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We expectnet interest expense ofapproximately $135 to $140in 2011,
subjecttocapital deploymentactivities during theyear.
Our effectivetax rate was31.2 percentin 2008, 31.5 percentin
2009 and 30.7percentin 2010. The 2008 rate includeda$35, or
approximately $0.09 per-share, benefitfromthesettlementoftax
refund litigation,which reducedthe2008tax rate by 100 basispoints.
We anticipate an effectivetax rate ofapproximately 31percentin 2011.
Foradditional discussionoftax matters, see Note E to theConsolidated
Financial Statements.
In 2008, we enteredinto an agreementtosell our Spanishnitrocellulose
operationandrecognizedapretax loss of$11indiscontinued
operationsin anticipationofthesale. Thesaleofthisoperation
wascompletedin2010. Our reportedrevenues excludetherevenues
associatedwiththisdivestedbusiness. We havepresentedthe
operating results ofthisbusiness, along withtheloss fromthesale, as
discontinuedoperations, net ofincometaxes.
REVIEWOFBUSINESS GROUPS
AEROSPACE
Review of2010vs. 2009
TheAerospacegroup’srevenues increasedin2010comparedwith
2009 dueprimarily to steady growth in aircraftservices activity
throughouttheyear.Aircraftmanufacturing and outfitting revenues
remainedconsistentwith2009 levels, withanincrease in manufac-
turing volumeoffset by reducedoutfitting work.Aircraftmanufacturing
revenues increased9percentin 2010, theresultof additional deliveries
and a morefavorablemix ofgreenGulfstream aircraft. Thedecline
in aircraftoutfitting revenues wasassociated primarily withthe
group’scompletionswork forotheroriginal equipmentmanufacturers
(OEMs), reflecting decreasedOEM productionacross thebroader
business-jet market.
Aircraftservices revenues, which includeboth Gulfstream and Jet
Aviation’smaintenanceand repair work,fixed-base operationsand
aircraftmanagementservices, increased15percentin 2010, reflecting
thegrowing installedbase ofbusiness-jet aircraftand increased
utilizationasthebusiness-jet market recoversfollowing theeconomic
downturn.Revenues fromsales ofpre-owned aircraftweredownslightly
from2009.
Thegroup’soperating earningsimprovedsignificantly in 2010
comparedwith2009, withimprovements in all areasofthegroup’s
portfolio. Thecomponents oftheearningsgrowthwereasfollows:
Thegroup’saircraftmanufacturing and outfitting earningswereup in
2010comparedwith2009 duetotheincrease in aircraftmanufacturing
volume, aswell asimproved pricing onlarge-cabin aircraftand mix shift
within large-cabin models. Thisincrease wasoffset in partby reduced
liquidateddamages associatedwithfewercustomerdefaults. Marginsfor
these activities wereup 190 basispoints comparedwith2009.
Pre-owned aircraftearningsimprovedsignificantly from2009, when
thegroup wrote downthecarrying valueofits pre-owned aircraft
inventory.Pricing in thepre-ownedmarket hasimprovedsince
mid-2009, particularly forlarge-cabin aircraft, although inventories
across theindustry remain higherthan historic norms. In 2010, the
Aerospacegroup realizedmodest profits onits pre-ownedsales, tookno
pre-owned aircraftwrite-downsand endedtheyear withnopre-owned
aircraftin inventory.
Consistentwiththeincreasedvolume, aircraftservices earnings
continuedto improvefrom2009. Marginsassociatedwith aircraft
services wereup 70basispoints in 2010duetoimprovedmarketplace
pricing.
Thegroup’soperating earningsin 2010werealso favorably impacted
by thetiming ofR&Dexpenditures and theabsenceofseverancecosts
associatedwithworkforcereductionsin 2009.
Asaresultofthefactorsdiscussedabove, thegroup’so
verall operating
marginsincreased250 basispoints in 2010comparedwith2009.
Review of2009 vs. 2008
TheAerospacegroup’srevenues decreasedin2009, theresultofadecline
in sales ofGulfstream aircraftthatwasoffset in partby theadditionofJet
Aviation,which we acquiredinthefourthquarterof2008. We reduced
Gulfstream’s2009aircraftproduction,primarily in thegroup’smid-cabin
General Dynamics Annual Report • 201023
Gulfstream aircraftdeliveries (in units):
Green9499 5 5.3%
Completion11089(21)(19.1)%
Aircraftmanufacturing and outfitting $ 68
Pre-owned aircraft40
Aircraftservices 29
SG&A/other16
Total increase in operating earnings$153
Year EndedDecember312009 2010Variance
Revenues $5,171 $ 5,299 $128 2.5%
Operating earnings707860 153 21.6%
Operating margin 13.7%16.2%
Gulfstream aircraftdeliveries (in units):
Green156 94(62) (39.7)%
Completion152 110(42) (27.6)%
Year EndedDecember312008 2009 Variance
Revenues $5,512$5,171 $ (341) (6.2)%
Operating earnings1,021707(314) (30.8)%
Operating margin 18.5% 13.7%