<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED 31 DECEMBER 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-3671
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-1673581
- -------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
- ------------------------------------------------ ----------
Address of principal executive offices Zip Code
</TABLE>
Registrant's telephone number, including area code (703) 876-3000
--------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- -------------------
<S> <C>
Common Stock, $1.00 Par Value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
9.95% Debentures Due 2018 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. ----
The aggregate market value of the voting stock held by nonaffiliates
of the Registrant was $2,492,779,308 at 11 March 1994, calculated in accordance
with the Securities and Exchange Commission rules as to beneficial ownership.
63,340,390 shares of the Registrant's Common Stock were outstanding at
11 March 1994 (adjusted for two-for-one stock split effected in the form of a
100% stock dividend declared 4 March 1994 and payable 11 April 1994 to
shareholders of record 21 March 1994).
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I, II and IV incorporate information from certain portions of
the Registrant's 1993 Shareholder Report.
Part III incorporates information from certain portions of the
Registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after the close of the fiscal year.
===============================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
General Dynamics Corporation (the Company) is a Delaware corporation
formed in 1952 as successor to the Electric Boat Company, now the Company's
Nuclear Submarines business. Consolidated Vultee Aircraft Corporation was
merged into the Company in 1954 and from it emerged the Company's former
Tactical Military Aircraft and Missile Systems businesses and the Space Launch
Systems business. The Material Service Resources Company is the successor to
the Material Service Corporation which was merged into the Company in 1959.
Chrysler Defense, Inc., now the Company's Armored Vehicles business, was
acquired in 1982. The Cessna Aircraft Company, formerly the Company's General
Aviation business, was acquired in 1985. In addition, the Company operates
other smaller businesses.
Prior to 1992, the businesses of the Company included the following:
Tactical Military Aircraft, Nuclear Submarines, Armored Vehicles, Space Launch
Systems, Missile Systems and General Aviation. Over the past two years, the
Company has sold its Tactical Military Aircraft, Missile Systems and General
Aviation businesses, as well as certain other smaller businesses, and the sale
of its Space Launch Systems business is expected to close by April 1994. The
Company's remaining continuing business segments are Nuclear Submarines,
Armored Vehicles and Other. The Other business segment is composed of Freeman
Energy Corporation (Freeman), American Overseas Marine Corporation (AMSEA) and
Patriot I, II and IV Shipping Corporations (Patriots). A general description
of these businesses including products, properties and other related
information follows. For financial information and further discussion of
the business segments, as well as an overall discussion of the Company's
business environment, reference is made to Management's Discussion and Analysis
of the Results of Operations and Financial Condition, appearing on pages 12
through 17 in the Company's 1993 Shareholder Report, included in this Form
10-K-Annual Report as Exhibit 13 and incorporated herein by reference.
NUCLEAR SUBMARINES
The Company's Electric Boat Division (Electric Boat) is a designer and
builder of nuclear submarines for the U.S. Navy. Electric Boat also performs
overhaul and repair work on submarines as well as a broad range of engineering
work including advanced research and technology development, systems and
component design evaluation, prototype development and logistics support to the
operating fleet. Certain components and subassemblies of the submarines, such
as electronic equipment, are produced by other firms.
Electric Boat has contracts for SSN 688-class attack submarines (SSN
688), Trident ballistic missile submarines (Trident) and Seawolf class attack
submarines, all of which are currently under construction at its 96 acre
shipyard on the Thames River at Groton, Connecticut. The shipyard, which
contains a covered area in excess of 2.6 million square feet, is owned by the
Company. Electric Boat also produces modular submarine hull sections,
components and subassemblies in leased facilities at Quonset Point, Rhode
Island, and in Company-owned facilities at Avenel, New Jersey and Charleston,
South Carolina. Due to the winding down of the SSN 688 and Trident programs,
the Company has announced that it plans to close the Charleston facility in
early 1994. Approximately 45% of Electric Boat's property, plant and equipment
was fully depreciated at 31 December 1993.
Electric Boat competed with Newport News Shipbuilding and Drydock
Company (Newport News) for construction of the SSN 688 and Seawolf submarines.
Electric Boat is currently the sole-source producer of Trident and Seawolf
submarines. For most engineering work, Electric Boat competes in a highly
competitive environment with several smaller specialized firms in addition to
Newport News.
ARMORED VEHICLES
The Company's Land Systems Division (Land Systems) is the sole-source
producer of main battle tanks for the U.S. Government. Land Systems designs
and manufactures the M1 Series Abrams Main Battle Tank for the U.S. Army and
the U.S. Marine Corps. Land Systems also performs engineering and upgrade work
as well as provides support for existing armored vehicles. Production of the
M1A1, a version of the M1 that incorporates increased firepower, additional
crew protection features, and improved armor, was initiated in 1985.
Production of the M1A2, the latest version of the M1 which incorporates
battlefield management systems aimed at providing improved fightability, as
well as improved survivability of the tank's four crew members, was initiated
in 1992. In addition to domestic sales, M1 tanks are being sold through the
U.S. Government to various foreign governments. Land Systems provides
training in operation and maintenance and other logistical support on
international sales.
- 1 -
<PAGE> 3
Certain components of the M1 series tank, such as the engine and the
transmission and final drive, are produced by other firms. Land Systems has
bid and is currently bidding on other armored vehicle and related programs for
the U.S. Government in competition primarily with FMC Corporation. The
current international market is characterized by intense competition for a
limited number of business opportunities. The Company has been successful in
competitive bids for production contracts and related logistic support with
Egypt, Saudi Arabia and Kuwait, but was unsuccessful on similar bids with the
United Arab Emirates and Sweden.
Tank production is performed at the 1.6 million square foot plant on
370 acres in Lima, Ohio, and machining operations are performed at the 1.2
million square foot plant on 145 acres in Warren (Detroit), Michigan. Each is
owned by the U.S. Government and operated by Land Systems under a facilities
contract. In support of these plants, Land Systems leases property in
Scranton, Pennsylvania, and owns or leases property in various locations in
Michigan.
The Company, teamed with Tadiran Ltd. of Israel, was selected during
1988 as the second-source producer of the Single Channel Ground and Airborne
Radio System (SINCGARS). The Company is currently participating in its first
competitive bid under the SINCGARS program with ITT Corporation. A decision on
the competition is expected during the first half of 1994. The Company leases
space in Tallahassee, Florida to support SINCGARS production.
OTHER
Freeman mines coal, the majority of which is sold in the spot market
or under short-term contracts to a variety of customers. Freeman's remaining
coal production (approximately 45%) is sold under long-term contracts to
utilities and industrial users located principally in the Midwest. Several of
these long-term contracts have price adjustment clauses to reflect changes in
certain costs of production. Freeman operates three underground mines and one
surface mine in Illinois, along with one surface mine in Kentucky. Coal
preparation facilities and rail loading facilities are located at each mine
sufficient for its output. Total production from Freeman's mines was
approximately 5 million tons in 1993, 4.5 million tons in 1992 and 3.6 million
tons in 1991. In addition, Freeman owns or leases rights to over 600
million tons of coal reserves in Illinois and Kentucky. Due to the commodity
nature of the Company's coal operations, the primary factors affecting
competition are price and geographic service area. Freeman's operations are
not significantly affected by seasonal variations.
The 1990 Clean Air Act requires, among other things, a phased
reduction in sulfur dioxide emissions by coal burning facilities over the next
few years. Virtually all of the coal in Freeman's Illinois basin mines has
medium or high sulfur content. The impact of compliance with the Clean Air Act
will be mitigated in the near-term by Freeman's long-term contracts and through
installation of pollution control devices by certain of Freeman's major
customers. The long-term impact of the Clean Air Act is not known.
AMSEA provides ship management services for five of the U.S. Navy's
Maritime Prepositioning Ships (MPS) and twelve of the U.S. Maritime
Administration's Ready Reserve Force (RRF) ships. The MPS are under five year
contracts which expire in 1995 and 1996 but are renewable through the year
2011. The RRF ships are in the first year of five year contracts for which the
Company competed with various other ship management providers. The MPS vessels
operate worldwide and the RRF vessels are located on the east, gulf and west
coasts of the United States. AMSEA's home office is in Quincy, Massachusetts.
Patriots are financing subsidiaries which lease liquefied natural gas
tankers constructed by the Company to unrelated third parties.
DISCONTINUED OPERATIONS
The Company has sold or intends to sell certain businesses that are
reported as discontinued operations in the Company's financial statements. The
remaining businesses are as follows:
The Company's Convair Division is the sole-source producer of fuselages
for the McDonnell Douglas Corporation (McDonnell Douglas) MD-11 wide body
tri-jet aircraft. Production work is performed in San Diego, California in
facilities owned by the Company which are on land leased from the San Diego
Port Authority.
Material Service Corporation (Material Service) is engaged in the
quarrying and direct sale of aggregates (e.g. stone, sand and gravel), and the
production and direct sale of ready mix concrete and other concrete products.
Material Service's aggregate and concrete facilities and operations are located
primarily in Illinois.
- 2 -
<PAGE> 4
REAL ESTATE HELD FOR DEVELOPMENT
As part of the sale of businesses, certain related properties were
retained by the Company. These properties have been segregated on the
Consolidated Balance Sheet as real estate held for development. The Company
has retained outside experts to support the development of plans which will
maximize the market value of these properties. These properties include: 232
acres in Kearny Mesa and 2,420 acres in Sycamore Canyon, both of which are in
the vicinity of San Diego, California; 375 acres in Rancho Cucamonga,
California; and 53 acres in Camden, Arkansas. Most of this property is
undeveloped. The Company owns 3.7 million square feet of building space on the
aforementioned properties, as well as .6 million square feet of building space
on land leased from the San Diego Port Authority. Certain of these facilities
are currently being leased by the purchasers of the related sold businesses for
what is expected to be a short transition period.
GENERAL INFORMATION
Backlog
- -------
The following table shows the approximate backlog of the Company
(excluding discontinued operations) as calculated at 31 December 1993 and 1992
and the portion of the 31 December 1993 backlog not reasonably expected to be
filled during 1994 (dollars in millions):
<TABLE>
<CAPTION>
Portion of 1993
backlog not
31 December expected to
--------------------- be filled
1993 1992 during 1994
---- ---- -----------
<S> <C> <C> <C>
Nuclear Submarines $ 3,787 $ 5,154 $ 2,177
Armored Vehicles 1,197 1,243 313
Other 2,031 2,091 1,911
--------- --------- ---------
Total Backlog $ 7,015 $ 8,488 $ 4,401
========= ========= =========
Total Funded Backlog $ 5,487 $ 6,780
========= =========
Total Unfunded Backlog $ 1,528 $ 1,708
========= =========
</TABLE>
Backlog represents the total estimated remaining sales value of
authorized work. Backlog excludes announced orders for which definitive
contracts have not been executed, except for amounts funded prior to
definitization. Funded backlog includes amounts that have been appropriated by
the U.S. Congress, and authorized and funded by the procuring agency. Funded
backlog also includes amounts which have been authorized on Foreign Military
Sales and long-term coal contracts. Unfunded backlog includes amounts for
which there is no assurance that congressional appropriations or agency
allotments will be forthcoming. Insofar as the backlog represents orders from
the U.S. Government, it is subject to cancellation and other risks associated
with government contracts (see "U.S. Government Contracts").
U. S. Government Contracts
- --------------------------
The Company's net sales to the U.S. Government include Foreign
Military Sales (FMS). FMS are sales to foreign governments through the U.S.
Government, whereby the Company contracts with and receives payment from the
U.S. Government and the U.S. Government assumes the risk of collection from the
customer. U.S. Government sales were as follows (excluding discontinued
operations; dollars in millions):
<TABLE>
<CAPTION>
Year Ended 31 December
------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Domestic $ 2,202 $ 2,706 $ 2,792
FMS 801 276 149
--------- --------- ---------
Total U.S. Government $ 3,003 $ 2,982 $ 2,941
========= ========= =========
Percent of net sales 94% 92% 93%
</TABLE>
- 3 -
<PAGE> 5
All U.S. Government contracts are terminable at the convenience of the
U.S. Government, as well as for default. Under contracts terminable at the
convenience of the U.S. Government, a contractor is entitled to receive
payments for its allowable costs and, in general, the proportionate share of
fees or earnings for the work done. Contracts which are terminated for default
generally provide that the U.S. Government only pays for the work it has
accepted and may require the contractor to pay for the incremental cost of
reprocurement and may hold the contractor liable for damages. In 1991, the
U.S. Navy terminated the Company's A-12 aircraft contract for default. For
further discussion, see Item 3 of this report.
Companies engaged in supplying goods and services to the U.S.
Government are dependent on congressional appropriations and administrative
allotment of funds, and may be affected by changes in U.S. Government policies
resulting from various military and political developments. U.S. Government
contracts typically involve long lead times for design and development, and are
subject to significant changes in contract scheduling. Often the contracts
call for successful design and production of very complex and technologically
advanced items.
Foreign Sales and Operations
- ----------------------------
The major portion of sales and operating earnings of the Company for
the past three years was derived from operations in the United States.
Although the Company purchases supplies from and subcontracts with foreign
companies, it has no substantial operations in foreign countries. The majority
of foreign sales are made as FMS through the U.S. Government, but certain
direct foreign sales are made of components and support services. Direct
foreign sales were $35 million, $42 million and $50 million in 1993, 1992 and
1991, respectively.
The Company has indirect offset commitments relating to foreign
contracts, whereby the Company provides economic benefits to the buying country
through marketing assistance, technology transfers, direct procurement of
products not related to the primary contract, and direct investments.
Research and Development
- ------------------------
Research and development activities in the Nuclear Submarines and
Armored Vehicles segments are conducted principally under U.S. Government
contracts. These research efforts are generally either concerned with
developing products for large systems development programs or performing work
under research and development technology contracts. In addition, the defense
businesses engage in independent research and development, of which a
significant portion is recovered through overhead charges to U.S. Government
contracts.
The table below details expenditures (excluding discontinued
operations) for research and development (dollars in millions):
<TABLE>
<CAPTION>
Year Ended 31 December
-------------------------------------
1993 1992 1991
----- ---- -----
<S> <C> <C> <C>
Company-sponsored $ 33 $ 32 $ 32
Customer-sponsored 142 122 81
-------- --------- ---------
$ 175 $ 154 $ 113
======== ========= =========
</TABLE>
Supplies
- --------
Many items of equipment and components used in the production of the
Company's products are purchased from other manufacturers. Although the
Company has a broad base of suppliers and subcontractors, it is dependent upon
the ability of its suppliers and subcontractors to meet performance and quality
specifications and delivery schedules. In some cases it is dependent on one or
a few sources, either because of the specialized nature of a particular item or
because of domestic preference requirements pursuant to which it operates on a
given project.
All of the Company's operations are dependent upon adequate supplies of
certain raw materials, such as aluminum and steel, and on adequate supplies of
fuel. Fuel or raw material shortages could also have an adverse effect on the
Company's suppliers, thus impairing their ability to honor their contractual
commitments to the Company. The Company has not experienced serious shortages
in any of the raw materials or fuel supplies that are necessary for its
production programs.
- 4 -
<PAGE> 6
Environmental Controls
- ----------------------
Federal, state and local requirements relating to the discharge of
materials into the environment and other factors affecting the environment have
had and will continue to have an impact on the manufacturing operations of the
Company. Thus far, compliance with the requirements has been accomplished
without material effect on the Company's capital expenditures, earnings or
competitive position. While it is expected that this will continue to be the
case, the Company cannot assess the possible effect of compliance with future
requirements.
Patents
- -------
Numerous patents and patent applications are owned by the Company and
utilized in its development activities and manufacturing operations. It is
also licensed under patents owned by others. While in the aggregate its
patents and licenses are considered important in the operation of the Company's
business, they are not considered of such importance that their loss or
termination would materially affect its business. Engineering, production
skills and experience are more important to the Company than its patents or
licenses.
Employees
- ---------
From the end of 1991 to the end of 1993, the Company's total employees
decreased from about 80,600 to about 30,500. Approximately 70% of this
decrease is due to the disposition of businesses in which the employees of the
disposed businesses were transferred to the acquiring companies.
At the end of 1993, approximately 40% of the Company's employees were
covered by collective bargaining agreements with various unions, the most
significant of which are the International Association of Machinists and
Aerospace Workers, the Metal Trades Council of New London, Connecticut, the
United Auto Workers Union (UAW), the Office and Professional Employees
International Union and the United Mine Workers of America. During 1994, three
collective bargaining agreements, which cover approximately 20% of the union
represented work force, are scheduled to expire and are subject to negotiations
with the respective unions, the most significant of which is the UAW at Land
Systems.
ITEM 2. PROPERTIES
The information required for this item is included in Item 1 of this
report.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, the Company is a defendant in U.S. vs. Davis
et al, a civil action in the Federal District Court for the Southern District
of New York in which the U.S. Government alleges claims under the Civil False
Claims Act. A judgment in favor of the Company was entered on 2 October 1992.
On 4 January 1993, the U.S. Government appealed the District Court's judgment
in favor of the Company. This appeal is now pending.
On 7 January 1991, the U.S. Navy terminated for default a contract
with the Company and McDonnell Douglas for the full-scale development of the
U.S. Navy's A-12 aircraft. The U.S. Navy has demanded repayment of
unliquidated progress payments, but agreed to defer collection pending
resolution of the termination dispute. The Company and McDonnell Douglas filed
a complaint in the U.S. Court of Federal Claims to contest the default
termination. A trial on Count XVII of the complaint, which relates to the
propriety of the termination for default, was concluded in October 1993. In
December 1993, the Court issued preliminary findings of fact which appear
favorable to the Company and McDonnell Douglas. The Court will not issue a
decision before 21 July 1994, during which time other counts in the complaint
will be prepared for decision. For further discussion, see Note P to the
Consolidated Financial Statements appearing on page 29 in the Company's 1993
Shareholder Report, included in this Form 10-K-Annual Report as Exhibit 13 and
incorporated herein by reference. The Company believes that ultimately it will
be found not to have been in default of the contract.
The Company is a defendant in a shareholders' derivative action filed
in the California Superior Court for San Diego County on 17 January 1991. The
suit was dismissed by the court on 10 May 1993, because the plaintiffs failed
to make a demand on the Board of Directors of the Company prior to bringing
action. The period to amend the complaint has expired.
- 5 -
<PAGE> 7
On 8 March 1993, a class action lawsuit, Berchin et al vs. General
Dynamics Corporation and William A. Anders, was filed in the Federal District
Court for the Southern District of New York. The suit alleges violations of
various provisions of federal securities laws, fraud, negligent
misrepresentation, and breach of fiduciary duty by the defendants with regard
to disclosures made, or omitted, in the Company's tender offer completed in
July 1992 and the subsequent divestiture of core businesses. The Company
believes there is no liability in connection with this matter and intends to
vigorously defend itself.
