General Dynamics 2010 Annual Report Download - page 30

General Dynamics Annual Report • 2010 10
CUSTOMERS
In 2010, 72 percent of our revenues were from the U.S. government; 10
percent were from U.S. commercial customers; 8 percent were directly
from international defense customers; and the remaining 10 percent
were from international commercial customers.
U.S. GOVERNMENT
Our primary customers are the U.S. Department of Defense and the U.S.
intelligence community. We have also developed relationships with other
U.S. government customers, including the Department of Homeland
Security, Centers for Medicare & Medicaid Services, National Aeronautics
and Space Administration and several first-responder agencies. Our
revenues from the U.S. government were as follows:
We perform our U.S. government business under fixed-price, cost-
reimbursement and time-and-materials contracts. Our production
contracts are primarily fixed-price. Under these contracts, we agree to
perform a specific scope of work for a fixed amount. Contracts for
research, engineering, prototypes, repair and maintenance are typically
cost-reimbursement or time-and-materials. Under cost-reimbursement
contracts, the customer reimburses us for allowable costs and pays a fixed
fee or an incentive- or award-based fee. These fees are determined by our
ability to achieve targets set in the contract, such as cost, quality,
schedule and performance. Under time-and-materials contracts, the
customer pays a fixed hourly rate for direct labor and reimburses us for
materials costs.
Fixed-price contracts accounted for approximately 55 percent of our
U.S. government business in both 2009 and 2010; cost-reimbursement
contracts accounted for approximately 38 percent in 2009 and 39 percent
in 2010; and time-and-materials contracts accounted for approximately
7 percent in 2009 and 6 percent in 2010.
Each of these contract types presents advantages and disadvantages.
Fixed-price contracts typically have higher fee levels as we are required to
absorb cost overruns, should they occur. Therefore, these types of
contracts offer us additional profits if we can complete the work for less
than the contract amount. Cost-reimbursement contracts generally
subject us to lower risk. They also can include fee schedules that allow
the customer to make additional payments when we satisfy certain
performance criteria. However, not all costs are reimbursed under
these types of contracts, and the government carefully reviews the
costs we charge. In addition, the negotiated base fees associated with
cost-reimbursement contracts are generally lower, consistent with our
lower risk. Under time-and-materials contracts, our profit may vary if
actual labor-hour costs vary significantly from the negotiated rates.
Additionally, because we often charge materials costs with little or no
fee, the content mix can impact the profit margins associated with
these contracts.
U.S. COMMERCIAL
Our U.S. commercial revenues were $4.1 billion in 2008, $3.3 billion in
2009 and $3.2 billion in 2010. This represented approximately 14 percent
of our consolidated revenues in 2008 and 10 percent in both 2009 and
2010. The majority of these revenues are for business-jet aircraft where
our customer base consists of individuals and public and privately held
companies representing a wide range of industries. Other commercial
products include drivetrain components and aftermarket parts in our
Combat Systems group, Jones Act ships in our Marine Systems group
and ruggedized mobile computing solutions in our Information Systems
and Technology group.
INTERNATIONAL
Our direct revenues from government and commercial customers outside
the United States were $5.1 billion in 2008 and $6 billion in both 2009 and
2010. This represented approximately 17 percent of our consolidated
revenues in 2008, 19 percent in 2009 and 18 percent in 2010.
We conduct business with government customers around the
world with primary subsidiary operations in Australia, Austria, Brazil,
Canada, France, Germany, Italy, Mexico, Spain, Switzerland and the
United Kingdom. Our non-U.S. defense subsidiaries are committed to
developing long-term relationships with their respective governments
and have distinguished themselves as principal regional suppliers
and employers.
Our international commercial business consists primarily of busi-
ness-jet aircraft exports and worldwide aircraft services. The market
for business-jet aircraft and related services outside North America
has expanded significantly in recent years, particularly in emerging
markets, including the Asia-Pacific region. While the United States
continues to be our largest market for business aircraft, orders from
customers outside North America represent a growing segment of
our aircraft business, approximately 60 percent of total orders and
backlog in 2010.
Year Ended December 31 2008 2009 2010
Direct
Department of Defense (DoD)$ 18,442 $ 20,344 $ 20,446
Non-DoD 1,422 1,899 1,941
Foreign Military Sales* 282 478 876
Total U.S. government $ 20,146 $ 22,721 $ 23,263
Percent of total revenues 69% 71% 72%
* In addition to our direct international sales, we sell to foreign governments through the
Foreign Military Sales (FMS) program. Under the FMS program, we contract with and are
paid by the U.S. government, and the U.S. government assumes the risk of collection from
the foreign government customer.