Defense Sector Leads Third-Quarter Performance for General Dynamics

Overall revenues grow 8.1 percent
Demand continues for vehicles, ammunition, IT and engineering services
Full-year EPS guidance increased
FALLS CHURCH, Va. – General Dynamics (NYSE: GD) today reported 2009 third-quarter earnings from continuing operations of $575 million, or $1.48 per share on a fully diluted basis, compared to 2008 third-quarter earnings from continuing operations of $634 million, or $1.59 per share fully diluted. Revenues rose to $7.7 billion in the quarter, an 8.1 percent increase over third-quarter 2008 revenues of $7.1 billion. Net earnings in the third quarter of 2009 were $572 million. Financial performance in the quarter was impacted by a previously announced five-week production furlough in July and August at the company’s Gulfstream Aerospace subsidiary, taken in response to global economic conditions.

Cash

Net cash provided by operating activities from continuing operations was $594 million for the third quarter. Free cash flow from operations, defined as net cash provided by operating activities from continuing operations less capital expenditures, was $513 million, or 89 percent of earnings from continuing operations.

Backlog

Total backlog at the end of the third quarter 2009 was $66.2 billion. Backlog grew in the Combat Systems and Information Systems and Technology segments in the quarter, reflecting continued strong demand for the company’s vehicle and ammunition products and information-technology services. New orders received included $950 million for production, support and reset of Stryker infantry combat vehicles for the U.S. Army, as well as ammunition orders for U.S. and allied customers. Demand for information-technology (IT) services and engineering support for military platforms produced a book-to-bill ratio of greater than 1 in the Information Systems and Technology segment. In addition to the backlog, the estimated potential contract value, representing management’s estimate of value under unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, grew to $18.2 billion at the end of third-quarter 2009.

Performance Highlights

Revenues and operating earnings grew in all three of the company’s defense-related segments in the third quarter of 2009. Combat Systems increased revenues by 26.9 percent in the quarter and operating earnings by 20.6 percent. In Information Systems and Technology, revenues grew 8.8 percent and operating earnings increased 9.6 percent while Marine Systems increased revenue by 8.1 percent and operating earnings by 10.7 percent in third quarter 2009.

“The enduring strength of General Dynamics’ diverse portfolio is apparent in the company’s third-quarter 2009 financial results,” said company President and Chief Executive Officer Jay L. Johnson. “The company performed well despite the impact of reduced aircraft production at Gulfstream Aerospace. Continuing customer demand for our defense-related products coupled with our commitment to financial performance and effective execution produced strong margins and cash generation in the quarter.

“Based on the strength of the third-quarter results, we are increasing our guidance for full-year 2009 earnings from continuing operations to $6.15 to $6.20 per share, fully diluted,” Johnson said.

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