The Company is directly or indirectly involved in seventeen Superfund
sites in which the Company, along with other major U.S. corporations, has been
designated a potentially responsible party (PRP) by the U.S. Environmental
Protection Agency (EPA) or a state environmental agency with respect to past
shipments of hazardous waste to sites now requiring environmental cleanup.
Chatham Brothers Barrel Yard is a hazardous waste disposal site
located near Escondido, California. The California Department of Toxic
Substances Control is overseeing a cleanup of the site pursuant to California
state laws and is seeking to recover its costs from a variety of PRPs,
including the Company and several other major corporations in the aerospace and
petroleum industries. To date, California has incurred about $8.7 million in
costs, and estimates an additional $40 million to $60 million in investigation
and remediation costs. Under the California equivalent of the federal
Superfund law, all of the PRPs are jointly and severally liable to the State of
California for these costs.
The Casmalia Resources site is a former industrial waste disposal
facility located near Santa Maria, California. Since March 1993, the Company
and a large number of other PRPs have been negotiating with the EPA to fund and
perform an environmental cleanup of this site. Site investigation studies are
now just beginning, but estimates of total remediation costs have ranged from
$30 million to $150 million.
The Company is also involved in the cleanup and remediation of various
conditions at sites it currently or formerly owned or operated, many of which
were sites used in the conduct of the Company's government contracting
business. The Company believes that a portion of these costs are recoverable
under government contracts. The Company has defenses to liability in some
cases, and in other cases the Company is acting to mitigate and minimize its
potential liability. The Company is participating in steering committees and
taking other actions to establish its percentage liability on an allocated and
sharing basis with other PRPs. Although the Company's involvement and the
extent of the remediation varies from site to site, the Company believes, based
upon an analysis of each site, that its liability at the sites will not be
deemed material to the financial condition or results of operations of the
Company.
Under the Federal Black Lung Benefits Act (the Act), a disabled coal
miner with coal worker's pneumoconiosis may be entitled to monthly compensation
for life. Approximately 50 claims for benefits under the Act by former
employees of Freeman are pending and are in various stages of procedure,
including a substantial number which are being contested by the Company. The
claims are reviewed by Administrative Law Judges of the U.S. Department of
Labor for determination of questions of disability and compensation. Freeman
has outstanding approximately 40 claims which have been filed under the
Illinois Occupational Disease Act. Many of the claims are disputed. The
Company has established liabilities, on an actuarial basis, to pay for the
estimated costs of any benefits that are ultimately awarded.
The Company is also a defendant in other lawsuits and claims and in
other investigations of varying nature. The Company believes these
proceedings, in the aggregate, are not material to the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's Security Holders
during the fourth quarter of the year ended 31 December 1993.
- 6 -
<PAGE> 8
SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The name, age, offices and positions held for the last five years of
the Company's executive officers who are not directors are as follows:
<TABLE>
<CAPTION>
AGE AT
31 DECEMBER
NAME, POSITION AND OFFICE 1993
------------------------- ----
<S> <C>
Kent G. Bankus -- Vice President of the Company since April 1993; Staff Vice President
of the Company July 1991 -- April 1993; Corporate Director in Government Relations
July 1989 -- July 1991 51
Edward C. Bruntrager -- Vice President and General Counsel of the Company since March
1994; Assistant General Counsel of the Company January 1987 -- March 1994 46
Paul A. Hesse -- Vice President of the Company since May 1991; President and Chief
Operating Officer of Dix & Eaton 1988 -- 1991 52
J. Steven Keate -- Vice President and Controller of the Company since March 1993; Controller
of the Company December 1991 -- March 1993; Director in Corporate Finance of the
Company 1990 -- 1991; Manager at the Company's Convair Division 1987 -- 1990 37
Ralph W. Kiger -- Vice President of the Company since May 1993; Staff Vice President of
the Company March 1992 -- May 1993; Vice President of General Dynamics Services
Company July 1991 -- March 1992; Vice President of the Company's Data Systems
Division November 1988 -- July 1991 48
E. Alan Klobasa -- Staff Vice President and Secretary of the Company since March 1992;
Secretary of the Company September 1987 -- March 1992 46
Molly R. Salky -- Vice President of the Company since August 1992; Director of
Investor Relations March 1991 -- August 1992; Manager of Investor Relations
November 1986 -- March 1991 36
D. Blaine Scheideman -- Senior Vice President of the Company since February
1991; Vice President of the Company August 1989 -- February 1991; Vice
President of the Company's Fort Worth Division April 1975 -- August 1989 62
Henry J. Sechler -- Vice President of the Company since August 1991; Staff Vice
President of the Company 1985 -- August 1991 61
Roger E. Tetrault -- Vice President of the Company and President of the
Company's Land Systems Division since March 1993; Vice President of the
Company and President of the Company's Electric Boat Division August
1992--March 1993; Vice President of the Company and General Manager of the
Company's Electric Boat Division August 1991 -- August 1992; Vice President
and Group Executive of Babcock and Wilcox 1990 -- 1991; Vice President and
General Manager of Babcock and Wilcox's Naval Nuclear Fuel Division 1985 --
1990 52
James E. Turner, Jr. -- President of the Company's Electric Boat Division since
March 1993; Executive Vice President of the Company since February 1991;
Vice President of the Company and General Manager of the Company's Electric
Boat Division September 1988 -- February 1991 59
Charles D. Walbrandt -- Vice President and Treasurer of the Company since July
1993; Vice President of the Company September 1991 -- July 1993; Staff
Vice President of the Company 1983 -- 1991 55
</TABLE>
- 7 -
<PAGE> 9
<TABLE>
<CAPTION>
AGE AT
31 DECEMBER
NAME, POSITION AND OFFICE 1993
------------------------- ----
<S> <C>
Mark S. Woolley -- Vice President of the Company since August 1992; Staff Vice
President March 1991 -- August 1992; Director of Business Development and
Analysis of the Company August 1990 -- March 1991; Director of
Acquisitions and Dispositions Analysis at Textron, Inc. 1989 -- 1990 38
Michael W. Wynne -- Vice President of the Company and President of the
Company's Space Systems Division since August 1992; Vice President of
the Company and General Manager of the Company's Space Systems Division
February 1991 -- August 1992; Vice President of the Company's Land
Systems Division 1982 -- 1991 49
</TABLE>
All executive officers of the Company are elected annually. There are no family
relationships, as defined, between any of the above executive officers. No
executive officer of the Company was selected pursuant to any arrangement or
understanding between the officer and any other person.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
General Dynamics Corporation common stock is listed on the New York
Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange.
The high and low market price of General Dynamics Corporation common
stock and the cash dividends declared for each quarterly period within the two
most recent fiscal years is included in Note T to the Consolidated Financial
Statements appearing on page 32 in the Company's 1993 Shareholder Report,
included in this Form 10-K - Annual Report as Exhibit 13 and incorporated
herein by reference.
There were 24,496 common shareholders of record of General Dynamics
Corporation common stock at 31 December 1993.
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
The information on pages 12 through 17 and 34 of the 1993 Shareholder
Report, included in this Form 10-K -- Annual Report as Exhibit 13, is
incorporated herein by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information on pages 12 through 17 of the 1993 Shareholder Report,
included in this Form 10-K -- Annual Report as Exhibit 13, is incorporated
herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information on pages 18 through 34 of the 1993 Shareholder Report,
included in this Form 10-K -- Annual Report as Exhibit 13, is incorporated
herein by reference in response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
- 8 -
<PAGE> 11
PART III
The information required to be set forth herein, Item 10, "Directors
and Executive Officers of the Registrant," Item 11, "Executive Compensation,"
Item 12, "Security Ownership of Certain Beneficial Owners and Management," and
Item 13, "Certain Relationships and Related Transactions," except for a list of
the Executive Officers which is provided in Part I of this report, is included
in the Company's definitive Proxy Statement pursuant to Regulation 14A, which
is incorporated herein by reference, to be filed with the Securities and
Exchange Commission no later than 120 days after the close of the fiscal year
ended 31 December 1993.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements--See Index on page 11.
2. Financial Statement Schedules--See Index on page 11.
3. Exhibits--See Index on pages 17 through 19.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the 4th Quarter
of 1993.
- 9 -
<PAGE> 12
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GENERAL DYNAMICS CORPORATION
By: /S/ J. Steven Keate
---------------------------------
J. Steven Keate
Vice President and Controller
29 March 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW ON 29 MARCH 1994 BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED, INCLUDING A MAJORITY
OF THE DIRECTORS.
William A. Anders Chairman and Director
Thomas G. Ayers Director
Frank C. Carlucci Director
Nicholas D. Chabraja Director
William J. Crowe, Jr. Director
James S. Crown Director
Lester Crown Director
Charles H. Goodman Director
Harvey Kapnick Vice Chairman and Director
David S. Lewis Director
James R. Mellor Chief Executive Officer and Director
(Principal Executive Officer)
Stanley C. Pace Director
Allen E. Puckett Director
Bernard W. Rogers Director
Elliot H. Stein Director
J. Steven Keate Vice President and Controller (Principal
Financial and Accounting Officer)
By: /S/ E. Alan Klobasa
-----------------------------------
E. Alan Klobasa
Attorney-in-Fact
- 10 -
<PAGE> 13
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(a) 1. AND 2.
<TABLE>
<CAPTION>
PAGE
----
FORM SHAREHOLDER
10-K REPORT
---- ------
<S> <C> <C>
Report of Independent Public Accountants 12 33
Consolidated Financial Statements:
Consolidated Statement of Earnings 18
Consolidated Balance Sheet 19
Consolidated Statement of Cash Flows 20
Consolidated Statement of Shareholders' Equity 21
Notes to Consolidated Financial Statements (A to T) 22 - 32
Financial Statement Schedules:
I -- Marketable Securities 13
VII -- Guarantees of Securities of Other Issuers 14
IX -- Short-term Borrowings 15
X -- Supplementary Income Statement Information 16
</TABLE>
All other schedules are not submitted because they are not applicable or not
required, or because the required information is included in the financial
statements or the notes thereto.
The Report of Independent Public Accountants and Consolidated Financial
Statements listed in the above Index under Shareholder Report, are included in
this Form 10-K -- Annual Report as Exhibit 13 and are incorporated herein by
reference.
- 11 -
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of General Dynamics Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in General Dynamics
Corporation's 1993 Shareholder Report incorporated by reference in this Form
10-K, and have issued our report thereon dated 25 January 1994 (except with
respect to the stock split discussed in Note K, as to which the date is 4 March
1994). Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedules listed in the accompanying index
are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Washington, D.C.,
25 January 1994
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference into this
Form 10-K for the year ended 31 December 1993 into the Company's previously
filed registration statements on Form S-8 file numbers 33-23448, 2-23904,
2-23032, 2-28952, 2-50980, 2-24270 and 2-88053.
ARTHUR ANDERSEN & CO.
Washington, D.C.,
29 March 1994
- 12 -
<PAGE> 15
SCHEDULE I -- MARKETABLE SECURITIES
31 DECEMBER 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Amount at
Which Each
Portfolio of
Equity
Number of Security
Shares or Issues and
Units-- Each Other
Principal Market Value Security
Amount of Of Each Issue Issue Carried
Bonds and Cost of Each at Balance in the
Name of Issuer and Title of Each Issue Notes Issue Sheet Date Balance Sheet
- -------------------------------------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Marketable Securities
- ---------------------
Tax-Exempt Municipal Obligations $ 396 $ 396 $ 396 $ 396
Money Market Preferred Stock 452 shares 81 81 81
Preferred Stock 311,075 shares 14 14 14
-------- -------- --------
Total $ 491 $ 491 $ 491
======== ======== ========
Other Investments (a)
- ------------------
Preferred Stock 1,729,530 shares $ 50 $ 50 $ 50
======== ======== ========
</TABLE>
(a) Included in Other Assets on the Consolidated Balance Sheet in the
Company's 1993 Shareholder Report.
- 13 -
<PAGE> 16
SCHEDULE VII--GUARANTEES OF SECURITIES OF OTHER ISSUERS
31 DECEMBER 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Nature
of Any Default
by Issuer of
Securities
Guaranteed
Name of Issuer Amount in Principal,
of Securities Owned Interest,
Guaranteed Total by Person Amount in Sinking Fund
by Person Title of Issue Amount or Persons Treasury of or Redemption
for Which of Each Class Guaranteed for Which Issuer of Provisions,
Statement of Securities and Statement Securities Nature of or Payment
is Filed Guaranteed Outstanding is Filed Guaranteed Guarantee of Dividends
-------- ---------- ----------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
AMSC Subsidiary
Corporation Note Payable $30 None None Principal None
and interest
Continental Cement
Company Notes payable $13 None None Principal None
and interest
Carbon River
Coal Company Note payable $7 None None Principal None
and interest
</TABLE>
- 14 -
<PAGE> 17
SCHEDULE IX--SHORT-TERM BORROWINGS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Weighted
Average
Weighted Outstanding Interest
Average During the Year Rate
---------------
Category of Aggregate Balance at Interest Daily During the
Short-term Borrowings(a) 31 December Rate Maximum Average(b) Year(b)
- ------------------------ ----------- ---- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
1991
- ----
Commercial paper $ - -% $ 77 $ 4 6.5%
1992
- ----
None
1993
- ----
None
</TABLE>
Notes:
(a) Maturity ranges from overnight to six months from date of issue. No
borrowings have provisions for extensions of maturity.
(b) Based on the amounts outstanding at the end of each day.
- 15 -
<PAGE> 18
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT
INFORMATION--YEARS ENDED 31 DECEMBER
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Charged to Costs and Expenses(a)
---------------------------------------------------
Item 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $66 $57 $71
</TABLE>
(a) Continuing operations only.
- 16 -
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C> <C>
(14) 2 --Asset Purchase Agreement, dated 8 December 1992, between the Company and Lockheed
Corporation
(13) 3-1A --Restated Certificate of Incorporation, effective 21 May 1991
(9) 3-1B --Rights Agreement, dated as of 1 February 1989, between the Company and
Bankers Trust Company
(15) 3-1C --Amendment, dated 1 August 1992, to Rights Agreement between the Company and Bankers
Trust Company appointing First Chicago Trust Company of New York Successor Rights Agent
(13) 3-2 --Bylaws as amended and restated 11 March 1992
3-2A --Bylaws as amended effective 5 May 1993
(1) 10-1A --Amendment of Mining Leases between American National Bank and Trust
of Chicago, Trustee, and La Salle National Bank, Trustee, to Freeman Coal Mining
Corporation, dated 1 January 1960
(1) 10-1B --Amendatory Agreement between Freeman United Coal Mining Company and American
National Bank and Trust Company, as Trustee, and La Salle National Bank, as Trustee,
dated 1 January 1975
(7) 10-3 --Facilities Contract N-00024-87-E-5409 between the United States and the Company as
amended, relating to facilities at Pomona, California, dated 13 March 1987
(10) 10-3A --Modifications #A0013, A0014, P00001 to Facilities Contract N00024-87-E-5409
(1) 10-4A --Facilities Contract F33657-83-E-2119 between the United States and the Company, as
amended, relating to Air Force Plant 19, San Diego, California, dated 1 July 1983
(12) 10-4B --Modification #P00014 to Facilities Contract F33657-83-E-2119
(1) 10-4C --Lease between San Diego Unified Port District and the Company relating
to facilities at Lindbergh Field, San Diego, California, dated 9 October 1979
(1) 10-4D --Lease Amendment between San Diego Unified Port District and the Company relating to
facilities at Lindbergh Field, San Diego, California, dated 2 August 1983
(3) 10-5A --General Dynamics Corporation Stock Option Plan adopted effective 1 January 1971
(8) 10-6A --General Dynamics Corporation Incentive Compensation Plan adopted 3 February 1988,
approved by the shareholders on 4 May 1988
(12) 10-6B --General Dynamics Corporation Incentive Compensation Plan (as amended),
approved by shareholders on 1 May 1991
(13) 10-6E --General Dynamics Corporation Gain/Sharing Plan as terminated 3 December 1991.
(13) 10-6F --Stock Purchase Agreement, dated 1 November 1991, by and between the Company and CSC Domestic
Enterprises, Inc.
(13) 10-6G --Stock Purchase Agreement, dated 20 January 1992, between the Company and Textron, Inc.
