通用動力 (GD) 2011 Q3 法說會逐字稿

Greetings and welcome to Force Protection's conference call.

At this time, all participants are in listen-only mode.

The question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Wes Harris, Senior Director of Investor Relations for Force Protection.

Please proceed.

Well, thank you very much, operator.

Good morning, everyone, and thanks for joining us.

Before we get started, I would like to remind everyone that statements made in the course of this conference call that express the company's or management's beliefs and expectations, and which are not historical facts or applied prospectively, are considered forward-looking statements.

These include statements regarding the Company's expected awards and demand for its products and services, timing of deliveries, revenue opportunities, financial condition, timing of revenue recognition, earnings, business strategy and development efforts, as well as statements regarding the recently announced transaction with General Dynamics, including statements with respect to timing.

It's important to note that our actual results may differ materially from those contained in or implied by such forward-looking statements due to a variety of factors that could adversely affect the company's business.

Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the 10-K for the period ended December 31, 2010 and the 10-Q for the period ended September 30, 2011, which is expected to be filed later today.

I would note this additional information is listed in our filings under the headings Risk Factors, special note regarding forward-looking statements and business strategy.

Copies of these filings are available from the company and the SEC.

In addition, I note that there will be several filings made with the SEC that will be specific to the transaction with General Dynamics, such as General Dynamics tender offer statement, the company's recommendation statement, and the company's proxy statement, all of which will be available for free from the SEC's website and the company's website.

The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof.

Inclusion of any statement in this call does not constitute an admission by Force Protection or any other person that the events or circumstances described in such statements are material.

So with these formalities out of the way, it's my pleasure to turn the call over to Michael Moody, Chairman and Chief Executive Officer of Force Protection.

Michael?

Thank you, Wes.

Good morning, everyone.

We appreciate you joining us for our call.

With me today is Charlie Mathis, our Chief Financial Officer.

This morning, we reported successful results for the third quarter of 2011.

However, I expect most interest around our announcement is the definitive merger agreement under which General Dynamics is expected to acquire Force Protection for a price of $5.52 per share or approximately $360 million in the aggregate.

I'll begin with a few comments concerning our third-quarter results, but focus the majority of my prepared remarks on the strategic rationale for this transaction.

At the end of our remarks, we will open up the call for questions.

Following a challenging first half of 2011, driven by lower revenue primarily associated with the timing of awards and deliveries, we're pleased to report profitable third-quarter results.

One significant highlight of the 2011 third quarter was the gross margin of 22% as compared to 19% in the prior-year period.

The 2011 third quarter also includes significant decreases in both general and administrative and research and development expenses as compared to the second quarter of 2011.

Turning my attention to the transaction, I know there are some people on this call who may not be familiar with our story.

For those of you who have followed Force Protection over the past years, you have heard me discuss the company's many unique capabilities and the successes we have seen.

During the recent periods of strong defense spending, our business model has worked well.

However, as we look to the future, we recognize the defense budgets worldwide will be closely scrutinized and significant reductions and program cuts are likely.

Countries across the globe are reducing their military spending and, in particular, are cutting down on the acquisition of new products and services.

This reduction in defense spending, combined with general national budget uncertainty, presents a challenging environment for smaller companies such as ourselves with a focus on defense budgets and the conflicts in Iraq and Afghanistan.

Also, as you have seen, Force Protection, like many other defense companies, experiences substantial unevenness in its quarterly revenue and earnings as a result of the procurement process.

We are pursuing large competitions, usually against very large competitors, and face real challenges as we spend our earnings on R&D and BD in pursuit with no guarantee of success.

Therefore, after careful review of General Dynamics unsolicited interest in our company, we have entered into a definitive merger agreement, under which General Dynamics will acquire Force Protection, as I said, for approximately $360 million.

Force Protection is expected to become part of General Dynamics Land Systems or GDLS.

With the efforts of many employees of Force Protection, we have built a company would value that General Dynamics clearly recognizes.

This transaction creates the opportunity for Force Protection shareholders to capitalize on this value.

The culture of this company has consistently been one of innovation, speed to market and close focus on the needs of our customers.

It's important to remember that we were the first company to offer MRAP vehicle technology to support coalition forces in Iraq.

Both the Buffalo and the Cougar have proven invaluable in the conflicts in the Middle East, and we expect many vehicles will remain in the core fleets of our customers over the long term.

In addition to the delivery of more than 5,000 vehicles since 2003 that support troops in harm's way, we have built a strong business around modernization, servicing and sustaining our fleet of fielded vehicles.

Supporting these efforts are more than 400 highly skilled field service representatives located at bases in Kuwait, forward locations in Afghanistan, and many other sites both domestic and worldwide.

Looking beyond our existing family of vehicles and related support services, we have our newest vehicle called Ocelot, which is now the Foxhound in the United Kingdom.

Starting with a blank sheet of paper, we moved through design, development and testing in only 20 months.

This process culminated in a $280 million contract with the United Kingdom MoD for the production of 200 vehicles as an urgent operations requirement under its Light Protected Patrol Vehicle or LPPV program.

This production is now underway.

This culture of driving innovation and getting products quickly to market is valuable.

We expect this will continue to be fostered when we are part of the General Dynamics family.

We have much to offer.

Force Protection's product offerings are highly complementary to GDLS's existing services with little overlap and will greatly enhance their armored vehicle capabilities.

Together, we will offer a broader portfolio of enhanced products and services dedicated to protecting our Armed Forces.

