10-QPeriod: Q3 FY2012

GENERAL DYNAMICS CORP Quarterly Report for Q3 Ended Jul 1, 2012

Filed August 1, 2012For Securities:GD

Summary

General Dynamics Corporation (GD) reported mixed financial results for the second quarter and first half of 2012 compared to the prior year. While revenues saw a slight increase of 0.5% in the second quarter to $7.92 billion, they decreased by 1.1% to $15.50 billion for the first half. Operating earnings for the second quarter rose by 2.2% to $970 million, but declined by 2.6% to $1.83 billion for the six-month period. The company's Aerospace segment showed strong growth, driven by new G650 aircraft deliveries, while the Information Systems and Technology segment experienced revenue declines due to slower customer acquisition cycles. Despite the mixed top-line performance, the company maintained solid operational execution and generated $1.2 billion in cash from operating activities in the first half of 2012, an increase from the previous year. GD also continued its capital return strategy, with increased dividends and share repurchases. Investors should monitor the ongoing discussions around U.S. defense spending and potential budget cuts, which could impact a significant portion of GD's revenue, as well as the long-standing A-12 litigation which, while unlikely to result in a material loss, carries significant potential financial exposure.

Financial Highlights

55 data points
Beta

Revenue

$7.93B

17.8% Gross Margin

Net Income

$600.00M

7.6% Net Margin

EPS (Diluted)

$1.70

Total Assets

$35.50B

Cash & Equivalents

$2.87B

Free Cash Flow

$1.27B

Financial Statements
Beta
Revenue$7.93B
Cost of Revenue$6.52B
Gross Profit$1.42B
Operating Expenses$7.03B
Operating Income$905.00M
Interest Expense$40.00M
Net Income$600.00M
EPS (Basic)$1.71
EPS (Diluted)$1.70
Shares Outstanding (Basic)350.47M
Shares Outstanding (Diluted)352.83M

Key Highlights

  • 1Revenues increased slightly by 0.5% to $7.92 billion in Q2 2012, but decreased 1.1% to $15.50 billion for the first six months of 2012.
  • 2Operating earnings increased by 2.2% to $970 million in Q2 2012, but decreased 2.6% to $1.83 billion for the first six months of 2012.
  • 3The Aerospace segment experienced strong revenue growth driven by new G650 aircraft deliveries, with revenues up 15.7% in Q2 and 17.8% year-to-date.
  • 4The Information Systems and Technology segment saw a revenue decline of 9.9% in Q2 and 11.6% year-to-date, primarily due to delays in tactical communication systems contracts.
  • 5Cash from operating activities increased to $1.2 billion in the first six months of 2012, up from $1.1 billion in the prior year period.
  • 6The company's backlog stood at $52.4 billion as of July 1, 2012, a decrease from $55.2 billion at the end of Q1 2012.
  • 7General Dynamics is actively returning capital to shareholders, increasing its quarterly dividend and continuing share repurchase programs.

Frequently Asked Questions

For the six months ended July 1, 2012, General Dynamics reported revenues of $15.50 billion, a slight decrease from $15.68 billion in the same period of 2011. Operating earnings were $1.83 billion, down from $1.88 billion in the prior year. Net earnings were $1.198 billion, compared to $1.271 billion in the first half of 2011. Diluted earnings per share from continuing operations were $1.77, down from $3.43 in the prior year's six-month period.

The Aerospace segment showed robust growth, with revenues increasing by 17.8% year-to-date due to new G650 aircraft deliveries. Combat Systems revenues were relatively flat year-to-date. Marine Systems revenues saw a slight increase of 0.2% year-to-date. The Information Systems and Technology segment experienced a significant revenue decline of 11.6% year-to-date, attributed to delays in tactical communication systems contracts and a shift towards lower-margin IT services.

General Dynamics generated $1.2 billion in cash from operating activities in the first six months of 2012, an increase from $1.08 billion in the prior year. The company ended the period with $2.54 billion in cash and equivalents. The company expects to continue generating funds in excess of its liquidity needs and believes it has adequate funds and borrowing capacity to execute its strategy.

A significant risk highlighted is the dependence on U.S. government defense spending, which faces potential reductions due to the Budget Control Act of 2011 and sequestration. The company also notes the ongoing A-12 litigation, which, while not currently accrued, could result in a substantial repayment obligation if the government prevails. Other risks include changing customer demand in the business aviation market and potential increases in labor and commodity prices.