General Dynamics Reports 16.3 Percent Growth of Earnings from Continuing Operations in Fourth Quarter 2006; Revenues Increase 13 Percent
25 January 2007
General Dynamics (NYSE: GD) today reported financial results for the fourth quarter and full year of 2006, which ended December 31. (All per-share data reported below has been adjusted to reflect a two-for-one stock split that occurred March 24, 2006.)
Fourth-Quarter Results
General Dynamics' earnings from continuing operations in the fourth quarter of 2006 were $463 million, or $1.13 per share on a fully diluted basis, an increase of 16.3 percent compared to 2005 fourth-quarter earnings from continuing operations of $398 million, or $0.98 per share fully diluted. Revenue for the fourth quarter of 2006 was $6.5 billion, compared to fourth- quarter 2005 revenue of $5.8 billion.
Full-year 2006 Results
Earnings from continuing operations for 2006 grew by 18.1 percent to $1.71 billion, or $4.20 per share on a fully diluted basis, compared with earnings of $1.45 billion, or $3.58 fully diluted, in 2005. Revenue for the full year of 2006 was $24.1 billion, compared with $21 billion for 2005, an increase of 14.7 percent.
Cash
Net cash provided by operating activities from continuing operations totaled $824 million in the quarter and $2.16 billion for the year. Free cash flow from operations, defined as net cash provided by operating activities from continuing operations less capital expenditures, was $687 million in the quarter and $1.82 billion for the year.
Backlog
The company's funded backlog grew by approximately $1 billion in the fourth quarter of 2006, to $32.7 billion; it increased $4.5 billion compared to year-end 2005. Total backlog at year-end 2006 was $43.7 billion.
Margins
Company-wide operating margins for the full year increased by 50 basis points over 2005, to 10.9 percent. Operating margins for the fourth quarter increased to 10.8 percent from 10.6 percent for fourth-quarter 2005.
Net Earnings
General Dynamics' net earnings for the fourth quarter of 2006 were $408 million, including charges in discontinued operations related to the anticipated sale of the company's coal mining operations, compared to fourth- quarter 2005 net earnings of $406 million. Net earnings for the full year, including a gain in discontinued operations from the sale of the company's aggregates business, were $1.86 billion in 2006, compared to $1.46 billion in 2005.
"General Dynamics generated solid returns in the fourth quarter of 2006, capping another very strong year," said General Dynamics Chairman and Chief Executive Officer Nicholas D. Chabraja. "Revenue and earnings grew substantially over the fourth quarter of 2005, and full-year earnings per share from continuing operations grew by 17.3 percent over last year, on a revenue increase of 14.7 percent. Free cash flow from operations in the year of over $1.8 billion once again represents a very efficient conversion of net earnings into cash, a ratio of 107 percent."
General Dynamics, headquartered in Falls Church, Virginia, employs approximately 81,000 people worldwide. The company is a market leader in mission-critical information systems and technologies; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and business aviation. More information about the company is available on the Internet at http://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, our Annual Report on Form 10-K and our Forms 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 fourth-quarter securities analyst conference call, scheduled for 11 a.m. Eastern Time on Wednesday, January 24, 2007. Those accessing the webcast will be able to listen to management's discussion of the fourth-quarter and full-year results, as well as the question-and-answer session with securities analysts.
The webcast will be a listen-only audio broadcast, available at http://www.generaldynamics.com. A Real Audio player or Windows Media(TM) player is required to access the webcast; information about downloading those players is available on the company's website. An on-demand replay of the webcast will be available by 2 p.m. on January 24 and will continue for 12 months.
To hear a recording of the conference call by telephone, please call 888- 286-8010; passcode 71524900. It will be available from 2 p.m. on January 24 until midnight January 31, 2007.
