)

Free cash flow from operations (A)


$ 784


$ 1,348


$ 513


$ 1,106










Return on invested capital:









Earnings from continuing operations


$ 2,517




$ 2,419



After-tax interest expense


121




109



After-tax amortization expense


154




140



Net operating profit after taxes


2,792




2,668



Average debt and equity


16,400




14,600



Return on invested capital (B)


17.0%




18.3%












Other Financial Information:









Return on equity (C)


19.9%




21.9%












Debt-to-equity (D)


23.6%




33.0%












Debt-to-capital (E)


19.1%




24.8%












Book value per share (F)


$ 35.96




$ 30.37












Total taxes paid


$ 227




$ 144












Company-sponsored research and development (G)


$ 115




$ 140












Employment


89,800




92,300












Sales per employee (H)


$ 348,400




$ 348,900












Shares outstanding


377,743,896




385,801,290












(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.


EXHIBIT H


BACKLOG (UNAUDITED)

DOLLARS IN MILLIONS




















Estimated









Total


Potential


Total Potential

Third Quarter 2010


Funded


Unfunded


Backlog


Contract Value*


Contract Value

Aerospace


$ 17,184


$ 393


$ 17,577


$ 1,361


$ 18,938












Combat Systems


11,771


1,006


12,777


4,702


17,479












Marine Systems


7,972


12,620


20,592


768


21,360












Information Systems and Technology


8,666


2,219


10,885


13,978


24,863












Total


$ 45,593


$ 16,238


$ 61,831


$ 20,809


$ 82,640























Second Quarter 2010











Aerospace


$ 17,393


$ 408


$ 17,801


$ 1,361


$ 19,162












Combat Systems


11,070


1,695


12,765


4,744


17,509












Marine Systems


8,757


12,541


21,298


768


22,066












Information Systems and Technology


8,658


1,996


10,654


14,848


25,502












Total


$ 45,878


$ 16,640


$ 62,518


$ 21,721


$ 84,239























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












* 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. 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 2010 SIGNIFICANT ORDERS (UNAUDITED)

DOLLARS IN MILLIONS

We received the following significant contract orders during the third quarter of 2010:

Combat Systems

  • Approximately $340 from the U.S. Army under the Stryker wheeled armored vehicle program for contractor logistics support and to initiate the production of double-V-shaped hull vehicles.
  • Approximately $180 from the Canadian government to supply various calibers of ammunition.
  • Approximately $135 from the Army to provide Abrams tank System Technical Support, bringing the total value in backlog to approximately $425.
  • Approximately $90 from the Army for the production of reactive armor side skirt tiles for the Bradley Fighting Vehicle System.
  • Approximately $75 from the Army for the production of M2A1 machines guns. This contract has a potential value of approximately $400.

Marine Systems

  • Approximately $115 from the U.S. Navy for long-lead material and advanced design efforts for the first ship of the Mobile Landing Platform (MLP) program.
  • Approximately $35 from the Navy to provide ongoing lead-yard services for the DDG-51 destroyer program.

Information Systems and Technology

  • Approximately $240 from the National Aeronautics and Space Administration (NASA) for the Space Network Ground Segment Sustainment (SGSS) project to modernize the ground segment of the satellite communications network used by NASA.
  • Approximately $110 in orders for networking communications products under the Network-Centric Solutions (NETCENTS) program, bringing the total value in backlog to approximately $270.
  • Approximately $110 for information-technology infrastructure associated with the Base Realignment and Closure (BRAC) facility changes.
  • Approximately $100 from the Army for ruggedized computing equipment under the Common Hardware/Software III (CHS-3) program, bringing the total value in backlog to approximately $245.
  • Approximately $80 from the National Oceanic and Atmospheric Association to design, manufacture and install antennas for the Geostationary Operational Environmental Satellites (GOES).
  • Approximately $65 from the Army under the Warfighter Information Network-Tactical (WIN-T) program for Increment 1 satellite communication equipment technical support services. This award brings the total value in backlog to approximately $795.

EXHIBIT J


AEROSPACE SUPPLEMENTAL DATA (UNAUDITED)












Third Quarter


Nine Months



2010


2009


2010


2009

Gulfstream Green Deliveries (units):


















Large aircraft


17


14


57


56










Mid-size aircraft


6


3


22


18










Total


23


17


79


74










Gulfstream Outfitted Deliveries (units):


















Large aircraft


19


20


54


60










Mid-size aircraft


5


4


11


29










Total


24


24


65


89










Pre-owned Deliveries (units):


2


3


6


5










SOURCE General Dynamics