(2) 10-7A --Facilities Contract DAA307-79-C-0143 dated 19 June 1979 between the Company's General
Dynamics Land Systems Inc. subsidiary and the United States relating to the Company's
facilities at the Detroit Arsenal Tank Plant, Warren, Michigan
(4) 10-7A-1 --1984 modifications to Facilities Contract DAAE07-79-C-0143
(8) 10-7A-2 --Modifications #A00018, P00071, P00072, P00075, P00077, P00078,
P00081, P00083-P00088 to Facilities Contract DAAE07-79-C-0143
(12) 10-7A-3 --1990 Modifications to Facilities Contract DAAE07-79-C-0143
Modifications #A00040 - 00047, P00117-00131
(3) 10-7B --Facilities Contract DAAE07-82-E-0006, dated 23 April 1982 between the Company's
General Dynamics Land Systems Inc. subsidiary and the United States relating to
Government-owned facilities at the Lima Army Tank Plant, Lima, Ohio and the Detroit
Arsenal Tank Plant, Warren, Michigan, pertaining to the M-1 tank
(4) 10-7B-1 --1984 modifications to Facilities Contract DAAE07-82-E-0006
(5) 10-7B-2 --1985 modifications to Facilities Contract DAAE07-82-E-0006
(8) 10-7B-3 --Modifications A00026-A00033, P00041, P00048-P00058 to Facilities
Contract DAAE07-82-E-0006
</TABLE>
- 17 -
<PAGE> 20
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C> <C>
(12) 10-7B-4 --1990 Modifications to Facilities Contract DAAE07-82-E-0006
Modifications #A00041 - 00043, P00081-00087
(4) 10-7C-2 --Facilities Contract DAAE07-83-E-A001 dated 29 August 1983 and
1984 modifications between the Company's General Dynamics Land
Systems Inc. subsidiary and the United States relating to Government
owned facilities and equipment located at the Company's facility at
Sterling Heights, Michigan
(12) 10-7C-3 --1990 Modifications to Facilities Contract DAAE07-83-E-A0001, Modification P0010
(3) 10-7D --Facilities Contract DAAE07-83-E-A007 dated 29 January 1983 between
the Company's General Dynamics Land Systems Inc. subsidiary and the
United States relating to Government-owned facilities at the Scranton
Defense Plant, Eynon, Pennsylvania
(4) 10-7D-1 --1984 modifications to Facilities Contract DAAE07-83-E-A007
(5) 10-7D-2 --1985 modifications to Facilities Contract DAAE07-83-E-A007
(8) 10-7D-3 --Modifications #A00003, A00008, A00009, A00010, P00023-P00031
to Facilities Contract DAAE07-83-E-A007
(12) 10-7D-4 --1990 Modifications to Facilities Contract DAAE07-83-E-A007, Modifications P0051-P0062
(12) 10-7E --Facilities Contract DAAE07-90-E-A001 dated 24 June 1990 between the Company's General
Dynamics Land Systems Inc. subsidiary and the United States relating to the Company's
facilities at the Lima Army Tank Plant, Lima, Ohio
(12) 10-7E-1 --1990 Modifications to Facilities Contract DAAE07-90-E-A001
Modifications #A00001-00004, P00001, P00002
(12) 10-7F --Facilities Contract DAAE07-91-E-A002 dated 21 December 1990 between the Company's
General Dynamics Land Systems Inc. subsidiary and the United States relating to the
Company's facilities at the Detroit Arsenal Tank Plant, Warren, Michigan
(5) 10-8A --General Dynamics Corporation Retirement Plan for Directors adopted 6 March 1986
(6) 10-8E --Employment Agreement between the Company and David S. Lewis dated 21 October
1982, as last amended on 6 June 1985
(10) 10-9 --Facilities Contract N00024-87-E-5417 between the United States and the Company
relating to facilities at Rancho Cucamonga, California
(11) 10-12 --Employment Agreement dated as of 22 September 1989 between the Company
and William A. Anders
(11) 10-13 --Indenture of Lease dated 1 January 1986 by and between State of Rhode Island and
Providence Plantations and Rhode Island Port Authority and Economic Development
Corporation and the Company
(11) 10-14 --Lease Agreement dated 28 November 1978 as amended 15 January 1989 between
Rhode Island Port Authority and Economic Development Corporation and the Company
(15) 10-15 --Asset Purchase Agreement, dated 8 May 1992, between the Company and
Hughes Aircraft Company
(15) 10-16 --Separation Agreement between the Company and William A. Anders dated as of
17 March 1993
(15) 10-17 --Separation Agreement between the Company and Harvey Kapnick dated as of
17 March 1993
(15) 10-18 --Employment Agreement between the Company and James R. Mellor dated as of
17 March 1993
(15) 10-19 --Separation Agreement between the Company and Lester Crown dated as of
15 March 1993
(15) 10-20 --Agreement between the Company and James J. Cunnane dated as of 16 March 1993
(15) 10-21 --Form of Agreement entered into between the Company and Corporate Officers who are
retiring or being released from employment with the Company
(15) 10-22 --Form of Agreement entered into between the Company and Corporate Officers who are
being retained in employment with the Company
10-23 --Employment agreement between the Company and Nicholas D. Chabraja, dated
3 February 1993 as amended 22 December 1993
</TABLE>
- 18 -
<PAGE> 21
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C>
11 --Statement re computation of per share earnings
13 --1993 Shareholder Report (pages 12-34)
21 --Subsidiaries
23 --Consent of Arthur Andersen & Co. (See Item 14 of this Report)
24-A --Powers of Attorney of the Board of Directors
24-B --Power of Attorney of J. Steven Keate, Principal Financial and Accounting Officer
</TABLE>
NOTES
<TABLE>
<S> <C>
(1) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1980, and filed
with the Commission 31 March 1981 (File Reference No. 1-3671), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1981, and filed
with the Commission 31 March 1982, and incorporated herein by reference.
(3) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1982, and filed
with the Commission 30 March 1983 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1984, and filed
with the Commission 1 April 1985 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1985, and filed
with the Commission 31 March 1986, and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Registration Statement No. 33-6287 on Form S-1 filed with the Commission
and incorporated herein by reference.
(7) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1986 and filed
with the Commission 31 March 1987 and incorporated herein by reference.
(8) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1987 and filed
with the Commission 17 March 1988 and incorporated herein by reference.
(9) Filed as an exhibit to the Company's current report on Form 8-K filed with the Commission on 8 February 1989
and incorporated herein by reference.
(10) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1988 and filed
with the Commission 23 March 1989 and incorporated herein by reference.
(11) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1989 and filed
with the Commission 30 March 1990 and incorporated herein by reference.
(12) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1990 and filed
with the Commission 29 March 1991 and incorporated herein by reference.
(13) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1991 and filed
with the Commission 26 March 1992 and incorporated herein by reference.
(14) Filed as an exhibit to the Company's current report on Form 8-K filed with the Commission on 16 March 1993 and
incorporated herein by reference.
(15) Filed as an exhibit to the Company's annual report on Form 10-K for the year ending 31 December 1992 and filed
with the Commission on 30 March 1993 and incorporated herein by reference.
</TABLE>
- 19 -
<PAGE> 1
======================================================================
GENERAL DYNAMICS CORPORATION
By-Laws
As Amended effective 5 May 1993
======================================================================
<PAGE> 2
BY-LAWS
of
GENERAL DYNAMICS CORPORATION
---------------
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of General
Dynamics Corporation (hereinafter called the Corporation) in the
State of Delaware shall be in the City of Dover, County of Kent. The registered
agent of the Corporation in said State is United States Corporation Company.
SECTION 2. Other Offices. The Corporation may have such other
offices in such places, either within or without the State of Delaware, as the
Board of Directors of the Corporation (hereinafter called the Board) may from
time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of any other proper business notice of which was given in the
notice of such meetings shall be held on such date and at such time as shall be
designated by the Board. If any annual meeting shall not be held on the date
designated therefor the Board shall cause the meeting to be held as soon
thereafter as conveniently may be.
SECTION 2. Special Meetings. A special meeting of the
stockholders for any purpose or purposes may be called at any time by the
Chairman of the Board or by a majority of the directors.
SECTION 3. Place of Meeting All meetings of the stockholders
shall be held at such place or places, within or without the State of Delaware,
as may from time to time be designated by the Board.
SECTION 4. Notice of Meetings. Every stockholder shall furnish
the Corporation through its Secretary with an address at which notices of
meetings and all other corporate notices may be served on or mailed to him.
Except as otherwise expressly required by statute, the Certificate of
Incorporation or these By-Laws, notice of each meeting of the stockholders
shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting, by delivering a written notice thereof to him personally, or by
depositing such notice in the United States mail in a postage prepaid envelope,
directed to him at his post-office address furnished by him to the Corporation,
or, if he shall not have furnished to the Corporation his address but his
address shall otherwise appear on the records of the Corporation, then at his
address as it shall so appear on the records of the Corporation, or, if he
shall not have furnished to the Corporation his post-office address and his
address shall not otherwise appear on the records of the Corporation, then at
the registered office of the Corporation in the State of Delaware. Except as
otherwise expressly required by statute, the Certificate of Incorporation or
these By-Laws, no publication of any notice of a meeting of the stockholders
shall be required, nor shall the giving of any notice of any adjourned meeting
of stockholders be required if the time and place thereof are announced at the
meeting at which the adjournment is taken. Every notice of a meeting of the
stockholders shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
SECTION 5. Quorum. At each meeting of the shareholders, except
as otherwise expressly required by statute, the Certificate of Incorporation or
these By-Laws, the holders of record of a majority of the issued and
outstanding shares of stock of the Corporation entitled to be voted at such
meeting, present either in person or by proxy, shall constitute a quorum for
the transaction of business, provided, however, that in any case where the
holders of Preferred Stock or any series thereof are entitled to vote as a
class, a quorum of the Common
1
<PAGE> 3
Stock and a quorum of the Preferred Stock or such series thereof shall be
separately determined. In the absence of a quorum at any such meeting or any
adjournment or adjournments thereof, a majority in interest of the stockholders
of the Corporation present in person or by proxy and entitled to vote, or, in
the absence of any stockholders, any officer entitled to preside at, or to act
as secretary of, such meeting may adjourn the meeting from time to time,
provided, however, that at any such meeting where the holders of Preferred
Stock or any series thereof are entitled to vote as a class, if one class or
series of stock of the Corporation but not the other has a quorum present, the
meeting may proceed with the business to be conducted by the class or series
having a quorum present, and may be adjourned from time to time in respect of
business to be conducted by the class or series not having a quorum present. At
any adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
called. The absence from any meeting in person or by proxy of stockholders
holding the number of shares of stock of the Corporation entitled to vote
thereat required by statute, the Certificate of Incorporation or these By-Laws
for action upon any given matter shall not prevent action at such meeting upon
any other matter which may properly come before the meeting, if there shall be
present thereat in person or by proxy stockholders holding the number of shares
of stock of the Corporation entitled to vote thereat required in respect of
such other matter.
SECTION 6. Voting. (a) Except as otherwise expressly required by
statute, the Certificate of Incorporation or these By-Laws, each stockholder
shall at each meeting of the stockholders be entitled to one vote in person or
by proxy for each share of stock of the Corporation entitled to be voted
thereat held by him and registered in his name on the books of the Corporation
on such date as may be fixed pursuant to Article Vll of these By-Laws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meeting.
(b) Shares of its own stock belonging to the Corporation, or to
another corporation if a majority of the shares entitled to vote in the
election of directors of such other corporation is held by the Corporation,
shall not be entitled to vote.
(c) Persons holding stock having voting power in a fiduciary
capacity, or their proxies, shall be entitled to vote the shares so held, and
persons whose stock having voting power is pledged shall be entitled to vote,
unless in the transfer by the pledgor on the books of the Corporation he shall
have expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such stock and vote thereon.
(d) No proxy shall be voted or acted upon after three years from
its date, unless said proxy provides for a longer period.
(e) If shares shall stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons
shall have the same fiduciary relationship respecting the same shares, unless
the Secretary shall have been given written notice to the contrary and have
been furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with respect to
voting shall have the following effect:
(i) if only one shall vote, his act shall bind all;
(ii) if more than one shall vote, the act of the majority so
voting shall bind all; and
(iii) if more than one shall vote, but the vote shall be evenly
split on any particular matter, then, except as otherwise required by
the General Corporation Law of the State of Delaware, each faction may
vote the shares in question proportionally.
If the instrument so filed shall show that any such tenancy is held in
unequal interests, the majority or even-split for the purpose of the next
foregoing sentence shall be a majority or even-split in interest.
(f) At all meetings of the stockholders all matters, except as
otherwise expressly required by statute, the Certificate of Incorporation or
these By-Laws, shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy and entitled to vote on such
matters, a quorum being present. Except in the case of votes for the election
of directors and for other matters where expressly so required, the vote at any
meeting of the stockholders on any question need not be by ballot, unless
demanded by a stockholder present in person or by proxy and entitled to vote on
such matters, or directed by the chairman of the meeting. Upon a demand of any
such stockholder, or at the direction of such chairman, that a vote by ballot
be taken on any question, such vote shall be taken. On a vote by ballot each
ballot shall be signed by the stockholder voting, or on his behalf by his
proxy, and it shall show the number of shares voted by him.
2
<PAGE> 4
SECTION 7. Lists of Stockholders. It shall be the duty of the
Secretary or other officer who shall have charge of the stock ledger of the
Corporation, either directly or through another officer designated by him or
through a transfer agent or transfer clerk appointed by the Board, to prepare
and make, at least ten days before every meeting of the stockholders, a
complete list of the stockholders of each class entitled to vote at said
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, at the
place where the meeting is to be held for said ten days and shall be produced
and kept at the time and place of the meeting, during the whole time thereof,
and may be inspected by any stockholder who may be present. Upon the willful
neglect or refusal of the directors to produce such list at any meeting for the
election of director, they shall be ineligible for election to any office at
such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, such list or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 8. Inspectors of Votes - Judges. Before, or at, each
meeting of the stockholders at which a vote by ballot is to be taken, the
Board, or the Chairman of such meeting, shall appoint two Inspectors of Votes
or Judges to conduct the vote thereat. Each Inspector of Votes or Judge so
appointed shall first subscribe an oath or affirmation faithfully to execute
the duties of an Inspector of Votes or Judge at such meeting with strict
impartiality and according to the best of his ability. Such Inspectors of Votes
or Judges shall have the duties prescribed by law and shall decide upon the
qualifications of voters and accept their votes and, when the vote is
completed, shall count and ascertain the number of shares voted respectively
for and against the question or questions on which a vote was taken and shall
make and deliver a certificate in writing to the secretary of such meeting of
the results thereof. The Inspectors of Votes or Judges need not be
stockholders, and any officer or director may be an Inspector of Votes or Judge
on any question other than a vote for or against his election to any position
with the Corporation or any other question in which he may be directly
interested. The Chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at the meeting.
SECTION 9. Nomination of Directors. Only persons who are
nominated in accordance with the procedures set forth in the By-Laws shall be
eligible to serve as directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of stockholders
(a) by or at the direction of the Board of Directors or (b) by any stockholder
of the Corporation who is a stockholder of record at the time of giving of
notice provided for in this Section 9, who shall be entitled to vote for the
election of directors at the meeting and who complies with the notice
procedures set forth in this Section 9. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must
be so received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as
a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such
stockholder and (ii) the class and number of shares of the Corporation which
are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this By-Law. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with
the procedures prescribed by the By-Laws, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Section 9, a
stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section.
3
<PAGE> 5
SECTION 10. Notice of Business. At any meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board of Directors or (b)
by any stockholder of the Corporation who is a stockholder of record at the
time of giving of the notice provided for in this Section 10, who shall be
entitled to vote at such meeting and who complies with the notice procedures
set forth in this Section 10. For business to be properly brought before a
stockholder meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must
be received no later than the close of business on the 10th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (b) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the By-Laws to the
contrary, no business shall be conducted at a stockholder meeting except in
accordance with the procedures set forth in this Section 10. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance
with the provisions of the By-Laws, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. Notwithstanding the foregoing provisions of
this Section 10, a stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this
Section.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The property, business and affairs of
the Corporation shall be managed by the Board. The Board may adopt such rules
and regulations for the conduct of its meetings and the management of the
affairs of the Corporation as it may deem proper, not inconsistent with
statute, the Certificate of Incorporation and these By-Laws.
SECTION 2. Number, Qualifications and Term of Office. The
number of directors shall be not less than ten nor more than twenty, as shall
be fixed from time to time by resolution of the Board pursuant to a vote of
two-thirds of the directors then in office. Individuals over the age of
seventy-five years may stand for election as directors only with the approval
of the Executive and Nominating Committee and a two-thirds vote of the
Directors then in office for a specified reason to be enumerated in the
Corporation's proxy statement. In no event shall a Director stand for election
beyond the age of eighty. A majority of the Board shall at all times be
comprised of Outside Directors. For purposes of this Section, an Outside
Director shall mean a person who is not currently employed by the Corporation
or any of its Subsidiaries or Affiliates. All directors who are not Outside
Directors shall be known as Inside Directors. Collectively, Inside and Outside
Directors shall be known as directors. Any Inside Director who served as the
Chief Executive Officer of the Corporation after January 1, 1992, and whose
employment with the Corporation terminates, may be invited by the Executive and
Nominating Committee to continue to serve as a member of the Board for a
transitional period of up to one year following the effective date of his/her
termination or for an additional period of time thereafter, but then only with
a vote of two-thirds of the Directors then in office and for a specified reason
to be enumerated in the Corporation's proxy statement. Each director shall hold
office until the annual meeting of the stockholders next following his/her
election and until his/her successor shall have been elected and shall have
qualified, or until his/her death, or until he/she shall earlier resign. This
Section shall not be amended except upon a vote of two-thirds of the directors
then in office.
SECTION 3. Chairman and Vice Chairman. The Board of Directors
shall elect a Chairman of the Board and a Vice Chairman of the Board from among
the directors. These individuals need not be employees of the Corporation. The
Chairman of the Board shall have the overall responsibility for all matters
pertaining to the Board, including, without limitation, meetings of the Board.
In the absence of the Chairman of the Board, the Vice Chairman of the Board
shall perform these duties.
4
<PAGE> 6
SECTION 4. Resignations. Any director may resign at any time by
giving notice to the Chairman of the Board or to the Board, in writing or by
telegraph, cable or wireless. Any such resignation shall take effect at the
time specified therein or, if no time is so specified, upon its receipt by the
Chairman of the Board or by the Board; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. Vacancies. Except as provided in the Certificate of
Incorporation, any vacancy in the Board, whether caused by death, resignation,
increase in the number of directors (whether by resolution of the Board,
amendment of these By-Laws or otherwise) or any other cause, may be filled
either by the stockholders of the Corporation entitled to vote for the election
of directors, at a meeting of the stockholders called for the purpose, or by
vote of two-thirds of the directors then in office though less than a quorum;
and each director so chosen shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and shall have
qualified, or until his earlier death, or until he shall earlier resign. This
Section shall not be amended except upon a vote of two-thirds of the directors
then in office.
SECTION 6. First Meeting. Promptly after, and on the same day
as, each annual election of directors, the Board may, if a quorum be present,
meet at the place at which such election was held, for the purpose of
organization, the election of officers and the transaction of other business.
Notice of such meeting need not be given. Such meeting may be held at any other
time and place which shall be specified in a notice given as hereinafter
provided for special meetings of the Board.
SECTION 7. Regular Meetings. Regular meetings of the Board shall
be held at such times and places as the Board shall determine. Notice of
regular meetings shall be mailed to each director addressed to him at his
residence or usual place of business, at least five days before the meeting.
This Section shall not be amended except upon a vote of two-thirds of the
directors then in office.
SECTION 8. Special Meetings; Notice. Special meetings of the
Board shall be held whenever called by the Chairman of the Board, or by the
Secretary on the written request of any three directors. Except as otherwise
expressly required by statute, the Certificate of Incorporation or these
By-Laws, notices of each such meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at least five
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegraph, cable or facsimile transmission, or shall be
delivered personally or by telephone, not later than two days before the day on
which the meeting is to be held. The purposes of any special meeting shall be
stated with particularity in the notice thereof. This Section shall not be
amended except upon a vote of two-thirds of the directors then in office.
SECTION 9. Place of Meetings. The Board may hold its meetings at
such place or places within or without the State of Delaware as it may from
time to time determine by resolution, or as shall be specified in the
respective notices of meetings.
SECTION 10. Quorum and Manner of Acting. Except as otherwise
expressly required by statute, the Certificate of Incorporation or these
By-Laws, seven directors shall constitute a quorum for the transaction of
business at any meeting, and the vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum the Chairman of the Board or a majority of the directors
present may adjourn any meeting from time to time until a quorum shall be
present. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
called. Prompt notice of any adjourned meetings shall be given. This Section
shall not be amended except upon a vote of two-thirds of the directors then in
office.
