 |
| (Exact name of registrant as specified in its charter) |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
| (Mark One) | ||||||
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) | |||||
| OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 28, 2003
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) | |||||
| OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-3671
|
| (Exact name of registrant as specified in its charter) |
| Delaware | 13-1673581 | |
| (State or other jurisdiction of incorporation | (I.R.S. Employer | |
| or organization) | Identification No.) |
| 3190 Fairview Park Drive, Falls Church, Virginia | 22042-4523 | |
| (Address of principal executive offices) | (Zip Code) |
| (703) 876-3000 (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
No
.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No .
197,736,891 shares of the registrant’s common stock, $1 par value per share, were outstanding at October 31, 2003.
GENERAL DYNAMICS CORPORATION
INDEX
| PART I — FINANCIAL INFORMATION | PAGE | |||
| Item 1 - | Consolidated Financial Statements | |||
| Consolidated Balance Sheet | 2 | |||
| Consolidated Statement of Earnings (Three Months) | 3 | |||
| Consolidated Statement of Earnings (Nine Months) | 4 | |||
| Consolidated Statement of Cash Flows | 5 | |||
| Notes to Unaudited Consolidated Financial Statements | 6 | |||
| Item 2 - | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | ||
| Item 3 - | Quantitative and Qualitative Disclosures About Market Risk | 35 | ||
| Item 4 - | Controls and Procedures | 36 | ||
| FORWARD-LOOKING STATEMENTS | 37 | |||
| PART II — OTHER INFORMATION | ||||
| Item 1 - | Legal Proceedings | 38 | ||
| Item 6 - | Exhibits and Reports on Form 8-K | 39 | ||
| SIGNATURE | 40 | |||
1
GENERAL DYNAMICS CORPORATION
PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
| September 28 | ||||||||
| 2003 | December 31 | |||||||
| (Unaudited) | 2002 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and equivalents |
$ | 697 | $ | 328 | ||||
Accounts receivable |
1,502 | 1,074 | ||||||
Contracts in process |
2,422 | 1,914 | ||||||
Inventories |
1,223 | 1,405 | ||||||
Assets of discontinued operations |
40 | 69 | ||||||
Other current assets |
440 | 308 | ||||||
Total Current Assets |
6,324 | 5,098 | ||||||
NONCURRENT ASSETS: |
||||||||
Property, plant and equipment, net |
2,005 | 1,856 | ||||||
Intangible assets, net |
1,069 | 560 | ||||||
Goodwill, net |
5,829 | 3,510 | ||||||
Other assets |
653 | 707 | ||||||
Total Noncurrent Assets |
9,556 | 6,633 | ||||||
| $ | 15,880 | $ | 11,731 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Short-term debt and current portion of long-term debt |
$ | 1,234 | $ | 750 | ||||
Accounts payable |
1,353 | 1,056 | ||||||
Liabilities of discontinued operations |
82 | 125 | ||||||
Other current liabilities |
2,912 | 2,651 | ||||||
Total Current Liabilities |
5,581 | 4,582 | ||||||
NONCURRENT LIABILITIES: |
||||||||
Long-term debt |
3,310 | 721 | ||||||
Other liabilities |
1,403 | 1,229 | ||||||
Commitments and contingencies (See Note L) |
||||||||
Total Noncurrent Liabilities |
4,713 | 1,950 | ||||||
SHAREHOLDERS’ EQUITY: |
||||||||
Common stock, including surplus |
808 | 757 | ||||||
Retained earnings |
5,992 | 5,455 | ||||||
Treasury stock |
(1,290 | ) | (1,016 | ) | ||||
Accumulated other comprehensive income |
76 | 3 | ||||||
Total Shareholders’ Equity |
5,586 | 5,199 | ||||||
| $ | 15,880 | $ | 11,731 | |||||
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
2
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
| Three Months Ended | ||||||||||
| September 28 | September 29 | |||||||||
| 2003 | 2002 | |||||||||
NET SALES |
$ | 4,427 | $ | 3,284 | ||||||
OPERATING COSTS AND EXPENSES |
4,070 | 2,860 | ||||||||
OPERATING EARNINGS |
357 | 424 | ||||||||
Interest expense, net |
(29 | ) | (11 | ) | ||||||
Other (expense) income, net |
(3 | ) | 8 | |||||||
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
325 | 421 | ||||||||
Provision for income taxes |
70 | 143 | ||||||||
EARNINGS FROM CONTINUING OPERATIONS |
255 | 278 | ||||||||
Discontinued operations, net of tax |
7 | (10 | ) | |||||||
NET EARNINGS |
$ | 262 | $ | 268 | ||||||
NET EARNINGS PER SHARE: |
||||||||||
Basic |
||||||||||
Continuing operations |
$ | 1.29 | $ | 1.38 | ||||||
Discontinued operations |
0.04 | (0.05 | ) | |||||||
Net earnings |
$ | 1.33 | $ | 1.33 | ||||||
Diluted |
||||||||||
Continuing operations |
$ | 1.28 | $ | 1.37 | ||||||
Discontinued operations |
0.04 | (0.05 | ) | |||||||
Net earnings |
$ | 1.32 | $ | 1.32 | ||||||
DIVIDENDS PER SHARE |
$ | 0.32 | $ | 0.30 | ||||||
SUPPLEMENTAL INFORMATION: |
||||||||||
General and administrative expenses included in
operating costs and expenses |
$ | 273 | $ | 189 | ||||||
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
3
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
| Nine Months Ended | ||||||||||
| September 28 | September 29 | |||||||||
| 2003 | 2002 | |||||||||
NET SALES |
$ | 11,783 | $ | 9,892 | ||||||
OPERATING COSTS AND EXPENSES |
