General Dynamics Reports Fourth-quarter, Full-year 2012 Results

EXHIBIT A

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Fourth Quarter

Variance

2011

2012

$

%

Revenues

$          9,147

$        8,078

$      (1,069)

(11.7)%

Operating costs and expenses

8,197

9,980

(1,783)

Operating earnings (loss)

950

(1,902)

(2,852)

(300.2)%

Interest, net

(38)

(41)

(3)

Other, net

(1)

(128)

(127)

Earnings (loss) from continuing operations

  before income taxes

911

(2,071)

(2,982)

(327.3)%

Provision for income taxes

308

59

249

Earnings (loss) from continuing operations

$             603

$       (2,130)

$      (2,733)

(453.2)%

Discontinued operations, net of tax

-

-

-

Net earnings (loss)

$             603

$       (2,130)

$      (2,733)

(453.2)%

Earnings (loss) per share - basic

    Continuing operations

$            1.69

$         (6.07)

$        (7.76)

(459.2)%

    Discontinued operations

$                  -

$                 -

$               -

    Net earnings (loss)

$            1.69

$         (6.07)

$        (7.76)

(459.2)%

Basic weighted average shares outstanding 

356.2

350.9

Earnings (loss) per share - diluted

    Continuing operations

$            1.68

$         (6.07)

*

$        (7.75)

(461.3)%

    Discontinued operations

$                  -

$                 -

$               -

    Net earnings (loss)

$            1.68

$         (6.07)

*

$        (7.75)

(461.3)%

Diluted weighted average shares outstanding

359.4

350.9

*

* Fourth quarter 2012 amounts exclude dilutive effect of stock options and restricted stock as it would be antidilutive.

EXHIBIT B

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Twelve Months

Variance

2011

2012

$

%

Revenues

$        32,677

$      31,513

$      (1,164)

(3.6)%

Operating costs and expenses

28,851

30,680

(1,829)

Operating earnings 

3,826

833

(2,993)

(78.2)%

Interest, net

(141)

(156)

(15)

Other, net

33

(136)

(169)

Earnings from continuing operations

  before income taxes

3,718

541

(3,177)

(85.4)%

Provision for income taxes

1,166

873

293

Earnings (loss) from continuing operations

$          2,552

$          (332)

$      (2,884)

(113.0)%

Discontinued operations, net of tax

(26)

-

26

Net earnings (loss)

$          2,526

$          (332)

$      (2,858)

(113.1)%

Earnings (loss) per share - basic

    Continuing operations

$            7.01

$         (0.94)

$        (7.95)

(113.4)%

    Discontinued operations

$          (0.07)

$                -

$          0.07

    Net earnings (loss)

$            6.94

$         (0.94)

$        (7.88)

(113.5)%

Basic weighted average shares outstanding

364.1

353.3

Earnings (loss) per share - diluted

    Continuing operations

$            6.94

$         (0.94)

 * 

$        (7.88)

(113.5)%

    Discontinued operations

$          (0.07)

$                 -

$          0.07

    Net earnings (loss)

$            6.87

$         (0.94)

 * 

$        (7.81)

(113.7)%

Diluted weighted average shares outstanding

367.5

353.3

 * 

* 2012 amounts exclude dilutive effect of stock options and restricted stock as it would be antidilutive.

EXHIBIT C

CALCULATION OF ADJUSTED NON-GAAP EARNINGS FROM CONTINUING OPERATIONS AND

ADJUSTED NON-GAAP DILUTED EARNINGS PER SHARE - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

Fourth Quarter

Twelve Months

2012

2012

Calculation of adjusted non-GAAP earnings from continuing operations:

Loss from continuing operations (from Exhibits A and B, respectively)

$       (2,130)

$        (332)

Non-GAAP adjustments:

Goodwill impairment (a)

1,994

1,994

Intangible asset impairments (a)

301

301

Contract disputes accruals (b)

292

292

Restructuring-related charges (c)

98

98

Inventory-related charges (d)

53

78

Debt retirement charge (e)

123

123

Tax effects (f)

(240)

(249)

Adjusted non-GAAP earnings from continuing operations

$            491

$      2,305

Calculation of diluted (loss) earnings per share from continuing operations:

Loss from continuing operations

$       (2,130)

$        (332)

Basic weighted average shares outstanding

350.9

353.3

    Diluted loss per share from continuing operations 

$         (6.07)

 (g) 

$       (0.94)

 (g) 