SECTION 11. Committees of Board of Directors. Except as otherwise
provided in these By-Laws, the Board may, by resolution or resolutions passed
by a majority of the Board, designate one or more committees, each committee to
consist of two or more of the directors of the Corporation, which, to the
extent provided in said resolution or resolutions, shall have and may exercise
the powers of the Board in the management of the property, business and affairs
of the Corporation, and may have power to authorize the seal of the Corporation
to be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board. A majority of all the members of such
committee may fix its rules of procedure, determine its manner of acting and
fix the time and place, whether within or without the State of Delaware, of its
meetings and specify what notice thereof, if any, shall be given unless the
Board shall otherwise by resolution provide. The Board shall have
5
<PAGE> 7
power to change the members of any such committee at any time, to fill
vacancies therein and to discharge any such committee or to remove any member
thereof, either with or without cause, at any time.
SECTION 12. Ex Officio Member of Committees. The Chairman of the
Board shall be a member "ex-officio" of all committees of the Board, except
where expressly prohibited by statute, the Certificate of Incorporation or
these By-Laws or by the terms of any plan or other document establishing any
such committee.
SECTION 13. Agenda. An agenda of matters to come before each meeting
of the Board shall be sent to each director at least five days before each
regular meeting of the Board and at least three days before each special
meeting of the Board. This Section shall not be amended except upon a vote of
two-thirds of the directors then in office.
ARTICLE IV
OFFICERS
SECTION 1. Number and Qualification of Officers. The principal
officers of the Corporation shall be a President, one or more Vice Presidents,
a Controller, a Secretary, and a Treasurer. The Board of Directors may choose
such other officers as assistants to the above as it may from time to time
determine. The President shall be chosen from among the directors.
SECTION 2. Election and Term of Office. The officers shall be
chosen annually by the Board. Each officer shall hold office until his
successor shall have been elected and shall have qualified, or until his
earlier death or until his earlier resignation or removal in the manner
hereinafter provided.
SECTION 3. Powers and Duties of Officers. The powers and duties
of the officers shall be as determined from time to time by resolution of the
Board, or in such other manner as the Board may authorize, not inconsistent
with statute, the Certificate of Incorporation and these By-Laws.
SECTION 4. Resignation and Removal. Any officer may resign at
any time by giving notice to the Chairman of the Board or to the Board, in
writing or by telegraph, cable or wireless. Any such resignation shall take
effect at the time specified therein or, if no time is so specified, upon its
receipt by the Chairman of the Board or by the Board; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any officer may be removed, either with or without cause, at
any time, by the vote of a majority of the Board.
SECTION 5. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause shall be filled for the unexpired
portion of the term by the Board.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS AND PROXIES
SECTION 1. Contracts. The Board may by resolution authorize any
officer or officers, or agent or agents, to enter into any contract or
engagement and to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances; and, unless so authorized by the Board or by these By-Laws,
no officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable pecuniarily for any purpose or for any amount.
SECTION 2. Checks and Drafts. All checks, drafts or other orders
for the payment of money, issued in the name of the Corporation, shall be
signed in such manner as shall from time to time be determined by resolution of
the Board.
SECTION 3. Proxies. All proxies or instruments authorizing any
person to attend, vote, consent or otherwise act at any and all meetings of
stockholders of any corporation in which the Corporation shall own
6
<PAGE> 8
shares or in which it shall otherwise be interested shall be executed by the
Chairman of the Board or such other officer as the Chairman of the Board or the
Board may from time to time determine.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Certificates for Stock. Every holder of shares of
stock of the Corporation shall be entitled to have a certificate, in such form
as the Board shall prescribe, certifying the number and class of shares of
stock of the Corporation owned by him. Each such certificate shall be signed in
the name of the Corporation by the Chairman of the Board, the President or a
Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary of the Corporation, certifying the number of shares
owned by him; provided, however, that if such certificate is countersigned (a)
by a transfer agent other than the Corporation or its employee or (b) by a
registrar other than the Corporation or its employee, the signatures of any
such Chairman of the Board, President, Vice-President, Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary may be facsimiles. In case any
officer who shall have signed, or whose facsimile signature shall have been
placed upon, any such certificate or certificates shall cease to be such
officer before such certificate or certificates shall have been issued by the
Corporation, such certificate or certificates may be issued by the Corporation
with the same effect as though he were such officer at the date of issue.
SECTION 2. Transfer of Stock. Title to a certificate and to the
shares of stock of the Corporation represented thereby shall be transferred
only
(a) by delivery of the certificate endorsed either in blank or to
a specified person by the person appearing by the certificate to be the owner
of the shares represented thereby, or
(b) by delivery of the certificate and a separate document
containing a written assignment of the certificate or a power of attorney to
sell, assign or transfer the same or the shares represented thereby, signed by
the person appearing by the certificate to be the owner of the shares
represented thereby. Such assignment or power of attorney may be either in
blank or to a specified person.
SECTION 3. Registered Holders. The Corporation shall be entitled
to treat the registered holder of any certificate for stock of the Corporation
as the absolute and exclusive owner thereof and of the shares represented
thereby for all purposes, including without limitation the right to receive
dividends and to vote and liability for calls and assessments, and,
accordingly, the Corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any person,
whether or not the Corporation shall have express or other notice thereof, save
as expressly provided by statute.
SECTION 4. Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with statute, the
Certificate of Incorporation or these By-Laws, concerning the issue, transfer
and registration of certificates for shares of stock of the Corporation. It may
appoint, or authorize any principal officer or officers to appoint, one or more
Transfer Clerks or one or more Transfer Agents and one or more Registrars, and
may require all certificates for shares of stock of the Corporation to bear the
signature or signatures of any of them.
ARTICLE VII
RECORD DATE
SECTION 1. Fixing of Record Date.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action other than stockholder action by written consent, the
Board of Directors may fix a record date, which shall not precede the date such
record date is fixed and shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any such other action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice
7
<PAGE> 9
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within 10 days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or any officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
ARTICLE VIII
WAIVERS OF NOTICE
Whenever notice is required to be given by statute, the Certificate of
Incorporation or these By-Laws, a written waiver thereof, signed by the person
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE IX
AMENDMENTS
Subject to any limitations that may be imposed by the stockholders,
and except as specifically provided in Article III of these By-Laws, the Board
may make by-laws and from time to time may alter, amend or repeal any by-laws.
The stockholders may also adopt, alter, amend or repeal any by-laws at any
meeting provided that notice of such proposed adoption, alteration, amendment
or repeal is included in the notice of such meeting.
CERTIFICATE
The undersigned,
Secretary of GENERAL DYNAMICS CORPORATION, a Delaware corporation,
does hereby certify that the foregoing is a true copy of the By-Laws of the
Corporation in effect as of this date.
WITNESS my hand and the seal of the Corporation this day of , 19 .
---------------------------------
Secretary
(CORPORATE SEAL)
8
<PAGE> 1
[LETTERHEAD]
3 February 1993
Mr. Nicholas D. Chabraja
440 King Muir Road
Lake Forest, IL 60045
Dear Nick:
This letter confirms our offer to you to become the Senior Vice President and
General Counsel of General Dynamics, reporting to me effective 1 January 1993.
You will be a Corporate officer as approved by the Board of Directors. The
basic terms are as follows:
Base Salary: Initial salary at the rate of $350,000 per year.
Incentive Compensation: Participation in the Corporation's Management
Incentive Plan beginning March, 1994. Annual awards are dependent upon
your performance. Determination of the amount of your award is made by
the Compensation Committee of the Board of Directors.
Top "150" Team Front-load Restricted Stock: Additionally, you will be
a member of our Top "25" key management team. In order to put you on
an equal footing with the other members of this team, we will make you
an award of 15,000 shares of General Dynamics restricted stock
immediately. These shares of restricted stock will vest according to
the lapsing rules of our normal program, provided you remain employed
by General Dynamics through 31 December 1994. The amount also takes
into consideration the fact that you will not achieve a vested
retirement benefit during the term of this agreement. Your restricted
stock will also be eligible for any accelerated lapsing of remaining
restricted shares based on performance criteria set and approved by
the Compensation Committee.
Additionally, you will receive the normal General Dynamics benefit
package and perquisites for the top executives of the Company. This
includes, but is not limited to, the Retirement Plan for Salaried
Employees; Group Medical and Life Insurance Plan; the Named Individual
Accidental Death Insurance Plan; the Long-term Disability Plan; the
Dental Plan; Executive Financial Planning; the Officer's Vacation
Plan; the company-provided automobile; and the company-provided
memberships to a country club and appropriate luncheon clubs. You will
also be able to participate immediately in the Company's Supplemental
Savings
<PAGE> 2
and Stock Investment plan (SSIP). After you have completed one full
year of employment you will be able to participate in the Company's
Tax Qualified SSIP.
It is further understood that during your employment with General Dynamics, you
will remain a partner in the law firm of Jenner and Block and that any salary
and bonus paid to you by General Dynamics will be remitted to Jenner and Block,
net of taxes, and that Jenner and Block will deduct the gross payments from
their annual billings to General Dynamics, effective with your 1 January 1993
hire date.
Nick, we very much look forward to having you as a member of our team and
believe that this letter contains all of the understandings that we have agreed
to.
Sincerely,
/s/ WILLIAM A. ANDERS
---------------------
William A. Anders
Chairman & CEO
WAA:daw
Accepted By:
/s/ NICHOLAS D. CHABRAJA March 2, 1993
- -------------------------------------------
Nicholas D. Chabraja Date
<PAGE> 3
[LETTERHEAD]
22 December 1993
Mr. Nicholas D. Chabraja
440 King Muir Road
Lake Forest, Illinois 60045
Dear Nick:
This letter confirms our recent conversations and restates the terms
of your employment with General Dynamics. As we have agreed, you will continue
to serve as Senior Vice President and General Counsel of General Dynamics (or
in any other capacity deemed appropriate by the Board of Directors), reporting
directly to me.
You will continue to be compensated at your current base salary of
$350,000 per year, plus such additional incentive compensation as the
Compensation Committee of the Board of Directors shall from time to time award
to you. Annual reviews of total compensation are generally made in March of
each year and are based upon your performance and that of the Company. You will
also continue to participate in such health and welfare and other benefit
programs of General Dynamics as are available to other senior officers of the
Company.
Provided you remain employed by the Company through 31 December 1994,
the Restricted Stock granted to you in February 1993 will continue to vest
according to the lapsing rules of the Restricted Stock Program. This letter
also acknowledges that you are participating in General Dynamics' recently
adopted long-term compensation plan through awards made to you in October 1993
of stock options and restricted stock.
This letter confirms that you intend to continue to reside in Chicago
and to remain a partner in the law firm of Jenner & Block during your
employment with General Dynamics. On the other hand, you agree that you will
not participate in the fees that Jenner & Block derives from its representation
of General Dynamics so long as you are employed as an officer of General
Dynamics. It is also understood that Jenner & Block will not bill General
Dynamics for any time you personally devote to General Dynamics as an officer
of the Company.
<PAGE> 4
Nicholas D. Chabraja 2 22 December 1993
I applaud your outstanding efforts during the past year and look
forward to an equally satisfying association in the future.
Sincerely,
GENERAL DYNAMICS CORPORATION
/s/ J. R. MELLOR
----------------
J. R. Mellor
President and Chief Executive Officer
Agreed:
By: /s/ NICHOLAS D. CHABRAJA
--------------------------------
Nicholas D. Chabraja
JRM:gmb
<PAGE> 1
EXHIBIT 11, 1993 ANNUAL REPORT
FORM 10-K, COMMISSION FILE
NUMBER 1-3671
GENERAL DYNAMICS CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (a)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended 31 December
----------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
NET EARNINGS:
Continuing Operations $ 270 $ 305 $ 274
Discontinued Operations:
Earnings from operations (30) 136 231
Gain on disposal 645 374 -
------------ ------------- ------------
$ 885 $ 815 $ 505
============ ============= ============
Weighted average common shares outstanding 62,187,874 72,330,118 83,725,180
============ ============= ============
NET EARNINGS PER SHARE - PRIMARY:
Continuing Operations $ 4.27 $ 4.05 $ 3.22
Discontinued Operations:
Earnings from operations (.47) 1.81 2.72
Gain on disposal 10.21 4.97 -
------------ ------------- ------------
$ 14.01 $ 10.83 $ 5.94
============ ============= ============
Common shares from above 62,187,874 72,330,118 83,725,180
Assumed exercise of options (treasury stock method) 994,276 2,925,890 1,029,376
Assumed issuance of common shares pursuant
to incentive compensation awards (treasury
stock method) - - 282,212
------------ ------------- ------------
63,182,150 75,256,008 85,036,768
============ ============= ============
NET EARNINGS PER SHARE - FULLY DILUTED:
Continuing Operations $ 4.27 $ 4.03 $ 3.20
Discontinued Operations:
Earnings from operations (.47) 1.80 2.70
Gain on disposal 10.19 4.95 -
------------ ------------- ------------
$ 13.99 $ 10.78 $ 5.90
============ ============= ============
Common shares from above 62,187,874 72,330,118 83,725,180
Assumed exercise of options (treasury stock method) 1,085,702 3,266,410 1,626,658
Assumed issuance of common shares pursuant
to incentive compensation awards (treasury
stock method) - - 270,166
------------ ------------- ------------
63,273,576 75,596,528 85,622,004
============ ============= ============
</TABLE>
(a) All share amounts and per share data have been restated to reflect the
retroactive recognition of the two-for-one stock split effected in the form of
a 100% stock dividend to be distributed on 11 April 1994 to shareholders of
record 21 March 1994.
<PAGE> 1
GENERAL DYNAMICS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Dollars in millions, except per share amounts
BUSINESS ENVIRONMENT
The Company's primary business has historically been supplying weapons systems
to the U.S. Government. In 1990, U.S. defense budgets, which had been
declining since 1985, began falling sharply in response to the end of the Cold
War. Management realized early on that the budget declines were structural in
that, for the foreseeable future, there would be fewer new weapons systems
required which would result in excess capacity in the industry. Accordingly,
Management believed there would be a necessary contraction and consolidation of
the U.S. defense industry. To date, Management's analysis of these developments
has proven to be true as evidenced by declines, in real terms, in the defense
budget and by the number of industry combinations in recent years.
As an early response to this changing business environment and the
Company's then weakened financial position, Management initiated in 1991 a
program to improve business performance, restore financial strength,
substantially refocus corporate strategy and, through incentives, reorient the
corporate culture towards shareholder value. This program required the
Company's major businesses to be number one or number two in their markets and
have "critical mass" -- the appropriate size to retain key capabilities and
ensure economies of scale. Management sought to have its businesses meet these
criteria either within the Company or as part of other companies through
mergers, joint ventures, acquisitions, or sales of businesses if necessary.
Management also decided to sell peripheral businesses whenever appropriately
valued transactions could be negotiated.
To accomplish this program, the Company strengthened certain of its
defense-related businesses through their sale to other companies, the most
recent being the pending sale of its Space Launch Systems business to Martin
Marietta Corporation. In addition, the Company's continuing operations are
demonstrating improved profitability, productivity and cash flows. These steps
restored the Company's financial strength permitting the repayment of
approximately $600 in debt, a recapitalization effected by the purchase of $960
of the Company's common stock through a tender offer, and the tax-advantaged
distribution to shareholders of $1,531 pursuant to the Company's formal plan of
contraction. Even after these actions, the Company had a cash and marketable
securities balance of $585 at 31 December 1993.
The Company's principal continuing operations -- Nuclear Submarines and
Armored Vehicles -- have been identified as critical to the U.S. Defense
Industrial Base by the Department of Defense (DoD). Programs are being
implemented by the DoD to help preserve their key capabilities, although at
significantly reduced procurement rates. Accordingly, in the absence of
significant changes in world political and economic conditions, the Company is
seeking to supplement volumes in both businesses. Additional volume could come
from expanded involvement in overhaul, upgrade and modification work.
Management is also seeking to broaden its domestic base of armored vehicle and
related electronic systems integration programs, as well as to further expand
the export of these goods and services.
Going forward, Management is continuing to focus on shareholder value and
is aggressively re-engineering the cost structures of all operations to enhance
their competitive positions by creating highly efficient businesses capable of
operating profitably at significantly lower volumes. In addition, the Company
continues to explore ways to utilize its financial capacity to strengthen
continuing operations through both internal and external investments.
Accordingly, Management is considering the benefits of corporate business
combinations and financial restructuring options to further enhance the value
of the Company.
BUSINESS SEGMENT INFORMATION
As a result of the pending sale, the Company's Space Launch Systems business
segment has been classified as a discontinued operation. In addition, certain
businesses previously classified as discontinued operations for which
satisfactory sales terms could not be reached have been reclassified to
continuing operations and now comprise the Other business segment. In addition,
the Single Channel Ground and Airborne Radio System (SINCGARS) program has been
reclassified to continuing operations and included in the Armored Vehicles
business segment due to Management's reassessment of the program's business
opportunities. Data for 1992 and 1991 has been restated accordingly.
The Company's business segments are defined as follows:
NUCLEAR SUBMARINES: Design, engineering, construction, overhaul and support of
nuclear submarines.
ARMORED VEHICLES: Design, engineering, manufacturing, upgrade and support of
armored vehicles; and design, engineering, manufacturing and support of
SINCGARS.
OTHER: Coal mining; ship management; and ship financing.
-- 12 --
<PAGE> 2
GENERAL DYNAMICS
<TABLE>
<CAPTION>
NET SALES OPERATING EARNINGS SALES TO U.S. GOVERNMENT
---------------------- ---------------------- -----------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nuclear Submarines $1,711 $1,730 $1,824 $124 $ 94 $ 84 $1,684 $1,693 $1,802
Armored Vehicles 1,286 1,261 1,129 174 122 96 1,266 1,234 1,088
Other 190 234 208 11 39 31 53 55 51
- --------------------------------------------------------------------------------------------------------------------
$3,187 $3,225 $3,161 $309 $ 255 $211 $3,003 $2,982 $2,941
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION, DEPLETION
IDENTIFIABLE ASSETS CAPITAL EXPENDITURES AND AMORTIZATION
---------------------- ---------------------- -----------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nuclear Submarines $ 387 $ 404 $ 524 $ 4 $ 5 $14 $24 $27 $ 30
Armored Vehicles 296 329 335 5 4 3 11 15 14
Other 372 386 406 4 8 2 6 6 9
Corporate* 1,580 2,411 2,912 1 4 7 15 9 85
- --------------------------------------------------------------------------------------------------------------------
$2,635 $3,530 $4,177 $14 $21 $26 $56 $57 $138
====================================================================================================================
</TABLE>
* Identifiable assets include cash and equivalents and marketable securities
totaling $585, $943 and $812 in 1993, 1992 and 1991, respectively.