10,730 | 8,676 | ||||||||
OPERATING EARNINGS |
1,053 | 1,216 | ||||||||
Interest expense, net |
(59 | ) | (34 | ) | ||||||
Other income, net |
3 | 8 | ||||||||
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
997 | 1,190 | ||||||||
Provision for income taxes |
279 | 408 | ||||||||
EARNINGS FROM CONTINUING OPERATIONS |
718 | 782 | ||||||||
Discontinued operations, net of tax |
7 | (22 | ) | |||||||
NET EARNINGS |
$ | 725 | $ | 760 | ||||||
NET EARNINGS PER SHARE: |
||||||||||
Basic |
||||||||||
Continuing operations |
$ | 3.63 | $ | 3.88 | ||||||
Discontinued operations |
0.04 | (0.11 | ) | |||||||
Net earnings |
$ | 3.67 | $ | 3.77 | ||||||
Diluted |
||||||||||
Continuing operations |
$ | 3.60 | $ | 3.85 | ||||||
Discontinued operations |
0.04 | (0.11 | ) | |||||||
Net earnings |
$ | 3.64 | $ | 3.74 | ||||||
DIVIDENDS PER SHARE |
$ | 0.96 | $ | 0.90 | ||||||
SUPPLEMENTAL INFORMATION: |
||||||||||
General and administrative expenses included in
operating costs and expenses |
$ | 767 | $ | 629 | ||||||
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
4
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
| Nine Months Ended | ||||||||||
| September 28 | September 29 | |||||||||
| 2003 | 2002 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||
Income from continuing operations |
$ | 718 | $ | 782 | ||||||
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities- |
||||||||||
Depreciation, depletion and amortization of property,
plant and equipment |
145 | 140 | ||||||||
Amortization of intangible assets |
48 | 25 | ||||||||
Deferred income tax provision |
84 | 127 | ||||||||
(Increase) decrease in assets, net of effects of business acquisitions- |
||||||||||
Accounts receivable |
26 | (157 | ) | |||||||
Contracts in process |
(491 | ) | (144 | ) | ||||||
Inventories |
150 | (280 | ) | |||||||
Increase (decrease) in liabilities, net of effects of business acquisitions- |
||||||||||
Customer deposits on commercial contracts |
(56 | ) | (136 | ) | ||||||
Billings in excess of costs and estimated profits |
10 | 113 | ||||||||
Accounts payable |
108 | 118 | ||||||||
Income taxes payable |
67 | 8 | ||||||||
Other current liabilities |
27 | (11 | ) | |||||||
Other, net |
(2 | ) | 16 | |||||||
Net cash provided by operating activities from continuing operations |
834 | 601 | ||||||||
Net cash used by discontinued operations |
(8 | ) | (7 | ) | ||||||
Net cash provided by operating activities |
826 | 594 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||
Business acquisitions, net of cash acquired |
(2,987 | ) | (281 | ) | ||||||
Capital expenditures |
(115 | ) | (146 | ) | ||||||
Other, net |
10 | 44 | ||||||||
Net cash used by investing activities |
(3,092 | ) | (383 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||
Issuance of fixed-rate notes, net |
3,094 | — | ||||||||
Net proceeds from commercial paper |
7 | 110 | ||||||||
Net repayments of other debt |
(25 | ) | (82 | ) | ||||||
Dividends paid |
(186 | ) | (176 | ) | ||||||
Purchases of common stock |
(300 | ) | (81 | ) | ||||||
Proceeds from option exercises |
45 | 46 | ||||||||
Net cash provided (used) by financing activities |
2,635 | (183 | ) | |||||||
NET INCREASE IN CASH AND EQUIVALENTS |
369 | 28 | ||||||||
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD |
328 | 439 | ||||||||
CASH AND EQUIVALENTS AT END OF PERIOD |
$ | 697 | $ | 467 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
||||||||||
Cash payments for: |
||||||||||
Income taxes |
$ | 166 | $ | 269 | ||||||
Interest, including finance operations |
$ | 35 | $ | 38 | ||||||
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
5
GENERAL DYNAMICS CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
| (A) | Basis of Preparation |
The term “company” refers to General Dynamics Corporation and all of its wholly-owned and majority-owned subsidiaries. The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. Operating results for the three- and nine-month periods ended September 28, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2002.
The unaudited consolidated financial statements for the three and nine months ended September 29, 2002, have been restated to present the results of the company’s undersea fiber optic cable-laying business in discontinued operations, as discussed in Note C.
In the opinion of management, the unaudited consolidated financial statements contain all adjustments, that are of a normal recurring nature, necessary for a fair statement of the results for the three- and nine-month periods ended September 28, 2003, and September 29, 2002. Certain prior year amounts have been reclassified to conform to the current year presentation.
| (B) | Equity Compensation Plans |
The company accounts for its incentive compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. The company measures compensation expense for stock options as the excess, if any, of the quoted market price of the company’s stock at the measurement date over the exercise price. The company records stock awards at fair value at the date of the award.
6