Adjusted non-GAAP earnings from continuing operations

$            491

$      2,305

Diluted weighted average shares outstanding

353.2

355.7

    Adjusted non-GAAP diluted earnings per share from continuing operations 

$           1.39

$        6.48

This Exhibit includes the following financial measures which are not calculated in accordance with generally accepted accounting principles (GAAP) in the United States – adjusted earnings from continuing operations and adjusted diluted earnings per share from continuing operations.  Each of these calculations excludes the impact of certain items and therefore, is considered a non-GAAP financial measure.  The items excluded were considered by management to be unusual and not reflective of the underlying performance of the company as explained in the notes for each item. The GAAP financial measure most directly comparable to adjusted earnings from continuing operations is loss from continuing operations and the GAAP financial measure most directly comparable to adjusted diluted earnings per share is diluted loss per share.  Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP financial measure are included above. Management uses these measures to evaluate the operating performance of the company and analyze trends.  For this reason, management believes the measures are useful supplemental information for investors to understand the company's operating results.  Notes describing each non-GAAP adjustment are on the following page.

EXHIBIT C (cont.)

CALCULATION OF ADJUSTED NON-GAAP EARNINGS FROM CONTINUING OPERATIONS AND

ADJUSTED NON-GAAP DILUTED EARNINGS PER SHARE - (UNAUDITED)

DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS

(a) Impairments - Represents goodwill impairment charge of $1,994 in the Information Systems and Technology group and intangible asset impairments of $191 in the Aerospace group and $110 in the Information Systems and Technology group.  Management believes that the exclusion of these items is useful because management does not consider impairment charges in evaluating the operating performance of its on-going operations.  The exclusions permit investors to evaluate the company's performance and analyze trends in a similar manner as management.

(b) Contract disputes accruals - Represents accruals of $292 for contract disputes related to the Combat Systems group's European Land Systems business, primarily with the government of Portugal.  While the company has contract disputes from time to time, management believes this item is unique due to the nature of the disputes and not reflective of the operating performance of its underlying operations.  The exclusion permits investors to evaluate the company's performance in a similar manner as management and facilitates a comparison of its operating performance to the company's past operating performance.

(c) Restructuring-related charges - Represents restructuring-related charges of $98, primarily severance costs, related to the Combat Systems group's European Land Systems business.  Management believes that the exclusion of this item is useful because management does not consider this item as reflective of its operating performance of its underlying operations.  The exclusion permits investors to evaluate the company's performance in a similar manner as management and facilitates a comparison of its operating performance to the company's past operating performance.

(d) Inventory-related charges - Represents increases to inventory reserves for obsolete inventory in the Information Systems and Technology group of $38 and in the Combat Systems group of $15 for the quarter ended December 31, 2012.  Represents increases to inventory reserves for obsolete inventory in the Information Systems and Technology group of $63 and in the Combat Systems group of $15 for the twelve months ended December 31, 2012.  The Information Systems and Technology charge was primarily for ruggedized hardware products that ceased production in 2012.  Management has adjusted for this item because it does not believe that it is indicative of its on-going operations or the on-going operating costs of its products since it does not generally build products to inventory within its defense groups.  The exclusion permits investors to evaluate the company's performance in a similar manner as management and facilitates a comparison of its operating performance to the company's past operating performance.  

(e) Debt retirement charges - Represents the premium associated with the early redemption of debt completed in December 2012.  Management has excluded this item for comparative purposes and views this charge as uniquely related to its debt refinancing completed in 2012.  By excluding this item, investors can evaluate the company's performance in a similar manner as management.

(f) Tax effects - Represents the limited tax benefit on the charges in (a) - (e) due to the non-deductible nature of a substantial portion of the charges.  The tax effects of these changes have been reflected because management evaluates performance on an after-tax basis.  This permits investors to evaluate the company's performance in a similar manner as management and compare the operating performance of the company to prior periods.  

(g) Calculated based on basic weighted average shares outstanding as the inclusion of dilutive securities (stock options and restricted stock) would have an antidilutive effect.

EXHIBIT D

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Fourth Quarter

Variance

2011

2012

$

%

Revenues:

Aerospace

$          1,857

$        1,861

$               4

0.2 %

Combat Systems

2,611

1,976

(635)

(24.3)%

Marine Systems

1,758

1,664

(94)

(5.3)%

Information Systems and Technology

2,921

2,577

(344)

(11.8)%

Total

$          9,147

$        8,078

$      (1,069)

(11.7)%

Operating earnings (loss):

Aerospace

$               73

$              69

$             (4)

(5.5)%

Combat Systems

388

(136)

(524)

(135.1)%

Marine Systems

190

196

6

3.2 %

Information Systems and Technology

315

(2,014)

(2,329)