In addition, identifiable assets include net assets of discontinued
operations of $303, $777 and $1,695 in 1993, 1992 and 1991, respectively.
RESULTS OF OPERATIONS
The following table sets forth the increase (decrease) in net sales and
operating earnings for the years ended 31 December 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
INCREASE (DECREASE) INCREASE (DECREASE)
OVER 1992 OVER 1991
------------------- -------------------
NET OPERATING NET OPERATING
SALES EARNINGS SALES EARNINGS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nuclear Submarines $ (19) $ 30 $ (94) $10
Armored Vehicles 25 52 132 26
Other (44) (28) 26 8
- -----------------------------------------------------------------------------------
$ (38) $ 54 $ 64 $44
===================================================================================
</TABLE>
NUCLEAR SUBMARINES Operating earnings increased $30 during 1993 due to
increased earnings on all three construction programs. The Company increased
the earnings rate on the SSN 688 program in both the second and fourth quarters
of 1993, as well as on the Trident program in the first, second and fourth
quarters due to continuing cost reductions. Previously, the Company began
earnings recognition on the SSN 688 program during the third quarter of 1992
due to cost reduction efforts and the reinstatement of the second Seawolf. In
addition, the Company began recognizing earnings on the Seawolf program in the
fourth quarter of 1993 due to the progress on the lead ship, which is now over
50% complete, and the support for the Company's shipyard provided in the DoD
"Bottom-Up Review."
Although total construction activity did not decrease significantly
during 1993, the level of activity on the individual programs did change.
Construction activity on the SSN 688 and Trident programs decreased
approximately $110 and $70, respectively, reflecting the wind down of these
programs. Meanwhile, construction activity on the Seawolf program increased
approximately $170 reflecting the buildup of the program. During 1993, the
Company delivered two SSN 688s and one Trident, reducing backlog to two and
four ships, respectively, all of which are currently under construction.
Delivery of the final SSN 688 is scheduled for 1995, while the final Trident is
scheduled for delivery in 1997. The Company is also constructing the first two
Seawolfs, with the lead ship scheduled to be completed in 1996. Based on the
Company's existing backlog and absent an increase in the DoD's current
procurement rate, the Company will not be able to sustain its current level of
construction revenues.
During 1992, the U.S. Congress authorized, and the President approved,
funding for construction of the second Seawolf, as well as $540 to help
maintain the "submarine industrial base." In addition, the Company is
encouraged by the DoD "Bottom-Up Review" which recommended construction of a
third Seawolf and the new attack submarine (NSSN), as well as designated
-- 13 --
<PAGE> 3
GENERAL DYNAMICS
the Company's Electric Boat Division as the shipyard to preserve the submarine
industrial base. However, unless the Company is awarded a third Seawolf
construction contract and other related government business, the current
backlog is insufficient to sustain operation of the Company's facilities until
construction begins on the NSSN, which is not expected until the end of this
decade.
Net sales decreased $94 during 1992 due to decreased construction
activity on the Trident and SSN 688 programs, partially offset by increased
Seawolf construction activity. Operating earnings increased $10 during 1992 due
primarily to the earnings recognized on the SSN 688 program.
ARMORED VEHICLES Net sales and operating earnings increased $25 and $52,
respectively, during 1993 due primarily to nonrecurring revenue of
approximately $40 recognized during the first and fourth quarters of 1993
related to the close-out of the Egyptian Tank Plant (ETP) and other
non-production contracts which were completed in 1993. Under the ETP contract,
the Company provided certain services to the Government of Egypt in the
construction and preparation of a facility to assemble tank kits manufactured
by the Company.
Higher production levels in 1993 on the Egyptian Coproduction and the
"Fox" Nuclear, Biological and Chemical Reconnaissance vehicle programs were
offset by lower M1 tank production. Under the Egyptian Coproduction program,
the Company is manufacturing M1A1 tank kits to be assembled by the Government
of Egypt in the facility previously discussed. 114 M1A1 kits were delivered to
Egypt in 1993 compared to 77 in 1992, bringing to-date deliveries to 210 from a
total order of 499. Deliveries of M1A1 kits to Egypt are expected to remain at
similar levels through 1996. Deliveries of Fox vehicles were completed during
the fourth quarter of 1993.
During the second quarter of 1993, domestic M1A1 tank production was
completed and M1A2 deliveries began to Saudi Arabia. The M1A2, the latest
version of the M1 main battle tank, incorporates battlefield management systems
aimed at providing improved fightability, as well as improved survivability of
the tank's four crew members. Of the 315 M1A2 tanks currently under contract
with Saudi Arabia, 167 were delivered in 1993 while the remaining 148 will be
delivered in 1994. The original order from Saudi Arabia included an additional
150 tanks, however, production of these tanks has been deferred indefinitely.
In May 1993, the U.S. Government signed a letter of offer and agreement with
the Kuwait Government for the procurement of 218 M1A2 tanks. Delivery of these
tanks is expected to take place during 1994 and 1995. The U.S. Congress
authorized and appropriated Fiscal Year 1992 funds to begin an M1 to M1A2
conversion program. Activity on this program is expected to begin in 1994.
Based on the Company's existing orders and absent an increase in the DoD's
current procurement rate, the Company will not be able to sustain its current
level of M1 revenues if additional foreign orders are not received.
Due to the favorable impact on the armored vehicle business base of
international M1A2 sales, the Company increased the M1 program earnings rate
during the third quarter of 1992. This earnings rate increase contributed to
the increase in operating earnings during 1993 and 1992.
The Company is currently participating in its first competitive bid under
the SINCGARS program. The Company was selected as the second-source producer
in 1988. The Company recorded losses on the original award and related options,
however, the current competition provides an opportunity for profitable
business. In addition, if the Company were successful in the competition,
SINCGARS net sales could become a significant part of the total net sales of
the segment. A decision on the competitive bid is expected during the first
half of 1994.
Net sales and operating earnings increased $132 and $26, respectively,
during 1992 due primarily to transitioning production from M1A1 to M1A2 tanks
and increased production on the Fox vehicle.
OTHER Net sales and operating earnings decreased $44 and $28,
respectively, during 1993 due primarily to the expiration of long-term coal
contracts at the end of 1992. As a result, an increasing percentage of coal was
sold in the spot market, wherein prevailing prices are lower than those under
the expired contracts. Current conditions in the spot market are not expected
to change in 1994. Net sales and operating earnings increased $26 and $8,
respectively, during 1992 due to the reopening of a suspended mine, the
acquisition of a new mine and increased productivity.
The Company provides ship management services for the U.S. Navy's
Maritime Prepositioning Ships (MPS) and the Maritime Administration's Ready
Reserve Force. The MPS are under five year contracts which are renewable
through the year 2011. Due to DoD budget pressures, two other MPS operators
have agreed to earnings rate reductions in their current contracts. The U.S.
Navy is currently discussing with the Company similar rate reductions as part
of the contract renewals due in 1995 and 1996. The Company is confident an
equitable resolution will be reached.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
increased during
-- 14 --
<PAGE> 4
GENERAL DYNAMICS
1993 due primarily to the provision for state and local income taxes. State and
local income taxes, which are allocable to U.S. Government contracts, were
significantly higher in 1993 as a result of the gain on the disposal of the
Tactical Military Aircraft business. In addition, the disposal of businesses
resulted in an increase in the allocation of Corporate Office costs to the
remaining businesses. Accordingly, the Company announced a reorganization of
its Corporate Office in March 1993 with the objective of reducing Corporate
Office costs by the end of 1994 to the same percent of total operating costs
and expenses as they were prior to adopting the plan of contraction (for
further discussion, see Note D to the Consolidated Financial Statements).
INTEREST, NET Interest income increased $6 in 1993 and $10 in 1992 due to
the increase in investments. Cash and equivalents and marketable securities
totaled $585 and $943 at 31 December 1993 and 1992, respectively. Interest
expense decreased $3 in 1993 and $7 in 1992 due to the reduction in outstanding
debt.
OTHER INCOME (EXPENSE), NET Other income increased in 1993 due primarily
to a $16 increase in the gain recognized from the sale of Federal Express
Corporation stock owned by the Company (for further discussion, see Note I to
the Consolidated Financial Statements), and the recognition of an additional
$14 of the deferred gain on the sale of the Company's information technology
operations due to the disposal of other operations (for further discussion, see
Note N to the Consolidated Financial Statements).
Other income increased in 1992 due primarily to the recognition of gains
of $26 from the sale of various investments and the first full year recognition
of the deferred gain from the sale of the Company's information technology
operations.
PROVISION (CREDIT) FOR INCOME TAXES During the third quarter, the
President signed into law the Omnibus Budget Reconciliation Act of 1993 which,
among other changes, increased the statutory Federal income tax rate from 34%
to 35%, retroactive to 1 January 1993. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
the Company recognized in its provision for income taxes in the third quarter
an $11 benefit related to the adjustment of its net deferred tax asset as of 1
January 1993 and an $11 charge related to its pretax earnings for the first six
months of 1993, including the gain on disposal of the Tactical Military
Aircraft business.
During the fourth quarter of 1992, the Company recognized $95, or $1.26
per share, of research and experimentation and investment tax credits as a
result of the completion of a company-wide study relating to certain prior
years expenditures. During 1991, the Company recognized a $140 gain, or $1.64
per share, from an adjustment to its deferred income tax liability. For further
discussion of these items, as well as a discussion of the Company's net
deferred tax asset, see Note E to the Consolidated Financial Statements.
DISCONTINUED OPERATIONS The Company has sold or intends to sell certain
businesses which are accounted for as discontinued operations in accordance
with Accounting Principles Board Opinion No. 30. Earnings (loss) from the
operations of these businesses amounted to $(30), or $(0.47) per share, in
1993; $136, or $1.80 per share, in 1992; and $231, or $2.70 per share, in 1991.
The decrease in earnings during the three years ended 31 December 1993 is due
primarily to the disposal of businesses (for a discussion of unusual items
impacting the operating results of discontinued operations, see Note B to the
Consolidated Financial Statements). The net loss in 1993 is due primarily to
losses recognized by the Space Launch Systems business. No additional losses
from operations are anticipated in 1994 prior to the disposal of the remaining
discontinued operations.
In March 1993, the Company completed the sale of its Tactical Military
Aircraft business to Lockheed Corporation, recognizing a gain on disposal of
$645, or $10.19 per share, net of income taxes of $331. During 1992, the
Company completed the sales of The Cessna Aircraft Company to Textron, Inc.,
its Missile Systems business to Hughes Aircraft Company and its Electronics
business to The Carlyle Group. The Company recognized in 1992 a gain on
disposal of these businesses of $374, or $4.95 per share, net of income taxes
of $22.
In December 1993, the Company announced the sale of its Space Launch
Systems business to Martin Marietta Corporation. The sale is expected to close
by April 1994 and result in the recognition of a gain on disposal.
EARNINGS PER SHARE On 4 March 1994, the Company's Board of Directors
authorized a two-for-one stock split effected in the form of a 100% stock
dividend. Accordingly, earnings per share data has been restated to give
retroactive recognition to the stock split for all periods presented.
During the third quarter of 1992, the Company purchased $960 of its
common stock through a tender offer. Although this transaction had no
earnings impact, earnings per share subsequent to the purchase increased
due to the reduction in shares outstanding.
-- 15 --
<PAGE> 5
GENERAL DYNAMICS
FINANCIAL CONDITION
OPERATING ACTIVITIES In analyzing the cash provided by operating activities,
Management believes it is important to note the portion derived directly from
continuing operations and its relationship to operating earnings. The
reconciliation of the two is quantified by the change in net operating assets,
which Management defines as those net assets directly employed in operations.
The change in net operating assets is segregated between working capital (e.g.
receivables, inventory, payables, etc. . .) and property, plant and equipment.
Accordingly, the analysis of operating cash flows includes capital
expenditures. Federal income tax payments and other Corporate cash flows not
directly related to operations, such as interest, are separately identified.
An analysis as discussed of the net cash provided by continuing
operations as reported on the Consolidated Statement of Cash Flows, after
capital expenditures, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating earnings $309 $255 $211
Depreciation, depletion and
amortization 41 48 53
Capital expenditures (13) (17) (19)
Decrease in operating
working capital 33 54 143
Other, primarily non-cash
items (39) (20) 35
- ----------------------------------------------------------------------------
Pre-tax operating cash
flow 331 320 423
Allocated Federal income
tax payments (78) (108) (162)
Corporate 23 (29) (29)
- ----------------------------------------------------------------------------
$276 $183 $232
============================================================================
</TABLE>
The Company has generated strong pre-tax operating cash flows during the
three years ended 31 December 1993. A substantial portion of cash flow came
from aggressive actions to reduce operating working capital. These actions
included more timely collection of receivables, the resolution of contractual
billing issues, and reductions in inventory levels and manufacturing span
times. In 1993, Other represents primarily the nonrecurring revenue recognized
by the ArmoredVehicles business which had previously been billed and collected.
The Company expects pre-tax operating cash flow to approximate operating
earnings in 1994.
For purposes of preparing the Consolidated Statement of Cash Flows,
Federal income tax payments are allocated between continuing and discontinued
operations based on the portion of taxable income attributed to each. Corporate
cash flow in 1993 represents primarily interest received from investments in
excess of interest paid on debt. Corporate cash flow was negative in 1992 due
primarily to the payout of deferred compensation.
The Company is cooperating with the U.S. Government and the Kingdom of
Saudi Arabia in the restructuring of payments due over the next two years
relating to certain arms purchases, including the Company's M1A2 tank. Because
the arms purchases are Foreign Military Sales through the U.S. Government, the
Company has no credit risk and expects no material negative cash flow impact to
result from these discussions.
As previously reported, the Company's A-12 aircraft contract was
terminated for default by the U.S. Navy in January 1991. In February 1991, the
U.S. Navy demanded repayment of the unliquidated progress payments made under
the contract, but agreed to defer collection pending resolution of the
termination dispute, which is in litigation. For further discussion of the A-12
termination and terms of the deferment agreement, see Note P to the
Consolidated Financial Statements.
For a discussion of environmental matters and other contingencies, see
Note O to the Consolidated Financial Statements. The Company does not deem its
liability, in the aggregate, with respect to these matters to be material to
the Company's financial condition or results of operations.
Net cash provided by discontinued operations declined during 1993 due
primarily to the disposal of businesses. Included in the net cash provided by
discontinued operations on the Consolidated Statement of Cash Flows are the
investing and financing activities of the discontinued businesses, as well as
an allocable portion of the Company's Federal income tax payments which for
1993 included the liability related to the gain on disposal of the Company's
Tactical Military Aircraft business.
INVESTING ACTIVITIES The Company received proceeds of $1,534 and $1,039
in 1993 and 1992, respectively, from the sale of discontinued operations (for a
discussion of individual transactions, see Note B to the Consolidated Financial
Statements). The Company expects to close the sale of its Space Launch Systems
business to Martin Marietta Corporation by April 1994 and will receive
approximately $209 in cash. Additional cash flows are expected to be generated
in 1994 from the disposal of other discontinued operations.
During 1993, the Company purchased $50 of investments and segregated them
for the purpose of funding certain expected long-term liabilities, such as
-- 16 --
<PAGE> 6
GENERAL DYNAMICS
unfunded compensation plans. Also, as previously discussed, the Company
received proceeds of $37 from the sale of its remaining investment in Federal
Express Corporation stock during the third quarter of 1993. The Company had
previously sold a portion of its investment in Federal Express Corporation
stock in 1992 for $21.
Management seeks investments that strategically enhance the Company and
offer risk-adjusted after-tax cash returns that exceed the Company's long-term
weighted average cost of capital. Since the late 1980s, the significant decline
in defense spending resulted in the Company's existing capacity being well in
excess of projected demand. This, coupled with a highly disciplined business
analysis process, has resulted in dramatically reduced levels of capital
spending. Accordingly, capital expenditures for continuing operations were only
$14 in 1993. The Company expects capital expenditures for the continuing
operations to total approximately $20 in 1994.
As part of the sale of discontinued operations, certain related
properties located primarily in southern California were retained by the
Company. These properties have been segregated on the Consolidated Balance
Sheet as real estate held for development. The Company has retained outside
experts to support the development of plans which will maximize the market
value of these properties. The Company does not expect to hold these
properties long term.
FINANCING ACTIVITIES As part of the strategy implemented in 1991, the
Company's top priority for the use of cash was liquidity and financial
strength. Accordingly, the Company redeemed two debt issues with a total face
value of $350 in the first quarter of 1992, the entire series of 9 3/8% Notes
which had a face value of $100 in May 1993, and the remaining $45 of 5 3/4%
Debentures in July 1993.
After meeting its operational and investment needs, the Company
purchased in July 1992 $960 of its common stock in a "Dutch Auction" tender
offer and made three special distributions to shareholders during 1993 totaling
$1,531. The special distributions represent substantially all of the funds
available for tax-advantaged distribution to shareholders from the sales of
businesses under the Company's 1992 plan of contraction.
On 4 March 1994, the Company's Board of Directors declared an increased
regular quarterly dividend of $.35 per share, adjusted for the previously
discussed stock split, reflecting the Board's confidence in the sustainability
of the cash flows generated by the Company's continuing operations. The Company
had previously increased the dividend to $.30 and $.20 per share in September
1993 and March 1992, respectively, also adjusted for the stock split.
The Company's Board of Directors reconfirmed Management's authority to
repurchase, at its discretion, up to 3 million shares of the Company's common
stock.
The Company expects to generate sufficient funds from operations to meet
both its short and long-term liquidity needs. In addition, the Company has the
capacity for long-term borrowings and currently has a committed, short-term
$850 line of credit. The line of credit expires in May 1994 at which time the
Company anticipates renewing the line or replacing it.
ACCOUNTING CHANGE In May 1993, the Financial Accounting Standards Board
issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This new standard defines three classifications for investments
and the accounting for each. The Company is required to adopt the new
accounting and disclosure rules on a prospective basis no later than 1994. This
standard is not expected to have a material impact on the Company's financial
condition or results of operations.
