Dear Fellow Shareholder,
Your company had another solid year in a difficult environment as the ramifications of the pandemic continued to impact our industrial base in different ways. Revenue increased 2.4% to $39.4 billion, net earnings rose 4.1% to $3.4 billion and earnings per fully diluted share increased 5.5% to $12.19. Operating cash flow was $4.6 billion. After capital expenditures, our free cash flow was $3.5 billion, an efficient cash conversion rate of 102% of net income. During the year, we focused on driving operating performance, supporting the supply chain and generating strong free cash flow. The market responded and our share price rose 19.0%. Our total shareholder return for the year including dividends was 21.7%.
In 2022, your company invested $1.1 billion in capital expenditures across our businesses to support our growth. We also paid $1.4 billion in dividends and repurchased approximately 5.3 million shares for $1.2 billion.
Following a strong 2021, order activity and backlog were once again very good. We enjoyed a 1.1-to-1 book-to-bill ratio and at year end had a total backlog of $91.1 billion. Total estimated contract value, which includes options and indefinite delivery indefinite quantity contracts, was nearly $128 billion.
Our Aerospace businesses had a very strong year. Sales, earnings, margin and backlog all increased nicely. Demand was robust, with a book-to-bill ratio of 1.5-to-1, with orders of $12.6 billion. Aerospace ended the year with a backlog of $19.5 billion. Over the past two years Gulfstream has received over 400 net orders. All said and done, Aerospace backlog was up 20% in 2022 and a staggering 68% since the end of 2020.
Certification efforts with the FAA continue, focused on the G700. We anticipate FAA certification this summer, depending on FAA time and resources. The G800 should be certified approximately six months later.
Combat Systems delivered solid performance in a year of stable revenue, earnings and margin, as older programs began to phase out and newer programs came online. Demand for the groups’ products, however, was higher than we had anticipated. Land Systems won the Mobile Protected Firepower vehicle, the first all-new Army armored combat vehicle in decades. Progress on the vehicle is off to a strong start. The brutal invasion of Ukraine regrettably changed the threat in Europe, and European nations are responding with increased defense spending. That demand is driving increased orders for European combat vehicles, U.S. armored vehicles and munitions.
The Technologies group had a solid year in a very challenging operating environment. Revenue of $12.5 billion was up just slightly from 2021, with GDIT growth offset by supply chain challenges at Mission Systems. Earnings were down 3.8% because of Mission Systems’ supply chain interruptions, even though GDIT reported its highest margin and its highest earnings in the last four years.
The group’s backlog growth was solid notwithstanding an ongoing trend of customer solicitations pushing to the right and recurring award protests. GDIT received over $11 billion in awards during the year, almost 20% higher than 2021. Mission Systems finished the year with a 1.1x book-to-bill and a capture rate in excess of 80%, putting them in a good position as they emerge from the supply chain headwinds they have faced.
The Marine Systems growth story continues. Revenue was up 4.9% for the full year to over $11 billion. Operating earnings were up 2.6% for the full year to almost $900 million. This is the highest ever full year of revenue and earnings for the Marine group. Since 2017, the group has grown revenue from $8 billion to $11 billion in 2022. This is a 6.6% compound annual growth rate with an average increase of $600 million per year. Similarly, earnings have grown from $685 million in 2017 to $900 million in 2022, a 5.5% compound annual growth rate.
Marine Systems had strong orders during the year, generating a 1.1-to-1 book-to-bill ratio, including the receipt of two Columbia-class contract modifications for $5.4 billion at Electric Boat, further underpinning the long-term growth we expect in the group.
The first ship of the Columbia-class is now over 30% complete and we are preparing to start construction of the second ship. The Virginia-class attack submarine program delivered two boats in 2022, despite the supply chain challenges facing the industrial base, and is set to deliver two more this year.
As a concluding reflection, I have been your company’s CEO for 10 years now. In that period, the price of General Dynamics stock has increased from $69.27 to $248.11, a 258% increase, outperforming the S&P 500 and S&P Aerospace and Defense indices by a considerable margin. At the beginning of 2013 our total outstanding shares were 353.7 million. As we begin 2023, that has been reduced to 274.4 million, an over 20% decrease as a result of the $16.6 billion spent on share repurchases over the period. Your dividend has grown from a quarterly $0.51 per-share rate in 2012 to a $1.26 per-share rate last year, a nearly 150% increase, resulting in total dividends paid over the ten-year period of $10.3 billion. In continuing this trend, the Board of Directors has just increased the quarterly dividend to $1.32, a 4.8% increase. We have taken these actions while continuing to invest in the growth and strength of our business. Not surprisingly, sales over the same period rose from $31.2 billion to $39.4 billion, a 26% increase, and net earnings increased from $2.4 billion to $3.4 billion, a 44% increase, demonstrating the strong operating leverage of your company. As we look to the remainder of 2023, our operating performance, strong backlog and free cash flow generation put us in good stead to continue to drive value for our shareholders.
Sincerely,
PHEBE N. NOVAKOVIC
Chairman and CEO
March 24, 2023
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