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 April 3, 2005
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-3671
| GENERAL DYNAMICS CORPORATION |
(Exact name of registrant as specified in its charter)
| Delaware |
13-1673581 | |||
| State or other jurisdiction of incorporation or organization |
I.R.S. Employer Identification No. |
| 2941 Fairview Park Drive Suite 100 |
22042-4513 | |||
| Address of principal executive offices | Zip code |
| Registrant’s telephone number, including area code |
||||
| (703) 876-3000 |
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 ¨.
200,375,466 shares of the registrant’s common stock, $1 par value per share, were outstanding at April 30, 2005.
GENERAL DYNAMICS CORPORATION
| PAGE | ||||
| Item 1 - | 3 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2 - | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 | ||
| Item 3 - | 33 | |||
| Item 4 - | 33 | |||
| 34 | ||||
| Item 1 - |
35 | |||
| Item 2 - |
35 | |||
| Item 6 - |
36 | |||
| 37 | ||||
GENERAL DYNAMICS CORPORATION
PART I – FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
| April 3 2005 |
December 31 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and equivalents |
$ | 1,511 | $ | 976 | ||||
| Accounts receivable |
1,511 | 1,450 | ||||||
| Contracts in process |
3,052 | 2,890 | ||||||
| Inventories |
1,210 | 1,195 | ||||||
| Assets of discontinued operations |
14 | 412 | ||||||
| Other current assets |
422 | 408 | ||||||
| Total Current Assets |
7,720 | 7,331 | ||||||
| Noncurrent Assets: |
||||||||
| Property, plant and equipment, net |
2,120 | 2,153 | ||||||
| Intangible assets, net |
930 | 948 | ||||||
| Goodwill |
6,460 | 6,429 | ||||||
| Other assets |
675 | 683 | ||||||
| Total Noncurrent Assets |
10,185 | 10,213 | ||||||
| $ | 17,905 | $ | 17,544 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Short-term debt and current portion of long-term debt |
$ | 7 | $ | 6 | ||||
| Accounts payable |
1,446 | 1,505 | ||||||
| Liabilities of discontinued operations |
26 | 101 | ||||||
| Other current liabilities |
4,104 | 3,766 | ||||||
| Total Current Liabilities |
5,583 | 5,378 | ||||||
| Noncurrent Liabilities: |
||||||||
| Long-term debt |
3,290 | 3,291 | ||||||
| Other liabilities |
1,636 | 1,686 | ||||||
| Commitments and contingencies (See Note L) |
— | — | ||||||
| Total Noncurrent Liabilities |
4,926 | 4,977 | ||||||
| Shareholders’ Equity: |
||||||||
| Common stock, including surplus |
1,056 | 998 | ||||||
| Retained earnings |
7,402 | 7,146 | ||||||
| Treasury stock |
(1,277 | ) | (1,206 | ) | ||||
| Accumulated other comprehensive income |
215 | 251 | ||||||
| Total Shareholders’ Equity |
7,396 | 7,189 | ||||||
| $ | 17,905 | $ | 17,544 | |||||
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
-3-
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
| Three Months Ended |
||||||||
| April 3 2005 |
April 4 2004 |
|||||||
| Net Sales |
$ | 4,819 | $ | 4,646 | ||||
| Operating costs and expenses |
4,371 | 4,210 | ||||||
| Operating Earnings |
448 | 436 | ||||||
| Interest expense, net |
(34 | ) | (39 | ) | ||||
| Other expense, net |
(1 | ) | — | |||||
| Earnings from Continuing Operations before Income Taxes |
413 | 397 | ||||||
| Provision for income taxes, net |
69 | 132 | ||||||
| Earnings from Continuing Operations |
$ | 344 | $ | 265 | ||||
| Discontinued operations, net of tax |
(8 | ) | 4 | |||||
| Net Earnings |
$ | 336 | $ | 269 | ||||
| Earnings per Share - Basic |
||||||||
| Continuing operations |
$ | 1.72 | $ | 1.34 | ||||
| Discontinued operations |
(0.04 | ) | 0.02 | |||||
| Net Earnings |
$ | 1.68 | $ | 1.36 | ||||
| Earnings per Share - Diluted |
||||||||
| Continuing operations |
$ | 1.70 | $ | 1.32 | ||||
| Discontinued operations |
(0.04 | ) | 0.02 | |||||
| Net Earnings |
$ | 1.66 | $ | 1.34 | ||||
| Dividends Per Share |
$ | 0.40 | $ | 0.36 | ||||
| Supplemental Information: |
||||||||
| General and administrative expenses included in operating costs and expenses |
$ | 313 | $ | 289 | ||||
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
-4-
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
| Three Months Ended |
||||||||
| April 3 2005 |
April 4 2004 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Earnings from Continuing Operations |
$ | 344 | $ | 265 | ||||
| Adjustments to reconcile Earnings from Continuing Operations to |
||||||||
| Depreciation, depletion and amortization of property, plant and equipment |