In addition, the combination of General Dynamics and Force Protection will benefit customers around the world by enabling the combined company to quickly scale product offerings and offer additional services to meet demand.

It's clear to me that General Dynamics is buying Force Protection to help grow and develop our business and not to dismantle or shut it down.

They recognize it's much harder to create than destroy value, and they plan to leverage our skilled workforce to help drive future success.

While there are some overlapping functions between the two businesses that could lead to targeted cost reductions, the real opportunities lie in the top-line synergies from an expanded product portfolio and customer base, as well as enhanced technical knowledge as a result of the combination.

The [provided] acquisition has been approved by the board of directors of each company.

In terms of next steps, General Dynamics will commence a tender offer for all of the outstanding shares of common stock for Force Protection.

Force Protection's Board of Directors has resolved to recommend that Force Protection stockholders tender their shares into the offer in accordance with the terms of the merger agreement.

The transaction is expected to close by year end 2011, subject to antitrust review under the Hart-Scott-Rodino Act as well as other customary conditions.

I want to thank shareholders for their support as we have built Force Protection over the years.

I would also like to take this moment to thank our employees for their ongoing dedication to the company.

We wouldn't be where we are today without their talent and hard work and we all have much to be proud of.

Thank you again for your time today.

I would now like to open the call to your questions.

(Operator Instructions).

Joe Maxa, Dougherty & Company.

Thank you and congratulations.

Just a question on the activity.

It's -- unsolicited offer from GD.

I was just wondering if you were talking to others.

And if so, was there any potential or are there any breakup fees?

I don't think I can discuss that.

Okay, no discussion.

Okay.

That's really all I wanted to know.

Thank you.

(Operator Instructions).

Josephine Millward, The Benchmark Company.

Good morning, Michael.

Congratulations.

Michael, can you give us an update on the UK LPPV -- if you feel still anticipate a follow-on order sometime before year end?

We haven't been awarded that, obviously, and we are continuing to work with the UK MoD.

There continues to be discussion about a follow-on order or a second order for LPPVs.

I continue to visit the UK and I will continue to visit the UK.

We clearly recognize, though, that there are significant budget constraints in the United Kingdom, and you've seen that overall but certainly with defense budgets.

But we still are continuing to work on the belief that we will get a follow-on order for the LPPV.

And do you still expect to grow this year?

And if you can talk about your outlook for next year?

As far this year is concerned, certainly -- Charlie can comment on this as well.

I -- we have produced a satisfactory third quarter.

I think we've indicated before that we expect the fourth quarter to be strong as well, and we certainly believe that's the case.

So if you look overall, I think this is going to be a satisfactory year compared to last year.

I don't know that I could comment other than that.

And then if you see with the recent order for the buffalos and then this discussion we just had about LPPV, we think there are some good revenue prospects for next year.

We really do.

Thank you, Michael.

Jonathan Richton.

Good morning, guys.

Big news on Monday morning.

Quick question just regarding -- in terms of your fit into GDLS.

If I remember correctly, GDLS is also a competitor in some of the programs that you guys are on.

So, I guess what are the dynamics of how that's going to work going forward?

The best way I can answer this to you is this way.

Certainly between now and if there's a closing of this transaction, we will continue to operate this as Force Protection as a company separate to General Dynamics.

Once the closing takes place, I think that's a discussion that needs to be held with General Dynamics and Force Protection under the control of General Dynamics.

But we are actively pursuing all those competitions, and I will certainly continue to do that while we are an independent company.

Okay, great.

And then is there any finance contingencies that's relied on?

I know they have over $2.5 billion in cash, so I'm assuming that's what they're using, but (multiple speakers) can hold it up.

I don't know that I can respond to that.

Okay, great.

Thank you very much.

Brian Ruttenbur, Morgan Keegan.

Yes; I just want to understand a couple of things on the board decisions -- on taking the GD offered.

With this unsolicited offer, did you engage an investment bank to go out and look at other potential buyers?

I don't know that I can really comment on that.

Certainly, I think we've mentioned that we did have an investment banker we work with.

I think that's all I can really say at this stage.

Okay.

So you can't say if you went out and the board decided to go out and look at other potential buyers or not?

I don't think I can really comment on that.

Okay.

And then moving on to current business, you mentioned that the Ocelot or the LPPV from the UK -- you haven't received any orders, and you anticipate those orders coming in by your end or is it first quarter?

Just trying to understand the modeling going forward.

We -- what we said is we do have an order for that vehicle we're obviously fulfilling.

The discussion that we had before - that I had before with Josephine was about this follow-up order.

Certainly it would be helpful if we got the order by year end, and that's communication that we have had with our customer in the UK.

And one of the things that's important there is we are -- we have commenced production of the first batch of 200 vehicles, and we and the UK MoD understand that there are challenges if the line goes cold between one batch and the second batch.

So that's a communication we have had between ourselves and the MoD and the UK government.

But all I can say to you is that's a consideration they're taking into account as they look at the budget allocations in the defense area.

Certainly, it would be helpful to us if we had continued production in the UK.

Okay.

Thank you.

Ladies and gentlemen, that concludes the question-and-answer session.

I would now like to turn the call over to Mr.

Michael Moody for any closing remarks.

Please proceed.

Thank you very much.

Thank you.

And I would like to, again, thank everyone for joining us on this call.

And again, I would like to thank our shareholders for their support over the years.

Thank you again.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Great day.