01.11.2012 17:00
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General Dynamics Corporation -- Moody's assigns A2 ratings to General Dynamics proposed new debt issuance

Approximately US$2.4 billion of rated debt securities affected

New York, November 01, 2012 -- Moody's Investors Service assigned A2 ratings to approximately $2.4 billion of senior unsecured debt expected to be issued by General Dynamics Corporation (General Dynamics or the company), as proposed and subject to final revision. Net proceeds from the offering are expected to be utilized to repay an equivalent amount of existing notes due 2013-2015 either ahead of or upon their maturity, and for general corporate purposes. "We view these advance refinancings as opportunistic in consideration of ongoing attractive market conditions and further evidence of the fiscal conservatism by which General Dynamics is managed," noted Russell Solomon, Moody's Senior Vice President and lead analyst for the company.

Moody's Investors Service maintains the following ratings for General Dynamics Corporation:

Senior Unsecured (domestic currency) ratings of A2

Senior Unsecured Shelf (domestic currency) ratings of (P)A2

Commercial Paper (domestic currency) ratings of P-1

RATINGS RATIONALE

General Dynamics' A2 rating reflects its record of strong and steady operating performance as one of the largest US prime defense contractors. In addition to exhibiting strong profitability measures for some time, financial flexibility is bolstered by the strength and predictability of cash flows, maintenance of a solid liquidity profile and mitigation of pension obligation exposure through historical excess voluntary contributions to underfunded plans. The company's growing business jet segment, and particularly the large order backlog for its high-end Gulfstream G650 planes, offers diversification and mitigates the coming domestic defense industry downturn, and should be a meaningful contributor to revenue and (ultimately) cash flow in future periods, thereby further supporting ratings. Maintenance of the historical discipline and fiscal conservatism with respect to capital redeployment also remains integral to our ratings for the company.

The uncertainty of future defense budgets (particularly as it might affect the company's Combat Systems and Information Systems & Technology business segments, which have shown some weakness of late) and the company's propensity for share repurchases and acquisitions (both sized to free cash flows) remain fundamental rating constraints.

The stable rating outlook reflects the strength and consistency of cash flow generation and earnings performance as a result of General Dynamics' position as a prime US defense contractor, notwithstanding some recent weakness and as tempered by uncertainty in both long-term defense outlays as well as the seemingly stable (if not yet recovering) business jet market. Leverage remains high as pressured by growing pension liabilities, although voluntary contributions to close the funding gap coupled with higher operating income as more business jets are delivered will temper this now that FAA certifications for the G650 and G280 aircraft have been received.

Among other factors, ongoing defense outlays that are favorable to General Dynamics' major programs and which produce steady operating margins exceeding 13%, Retained Cash Flow-to-Debt of 40% or more and EBITA-to-Assets of greater than 15% could be favorable for the rating.

Conversely, a major shift in defense allocations to the detriment of franchise programs and/or evidence of contract execution problems such that operating margins are likely to be sustained below 11%, Free Cash Flow-to-Net Debt falls below 15% and/or Retained Cash Flow-to-Debt drops below 25% could result in a lower rating. A lengthy reduction in new business jet deliveries, particularly if Gulfstream operating margins fall to the upper single-digit range, could also pressure the rating down, as could sustained share repurchase activity that exceeds expected near-term free cash flows.

The principal methodology used in rating General Dynamics was the Global Aerospace and Defense Industry Methodology published in June 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Falls Church, Virginia, General Dynamics Corporation is a leading defense contractor (supplying tracked and wheeled vehicles with extensive shipbuilding and submarine capabilities and a range of offerings in information systems, technologies and services) and commercial aerospace company (supplying large cabin business jets through its Gulfstream subsidiary) with last-twelve-months revenue of approximately $32.6 billion at 30 September 2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the rating, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Russell Solomon Senior Vice President Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Michael J. Mulvaney MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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