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General Dynamics Annual Report • 201027
Review of2009 vs. 2008
Revenues wereup significantly in 2009 across theMarineSystems
group.IncreasedactivityontheVirginia-class program in preparation
ofstarting constructionoftwo submarines peryear contributedalmost
two-thirdsofthegroup’sincrease in 2009 revenues. Volumealso
increasedontheDDG-1000 and thegroup’sengineering and repair
programsfortheNavy.LoweractivityontheDDG-51 and T-AKE programs
slightly offset theothervolumeincreases in thegroup in 2009.
TheMarineSystemsgroup’soperating earningsincreasedsignificantly
in 2009. Asaresultofoperational efficiencies realizedateach ofits
businesses, thegroup increasedprogram earningsrates in 2009 onthe
Virginia-class, DDG-51,DDG-1000 and commercial productcarrier
programs. These improvements increasedthegroup’soverall marginsby
70basispoints in 2009, asignificantimprovementfollowing a 100-basis
pointmargin increase in 2008.
Backlog and EstimatedPotential Contract Value
TheMarineSystemsgroup’sbacklogconsists oflong-term submarine
and ship constructionprograms, aswell asnumerousrepair and
engineering contracts. Thegroup generally receives largecontract
awardsthatprovidebacklogforseveral years. Forexample, in 2008, the
group received a $14 billioncontractfortheconstructionofeight
Virginia-class submarines to bedeliveredthrough 2018, increasing
backlogto an all-timehigh of$26.4billionattheend of2008. Consistent
withthishistorical pattern,asthegroup hasperformedonthese
multi-year contracts, thebackloghasdecreasedto $20.1billionat
year-end 2010. Thegroup’sfundedbacklogwas$7.1 billionattheend
ofboth2009 and 2010.
TheVirginia-class submarineprogram wasthegroup’slargest
program in 2010and isthelargest contractin thegroup’sbacklog.The
group’sbacklogatyear end included$13.7billionfor11Virginia-class
submarines. AstheprimecontractorontheVirginia-class program,
we reporttheentirebacklogandrevenues associatedwiththeprogram
butsharetheconstructionactivityandtheearningswithour teaming
partner.
Navy destroyerprogramsrepresentanothersignificantcomponentof
thegroup’sbacklog.These includetheArleigh Burke-class DDG-51and
Zumwalt-class DDG-1000 destroyerprograms. Thegroup’sbacklog
attheend of2010included$855 fortheo
ngoing design effortand
constructionofthefirst DDG-1000. In 2010, thegroup received
approximately $420 in ordersundertheDDG-1000 program,including
continuedengineering and supportservices, long-lead constructionfor
thesecond ship and long-lead material forthethird ship.Thegroup
expects to beawardedconstructioncontracts forthesecond and
third DDG-1000 shipsin 2011.Atyear end,thebacklogalso included
approximately $220 fortheremaining two DDG-51destroyersunder
contract. TheNavy planstocontinuetheDDG-51program,and thegroup
expects to receivean award foranadditional DDG-51in2011 following
funding forlong-lead material forthisship in 2010.
TheMarineSystemsgroup’sbacklogatyear end included
approximately $965 forthefour remaining shipsundertheNavy’sT-AKE
combat-logisticsship program.In 2010, we receivedconstruction
contracts forthelast two shipsoftheprogram.Theyear-end backlogalso
includedapproximately $340forthegroup’ssecond ship underthe
Navy’sLittoral CombatShip (LCS) program,scheduledfordelivery in
2012, and $95 fortheMLP program.TheNavy planstobuild three MLP
auxiliary supportships, and thecontractforconstructionofthefirst ship
isscheduledto beawardedin2011.
In addition,theMarineSystemsgroup’sbacklogatyear end included
approximately $3.9 billionforengineering,repair,overhaul and other
services, including engineering and design efforts forthenext-generation
SSBN.
2011 Outlook
We expecttheMarineSystemsgroup’srevenues in 2011 to remain near
2010levelsasincreased Virginia-class productionandsubmarine
engineering activityisoffset by lowerDDG-51,T-AKE and commercial
volume. We expectthegroup’soperating marginstodeclinetothe
low-9 percentrangeduetothecontinuedmixshiftin ship-construction
programs.
Year EndedDecember312008 2009 Variance
Revenues $5,556 $6,363 $80714.5%
Operating earnings52164212123.2%
Operating margin 9.4%10.1%
$30,000
20,000
10,000
0
2008 2009 2010
■EstimatedPotential
ContractValue
■UnfundedBacklog
■FundedBacklog