10-QPeriod: Q3 FY2003

GENERAL DYNAMICS CORP Quarterly Report for Q3 Ended Sep 28, 2003

Filed November 5, 2003For Securities:GD

Summary

General Dynamics Corporation (GD) reported significant revenue growth in the third quarter of 2003, with net sales increasing by 35% to $4.4 billion compared to the prior year. This surge was driven by robust organic growth across its primary business segments and strategic acquisitions in the Information Systems and Technology, and Combat Systems divisions, notably the acquisition of Veridian Corporation. Despite increased sales, operating earnings saw a 16% decline to $357 million, primarily attributed to performance issues in the Marine Systems group's commercial shipbuilding contracts and a shift in product mix within the Aerospace segment. The company's backlog significantly expanded to $38.7 billion, bolstered by a historic $8.7 billion submarine order from the U.S. Navy and contributions from recent acquisitions. Financially, GD demonstrated strong operating cash flow, generating $826 million year-to-date. The company also executed a substantial debt issuance, raising $3.1 billion in fixed-rate notes to refinance commercial paper and manage its capital structure, while increasing its quarterly dividend by 6.7%.

Key Highlights

  • 1Net sales surged 35% year-over-year to $4.4 billion in Q3 2003, driven by organic growth and acquisitions.
  • 2Operating earnings decreased 16% to $357 million due to issues in Marine Systems and Aerospace product mix.
  • 3Total backlog grew significantly to $38.7 billion, highlighted by a record $8.7 billion submarine contract.
  • 4Acquisitions played a major role, with over $3 billion invested in businesses like Veridian Corporation, GM Defense, and others.
  • 5Operating cash flow remained strong, reaching $826 million for the first nine months of 2003.
  • 6The company issued $3.1 billion in fixed-rate debt, enhancing its financial flexibility and fixing interest rates.
  • 7Quarterly dividend increased by 6.7% to $0.32 per share.

Frequently Asked Questions

Revenue growth was primarily driven by two factors: strong organic growth across all of General Dynamics' main business groups, and significant contributions from recent business acquisitions, particularly in the Information Systems and Technology and Combat Systems segments.

The decline in operating earnings was mainly due to specific challenges. In the Marine Systems group, performance issues on commercial shipbuilding contracts, including a significant loss on oil tanker construction, negatively impacted results. Additionally, the Aerospace segment experienced a shift in the mix of new aircraft deliveries towards lower-margin products and faced pricing pressures.

General Dynamics significantly increased its long-term debt, issuing $3.1 billion in fixed-rate notes. This was done to repay a substantial portion of its outstanding commercial paper, thereby extending debt maturities and fixing interest rates, providing greater financial stability and predictability.

The U.S. Navy awarded General Dynamics' Marine Systems group a block-buy contract for six Virginia-class submarines, valued at $8.7 billion. This represents the largest submarine order in U.S. history and provides a substantial boost to the company's backlog and future revenue visibility.