-- 17 --
<PAGE> 7
GENERAL DYNAMICS
CONSOLIDATED STATEMENT OF EARNINGS
Restated (See Notes A and K)
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C>
NET SALES $3,187 $3,225 $3,161
OPERATING COSTS AND EXPENSES 2,878 2,970 2,950
- -------------------------------------------------------------------------------------------------------
OPERATING EARNINGS 309 255 211
Interest, net 36 27 10
Other income (expense), net 68 28 (29)
- -------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 413 310 192
Provision (credit) for income taxes 143 5 (82)
- -------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 270 305 274
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Earnings (loss) from operations (30) 136 231
Gain on disposal 645 374 --
- -------------------------------------------------------------------------------------------------------
615 510 231
- -------------------------------------------------------------------------------------------------------
NET EARNINGS $ 885 $ 815 $ 505
=======================================================================================================
NET EARNINGS PER SHARE
Continuing operations $ 4.27 $ 4.03 $ 3.20
Discontinued operations:
Earnings (loss) from operations (.47) 1.80 2.70
Gain on disposal 10.19 4.95 --
- -------------------------------------------------------------------------------------------------------
$13.99 $10.78 $ 5.90
=======================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
-- 18 --
<PAGE> 8
GENERAL DYNAMICS
CONSOLIDATED BALANCE SHEET
Restated (See Notes A and K)
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- --------------------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 94 $ 511
Marketable securities 491 432
- --------------------------------------------------------------------------------------
585 943
Accounts receivable 62 68
Contracts in process 442 432
Net assets of discontinued operations 303 777
Other current assets 262 337
- --------------------------------------------------------------------------------------
Total Current Assets 1,654 2,557
- --------------------------------------------------------------------------------------
NONCURRENT ASSETS:
Leases receivable - finance operations 236 251
Real estate held for development 142 114
Property, plant and equipment, net 302 339
Other assets 301 269
- --------------------------------------------------------------------------------------
Total Noncurrent Assets 981 973
- --------------------------------------------------------------------------------------
$2,635 $3,530
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 145
Accounts payable and accrued expenses 566 491
Other current liabilities 209 342
- --------------------------------------------------------------------------------------
Total Current Liabilities 775 978
- --------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 38 38
Long-term debt - finance operations 163 179
Other liabilities 482 461
- --------------------------------------------------------------------------------------
Total Noncurrent Liabilities 683 678
- --------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, including surplus (shares issued 84,387,336) 92 84
Retained earnings 1,709 2,432
Treasury stock (shares held 1993, 21,823,824;
1992, 22,545,130) (624) (642)
- --------------------------------------------------------------------------------------
Total Shareholders' Equity 1,177 1,874
- --------------------------------------------------------------------------------------
$2,635 $3,530
======================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
-- 19 --
<PAGE> 9
GENERAL DYNAMICS
CONSOLIDATED STATEMENT OF CASH FLOWS
Restated (See Note A)
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 885 $ 815 $ 505
Adjustments to reconcile net earnings to net
cash provided by continuing operations -
Discontinued operations (615) (510) (231)
Depreciation, depletion and amortization 56 57 138
Decrease (Increase) in -
Accounts receivable 6 42 (3)
Contracts in process (10) 76 180
Leases receivable - finance operations 14 12 13
Other current assets (8) (24) 1
Increase (Decrease) in -
Accounts payable and other current liabilities (73) (98) (126)
Current income taxes 60 6 (108)
Deferred income taxes 5 (109) (136)
Other, net (30) (63) 25
- -------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 290 204 258
Net cash provided (used) by discontinued operations (438) 303 360
- -------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities (148) 507 618
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations 1,534 1,039 --
Proceeds from sale of investments and other assets 60 32 --
Proceeds from sale of information technology operations -- -- 184
Purchases of marketable securities, net (59) (125) (307)
Purchases of investments (50) -- --
Capital expenditures (14) (21) (26)
- -------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 1,471 925 (149)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Special distributions to shareholders (1,531) -- --
Repayment of debt (146) (454) (8)
Dividends paid (56) (55) (42)
Repayment of debt - finance operations (15) (14) (12)
Purchase of common stock -- (960) --
Proceeds from option exercises 8 57 --
- -------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (1,740) (1,426) (62)
- -------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (417) 6 407
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 511 505 98
- -------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 94 $ 511 $ 505
=======================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
-- 20 --
<PAGE> 10
GENERAL DYNAMICS
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Restated (See Note K)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
---------------------------------------------- Retained -----------------------
Shares Par Surplus Earnings Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions, except per
share amounts)
BALANCE, 31 DECEMBER 1990 110,884,200 $111 $ -- $2,164 27,541,094 $765
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 505
Cash dividends declared
($.50 per share) (42)
Shares issued under Incentive
Compensation Plan (7) (484,058) (14)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, 31 DECEMBER 1991 110,884,200 111 -- 2,620 27,057,036 751
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 815
Cash dividends declared
($.80 per share) (57)
Shares purchased under tender
offer (See Note K) 26,496,864 960
Shares retired (26,496,864) (27) (933) (26,496,864) (960)
Shares issued under Incentive
Compensation Plan (13) (4,511,906) (109)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, 31 DECEMBER 1992 84,387,336 84 -- 2,432 22,545,130 642
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 885
Cash dividends declared
($1.00 per share) (62)
Special distributions to
shareholders (See Note C) (1,546)
Shares issued under Incentive
Compensation Plan 8 (721,306) (18)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, 31 DECEMBER 1993 84,387,336 $ 84 $ 8 $1,709 21,823,824 $624
==================================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
-- 21 --
<PAGE> 11
GENERAL DYNAMICS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restated (See Notes A and K)
Dollars in millions, except per share amounts
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the
accounts of the Company and all majority-owned subsidiaries.
SALES AND EARNINGS UNDER LONG-TERM CONTRACTS AND PROGRAMS Major defense
programs are accounted for using the percentage-of-completion method of
accounting. The combination of estimated profit rates on similar, economically
interdependent contracts is used to develop program earnings rates. These rates
are applied to contract costs as incurred for the determination of sales and
operating earnings. All costs specifically reimbursable under contract terms,
including general and administrative expenses and research and development
costs, are treated as contract costs. Program earnings rates are reviewed
quarterly to assess revisions in contract values and estimated costs at
completion. Based on these assessments, any changes in earnings rates are made
prospectively.
Any anticipated losses on contracts or programs are charged to earnings
when identified. Such losses encompass all costs, including general and
administrative expenses, allocable to the contracts. Revenue arising from the
claims process is not recognized either as income or as an offset against a
potential loss until it can be reliably estimated and its realization is
probable.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
amounted to $292, $233 and $240 in 1993, 1992 and 1991, respectively, and are
included in operating costs and expenses on the Consolidated Statement of
Earnings.
RESEARCH AND DEVELOPMENT COSTS Company-sponsored research and development
costs, including bid and proposal costs, amounted to $33, $32 and $32 in 1993,
1992 and 1991, respectively, and are included in operating costs and expenses
on the Consolidated Statement of Earnings.
INTEREST, NET Interest income was $40, $34 and $24 in 1993, 1992 and
1991, respectively. Interest expense of $6, $22 and $44 has been allocated to
discontinued businesses in 1993, 1992 and 1991, respectively, on the ratio of
net assets of discontinued operations to consolidated net assets. Interest
expense incurred by the Company's finance operations totaled $15, $16 and $17,
in 1993, 1992 and 1991, respectively, and is classified as operating costs and
expenses. Interest payments for the total Company were $28, $58 and $86 in
1993, 1992 and 1991, respectively.
NET EARNINGS PER SHARE Net earnings per share are based upon the weighted
average number of common shares and equivalents outstanding during each period.
Common share equivalents are attributable primarily to outstanding stock
options. The weighted average shares and equivalents were 63.3, 75.6 and 85.6
million in 1993, 1992 and 1991, respectively. As there is not a material
difference between primary and fully diluted earnings per share, only fully
diluted earnings per share are presented.
CASH AND EQUIVALENTS The Company considers securities with a remaining
maturity of three months or less when purchased to be cash equivalents. Cash
and equivalents are stated at cost, which approximates market value.
MARKETABLE SECURITIES Marketable securities consist primarily of tax-
exempt municipal bonds, direct obligations of the U.S. Government and its
agencies, and other short-term investment funds. Marketable securities are
stated at cost, which approximates market value based on quoted market prices.
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS Accounts receivable
represent only amounts billed and currently due from customers. Recoverable
costs and accrued profit related to long-term contracts and programs on which
revenue has been recognized, but billings have not been presented to the
customer (unbilled receivable), are included in contracts in process.
Contracts in process are stated at cost incurred, plus estimated
earnings, less progress payments. Incurred costs include production costs and
related overhead, including general and administrative expenses. Incurred costs
also include certain costs required to be recorded under generally accepted
accounting principles which are not currently allocable to contracts such as a
portion of workers' compensation and retiree medical costs.
REAL ESTATE HELD FOR DEVELOPMENT As a result of the sale of businesses
discussed in Note B, certain related properties were retained by the Company.
These properties are carried at the lower of cost or net realizable value.
PROPERTY, PLANT AND EQUIPMENT The Company primarily uses accelerated
methods of depreciation for depreciable assets. Depletion of coal properties is
computed using the units-of-production method.
OTHER INVESTMENTS At 31 December 1993, the Company held investments in
preferred stock of $50 which are classified as noncurrent assets on the
Consolidated Balance Sheet. These investments are carried at cost, which
approximates market value based on quoted market prices.
-- 22 --
<PAGE> 12
ENVIRONMENTAL LIABILITIES The Company accrues environmental costs when it
is probable that a liability has been incurred and the amount can be reasonably
estimated. Any recorded liabilities have not been discounted. In circumstances
where the Company is jointly and severally liable, the Company has considered
its relative involvement in evaluating its exposure. To the extent
environmental costs are allocable to U.S. Government contracts, such
reimbursement is considered in estimating the loss. Any liabilities related to
businesses previously sold were accrued at the time of disposal.
CHANGES IN ACCOUNTING PRINCIPLES Effective 1 January 1993, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
SFAS No. 109, "Accounting for Income Taxes," as described in Notes R and E,
respectively.
In May 1993, the Financial Accounting Standards Board issued SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
requires the recognition of the fair value of certain investments in the
financial statements. The Company is required to adopt the provisions of this
standard on 1 January 1994. Adoption of this standard is not expected to have a
material impact on the Company's results of operations or financial condition.
CLASSIFICATION Consistent with industry practice, assets and liabilities
relating to long-term contracts and programs are classified as current although
a portion of these amounts is not expected to be realized within one year.
RESTATEMENTS The Consolidated Financial Statements, and the notes
thereto, have been restated to reflect the Company's Space Launch Systems
business segment as a discontinued operation in accordance with Accounting
Principles Board Opinion No. 30 (APB 30), as well as the reclassification of
certain businesses previously reported as discontinued operations to continuing
operations (see Note B for further discussion). In addition, certain prior year
amounts have been reclassified to conform to the current year presentation.
B. DISCONTINUED OPERATIONS
THE CESSNA AIRCRAFT COMPANY In February 1992, Textron, Inc. purchased The
Cessna Aircraft Company (Cessna) from the Company for $600 in cash. The
Company recognized a gain on disposal of $358, or $4.74 per share, net of
income taxes of $14. The gain on disposal for Federal income tax purposes was
significantly less than the reported gain due to the $464 purchase price
write-off from the Company's acquisition of Cessna which was not recognized for
tax purposes.
PLAN OF CONTRACTION On 6 May 1992, the Board of Directors of the Company
adopted a formal plan of contraction of the Company's business (for further
discussion, see Note C). In connection with the plan, the Company determined it
would focus on its area of principal competency: major weapons platform
integration. The Company believes each business must be a market leader. The
Company also believes that each business must have the potential to obtain
"critical mass", which it defines as having sufficient production volume to
retain key capabilities, ensure economies of scale and provide affordable
products and services. The Company determined that four of its businesses met
these criteria: Tactical Military Aircraft, Nuclear Submarines, Armored
Vehicles and Space Launch Systems. The Company intended to concentrate its
efforts on these businesses and therefore decided to sell all its other
businesses: the Missile Systems, Commercial Aircraft Subcontracting, Coal
Mining, Material Service, Electronics, Ship Management, and Ship Financing
businesses.
In August 1992, the Company closed the sale of its Missile Systems
business to Hughes Aircraft Company (Hughes) in exchange for approximately 21.5
million shares of General Motors Corporation (GM) Class H common stock. The
Company recognized a gain on disposal of the business of $7, or $.09 per share,
net of income taxes of $3. In October 1992, the Company received $387 for the
shares in a public offering by GM. Under the terms of the sales agreement, the
Company was to receive from Hughes an additional $63 on 30 September 1993. In
May 1993, the Company and Hughes reached an agreement that the $63 receivable
was to be offset by amounts determined to be payable by the Company to Hughes.
As a result, Hughes paid the Company a net amount of $9. As the Company had
previously established liabilities for discontinued operations, this settlement
did not have a material impact on the Company's results of operations.
In November 1992, the Company closed the sale of its Electronics
business, excluding the Single Channel Ground and Airborne Radio System
(SINCGARS) program, to The Carlyle Group. The Company recognized a gain on
disposal of $9, or $.12 per share, net of income taxes of $5.
In December 1993, the Company announced the sale of the lime and brick
operations of its Material Service business for $46 in cash. The Company
expects to complete the sale in the first quarter of 1994.
The businesses under the plan of contraction are accounted for as
discontinued operations in accordance with APB 30 which, among other
provisions, expects the plan of disposal to be carried out within one year.
During the fourth quarter of 1993, the Company identified certain businesses
included under the plan of contraction which no longer met this criteria. These
businesses have not been sold primarily because satisfactory sales terms could
not be reached. Accordingly, the Coal Mining, Ship Management and Ship
Financing businesses have been reclassified to continuing operations. In
addition, the SINCGARS program has been reclassified to continuing operations
due to Management's reassessment of the program's business opportunities. In
1992, these businesses had net sales and operating earnings of $243 and $39,
respectively, while at 31 December 1992, they had assets and liabilities
totaling $399 and $422, respectively. The Company presently intends to operate
these businesses, but, as the Company does with all of its businesses, will
continue to evaluate alternatives to maximize the value of each business. As to
the businesses remaining in discontinued operations, the Commercial
-- 23 --
<PAGE> 13
Aircraft Subcontracting business will be sold or it will complete its current
contractual obligations and seek no new business, while the Company intends to
sell individually the remaining product lines of the Material Service business.
TACTICAL MILITARY AIRCRAFT AND SPACE LAUNCH SYSTEMS In seeking to obtain
"critical mass" for the selected businesses discussed above, and only after
studying the various available strategic alternatives, the Company determined
that the sale of two of these businesses was the most viable alternative to
assure their continued strength. In March 1993, the Company closed the sale of
its Tactical Military Aircraft business to Lockheed Corporation for $1,525 in
cash. The Company recognized a gain on disposal of $645, or $10.19 per share,
net of income taxes of $331. Any contingencies associated with the terminated
A-12 aircraft program (see discussion at Note P) have been retained by the
Company.
In December 1993, the Company announced it had reached a definitive
agreement with Martin Marietta Corporation for the sale of the Company's Space
Launch Systems business for approximately $209 in cash. The Company expects to
close the sale by April 1994 and to recognize a gain on disposal.
EARNINGS FROM OPERATIONS The operating results of those businesses
classified as discontinued operations at 31 December 1993 are:
<TABLE>
<CAPTION>
Year ended 31 December 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,474 $5,460 $6,387
================================================================================
Earnings (loss) before
income taxes $ (44) $ 201 $ 337
Provision (credit) for
income taxes (14) 65 106
- --------------------------------------------------------------------------------
Net earnings (loss) $ (30) $ 136 $ 231
================================================================================
Net earnings (loss)
per share $ (.47) $ 1.80 $ 2.70
================================================================================
</TABLE>
1993, 1992 and 1991 results reflect charges of $25 ($16 after tax, or
$.25 per share), $33 ($22 after tax, or $.29 per share) and $71 ($47 after tax,
or $.55 per share), respectively, related to Space Launch System's Commercial
Atlas Expendable Launch Vehicle program. These charges were the direct result
of launch failures in each of those periods.
1992 results reflect a $47 ($31 after tax, or $.41 per share) charge
related to the early payout of the Company's Executive Deferred Compensation
plan. Due to the significant reduction in the size of the Company, it was
determined it would be prudent to terminate the plan which represented a
significant long-term liability. The charge, taken during the fourth quarter,
represents an equitable settlement for early termination of the plan. As this
action was the result of the decision to sell certain businesses, the charge is
reported in earnings from discontinued operations.
1991 results reflect a $109 reduction in Cessna's product liability
accrual which increased the Company's net earnings from discontinued operations
by $72, or $.84 per share. This reduction in the product liability accrual,
which was based on a report prepared by an independent actuarial firm, was the
result of favorable claim experience and favorable product liability
legislation in a number of states.
NET ASSETS OF DISCONTINUED OPERATIONS The assets and liabilities of those
businesses classified as discontinued operations at 31 December 1993 are:
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- -----------------------------------------------------------
<S> <C> <C>
Current assets $1,429 $2,217
Noncurrent assets 185 449
- -----------------------------------------------------------
Total Assets $1,614 $2,666
===========================================================
Current liabilities $1,280 $1,828
Noncurrent liabilities 31 61
- -----------------------------------------------------------
Total Liabilities $1,311 $1,889
===========================================================
Net Assets $ 303 $ 777
===========================================================
</TABLE>
C. SPECIAL DISTRIBUTIONS TO SHAREHOLDERS
On 6 May 1992, the Board of Directors of the Company adopted a formal plan of
contraction of the Company's business within the meaning of Internal Revenue
Code Section 302(e) (1) (B). Under the plan, the Company anticipated the sale
of certain qualifying businesses and the subsequent tax-advantaged distribution
of the proceeds on or before 31 December 1993. Although not contemplated as
part of the original plan, the proceeds from the sale of the Tactical Military
Aircraft business qualified for tax-advantaged distribution. However, the
proceeds from the sale of the Space Launch Systems business will not qualify as
the sale will be completed subsequent to 31 December 1993. Under the plan, the
Company made the following special distributions in 1993:
<TABLE>
<CAPTION>
CHARGED TO RETAINED EARNINGS
DATE ---------------------------------
DECLARED PAID DEFERRED TOTAL
- -------------------------------------------------------
<S> <C> <C> <C>
March 18 $ 612 $10 $ 622
June 2 551 8 559
September 15 368 5 373
- -------------------------------------------------------
$1,531 $23 $1,554
=======================================================
</TABLE>
The deferred portion of the distributions relates to restricted shares
held for the benefit of employees. These amounts will become payable as the
restrictions lapse. In addition, as the deferred amounts will represent
deductible compensation for Federal income tax purposes when the restrictions
on the related shares lapse, the Company recorded a tax benefit of $8 directly
to retained earnings related to the distributions. The total of the three
special distributions represents substantially all of the funds available for
tax-advantaged distribution to shareholders.