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Fourth Quarter Variance
2006 2005 $ %
NET SALES $ 6,514 $ 5,764 $ 750 13.0 %
OPERATING COSTS AND EXPENSES 5,811 5,152 (659)
OPERATING EARNINGS 703 612 91 14.9 %
Interest, Net (27) (25) (2)
Other, Net - 12 (12)
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 676 599 77 12.9 %
Provision for Income Taxes 213 201 (12)
EARNINGS FROM CONTINUING OPERATIONS $ 463 $ 398 $ 65 16.3 %
Discontinued Operations, Net of Tax (55) 8 (63)
NET EARNINGS $ 408 $ 406 $ 2 0.5 %
EARNINGS PER SHARE - BASIC
Continuing Operations $ 1.14 $ 0.99 $ 0.15 15.2 %
Discontinued Operations $ (0.13) $ 0.02 $ (0.15)
Net Earnings $ 1.01 $ 1.01 $ - 0.0 %
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING (IN MILLIONS) 405.0 401.9
EARNINGS PER SHARE - DILUTED
Continuing Operations $ 1.13 $ 0.98 $ 0.15 15.3 %
Discontinued Operations $ (0.13) $ 0.02 $ (0.15)
Net Earnings $ 1.00 $ 1.00 $ - 0.0 %
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING (IN MILLIONS) 408.7 405.3
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Twelve Months Variance
2006 2005 $ %
NET SALES $ 24,063 $20,975 $3,088 14.7 %
OPERATING COSTS AND EXPENSES 21,438 18,796 (2,642)
OPERATING EARNINGS 2,625 2,179 446 20.5 %
Interest, Net (101) (118) 17
Other, Net 3 8 (5)
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 2,527 2,069 458 22.1 %
Provision for Income Taxes 817 621 (196)
EARNINGS FROM CONTINUING OPERATIONS $ 1,710 $ 1,448 $ 262 18.1 %
Discontinued Operations, Net of Tax 146 13 133
NET EARNINGS $ 1,856 $ 1,461 $395 27.0 %
EARNINGS PER SHARE - BASIC
Continuing Operations $ 4.24 $ 3.61 $ 0.63 17.5 %
Discontinued Operations $ 0.36 $ 0.03 $ 0.33
Net Earnings $ 4.60 $ 3.64 $ 0.96 26.4 %
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING (IN MILLIONS) 403.4 401.6
EARNINGS PER SHARE - DILUTED
Continuing Operations $ 4.20 $ 3.58 $ 0.62 17.3 %
Discontinued Operations $ 0.36 $ 0.03 $ 0.33
Net Earnings $ 4.56 $ 3.61 $ 0.95 26.3 %
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING (IN MILLIONS) 406.8 404.8
NET SALES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)
DOLLARS IN MILLIONS
Fourth Quarter Variance
2006 2005 $ %
NET SALES:
INFORMATION SYSTEMS AND
TECHNOLOGY $ 2,498 $ 2,076 $ 422 20.3 %
COMBAT SYSTEMS 1,805 1,606 199 12.4 %
MARINE SYSTEMS 1,178 1,136 42 3.7 %
AEROSPACE 1,033 946 87 9.2 %
TOTAL $ 6,514 $ 5,764 $ 750 13.0 %
OPERATING EARNINGS:
INFORMATION SYSTEMS AND
TECHNOLOGY $ 266 $ 215 $ 51 23.7 %
COMBAT SYSTEMS 194 190 4 2.1 %
MARINE SYSTEMS 84 83 1 1.2 %
AEROSPACE 168 123 45 36.6 %
CORPORATE (9) 1 (10)
TOTAL $ 703 $ 612 $ 91 14.9 %
OPERATING MARGINS:
INFORMATION SYSTEMS AND
TECHNOLOGY 10.6 % 10.4 %
COMBAT SYSTEMS 10.7 % 11.8 %
MARINE SYSTEMS 7.1 % 7.3 %
AEROSPACE 16.3 % 13.0 %
TOTAL 10.8 % 10.6 %
NET SALES AND OPERATING EARNINGS BY SEGMENT (UNAUDITED)
DOLLARS IN MILLIONS
Twelve Months Variance
2006 2005 $ %
NET SALES:
INFORMATION SYSTEMS AND
TECHNOLOGY $ 9,024 $ 7,826 $ 1,198 15.3 %
COMBAT SYSTEMS 5,983 5,021 962 19.2 %
MARINE SYSTEMS 4,940 4,695 245 5.2 %
AEROSPACE 4,116 3,433 683 19.9 %
TOTAL $24,063 $20,975 $ 3,088 14.7 %
OPERATING EARNINGS:
INFORMATION SYSTEMS AND
TECHNOLOGY $ 976 $ 865 $ 111 12.8 %
COMBAT SYSTEMS 677 576 101 17.5 %
MARINE SYSTEMS 375 249 126 50.6 %
AEROSPACE 644 495 149 30.1 %
CORPORATE (47) (6) (41)
TOTAL $ 2,625 $ 2,179 $ 446 20.5 %
OPERATING MARGINS:
INFORMATION SYSTEMS AND
TECHNOLOGY 10.8 % 11.1 %
COMBAT SYSTEMS 11.3 % 11.5 %
MARINE SYSTEMS 7.6 % 5.3 %
AEROSPACE 15.6 % 14.4 %
TOTAL 10.9 % 10.4 %
PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
DOLLARS IN MILLIONS
Year Ended December 31
Cash Flows from Operating Activities: 2006 2005
Net earnings $ 1,856 $ 1,461
Adjustments to reconcile net earnings
to net cash provided by operating
activities -
Depreciation and depletion 251 226
Amortization 133 101
Stock-based compensation expense 61 39
Excess tax benefit from stock-based
compensation (47) (2)
Deferred income tax provision 45 144
Discontinued operations, net of tax (146) (13)
(Increase) decrease in assets, net of
effects of business acquisitions -