(739.4)%

Corporate

(16)

(17)

(1)

(6.3)%

Total

$             950

$       (1,902)

$      (2,852)

(300.2)%

Operating margins:

Aerospace

3.9 %

3.7 %

Combat Systems

14.9 %

(6.9)%

Marine Systems

10.8 %

11.8 %

Information Systems and Technology

10.8 %

(78.2)%

Total

10.4 %

(23.5)%

EXHIBIT E

CALCULATION OF ADJUSTED NON-GAAP REVENUES 

AND ADJUSTED NON-GAAP OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

GAAP

Adjusted

Fourth Quarter

Non-GAAP

2012

Non-GAAP

Fourth Quarter

(from Exhibit D)

Adjustments

2012

Revenues:

Aerospace

$                   1,861

$                      -

$                 1,861

Combat Systems

1,976

169

(a)

2,145

Marine Systems

1,664

-

1,664

Information Systems and Technology

2,577

-

2,577

Total

$                   8,078

$                  169

$                 8,247

Operating earnings (loss):

Aerospace

$                         69

$                  191

(b)

$                     260

Combat Systems

(136)

405

(c)

269

Marine Systems

196

-

196

Information Systems and Technology

(2,014)

2,142

(d)

128

Corporate

(17)

-

(17)

Total

$                 (1,902)

$               2,738

$                     836

Operating margins:

Aerospace

3.7 %

14.0 %

Combat Systems

(6.9)%

12.5 %

Marine Systems

11.8 %

11.8 %

Information Systems and Technology

(78.2)%

5.0 %

Total

(23.5)%

10.1 %

This Exhibit includes the following financial measures which are not calculated in accordance with generally accepted accounting principles (GAAP) in the United States – adjusted revenues and operating earnings by segment.  Each of these calculations excludes the impact of certain items and therefore, is considered a non-GAAP financial measure.  The items excluded were considered by management to be unusual and not reflective of the underlying performance of the company.  The GAAP financial measure most directly comparable to adjusted revenues by segment is revenues by segment and the GAAP financial measure most directly comparable to adjusted operating earnings by segment is operating earnings by segment.  Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP financial measure are included above.  Management uses these measures to evaluate the operating performance of the company and analyze trends.  For this reason, management believes the measures are useful supplemental information for investors to understand the company's operating results.  Notes describing each non-GAAP adjustment are on the following page.

EXHIBIT E (cont.)

CALCULATION OF ADJUSTED NON-GAAP REVENUES 

AND ADJUSTED NON-GAAP OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

(a) Represents the portion of the $292 of contract disputes accruals related to the contract with the government of Portugal in the Combat Systems group from Exhibit C that was recorded as a reduction of revenue. 

(b) Represents intangible asset impairment of $191 in the Aerospace group from Exhibit C.  

(c) Represents contract disputes accruals of $292, restructuring-related charges of $98 and inventory-related charges of $15 in the Combat Systems group from Exhibit C. 

(d) Represents goodwill impairment of $1,994, intangible asset impairment of $110 and inventory-related charges of $38 in the Information Systems and Technology group from Exhibit C.  

EXHIBIT F

REVENUES AND OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

Twelve Months

Variance

2011

2012

$

%

Revenues:

Aerospace

$          5,998

$        6,912

$           914

15.2 %

Combat Systems

8,827

7,992

(835)

(9.5)%

Marine Systems

6,631

6,592

(39)

(0.6)%

Information Systems and Technology

11,221

10,017

(1,204)

(10.7)%

Total

$        32,677

$      31,513

$      (1,164)

(3.6)%

Operating earnings (loss):

Aerospace

$             729

$            858

$           129

17.7 %

Combat Systems

1,283

663

(620)

(48.3)%

Marine Systems

691

750

59

8.5 %

Information Systems and Technology

1,200

(1,369)

(2,569)

(214.1)%

Corporate

(77)

(69)

8

10.4 %

Total

$          3,826

$            833

$      (2,993)

(78.2)%

Operating margins:

Aerospace

12.2 %

12.4 %

Combat Systems

14.5 %

8.3 %

Marine Systems

10.4 %

11.4 %

Information Systems and Technology

10.7 %

(13.7)%

Total

11.7 %

2.6 %

EXHIBIT G

CALCULATION OF ADJUSTED NON-GAAP REVENUES 

AND ADJUSTED NON-GAAP OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

GAAP

Adjusted

Twelve Months

Non-GAAP

2012

Non-GAAP

Twelve Months

(from Exhibit F)

Adjustments

2012

Revenues:

Aerospace

$                   6,912

$                      -

$                   6,912

Combat Systems

7,992

169

(a)

8,161

Marine Systems

6,592

-

6,592

Information Systems and Technology

10,017

-

10,017

Total

$                 31,513

$                  169

$                 31,682

Operating earnings (loss):

Aerospace

$                      858

$                  191

(b)

$                   1,049

Combat Systems

663

405

(c)

1,068

Marine Systems

750

-

750

Information Systems and Technology

(1,369)

2,167

(d)

798

Corporate

(69)

-

(69)

Total

$                      833

$               2,763

$                   3,596

Operating margins:

Aerospace

12.4 %

15.2 %

Combat Systems

8.3 %

13.1 %

Marine Systems

11.4 %

11.4 %

Information Systems and Technology

(13.7)%

8.0 %

Total

2.6 %

11.4 %

This Exhibit includes the following financial measures which are not calculated in accordance with generally accepted accounting principles (GAAP) in the United States – adjusted revenues and operating earnings by segment.  Each of these calculations excludes the impact of certain items and therefore, is considered a non-GAAP financial measure.  The items excluded were considered by management to be unusual and not reflective of the underlying performance of the company.  The GAAP financial measure most directly comparable to adjusted revenues by segment is revenues by segment and the GAAP financial measure most directly comparable to adjusted operating earnings by segment is operating earnings by segment.  Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP financial measure are included above.  Management uses these measures to evaluate the operating performance of the company and analyze trends.  For this reason, management believes the measures are useful supplemental information for investors to understand the company's operating results.  Notes describing each non-GAAP adjustment are on the following page.

EXHIBIT G (cont.)

CALCULATION OF ADJUSTED NON-GAAP REVENUES 

AND ADJUSTED NON-GAAP OPERATING EARNINGS BY SEGMENT - (UNAUDITED)

DOLLARS IN MILLIONS

(a) Represents the portion of the $292 of contract disputes accruals related to the contract with the government of Portugal in the Combat Systems group from Exhibit C that was recorded as a reduction of revenue.  

(b) Represents intangible asset impairment of $191 in the Aerospace group from Exhibit C. 

(c) Represents contract disputes accruals of $292, restructuring-related charges of $98 and inventory-related charges of $15 in the Combat Systems group from Exhibit C.     

(d) Represents goodwill impairment of $1,994, intangible asset impairment of $110 and inventory-related charges of $63 in the Information Systems and Technology group from Exhibit C.  

EXHIBIT H

PRELIMINARY CONSOLIDATED BALANCE SHEETS

DOLLARS IN MILLIONS

(Unaudited)

December 31, 2011

December 31, 2012

ASSETS

Current assets:

Cash and equivalents

$                         2,649

$                       3,296

Accounts receivable

4,429

4,204

Contracts in process

5,168

4,964

Inventories

2,310

2,776

Other current assets

812

504

Total current assets

15,368

15,744

Noncurrent assets:

Property, plant and equipment, net

3,284

3,403

Intangible assets, net

1,813

1,383

Goodwill

13,576

12,048

Other assets

842

1,731

Total noncurrent assets

19,515

18,565

Total assets

$                       34,883

$                     34,309

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

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

$                              23

$                               1

Accounts payable

2,895

2,469

Customer advances and deposits

5,011

6,042

Other current liabilities

3,216

3,108

Total current liabilities

11,145

11,620

Noncurrent liabilities:

Long-term debt

3,907

3,908

Other liabilities

6,599

7,391

Total noncurrent liabilities

10,506

11,299

Shareholders' equity:

Common stock

482

482

Surplus

1,888

1,988

Retained earnings

18,917

17,860

Treasury stock

(5,743)

(6,165)

 Accumulated other comprehensive loss

(2,312)

(2,775)

Total shareholders' equity

13,232

11,390

Total liabilities and shareholders' equity

$                       34,883

$                     34,309

EXHIBIT I

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

DOLLARS IN MILLIONS

Twelve Months Ended

Cash flows from operating activities:

December 31, 2011

December 31, 2012

Net earnings (loss)

$                 2,526

$                         (332)

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

Depreciation of property, plant and equipment

354

386

Amortization of intangible assets

238

234

Goodwill and intangible asset impairments

111

2,295

Stock-based compensation expense

128

114

Excess tax benefit from stock-based compensation

(24)

(29)

Deferred income tax (benefit) provision

14

(148)

Discontinued operations, net of tax

26

-

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

Accounts receivable

(397)

240

Contracts in process

(62)

149

Inventories

(186)

(478)

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

Accounts payable

17

(441)

Customer advances and deposits

629

730