61 | 53 | ||||||
| Amortization of intangible assets |
26 | 22 | ||||||
| Deferred income tax provision |
12 | 104 | ||||||
| (Increase) decrease in assets, net of effects of business acquisitions – |
||||||||
| Accounts receivable |
(61 | ) | (140 | ) | ||||
| Contracts in process |
(134 | ) | (13 | ) | ||||
| Inventories |
(15 | ) | (109 | ) | ||||
| Increase (decrease) in liabilities, net of effects of business acquisitions – |
||||||||
| Accounts payable |
(54 | ) | 50 | |||||
| Customer deposits |
59 | 105 | ||||||
| Billings in excess of costs and estimated profits |
208 | 55 | ||||||
| Other current liabilities |
(43 | ) | 10 | |||||
| Other, net |
(43 | ) | (80 | ) | ||||
| Net Cash Provided by Operating Activities from Continuing Operations |
360 | 322 | ||||||
| Net Cash (Used) Provided by Discontinued Operations |
(2 | ) | 4 | |||||
| Net Cash Provided by Operating Activities |
358 | 326 | ||||||
| Cash Flows from Investing Activities: |
||||||||
| Proceeds from sale of assets |
373 | — | ||||||
| Capital expenditures |
(41 | ) | (53 | ) | ||||
| Business acquisitions, net of cash acquired |
(37 | ) | (31 | ) | ||||
| Other, net |
2 | 16 | ||||||
| Net Cash Provided (Used) by Investing Activities |
297 | (68 | ) | |||||
| Cash Flows from Financing Activities: |
||||||||
| Purchases of common stock |
(100 | ) | — | |||||
| Dividends paid |
(72 | ) | (63 | ) | ||||
| Net repayments of commercial paper |
— | (183 | ) | |||||
| Net repayments of other debt |
— | (3 | ) | |||||
| Other, net |
52 | (3 | ) | |||||
| Net Cash Used by Financing Activities |
(120 | ) | (252 | ) | ||||
| Net Increase in Cash and Equivalents |
535 | 6 | ||||||
| Cash and Equivalents at Beginning of Period |
976 | 861 | ||||||
| Cash and Equivalents at End of Period |
$ | 1,511 | $ | 867 | ||||
| Supplemental Cash Flow Information: |
||||||||
| Cash payments for: |
||||||||
| Income taxes |
$ | 33 | $ | 11 | ||||
| Interest |
$ | 35 | $ | 38 | ||||
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
-5-
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts or unless otherwise noted)
(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 U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. Operating results for the three-month period ended April 3, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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, 2004.
In management’s opinion, 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-month periods ended April 3, 2005, and April 4, 2004. In 2004 and 2005, General Dynamics sold certain non-core businesses, as discussed in Note C. The financial statements have been restated to reflect the results of operations of these businesses in discontinued operations. Additionally, some prior-year amounts have been reclassified among financial statement accounts to conform to the current-year presentation.
(B) Intangible Assets and Goodwill
Intangible assets consisted of the following:
| April 3, 2005 | December 31, 2004 | |||||||||||||||||||
| Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount | |||||||||||||||
| Amortized intangible assets: |
||||||||||||||||||||
| Contract and program intangible assets |
$ | 994 | $ | (225 | ) | $ | 769 | $ | 987 | $ | (207 | ) | $ | 780 | ||||||
| Other intangible assets |
299 | (138 | ) | 161 | 298 | (130 | ) | 168 | ||||||||||||
| $ | 1,293 | $ | (363 | ) | $ | 930 | $ | 1,285 | $ | (337 | ) | $ | 948 | |||||||
The company amortizes contract and program intangible assets on a straight-line basis over 5 to 40 years. Other intangible assets consist primarily of aircraft product design, customer lists, software and licenses and are amortized over 3 to 21 years.
-6-
Amortization expense was $26 for the three-month period ended April 3, 2005, and $22 for the three-month period ended April 4, 2004. The company expects to record annual amortization expense over the next five years as follows:
| 2006 |
$ | 93 | |
| 2007 |
$ | 92 | |
| 2008 |
$ | 87 | |
| 2009 |
$ | 83 | |
| 2010 |
$ | 78 | |
The changes in the carrying amount of goodwill by business group for the three-months ended April 3, 2005, were as follows:
| December 31 2004 |
Acquisitions (a) | Other (b) | April 3 2005 | ||||||||||
| Information Systems and Technology |
$ | 3,905 | $ | 49 | $ | (1 | ) | $ | 3,953 | ||||
| Combat Systems |
1,982 | 9 | (28 | ) | 1,963 | ||||||||
| Marine Systems |
193 | — | — | 193 | |||||||||