10-KPeriod: FY2012

GENERAL DYNAMICS CORP Annual Report, Year Ended Dec 31, 2012

Filed February 8, 2013For Securities:GD

Summary

General Dynamics Corporation (GD) reported a challenging 2012, marked by a significant goodwill impairment charge of $2 billion within its Information Systems and Technology segment, leading to a net loss for the year. Despite a revenue increase in the Aerospace segment driven by the new Gulfstream G650 aircraft, overall revenues declined due to reduced demand in the Combat Systems and Information Systems and Technology groups, primarily influenced by U.S. defense budget uncertainties and sequestration concerns. The company's financial health saw a strengthening of its balance sheet, with a decrease in net debt and a continued commitment to shareholder returns through increased dividends and share repurchases. However, investors should note the ongoing impact of U.S. government spending constraints on its defense-related segments. The company's outlook for 2013 anticipates continued revenue pressure in Information Systems and Technology and a decline in Combat Systems revenue, but projects growth in Aerospace and stable revenues in Marine Systems.

Financial Highlights

56 data points
Beta

Revenue

$30.99B

8.4% Gross Margin

Net Income

-$332.00M

-1.1% Net Margin

EPS (Diluted)

$-0.94

Total Assets

$34.31B

Cash & Equivalents

$3.30B

Free Cash Flow

$2.17B

Financial Statements
Beta
Revenue$30.99B
Cost of Revenue$28.40B
Gross Profit$2.59B
R&D Expenses$1.61B
Operating Expenses$30.23B
Operating Income$765.00M
Interest Expense$168.00M
Net Income-$332.00M
EPS (Basic)$-0.94
EPS (Diluted)$-0.94
Shares Outstanding (Basic)353.35M
Shares Outstanding (Diluted)353.35M

Key Highlights

  • 1A substantial $2 billion goodwill impairment charge in the Information Systems and Technology segment led to a net loss of $(0.94) per diluted share for 2012.
  • 2Aerospace segment revenue grew by 15.2% to $6.9 billion, primarily driven by increased deliveries of the new Gulfstream G650 aircraft.
  • 3Combat Systems segment revenue decreased by 9.5% to $8.0 billion, impacted by lower volume on U.S. military vehicle programs and the completion of several European vehicle contracts.
  • 4Marine Systems segment revenues saw a slight decrease of 0.6% to $6.6 billion, but operating earnings increased due to favorable cost performance on the T-AKE program.
  • 5Information Systems and Technology segment revenue declined by 10.7% to $10.0 billion, largely due to reduced demand for mobile communication systems and IT services, compounded by discrete charges.
  • 6U.S. government revenue represented 66% of total revenues in 2012, highlighting the company's significant reliance on defense spending.
  • 7The company demonstrated financial flexibility by reducing net debt and continuing to return capital to shareholders through dividends and share repurchases.

Frequently Asked Questions

The primary driver of the net loss in 2012 was a significant goodwill impairment charge of $2 billion recorded in the Information Systems and Technology segment. This charge, coupled with other discrete items, resulted in a net loss of $(332) million for the year.

The company's financial performance, particularly in its defense-oriented segments (Combat Systems, Marine Systems, and Information Systems and Technology), is significantly impacted by U.S. defense spending. The report notes concerns over continuing resolutions (CRs), budget control act reductions, and the potential for sequestration, which have negatively impacted contract awards and revenue streams, especially in shorter-cycle businesses like Information Systems and Technology.

The Aerospace segment was expected to see an increase of approximately 16% in revenues for 2013 compared to 2012, driven by Gulfstream. Operating margins for the segment were projected to be in the mid-15 percent range, indicating a positive outlook for this division.

General Dynamics demonstrated a strong focus on cash flow generation. In 2012, net cash provided by operating activities was $2.7 billion. The company also managed its debt effectively, reducing net debt by $420 million and refinancing debt to lower its weighted-average interest rate from 3.9% to 2.2% while extending the maturity. Dividends were increased for the 15th consecutive year, and share repurchases continued.