[caption id="attachment_91" align="alignleft" width="213"] GD Chairman and CEO Phebe Novakovic[/caption] General Dynamics [GD] on Wednesday said fourth quarter sales were level with a year ago and the company swung to a profit in 2013 versus 2012 when it was hit by nearly $3 billion in charges. Net income in the quarter was $495 million, $1.76 earnings per share (EPS), versus a $2.1 billion ($6.07 EPS) loss a year ago The fourth quarter results include a $129 million charge in discontinued operations related to a pending settlement of the 23-year-old A-12 stealth bomber litigation with the Navy. The charge is the after-tax value of GD’s contribution to the proposed in-kind settlement with the Navy. GD said in October in its third quarter results filing with the Securities and Exchange Commission that the A-12 settlement has been signed between the contractors, which includes Boeing [BA], and the Navy. That settlement includes in-kind consideration in return for dismissal of the case, with GD proposing a $198 million credit to the Navy “toward the design, construction and delivery of portions of a ship in the DDG-1000 [destroyer] program.” Congress authorized the settlement in the FY ’14 Defense Authorization Act. “This settlement represents significant risk mitigation for the company and ends more than two decades of litigation with the government on favorable terms,” Phebe Novakovic, GD’s chairman and CEO, said on Wednesday’s earnings call. Excluding the discontinued operations, earnings from continuing operations were $624 million ($1.76), a penny above analysts’ estimates. Margins were 11.4 percent. Last year GD recorded a $2 billion charge in its Information Systems and Technology (IS&T) due to the slowdown in defense business and another $867 million in charges related to asset impairments, contract disputes in its European Land Systems business, restructurings, debt retirement and inventory. Sales remained level in the quarter at $8.1 billion as growth at the Aerospace and IS&T segments was offset by declines at Combat and Marine Systems. Sales were about $1.4 billion below the company’s original guidance, with $500 million of the delta due to budget sequestration and the government shutdown in October, another $500 million due to delays in a large international order, and the balance related to caution in the release of appropriated funds, Novakovic said. Novakovic said that she is confident that the international order, which was delayed throughout 2013, should come in the first quarter of 2014 now that negotiations with the customer are complete. Aerospace, Combat Systems and IS&T all boosted operating earnings in the quarter. Growth at Aerospace was driven by higher business jet deliveries while earnings benefited from an easy comparison to a year ago when the aircraft completions business was hit by substantial write-offs. Excluding the write-offs, operating earnings were still up over 30 percent from last year, Novakovic said. GD’s Marine Systems segment is the only operating group that didn’t post higher earnings in the quarter, instead reporting a 19 percent decline due “entirely” to completion of the T-AKE dry cargo/ammunition ship program for the Navy, Novakovic said. For the year, sales slipped nearly a percent to $31.2 billion while net income climbed more than 800 percent to $2.4 billion ($6.67 EPS) versus a $332 million (94 cents EPS) loss in 2012. Earnings from continuing operations in 2013 were up nearly 850 percent to $2.5 billion ($7.09 EPS). Novakovic introduced 2014 guidance, with sales expected to be around $30 billion, earnings between $6.80 and $6.85, and operating margins of 12 percent. International sales, which have been growing, will go from 25 percent of the business in 2013 to 30 percent this year, she said. Free cash flow should be in line with historical norms, which are typically slightly better than 100 percent of earnings from continuing operations, Novakovic added. Free cash flow in the quarter was $1.4 billion and for 2013 was $2.7 billion. Novakovic said that for the first three quarters of 2013 GD did a good job returning most of its free cash to shareholders but a pension funding rule that cropped up in the fourth quarter limited the company’s ability to repurchase shares. To make up for the share repurchase inactivity in the fourth quarter, GD plans to accelerate the completion of repurchases under its existing stock buyback program by purchasing 11.4 million shares in the first quarter of 2014, Novakovic said. She added that management will seek authority for additional repurchases at the board of directors meeting in February for the remainder of the year. Novakovic said that the full cost and timing of the share repurchases are unknown and that the company will update its earnings guidance accordingly as the year progresses. She also said that like in 2013, there are no acquisitions on the horizon for the company. Funded and total backlog levels were down for the quarter. Funded backlog stood at $38.4 billion at the end of 2013, down nearly 14 percent from a year ago. Total backlog at the end of 2013 stood at $46 billion, down 10 percent from the end of 2012.