-- 24 --
<PAGE> 14
D. CORPORATE OFFICE REORGANIZATION
In March 1993, the Company announced a reorganization of its Corporate Office
as a result of the contraction of the Company. This reorganization includes
changes in senior management and reductions in corporate staff. During the
first quarter 1993, the Company recognized the estimated total cost of these
actions of approximately $75 (before tax). As a substantial amount of these
costs are directly related to the Company's formal plan of contraction, they
were charged to previously established liabilities for discontinued operations.
Consequently, these actions did not have a material impact on the Company's
results of operations.
E. INCOME TAXES
During the third quarter of 1993, the President signed into law the Omnibus
Budget Reconciliation Act of 1993 which, among other changes, increased the
statutory Federal income tax rate from 34% to 35%, retroactive to 1 January
1993. In accordance with SFAS 109, the Company recognized in its provision for
income taxes in the third quarter an $11 benefit related to the adjustment of
its net deferred tax asset as of 1 January 1993 and an $11 charge related
primarily to the adjustment of the provision for taxes on the gain on disposal
of the Tactical Military Aircraft business.
During the fourth quarter of 1992, the Company recognized $95 ($1.26 per
share) of research and experimentation and investment tax credits as a result
of the completion of a company-wide study relating to certain prior years
expenditures. The Internal Revenue Service (IRS) issued final regulations in
1989 relating to the research and experimentation tax credit. Prior to this no
definitive guidance existed. Claims in excess of the $75 in research and
experimentation credits recognized in 1992 have been submitted to the IRS,
however, further benefits will not be recognized until realization is assured.
In addition, $20 of investment tax credits were recognized relating to asset
purchases qualifying under transition rules from the Tax Reform Act of 1986
which repealed the credit.
During 1991, the Company recognized a $140 gain ($1.64 per share) from an
adjustment to its deferred income tax liability. The adjustment reflects the
conclusion of the IRS field audit of the Company's Federal income tax returns
for the years 1977 through 1986.
The provision (credit) for Federal income taxes for continuing operations
is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1993 1992 1991
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current $138 $114 $ 54
Deferred 5 (109) (136)
- --------------------------------------------------------------------
$143 $ 5 $(82)
====================================================================
</TABLE>
The reconciliation from the statutory Federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1993 1992 1991
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35.0% 34.0% 34.0%
Research and experimentation
and investment tax
credits -- (30.6) --
Adjustment to deferred
income tax liability -- -- (72.9)
Tax-exempt interest
income (1.0) (.6) (2.1)
Other 0.6 (1.2) (1.7)
- -------------------------------------------------------------------------
Effective income tax
(benefit) rate 34.6% 1.6% (42.7)%
=========================================================================
</TABLE>
The Company adopted SFAS No. 109, "Accounting for Income Taxes," as of 1
January 1993. As the Company had been following the provisions of SFAS No. 96,
"Accounting for Income Taxes," adoption of SFAS 109 did not have a material
impact on the Company's financial condition or results of operations.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- --------------------------------------------------
<S> <C> <C>
Long-term contract
costing methods $143 $145
Accrued costs on disposed
businesses 84 100
A-12 termination 71 106
Restructuring costs 40 29
Coal mining liabilities 28 32
Other 109 53
- --------------------------------------------------
Deferred Assets $475 $465
==================================================
Lease income $ 86 $ 88
Other 69 52
- --------------------------------------------------
Deferred Liabilities $155 $140
==================================================
Net Deferred Asset $320 $325
==================================================
</TABLE>
No valuation allowance was required for the Company's deferred tax assets
as of 31 December 1993 and 1992. The current portion of the net deferred tax
asset is $214 and $203 at 31 December 1993 and 1992, respectively, and is
included in other current assets on the Consolidated Balance Sheet. Deferred
taxes for the discontinued operations are included in the net assets of
discontinued operations on the Consolidated Balance Sheet.
The Company made Federal income tax payments of $316, $258 and $523 in
1993, 1992 and 1991, respectively.
Certain issues related to the IRS audit of the Company's consolidated
Federal income tax returns for the years 1977 through 1986 were not resolved at
the administrative level. Accordingly, the Company expects to receive a
Statutory Notice of Deficiency which it will contest in the U.S. Tax Court. In
addition, the IRS is
-- 25 --
<PAGE> 15
reviewing the Company's consolidated Federal income tax returns for the years
1987 through 1989. The Company has recorded liabilities for tax contingencies.
Accordingly, resolution of the Tax Court litigation and the 1987-1989 audit are
not expected to have a material impact on the Company's financial condition or
results of operations.
The provision for state and local income taxes, which is allocable to
U.S. Government contracts, is included in operating costs and expenses.
F. CONTRACTS IN PROCESS
Contracts in process consist of the following:
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Government contracts in process $4,307 $4,144
Other 146 119
- -------------------------------------------------------------------
4,453 4,263
Less advances and progress
payments 4,011 3,831
- -------------------------------------------------------------------
$ 442 $ 432
===================================================================
</TABLE>
At 31 December 1993 and 1992, costs of $110 and $88, respectively, are
included in contracts in process, but are not currently allocable to contracts.
Substantially all other amounts included in contracts in process represent an
unbilled receivable. General and administrative costs included in contracts in
process amounted to $28 and $25 at 31 December 1993 and 1992, respectively.
Under the contractual arrangements by which progress payments are
received, the U.S. Government asserts that it has a security interest in the
contracts in process identified with the related contracts.
G. PROPERTY, PLANT AND
EQUIPMENT, NET
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 79 $ 93
Coal reserves 53 52
Buildings and improvements 156 150
Machinery and equipment 870 918
- -------------------------------------------------------------------
1,158 1,213
Less accumulated depreciation,
depletion and amortization 856 874
- -------------------------------------------------------------------
$ 302 $ 339
===================================================================
</TABLE>
Certain plant facilities are provided by the U.S. Government.
H. CURRENT LIABILITIES
Current liabilities consist of the following:
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Accounts payable $157 $126
Accrued workers'
compensation 174 201
Accrued salaries
and wages 71 81
Income taxes payable 35 --
Other 129 83
- -------------------------------------------------------------------
Accounts payable and
accrued expenses $566 $491
===================================================================
A-12 termination liability
and legal fees $ 57 $112
SINCGARS loss provision 48 78
Other 104 152
- -------------------------------------------------------------------
Other current
liabilities $209 $342
===================================================================
</TABLE>
I. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
9 3/8% Notes due 1995 $ -- $100
5 3/4% Exchangeable Subordinated
Debentures due 2011 -- 45
9.95% Debentures due 2018 39 39
- -------------------------------------------------------------------
39 184
Less:
Unamortized discount 1 1
Current portion -- 145
- -------------------------------------------------------------------
$ 38 $ 38
===================================================================
</TABLE>
The Company redeemed on 15 May 1993 the entire series of 9 3/8% Notes at
face value. In addition, in July 1993, the Company redeemed the remaining
5 3/4% Exchangeable Subordinated Debentures.The 5 3/4% Debentures were
exchangeable for shares of Federal Express Corporation common stock owned by
the Company and having no book value. As a result of retiring these Debentures,
the Federal Express Corporation stock held by the Company was available for
sale.These shares were sold during the third quarter of 1993 and the fourth
quarter of 1992 for $37 and $21, respectively, with the corresponding gain
reported as other income.The shares of Federal Express Corporation stock held
by the Company at 31 December 1992 had a fair market value of $35 based on
quoted market prices.
Annual sinking fund payments, sufficient to retire 5% of the $100
aggregate principal amount originally issued, will commence in 2011 for the
9.95% Debentures. Among the restrictions under the Indenture covering the
unsecured Debentures are provisions limiting the Company's ability to secure
additional debt through mortgages on existing properties and sale and leaseback
transactions of principal properties as defined.The
-- 26 --
<PAGE> 16
Company's outstanding debt had a fair value of $45 and $188 at 31
December 1993 and 1992, respectively, based on quoted market prices.
The Company may borrow up to $850 under a committed, short-term line of
credit.Under the line of credit, the Company pays a fee on the commitment and
would pay interest at varying rates based on market conditions.There were no
borrowings under the line of credit during 1993 and 1992.
J. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Accrued costs on disposed
businesses $239 $295
Coal mining related
liabilities 74 78
Other 169 88
- -------------------------------------------------------------------
$482 $461
===================================================================
</TABLE>
The Company has recorded liabilities for contingencies retained by the
Company related to disposed businesses. These liabilities include retiree
medical obligations prior to the adoption of SFAS 106, environmental, legal and
the estimated cost of facility dispositions and other restructuring actions
contemplated as a result of the Company's plan of contraction.
The Company has certain liabilities which are specific to the coal mining
industry. These liabilities include workers' compensation, reclamation, and
mine suspension and closing costs. The Company is subject to the Federal Coal
Mine Health & Safety Act of 1969, as amended, and the related workers'
compensation laws in the states in which it operates. These laws require the
Company to pay benefits for occupational disability resulting from coal
workers' pneumoconiosis (black lung). The liability for these claims represents
the present value, based on a 6% discount rate, of known claims and an
actuarially-determined estimate of future claims that will be awarded to
current and former employees. Liabilities to reclaim land disturbed by the
mining process and to perform other closing functions are recorded over the
production lives of the mines. Liabilities related to closed or suspended mines
were established in connection with the termination of a coal supply agreement.
K. SHAREHOLDERS' EQUITY
STOCK SPLIT On 4 March 1994, the Company's Board of Directors authorized
a two-for-one stock split effected in the form of a 100% stock dividend to be
distributed on 11 April 1994 to shareholders of record on 21 March 1994.
Shareholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from retained earnings
to common stock the par value of the additional shares arising from the split.
In addition, all references in the financial statements to number of shares,
per share amounts, stock option data, and market prices of the Company's
common stock have been restated.
AUTHORIZED STOCK The authorized capital stock of the Company consists of
200 million shares of $1 par value common stock and 50 million shares of $1 par
value preferred stock issuable in series, with the rights, preferences and
limitations of each series to be determined by the Board of Directors.
TENDER OFFER During the third quarter of 1992, the Company completed the
purchase of $960 of its common stock, including transaction costs of
approximately $3, in accordance with the terms of its "Dutch Auction" tender
offer. All shares acquired through the tender offer were retired.
L. FINANCE OPERATIONS
The Company owns three liquefied natural gas (LNG) tankers which have been
leased to nonrelated companies through the year 2004. The leases are financed
through Title XI Bonds which are secured by the LNG tankers. Under Title XI
financing, the debt is guaranteed by the U.S. Government with no recourse to
the Company. Accordingly, in the event the lessee defaults on the lease
payments, the Company is not obligated to repay the debt.
The following is a summary of the comparative financial statements for
the finance operations:
<TABLE>
<CAPTION>
BALANCE SHEET DATA
31 DECEMBER 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
ASSETS
Leases receivable $251 $265
Due from parent 92 100
- ------------------------------------------------------------------
$343 $365
==================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt $175 $190
Income taxes 86 88
Shareholder's equity 82 87
- -------------------------------------------------------------------
$343 $365
===================================================================
</TABLE>
<TABLE>
EARNINGS DATA
YEAR ENDED 31 DECEMBER 1993 1992 1991
- -------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $17 $18 $18
Interest expense and
income taxes 16 17 17
- -------------------------------------------------------------------
Net earnings $ 1 $ 1 $ 1
===================================================================
</TABLE>
-- 27 --
<PAGE> 17
The Company is scheduled to receive a $31 minimum lease payment annually
through the year 2003. The components of the Company's net investment in the
leases receivable are as follows:
31 DECEMBER 1993 1992
- -------------------------------------------------------------------
Aggregate future minimum
lease payments $319 $350
Unguaranteed residual value 38 38
Less unearned interest income 106 123
- -------------------------------------------------------------------
$251 $265
===================================================================
The finance operations debt had an estimated fair value of $181 and $195
at 31 December 1993 and 1992, respectively, based on a risk-adjusted discount
rate. Semiannual sinking fund payments, sufficient to retire 100% of the
aggregate principal amount of the debt, have commenced and will continue
through maturity in 2004. The interest rate on the debt varies from 8.0% to
9.0%, with a weighted average rate of 8.1%. The schedule of principal payments
for the next five years is $12 in 1994, $13 in 1995, $14 in 1996, $15 in 1997
and $16 in 1998.
M. LEASES
Rental expense, substantially all of which is minimum rentals, was $24, $29 and
$37 in 1993, 1992 and 1991, respectively. Rental commitments under existing
operating leases at 31 December 1993 are $22 in 1994, $14 in 1995, $11 in 1996,
$3 in 1997, $3 in 1998 and $6 thereafter.
N. OUTSOURCING OF INFORMATION TECHNOLOGY OPERATIONS
In November 1991, the Company signed an agreement with Computer Sciences
Corporation (CSC) for the sale of the information technology operations of the
Company's Data Systems Division. Under a related agreement, CSC has the
exclusive right to provide information technology services to the Company's
defense units for ten years. The agreement provides for minimum aggregate
payments to CSC during the first three years of the service agreement and
payments equal to 90% of the Company's estimated annual usage thereafter. At 31
December 1993, the Company has substantially fulfilled the minimum aggregate
payments related to the first three years. As the Company had a significant
continuing involvement in the use of the assets sold, the $51 gain (before tax)
on the sale was being deferred and amortized on a straight-line basis over
three years into other income. Due to the novation of the Company's agreement
with CSC allowing the buyers of the Company's sold businesses to assume the
remaining obligation applicable to businesses sold, the Company's continuing
involvement has diminished. Accordingly, after completing an analysis during
the second quarter of 1993, the Company recorded $14 of the previously deferred
gain which was attributable to businesses sold. The remaining balance is being
recognized on a straight-line basis through the end of 1994, which is
consistent with the original amortization period.
O. CONTINGENCIES
As previously reported, the Company is a defendant in U.S. vs. Davis et al, a
civil action in the Federal District Court for the Southern District of New
York in which the U.S. Government alleges claims under the Civil False Claims
Act. A judgment in favor of the Company was entered on 2 October 1992. On 4
January 1993, the U.S. Government appealed the District Court's judgment in
favor of the Company. This appeal is now pending.
On 7 January 1991, the U.S. Navy terminated for default a contract with
the Company and McDonnell Douglas Corporation (McDonnell Douglas) for the
full-scale development of the U.S. Navy's A-12 aircraft. The U.S. Navy has
demanded repayment of unliquidated progress payments. The Company and McDonnell
Douglas have a claim pending against the U.S. Government in the Court of
Federal Claims (See Note P).
The Company is a defendant in a shareholders' derivative action filed in
the California Superior Court for San Diego County on 17 January 1991. The suit
was dismissed by the court on 10 May 1993, because the plaintiffs failed to
make a demand on the Board of Directors of the Company prior to bringing
action. The period to amend the complaint has expired.
On 8 March 1993, a class action lawsuit, Berchin et al vs. General
Dynamics Corporation and William A. Anders, was filed in the Federal District
Court for the Southern District of New York. The suit alleges violations of
various provisions of federal securities laws, fraud, negligent
misrepresentation, and breach of fiduciary duty by the defendants with regard
to disclosures made, or omitted, in the Company's tender offer completed in
July 1992 and the subsequent divestiture of core businesses. The Company
believes there is no liability in connection with this matter and intends to
vigorously defend itself.
The Company is also involved in other suits, proceedings and
investigations. The Company is involved in or has been designated a Potentially
Responsible Party in respect to a number of Superfund and waste disposal sites
with potential liability for cleanup costs under the Federal Comprehensive
Environmental Response, Compensation and Liability Act. The Company has made a
detailed review of these waste disposal sites, giving consideration to the
Company's relative involvement in the sites compared to other companies. Most
of the sites in question were used in the conduct of the Company's U.S.
Government contracting business. To the extent cleanup costs are allocable to
U.S. Government contracts, such reimbursement has been considered in
estimating the Company's loss. While the extent of remediation and of the
Company's liability in these matters is difficult to estimate, in the aggregate
these proceedings and matters are not deemed material to the financial
condition or results of operations of the Company.
In the ordinary course of business, the Company has entered into letter
of credit agreements and other arrangements with financial institutions
aggregating approximately $120 at 31 December 1993. The Company also has a
remaining firm purchase commitment for rocket engines of $255 at 31 December
1993. The Company was
-- 28 --
<PAGE> 18
contingently liable for debt and lease guarantees and other arrangements
aggregating up to a maximum of approximately $160 and $170 at 31 December 1993
and 1992, respectively. Approximately $45 of the $160 the Company was
contingently liable for at 31 December 1993, as well as the aforementioned firm
purchase commitment, will be assumed by the buyer of the Company's Space Launch
Systems business.
In connection with the sale of defense businesses, the Company remains
contingently liable for performance by the purchaser of these businesses under
contracts entered into with the U.S. Government. The Company believes the
probability of any liability arising from this matter is remote. In addition,
the sales agreements contain certain representations and warranties under which
the purchasers have certain specified periods of time to assert claims against
the Company. Some claims have been asserted which are material in amount, but
the Company does not believe that its liability as a result of these claims
will exceed the liabilities recorded at the time of the sales.
P. A-12 TERMINATION
As stated above, on 7 January 1991, the U.S. Navy terminated the Company's A-12
aircraft contract for default. The Company's A-12 contract was a fixed-price
incentive contract for the full-scale development and initial production of the
U.S. Navy's new carrier-based Advanced Tactical Aircraft. Both the Company and
McDonnell Douglas were parties to the contract with the U.S. Navy and each had
full responsibility to the U.S. Navy for performance under the contract. Also,
the Company and McDonnell Douglas are parties to a teaming agreement in which
profits and losses under the contract are shared equally. The Company and
McDonnell Douglas remain jointly and severally liable to the U.S. Navy under
the A-12 contract for any potential liabilities arising out of the termination.
As a result of the termination, the Company fully reserved the contracts
in process balance associated with the A-12 program and recognized the
Company's estimated termination liabilities, primarily to its vendors. The
Company has neither recognized any claim revenue from the U.S. Navy, nor any
potential return of unliquidated progress payments to the U.S. Navy, in its
financial statements. The Company recorded charges in 1990 totaling $724
(before tax), which are included in earnings from discontinued operations,
related to the A-12 program due to its termination and earlier identified cost
overruns.
In February 1991, the U.S. Navy demanded payment of unliquidated progress
payments in the approximate amount of $1,400 from the team, but agreed to defer
collection pending resolution of the termination dispute. Terms of the
deferment agreement include a requirement for the team to maintain sufficient
assets or available credit to pay the unliquidated progress payments plus any
accrued interest. As a result of the review, the team is also required to
notify the U.S. Navy prior to any special distributions to shareholders or
repurchase of a material amount of its stock.
