10-QPeriod: Q2 FY2012

GENERAL DYNAMICS CORP Quarterly Report for Q2 Ended Apr 1, 2012

Filed May 1, 2012For Securities:GD

Summary

General Dynamics Corporation (GD) reported its first-quarter 2012 financial results, showing a slight decrease in revenue and operating earnings compared to the same period in 2011. Revenue declined by 2.8% to $7.58 billion, while operating earnings fell by 7.4% to $860 million. This performance was primarily attributed to lower volumes in the Information Systems and Technology segment, particularly in tactical communication systems. However, the Aerospace division demonstrated robust growth, with revenues up 20% driven by G650 aircraft deliveries and strong demand from international markets. The company's financial position remains strong, with $2.63 billion in cash and equivalents. Free cash flow from operations increased year-over-year, indicating healthy cash generation capabilities. Despite a challenging defense budget environment, General Dynamics maintains a substantial backlog of $55.2 billion, providing a degree of revenue visibility. The company also continued its commitment to shareholder returns through an increased quarterly dividend and ongoing share repurchase program.

Financial Highlights

53 data points
Beta

Revenue

$7.58B

18.4% Gross Margin

Net Income

$564.00M

7.4% Net Margin

EPS (Diluted)

$1.57

Total Assets

$35.31B

Cash & Equivalents

$2.63B

Free Cash Flow

$349.00M

Financial Statements
Beta
Revenue$7.58B
Cost of Revenue$6.18B
Gross Profit$1.40B
Operating Expenses$6.72B
Operating Income$860.00M
Interest Expense$39.00M
Net Income$564.00M
EPS (Basic)$1.58
EPS (Diluted)$1.57
Shares Outstanding (Basic)356.99M
Shares Outstanding (Diluted)359.36M

Key Highlights

  • 1Consolidated revenues for the first quarter of 2012 decreased by 2.8% to $7.58 billion, compared to $7.80 billion in the prior year's quarter.
  • 2Operating earnings saw a 7.4% decline to $860 million from $929 million in the first quarter of 2011.
  • 3The Aerospace segment showed significant strength with a 20% increase in revenue to $1.62 billion, driven by G650 aircraft deliveries.
  • 4Information Systems and Technology segment experienced a 13.3% revenue decline, mainly due to lower volumes in tactical communication systems.
  • 5Net earnings for the quarter were $564 million ($1.57 per diluted share), down from $618 million ($1.64 per diluted share) in the first quarter of 2011.
  • 6The company ended the quarter with a strong cash position of $2.63 billion and a total backlog of $55.2 billion.
  • 7Free cash flow from operations increased to $324 million from $267 million in the prior year's comparable period.

Frequently Asked Questions

The primary driver for the decrease in consolidated revenue was lower volume in the Information Systems and Technology segment, particularly in tactical communication systems. This was partially offset by growth in the Aerospace group due to G650 aircraft deliveries.

The Combat Systems segment saw a slight revenue decrease of 2.3%, while Marine Systems revenue decreased by 4.2%. Information Systems and Technology, which includes defense-related revenue, experienced a significant revenue decline of 13.3%.

General Dynamics noted that the Budget Control Act of 2011 mandates significant reductions in defense spending over the next decade, with potential additional cuts through sequestration starting in 2013. The company is unable to predict the exact impact of these reductions on its programs.

The company ended the first quarter of 2012 with a healthy cash balance of $2.63 billion and maintained $2 billion in available bank credit facilities. Free cash flow from operations also showed an increase.

The most significant contingency mentioned is the A-12 program termination litigation, which could potentially result in a substantial liability of approximately $1.5 billion pretax if the government prevails. However, the company believes the lower courts will ultimately rule in their favor, and they have sufficient resources to cover this potential liability if required.