Accounts receivable (160) (555)
Contracts in process (390) (196)
Inventories (238) (122)
Increase (decrease) in liabilities,
net of effects of business
acquisitions -
Accounts payable 174 196
Customer advances and deposits 420 954
Other current and non-current
liabilities 101 (138)
Other, net 96 (62)
Net Cash Provided by Operating
Activities from Continuing Operations 2,156 2,033
Net Cash (Used) Provided by
Discontinued Operations - Operating
Activities (28) 23
Net Cash Provided by Operating
Activities 2,128 2,056
Cash Flows from Investing Activities:
Business acquisitions, net of cash
acquired (2,342) (277)
Capital expenditures - continuing
operations (334) (262)
Proceeds from sale of discontinued
operations, net 316 316
Proceeds from sale of assets, net -
continuing operations 64 45
Other, net (20) (3)
Net Cash Used by Investing Activities (2,316) (181)
Cash Flows from Financing Activities:
Repayment of fixed-rate notes (500) -
Dividends paid (359) (314)
Proceeds from option exercises 253 148
Purchases of common stock (85) (348)
Excess tax benefit from stock-based
compensation 47 2
Other, net 105 (8)
Net Cash Used by Financing Activities (539) (520)
Net (Decrease) Increase in Cash and
Equivalents (727) 1,355
Cash and Equivalents at Beginning of
Period 2,331 976
Cash and Equivalents at End of Period $ 1,604 $ 2,331
PRELIMINARY FINANCIAL INFORMATION (UNAUDITED)
DOLLARS IN MILLIONS EXCEPT PER SHARE AND EMPLOYEE AMOUNTS
Fourth Fourth
Quarter Quarter
2006 2005
Cash and Liquidity
Information:
Cash $ 1,604 $ 2,331
Short-term Debt $ 7 $ 509
Long-term Debt 2,774 2,778
Total Debt $ 2,781 $ 3,287
Net Debt (A) $ 1,177 $ 956
Year-to- Year-to-
Quarter date Quarter date
Net Cash Provided by
Operating Activities
from Continuing
Operations $ 824 $ 2,156 $ 895 $ 2,033
Capital Expenditures -
continuing operations (137) (334) (104) (262)
Free Cash Flow from
Operations (B) $ 687 $ 1,822 $ 791 $ 1,771
Total Taxes Paid $ 194 $ 160
Other Information:
Depreciation and
Depletion $ 72 $ 58
Intangible Asset
Amortization 38 25
Depreciation, Depletion
and Amortization $ 110 $ 83
Company Sponsored R&D (C) $ 101 $ 91
Employment 81,000 70,900
Sales Per Employee (D) $ 309,000 $ 300,700
Shares Outstanding 405,792,438 400,363,054
Weighted Average Shares
Outstanding -
Basic 404,983,957 401,896,842
Diluted 408,669,326 405,302,422
(A) Net Debt is defined as total debt less cash and short-term
investments.
(B) 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 most directly comparable GAAP measure to free
cash flow from operations is net cash provided by activities.
(C) Includes independent research and development and bid and proposal
costs and Gulfstream product development costs.
(D) Sales per employee is calculated by dividing net sales for the latest
12-month period by the company's average employment during that
period.
BACKLOG (UNAUDITED)
DOLLARS IN MILLIONS
Total
Potential Estimated
Total Contract Contract
Fourth Quarter 2006 Funded Unfunded Backlog Value* Value
INFORMATION SYSTEMS AND
TECHNOLOGY $ 7,548 $ 2,432 $ 9,980 $ 9,218 $ 19,198
COMBAT SYSTEMS 10,086 1,883 11,969 1,855 13,824
MARINE SYSTEMS 8,174 5,851 14,025 1,052 15,077
AEROSPACE 6,941 752 7,693 964 8,657
TOTAL $32,749 $10,918 $43,667 $13,089 $56,756
Third Quarter 2006
INFORMATION SYSTEMS AND
TECHNOLOGY $ 7,344 $ 2,649 $ 9,993 $ 10,537 $20,530
COMBAT SYSTEMS 9,213 1,985 11,198 1,387 12,585
MARINE SYSTEMS 8,640 5,751 14,391 1,625 16,016
AEROSPACE 6,500 580 7,080 1,749 8,829
TOTAL $31,697 $10,965 $42,662 $15,298 $57,960
Fourth Quarter 2005
INFORMATION SYSTEMS AND
TECHNOLOGY $ 6,960 $ 2,415 $ 9,375 $ 6,815 $ 16,190
COMBAT SYSTEMS 6,954 2,374 9,328 2,774 12,102
MARINE SYSTEMS 8,419 7,014 15,433 1,885 17,318
AEROSPACE 5,853 765 6,618 1,445 8,063
TOTAL $28,186 $12,568 $40,754 $12,919 $53,673
* The potential contract value represents management's estimate of the
company's future contract value under indefinite delivery, indefinite
quantity (IDIQ) contracts or 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 options and establishes a firm
order.
