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General Dynamics Annual Report • 201031
OPERATINGACTIVITIES
We generatedcashfromoperating activities of$3.1 billionin2008, $2.9
billionin2009 and $3billionin2010. In all three years, theoperating
cashflow wasattributed primarily to net earnings. In 2008 and 2009,
increasing levelsofcustomerdeposits, particularly in theAerospace
group,reducedour operating working capital (OWC) and increasedour
operating cashflow. In addition, 2009 cashfromoperating activities
reflectedthecollectionof approximately $150 fromtheCze
ch Republic
afterwe signedarenegotiatedcontracttoprovidePandur II wheeled
vehicles.
TerminationofA-12Program.Asdiscussed furtherinNote N to
theConsolidated Financial Statements, litigationontheA-12program
terminationhasbeenongoing since1991.If,contrary to our expectations,
thedefaultterminationultimately issustained and thegovernment
prevailsonits recovery theories, we, along withTheBoeing Company,
could collectively berequiredto repay theU.S. governmentasmuch as
$1.4 billionforprogress payments receivedfortheA-12contract, plus
interest, which wasapproximately $1.5 billionatDecember31,2010. If
thisweretheoutcome, we would owe half ofthetotal,orapproximately
$1.4 billionpretax.Our after-tax cashobligationwould beapproximately
$725. We believewehavesufficientresources, including access to
capital markets, to pay such an obligation,if required.
INVESTINGACTIVITIES
We used$3.7 billionin2008, $1.4billionin2009 and $408 in 2010for
investing activities. Theprimary uses ofcashininvesting activities were
business acquisitions, capital expenditures and purchases of marketable
securities. Investing activities also includeproceedsreceivedfromthe
saleofassets and marketablesecurities.
Business Acquisitions. In 2008, we completedfiveacquisitionsfor
atotal of$3.2 billion.In 2009, we completedtwo acquisitionsfor$811.
In 2010, we completedthree acquisitionsfor$233. We financedthese
acquisitionsusing cashon hand and commercial paper. (See Note B to
theConsolidated Financial Statements foradditional informationregarding
theacquisitions.)
Capital Expenditures. Capital expenditures were$490 in 2008,
$385 in 2009 and $370in 2010. Thedecrease in 2009 and 2010
comparedwith2008 resultedfromthecompletionofseveral major
facilityimprovementprojects in theAerospaceand MarineSystems
groups. During 2010, theAerospacegroup announcedanew $500,
seven-year facilities expansionprojectatthegroup’sSavannah
campus. We expectcapital expenditures ofapproximately $550 in 2011,
less than 2percentofrevenues.
MarketableSecurities. Asaresultofl
ower market interest rates,
we haveexpandedour investments in available-for-saleand held-to-
maturitysecurities in recentyearstogenerate additional return.Net
sales/maturities ofthese securities were$17 in 2008 comparedwithnet
purchases of$235 in 2009 and net sales/maturities of $115in 2010.
FINANCINGACTIVITIES
We used $718in 2008, $806 in 2009 and $2.2 billionin2010for
financing activities. Our financing activities includeissuances and
repayments ofdebt, paymentof dividendsand repurchases ofcommon
stock.Netcashfrom financing activities also includes proceedsreceived
fromstock optionexercises.
Debt Proceeds, Net.In 2008, we issued$904ofcommercial paper,
primarily to fund acquisitionsduring theyear.During thatyear we also
repaid $500 offixed-rate notes, $150 ofseniornotes and $20 ofterm
debtontheir scheduledmaturitydates. We issued $1 billionoffive-year
fixed-rate notes in December2008 and another$750 oftwo-year
fixed-rate notes in June 2009. We usedtheproceedsfromthefixed-rate
notes forgeneral corporate purposes, including working capital
requirements, capital expenditures and to term outour commercial paper
borrowings. In August 2010, we repaid $700 offixed-rate notes ontheir
scheduledmaturitydate.
We ended2010withnocommercial paperoutstanding,and our total
debtbalancewasdown approximately $660 from2009, resultingina
debt-to-equityratioof24.1percent, down7percentagepoints from
year-end 2009. We haveapproximately $2billioninbankcreditfacilities
thathavenot beendrawnupon.These facilities providebackup liquidity
to our commercial paperprogram.Wealso havean effectiveshelf
registrationonfilewiththeSecurities and ExchangeCommission.
Thenextmaterial repaymentoflong-term debtis$750 of fixed-rate
notes scheduledto maturein July of2011.Asweapproach thematurity
date, we will determinewhetherto repay these notes withcashon hand
orrefinancetheobligation. (See Note Jto theConsolidatedFinancial
Statements for additional informationregarding our debtobligations,
including scheduleddebtmaturities.)
Dividends. Our board ofdirectorsdeclared an increased quarterly
dividend of$0.42pershareonMarch 3, 2010, the13thconsecutive
annual increase. Theboard had previously increasedthequarterly
dividend to $0.38 persharein March 2009 and $0.35 persharein
March 2008.
ShareRepurchases. Our board ofdirectorshashistorically supported
management’stactical repurchase ofour shares, typically in repurchase
authorizationsof10million-shareincrements. We repurchased20
millionshares ontheopenmarket in 2008, 3.6 millionshares in 2009
and 18.9 millionshares in 2010. Asaresult, we reducedour shares out-
standing by 3.5 percentin thepast year and by 8percentsince 2008.
OnFebruary 2, 2011,theboard authorizedmanagementtorepurchase
up to an additional 10millionshares, about3percentofour total shares
outstanding.Weexpecttocontinuetorepurchase shares aspartofour
capital deploymentactivities in thefuture.