General Dynamics Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. General Dynamics is an aerospace and defense company operating through Aerospace, Marine Systems, Combat Systems and Technologies. Unless noted, figures are in USD millions.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $39,407 | $38,469 | +2.4% |
| Operating earnings | $4,211 | $4,163 | +1.2% |
| Operating margin | 10.7% | 10.8% | -0.1 percentage point |
| Net earnings | $3,390 | $3,257 | +4.1% |
| Diluted EPS | $12.19 | $11.55 | +5.5% |
| Operating cash flow | $4,579 | $4,271 | +7.2% |
| Free cash flow* | $3,465 | $3,384 | +2.4% |
*Company-defined non-GAAP measure: operating cash flow less capital expenditures.
- Operating cash flow equaled 135% of net earnings. Capital expenditures were $1,114, up from $887, primarily reflecting shipyard and submarine-capacity investment.
- Cash and equivalents were $1,242 at year-end, compared with $1,603 a year earlier. Current assets were $21,063 and current liabilities were $15,341.
- Debt principal was $10,590 ($10,496 carrying value), versus $11,606 principal in 2021. Debt due in 2023 totaled $1,253; management planned to repay 2023 maturities using cash, potentially supplemented by borrowings. No commercial paper was outstanding; a $4 billion committed credit facility was available.
- Dividends paid were $1,369; share repurchases were $1,229. The board declared $5.04 per share in dividends during 2022.
- Backlog reached a record $91.1 billion, up 4% year over year; total estimated contract value, including potential options and other work, was $127.7 billion.
Segments and changes versus 2021
| Segment | Revenue | Operating earnings | Margin | Key year-over-year movement |
|---|---|---|---|---|
| Aerospace | $8,567 (+5.3%) | $1,130 (+9.6%) | 13.2% vs. 12.7% | Services revenue rose on maintenance and FBO activity; 120 Gulfstream deliveries versus 119. |
| Marine Systems | $11,040 (+4.9%) | $897 (+2.6%) | 8.1% vs. 8.3% | Higher Navy ship-construction volume; supply-chain effects on Virginia-class submarine schedules and program mix weighed on margin. |
| Combat Systems | $7,308 (-0.6%) | $1,075 (+0.7%) | 14.7% vs. 14.5% | Lower international vehicle revenue was largely offset by U.S. vehicle activity; stronger U.S. dollar reduced reported international revenue. |
| Technologies | $12,492 (+0.3%) | $1,227 (-3.8%) | 9.8% vs. 10.2% | IT services growth was largely offset by lower C5ISR revenue; mix and product-volume effects reduced margin. |
Growth was led by Marine Systems ship construction and Aerospace services. Company-wide operating earnings improved modestly, while operating margin edged down. U.S. government customers generated 70% of 2022 revenue; DoD revenue was $22,250.
Outlook, risks and unusual items
- 2023 segment outlook: Aerospace revenue approximately $10.4 billion, 145 aircraft deliveries and margin approximately 14.6%, assuming G700 certification and entry into service; Marine Systems revenue approximately $10.9 billion and margin approximately 8.1%; Combat Systems revenue approximately $7.3 billion and margin approximately 14.7%; Technologies revenue $12.5–$12.6 billion and margin around 9.5%. Corporate costs were expected to be approximately $140.
- Management cited strong Gulfstream demand and a larger defense opportunity set amid increased security needs. The FY2023 U.S. defense appropriations bill was approximately $798 billion, about 10% above FY2022.
- Key operating risks include supply-chain constraints, inflation and labor availability, fixed-price contract execution, U.S. government budget and funding delays, customer termination rights, and exposure to government audits and regulation. International operations face foreign-exchange, geopolitical, sanctions and export-control risks; the Russia-Ukraine conflict contributed to supply-chain and cost pressures.
- G700 certification and delivery timing is a key execution assumption; the aircraft had logged more than 3,200 test hours, with service entry expected in summer 2023 subject to FAA certification. New-model inventory contributed to cash use.
- Net unbilled receivables included $1.7 billion on a tracked-vehicle contract; management expected customer payments to resume in Q1 2023, subject to continued successful program activity. A separate wheeled-vehicle contract’s remaining unbilled balance was expected to be liquidated by the end of 2023.
- A relator’s False Claims Act case concerning Electric Boat supplier quality systems was on appeal after dismissal; the company could not estimate a reasonably possible loss, and an adverse outcome could materially affect results, financial condition or cash flows. Other disclosed litigation and environmental exposures were not expected by management to be material.
- Contract-estimate adjustments increased 2022 operating earnings by $370, or diluted EPS by $1.05; no single contract adjustment was material. Virginia-class schedule impacts from supply constraints were a negative offset.
- Technologies goodwill fair value exceeded carrying value by about 25%; management noted that a 50-basis-point increase in discount rates would reduce the cushion to about 15%. No impairment was recorded.
Investor verification priorities
- Track G700 FAA certification, entry into service and the related 2023 delivery and margin assumptions.
- Monitor submarine and supplier performance, especially Virginia-class schedules, workforce expansion and shipyard capacity investment.
- Verify collection progress on the $1.7 billion tracked-vehicle unbilled receivable and liquidation of other contract balances.
- Assess 2023 cash conversion, capital spending, debt maturities and planned repayment of $1.253 billion due during the year.
- Review execution of segment outlooks against supply-chain, labor, inflation, contract-mix and foreign-exchange pressures.
- Follow the Electric Boat appeal and any material developments in government investigations or claims.
The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.