FOURTH QUARTER 2006 SIGNIFICANT ORDERS (UNAUDITED)
DOLLARS IN MILLIONS
General Dynamics received the following significant contract orders during the fourth quarter of 2006:
Information Systems and Technology
* $230 from the U.S. Marine Corps for 165 Combat Operation Centers, mobile
command and control systems, to meet an urgent operational need for
regiment and battalion Marine Corps units in Iraq.
* A prime contract under the Design Engineering Support Program II (DESP
II), a multiple-award IDIQ contract with a total potential value of $1.9
billion over five years. This contract is for design and engineering
technical support services for Department of Defense mission weapon
systems, components and support equipment.
* Approximately $170 in orders on the U.S. Air Force's Intelligence
Information, Command-and-Control Equipment and Enhancements (ICE2)
program. These orders bring the total funded value under the program to
date to $1.6 billion.
Combat Systems
* $380 from the U.S. Army to upgrade 180 Abrams main battle tanks with the
M1A2 System Enhancement Package.
* $378 from the Army to reset and upgrade 312 Abrams main battle tanks
returning from Operation Iraqi Freedom under a new program called
Improved Systems Enhancement Package (SEP) Reset.
* $357 from the Army for the production of 350 M1A1 Abrams Integrated
Management (AIM) tanks. The contract includes an option for 50
additional tanks that brings the total potential contract value to date
to $406.
* $189 contract modification from the Marine Corps for 151 eight-wheeled
Light Armored Vehicles (LAV-A2) in various configurations. The contract
includes a $50 option for 394 LAV-A2 electric turret drives and brings
the total potential contract value to date to $317.
* $425 (including Value Added Tax) from the Spanish Army for the supply of
Long Range SPIKE Missile Systems. Under this contract, the company will
manufacture 260 launchers and 2,600 missiles and provide logistics
support.
Marine Systems
* $208 from the U.S. Navy for construction of a second Littoral Combat
Ship.
* A contract from the Navy to continue to staff and operate the New
England Maintenance Manpower Initiative at the Naval Submarine Base in
Groton, Connecticut. The contract has a potential value of $202.
* $1.3 billion in funding from the Navy for the construction of the ninth
Virginia-class submarine and advance procurement for the 10th ship of
the class.
AIRCRAFT DELIVERIES (UNAUDITED)
Fourth Quarter Twelve Months
2006 2005 2006 2005
GREEN (UNITS):
LARGE AIRCRAFT 19 17 71 63
MID-SIZE AIRCRAFT 11 7 42 26
TOTAL 30 24 113 89
COMPLETIONS (UNITS):
LARGE AIRCRAFT 17 17 71 60
MID-SIZE AIRCRAFT 12 8 33 24
TOTAL 29 25 104 84
PRE-OWNED:
UNITS 1 4 11 12
SALES (millions) $ 13 $ 87 $ 217 $ 219
OPERATING EARNINGS (millions) $ 3 $ 3 $ 20 $ 13
AEROSPACE MARGINS EXCLUDING
PRE-OWNED ACTIVITY 16.2% 14.0% 16.0% 15.0%
AIRCRAFT ORDERS (UNAUDITED)
UNITS
Large Mid-size
Aircraft Aircraft Total
2006 2005 2006 2005 2006 2005
ORDERS 114 92 45 32 159 124
DELIVERIES (A) 71 63 42 26 113 89
BOOK-TO-BILL 1.61 1.46 1.07 1.23 1.41 1.39
(A) Represents green deliveries.
DISCONTINUED OPERATIONS (UNAUDITED)
DOLLARS IN MILLIONS
Fourth Quarter Twelve Months
2006 2005 2006 2005
NET SALES $ 19 $ 67 $ 149 $ 315
OPERATING COSTS AND EXPENSES 28 69 183 297
OPERATING (LOSS)/ EARNINGS (9) (2) (34) 18
OTHER, NET - 12 (1) 13
(LOSS)/GAIN ON DISPOSAL (61) (1) 142 32
(LOSS)/EARNINGS BEFORE TAXES (70) 9 107 63
TAX (BENEFIT)/ PROVISION (15) 1 (39) 50
(LOSS)/EARNINGS FROM DISCONTINUED
OPERATIONS $ (55) $ 8 $ 146 $ 13
Source: prnewswire
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