General Dynamics Corp. (GD) filed Quarterly Report for the period ended 2009-10-04.
General Dynamics Corp.'s primary businesses focus is on shipbuilding and marine systems business aviation information systems and land and amphibious combat systems. Each of these businesses involves design manufacturing and program management expertise advanced technology and integration of complex systems. The primary customers for the company's businesses are the United States military the armed forces of allied nations other government organizations and a diverse base of corporate and industrial buyers. General Dynamics Corp. has a market cap of $24.27 billion; its shares were traded at around $63.02 with a P/E ratio of 10.1 and P/S ratio of 0.8. The dividend yield of General Dynamics Corp. stocks is 2.4%. General Dynamics Corp. had an annual average earning growth of 13.9% over the past 10 years. GuruFocus rated General Dynamics Corp. the business predictability rank of 5-star.
Highlight of Business Operations:
Net cash provided by operating activities from continuing operations was $1.4 billion in the first nine months of 2009, compared with $2.3 billion in the same period in 2008. We used our cash to fund acquisitions and capital expenditures, repurchase our common stock, pay dividends and repay maturing debt. Our net debt – debt less cash and equivalents and marketable securities – was $2.4 billion at the end of the third quarter of 2009 compared with $2.3 billion at the end of 2008. Net debt increased slightly after giving effect to $805 spent on acquisitions, $430 of dividends paid, $397 of company-sponsored research and development, $251 of capital expenditures, more than $250 of contributions to our retirement plans and $109 of share repurchases during the first nine months of the year.
Net interest expense in the first nine months of 2009 increased by $75 to $117 over the same period in 2008 due to the issuance of additional debt in 2008 and 2009 and lower interest income on a reduced invested cash balance. We expect full-year net interest expense of approximately $160.
Our effective tax rate for the nine-month period ended October 4, 2009, was 31.3 percent compared with 30.9 percent in the same period in 2008. The 2008 rate included a $35 – or approximately $0.09 per-share – benefit from the settlement of a tax refund suit, which reduced the tax rate for the first nine months of 2008 by 130 basis points. We anticipate an effective tax rate of approximately 31.5 percent for the full-year 2009, compared with 31.2 percent in 2008. For additional discussion of tax matters, see Note I to the unaudited Consolidated Financial Statements.
Our total backlog was $66.2 billion as of October 4, 2009, up 10 percent from a year ago, but down 2 percent from the second quarter. Funded backlog was $46.8 billion at the end of the third quarter, also down 2 percent from the end of the second quarter. The backlog for the Combat Systems and Information Systems and Technology groups increased during the quarter on strong order activity. Our total backlog does not include work awarded under unfunded indefinite delivery, indefinite quantity (IDIQ) contracts, unexercised options associated with existing firm contracts or options to purchase new aircraft, which we refer to collectively as estimated potential contract value. As of the end of the third quarter 2009, management’s estimate of this potential contract value, which we expect to realize over the next 10 to 15 years, was approximately $18.2 billion, up 3 percent from $17.7 billion at the end of the second quarter.
Starting in late 2008, the business-jet market was disrupted by the global economic crisis and the resulting tightening of credit markets. In response to these conditions, we scaled back Gulfstream’s aircraft production and delivery schedule to bridge the market downturn, including a planned five-week workforce furlough in the months of July and August. As a result, aircraft-manufacturing revenues were down 46 percent in the third quarter and 25 percent in the first nine months of 2009 compared with the prior year. The group’s aircraft-services business has also felt the effects of the market dislocation, as customers have deferred optional aircraft maintenance activities and price competition has intensified. As a result, organic aircraft-services revenues were down 22 percent in the third quarter and 17 percent year-to-date in 2009. Pre-owned aircraft revenues increased in 2009, slightly offsetting the decline in manufacturing and services revenues. The group sold five pre-owned aircraft for $119 in the first nine months of 2009 compared with two sales for $17 in the same period in 2008.
An increase in the global supply of pre-owned aircraft put significant pressure on the pre-owned aircraft market, resulting in a sharp decline in pre-owned prices in 2009. As a result, the group wrote down the carrying value of its pre-owned aircraft inventory in 2009. The group has worked to minimize its pre-owned aircraft exposure and as a result, has reduced its pre-owned aircraft inventory to four units with a value of $62 at the end of the third quarter from six units at a value of $125 in the second quarter.
GD is in the portfolios of David Winters of Wintergreen Advisors, Tom Gayner of Markel Gayner Asset Management Corp, Bruce Berkowitz of Fairholme Capital Management, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, David Dreman of Dreman Value Management, Kenneth Fisher of Fisher Asset Management, LLC, Kenneth Fisher of Fisher Asset Management, LLC.
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