The Company and McDonnell Douglas filed a complaint on 7 June 1991 in the
U.S. Court of Federal Claims to contest the default termination. The suit, in
effect, seeks to convert the termination for default to a termination for
convenience of the U.S. Government. The Company and McDonnell Douglas also
filed, in the second quarter of 1991, an equitable adjustment claim against the
U.S. Navy for approximately $1,100 and a claim in the nature of a termination
settlement proposal in the approximate amount of $1,300. These claim amounts
are not exclusive of each other. Additional claims are expected to be filed at
a later date. In the aggregate, through these claims, the Company and McDonnell
Douglas seek to recover payment for all work done and costs incurred in the
A-12 program and its termination.
A trial on Count XVII of the complaint, which relates to the propriety of
the termination for default, was concluded in October 1993. In December 1993,
the Court issued preliminary findings of fact which appear favorable to the
Company and McDonnell Douglas. The Court will not issue a decision before 21
July 1994, during which time other counts in the complaint will be prepared for
decision. Except for default or a violation of one of the terms on financial
responsibility, the U.S. Navy has agreed not to seek to terminate the deferment
agreement prior to a ruling by the U.S. Court of Federal Claims. The Company
believes that ultimately it will be found not to have been in default of the
contract.
In the unlikely event that the Company and McDonnell Douglas are
ultimately found to be in default of the A-12 contract, additional losses of
approximately $650 (before tax) may be recognized by the Company. This
estimated additional loss is based upon certain assumptions which are
periodically reviewed by the Company and McDonnell Douglas. This estimate does
not include interest that may ultimately be payable to the U.S. Government as
provided by the deferment agreement.
Q. INCENTIVE COMPENSATION PLAN
Under the 1988 Incentive Compensation Plan, as amended, the Company may grant
awards in combination of cash, common stock, stock options and restricted
stock. In order to encourage Management to continue focusing on shareholder
value, the Company introduced a new long-term incentive program in October
1993. The program includes Performance Restricted Stock and Performance Stock
Options granted at the then current market value of $47 per share. The
restricted stock has a two year performance period with 50% of the grant
dependent on performance as measured at the end of 1994 and the remaining 50%
dependent on performance as measured at the end of 1995. For every dollar
change in the stock price during the performance period, an additional dollar's
worth of restricted stock will be granted (stock price increase) or forfeited
(stock price decrease) for each share originally granted. Restrictions on the
shares lapse two years after the performance period. The stock options become
exercisable when a specific time period has lapsed and a stock price "hurdle"
has been achieved. Fifty percent of the options may be
-- 29 --
<PAGE> 19
exercised after 31 December 1994 if the first price hurdle of $52.50 per share
is achieved, and the remaining 50% may be exercised after 31 December 1995 if
the second price hurdle of $60 per share is achieved. The hurdles are deemed
achieved whenever the average stock price is at or above the price hurdle for
30 consecutive trading days anytime during the five year term of the options.
In addition, the options become exercisable during the last 30 days of their
term even if the hurdles are not achieved.
There were 327,140 shares of restricted
stock awarded in 1993, and 1,127,680 shares outstanding at year end.
Information with respect to stock options is as follows:
<TABLE>
<CAPTION>
1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
NUMBER OF SHARES UNDER
STOCK OPTIONS:
Outstanding at beginning
of year 2,937,704 7,575,152
Granted 1,394,190 233,190
Exercised (493,308) (4,399,730)
Canceled (228,158) (470,908)
- -------------------------------------------------------------------
Outstanding at end of year 3,610,428 2,937,704
===================================================================
PRICE OF STOCK OPTIONS:
Granted $46.66-50.07 $28.32-39.75
Exercised $ 7.21-39.16 $11.91-39.16
Canceled $ 7.58-38.19 $12.16-39.16
Outstanding $ 7.21-47.00 $12.16-39.75
===================================================================
</TABLE>
There were 205,518 and 324,438 stock options exercisable at 31 December
1993 and 1992, respectively. An additional 2,006,000 stock options became
exercisable in February 1994. At 31 December 1993, 1,915,348 shares have been
reserved for options which may be granted in the future in addition to the
shares reserved for issuance on the exercise of options outstanding.
The price of stock options was adjusted in 1993 for the impact of the
Company's special distribution to shareholders.
During 1993 and 1992, Federal income tax benefits of $7 and $54,
respectively, were credited to shareholders'equity primarily as a result of
the exercise of non-qualified stock options which generated deductions for the
Company equal to the difference between the market price at the date of
exercise and the option price.
R. RETIREMENT PLANS
PENSION The Company has five trusteed noncontributory defined benefit pension
plans covering substantially all employees. Under certain of the plans,
benefits are primarily a function of both the employee's years of service and
level of compensation, while under other plans, benefits are a function only of
years of service.
It is the Company's policy to fund the plans to the maximum extent
deductible under existing Federal income tax regulations. Such contributions
are intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future.
Net periodic pension cost for the total Company included the following:
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during period $ 70 $124 $153
Interest cost on projected
benefit obligation 164 263 269
Actual return on plan
assets (350) (246) (923)
Net amortization and
deferral 129 (92) 604
- ------------------------------------------------------------------------------
$ 13 $ 49 $103
==============================================================================
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
31 DECEMBER 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit
obligation $(1,891) $(2,374)
- -------------------------------------------------------------------
Accumulated benefit
obligation $(1,933) $(2,424)
- -------------------------------------------------------------------
Projected benefit obligation $(2,138) $(2,699)
Plans' assets at fair value 2,674 3,910
- -------------------------------------------------------------------
Plans' assets in excess of projected
benefit obligation 536 1,211
Unrecognized net gain (284) (823)
Unrecognized prior service cost 362 282
Unrecognized net asset at
1 January 1986 (65) (139)
- -------------------------------------------------------------------
Prepaid pension cost $ 549 $ 531
===================================================================
</TABLE>
Assumptions used in accounting for the plans are
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7% 8% 8%
Varying rates of increase in
compensation levels
based on age 4.5-10% 4.5-10% 4.5-10%
Expected long-term rate of
return on assets 8% 8% 8%
=================================================================
</TABLE>
Under SFAS No. 87, "Employers' Accounting for Pensions," the Company is
required to assume a discount rate at which the obligation could be currently
settled. Due to the current decline in long-term interest rates, the
Company reduced its discount rate assumption from 8% to 7% at 31 December 1993
which increased the projected benefit obligation at 31 December 1993
approximately $265. In addition, plan amendments were adopted during 1993 (see
discussion under other postretirement benefits) which increased the projected
benefit obligation at 31 December 1993 approximately $160 and net periodic
pension cost for 1993 approximately $15. The sale of the Company's Tactical
Military Aircraft business was the primary reason for the overall decrease in
the projected benefit obligation, plan assets and net periodic pension cost in
1993.
-- 30 --
<PAGE> 20
Increases in prior service cost resulting from plan amendments are
amortized on a straight-line basis over the average remaining service period of
employees expected to receive benefits under the plan.
During 1992, the pension obligation associated with certain employees
covered under the commercial plan was annuitized, resulting in the realization
of a settlement gain of approximately $82 (before tax). This gain has been
deferred to offset any costs associated with the final disposition of the
commercial plan, either through reversion or other actions. This deferred gain
has been classified against the prepaid pension cost related to the commercial
plan resulting in a net asset of $115 and $106 at 31 December 1993 and 1992,
respectively, which is included in other noncurrent assets on the Consolidated
Balance Sheet. Also during 1992, the Company recognized a $40 (before tax)
pension settlement and curtailment gain as part of the gain on disposal of
Cessna.
The Company's contractual arrangements with the U.S. Government provide
for the recovery of contributions to the Company's government plans.
Historically, the amount contributed to these plans, charged to contracts and
included in net sales has exceeded the net periodic pension cost included in
operating costs and expenses as determined under SFAS 87. Therefore, the
Company has deferred recognition of earnings resulting from the difference
between contributions and net periodic pension cost to provide better matching
of revenues and expenses. Similarly, pension settlements and curtailments
which resulted from the sale of businesses whose employees were covered under
the government plans have also been deferred. As the U.S. Government will
receive an equitable interest in the excess assets of a government pension plan
in the event of plan termination, the aforementioned deferrals have been
classified against the prepaid pension cost related to the government plans
resulting in the recognition of no net asset on the Consolidated Balance Sheet.
At 31 December 1993, approximately 54% of the plans' assets are invested
in securities of the U.S. Government or its agencies, 34% in common stocks and
equivalents, and 12% in diversified corporate fixed income securities.
In addition to the defined benefit plans, the Company provides eligible
employees the opportunity to participate in savings plans that permit
contributions on both a pre-tax and after-tax basis. Generally, salaried
employees and certain hourly employees with at least one year of continuous
service are eligible to participate. Under the plans, the employee may
contribute to various investment alternatives, including investment in the
Company's common stock. In certain of the plans, the Company matches a portion
of the employees' contributions with contributions to a fund which invests in
the Company's common stock. The Company's contributions amounted to $43, $84
and $99 in 1993, 1992 and 1991, respectively. Approximately 6 million shares of
the Company's common stock were held by the plans at both 31 December 1993 and
1992.
OTHER POSTRETIREMENT BENEFITS Historically, the Company has provided
certain health care and life insurance benefits for retired employees. The
coverage provided and the extent to which retirees share in the cost of the
benefits vary. During the first quarter of 1993, the Company announced a number
of changes to the retiree medical programs for its non-union retirees and
employees. Commencing 1 July 1993, the Company discontinued its post-65,
self-insured retiree medical program. Concurrently, a pension improvement of
$94 per month was provided to retirees and their spouses age 65 and older.
Additionally, the Company's pre-65 retiree medical program continued to be
available only for retirees age 55 and older, and those employees who had
attained the age of 50 and with a certain number of years of service as of 1
July 1993. Later in 1993, this program was also negotiated with certain union
groups.
Effective 1 January 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires the
recognition of postretirement benefits over the period in which active
employees become eligible for such benefits. Previously, the Company
recognized these costs on the cash basis which amounted to $40 and $33 in 1992
and 1991, respectively. The Company elected to implement this new standard by
recognizing the transition obligation prospectively over the average estimated
remaining service life of active employees. The transition obligation excludes
the estimated retiree medical liability retained by the Company for businesses
sold prior to the adoption of SFAS 106 which was recognized at disposition in
accordance with the provisions of APB 30.
The net periodic postretirement benefit cost for the total Company
included the following:
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1993
- --------------------------------------------------------------
<S> <C>
Service cost - benefits earned during period $13
Interest cost on projected benefit obligation 41
Actual return on plan assets (6)
Amortization of unrecognized
transition obligation 41
- --------------------------------------------------------------
$89
==============================================================
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
31 DECEMBER 1993
- --------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ 307
Other fully eligible participants 139
Other active participants 285
- --------------------------------------------------------------
731
Less plans' assets at fair value 98
- --------------------------------------------------------------
Obligation in excess of plans' assets 633
Unrecognized transition obligation (518)
Unrecognized net loss (88)
- --------------------------------------------------------------
Accrued postretirement benefit obligation $ 27
==============================================================
</TABLE>
-- 31 --
<PAGE> 21
Since the adoption of SFAS 106 in the first quarter of 1993, the Company
has reclassified certain businesses previously reported as discontinued
operations to continuing operations. The accumulated postretirement benefit
obligation associated with these businesses at 31 December 1993 is $130 and
their net periodic cost is $20. Substantially all of the obligation and cost is
related to the Company's coal mining business.
Assumptions used in accounting for the plans were a discount rate of 7%,
an expected long-term rate of return on plan assets of 8%, and health care cost
trend rates of 9% and 11.5% to 15% for post-65 and pre-65 claim groups,
respectively, in 1993, gradually declining to 4.5% and 5.0% for post-65 and
pre-65 claim groups, respectively, in the year 2004 and thereafter over the
projected payout period of the benefits.
The effect of a one percent increase each year in the health care cost
trend rate used would result in an increase of $85 in the accumulated
postretirement benefit obligation at 31 December 1993, and an increase of $8
in the aggregate of the service and interest cost components of the 1993 net
periodic cost.
The Company established and began funding a Voluntary Employees'
Beneficiary Association (VEBA) trust in 1992 for certain plans in the amount of
their related annual net periodic postretirement benefit cost under SFAS 106.
At 31 December 1993, the trust's assets were invested primarily in securities
of the U.S. Government and short-term investment funds. The remaining plans
are primarily funded as claims are received.
The Company's contractual arrangements with the U.S. Government provide
for the recovery of contributions to a VEBA and costs based on claims paid. The
net periodic postretirement benefit cost calculated pursuant to SFAS 106 is
expected to exceed the Company's currently recoverable cost. To the extent the
Company has firm contracts in backlog sufficient to recover the excess SFAS 106
cost, the Company is deferring the charge in contracts in process until such
time that the cost is allocable to contracts. As a result, the adoption of SFAS
106 did not have a material impact on the Company's 1993 results of operations.
In addition to the provided benefits discussed above, the Company has
certain employees covered by multiemployer plans, including the fund
established by the Coal Industry Retiree Health Benefit Act of 1992 (the Act).
The Company estimates its obligation under the Act to former employees to be
approximately $35 at 31 December 1993. The Act also provides for the allocation
of beneficiaries who cannot be assigned to an employer. The Company's
obligation related to such beneficiaries cannot be determined at this time. The
Company accounts for its contributions related to these plans on the cash
basis.
S. SUMMARY OF BUSINESS SEGMENT INFORMATION
Business Segment Information is included in Management's Discussion and
Analysis of the Results of Operations and Financial Condition.
T. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK (e)
--------------------------------------------
MARKET PRICE
RANGE (f)
NET OPERATING NET EARNINGS ----------------- SPECIAL
SALES(d) EARNINGS(d) EARNINGS PER SHARE(e) HIGH LOW DIVIDENDS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 4th Quarter $779 $90 $ 64 $ 1.01 $49 9/16 $44 3/8 $.30 $ --
3rd Quarter 776 64 73 1.15 50 3/8 43 5/8 .30 6
2nd Quarter 774 65 61 .97 49 7/8 40 3/16 .20 9
1st Quarter (a) 858 90 687 10.90 60 47 11/16 .20 10
- -----------------------------------------------------------------------------------------------------------------------------------
1992 4th Quarter (b) $911 $77 $174 $ 2.80 $53 15/16 $42 9/16 $.20 $ --
3rd Quarter 753 63 120 1.89 42 3/4 35 9/16 .20 --
2nd Quarter 800 59 86 .98 35 15/16 30 3/4 .20 --
1st Quarter (c) 761 56 435 5.01 32 5/8 26 11/16 .20 --
===================================================================================================================================
</TABLE>
(a) Includes gain from the sale of the Tactical Military Aircraft business
which increased net earnings and net earnings per share by $645 and
$10.23, respectively. See Note B.
(b) Includes a gain from the recognition of research and experimentation and
investment tax credits which increased net earnings and net earnings per
share by $95 and $1.53, respectively. See Note E.
(c) Includes gain from the sale of Cessna which increased net earnings and
net earnings per share by $358 and $4.12, respectively. See Note B.
(d) Data has been restated to treat the Company's Space Launch Systems
business as a discontinued operation, and the reclassification of certain
businesses discussed in Note B from discontinued operations to continuing
operations.
(e) Data has been restated to give retroactive recognition to the Company's
announced two-for-one stock split. See Note K.
(f) 1993 market prices reflect the impact of the Company's special
distributions to shareholders.
-- 32 --
<PAGE> 22
STATEMENT OF FINANCIAL RESPONSIBILITY
To the Shareholders of General Dynamics Corporation:
The management of General Dynamics Corporation is responsible for the
consolidated financial statements and all related financial information
contained in this report. The financial statements, which include amounts based
on estimates and judgments, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis.
The Company maintains a system of internal accounting controls designed
and intended to provide reasonable assurance that assets are safeguarded, that
transactions are executed and recorded in accordance with management's
authorization and that accountability for assets is maintained. An environment
that establishes an appropriate level of control consciousness is maintained
and monitored and includes internal audits and audits by the independent
public accountants.
The Audit Committee of the Board of Directors, which is composed of five
outside directors, meets periodically and, when appropriate, separately with
the independent auditors, management and the internal auditors to review the
activities of each.
The financial statements have been audited by Arthur Andersen & Co.,
independent public accountants, whose report follows.
/s/ J. STEVEN KEATE
------------------------
J. Steven Keate
Vice President and Controller
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To General Dynamics Corporation:
We have audited the accompanying Consolidated Balance Sheet of General
Dynamics Corporation (a Delaware corporation) and subsidiaries as of 31
December 1993 and 1992, and the related Consolidated Statements of Earnings,
Shareholders' Equity and Cash Flows for each of the three years in the period
ended 31 December 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of General Dynamics
Corporation and subsidiaries as of 31 December 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended 31 December 1993, in conformity with generally accepted accounting
principles.
As discussed in Note P to the financial statements, the U.S. Navy on 7
January 1991, terminated for default the A-12 contract between the U.S. Navy
and General Dynamics Corporation and its partner, McDonnell Douglas
Corporation. The companies deny they were in default on the contract and are
pursuing reimbursement for all work done on the program. The U.S. Navy has
demanded payment of $1.4 billion of unliquidated progress payments under the
contract; however, the U.S. Navy has deferred collection enforcement pending
resolution of this dispute. As a result of the uncertainties arising from the
termination, General Dynamics Corporation has reserved for all A-12 related
assets and has provided for known liabilities stemming from the termination.
The ultimate outcome of the above dispute cannot presently be determined.
Accordingly, no provision for any additional liability that may result upon
resolution of this dispute has been made in the accompanying financial
statements.
As discussed in Note R to the financial statements, effective 1 January
1993, the Company changed its method of accounting for postretirement benefits
other than pensions.
ARTHUR ANDERSEN & CO.
Washington, D.C.,
25 January 1994 (except with respect to the stock split discussed
in Note K, as to which the date is 4 March 1994)
-- 33 --
<PAGE> 23
GENERAL DYNAMICS
SELECTED FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share
and per employee amounts)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (a)
Net sales $ 3,187 $ 3,225 $ 3,161 $ 3,051 $ 2,975
Operating costs and expenses 2,878 2,970 2,950 2,982 2,828
Interest, net 36 27 10 (11) (15)
Provision (credit) for
income taxes 143 5 (82) (2) 35
Earnings (loss) from
continuing operations 270 305(d) 274(e) (1) 67
Earnings (loss) per share from
continuing operations (b) 4.27 4.03(d) 3.20(e) (.01) .80
Cash dividends on
common stock (b) 1.00 .80 .50 .50 .50
Sales per employee 138,100 121,500 102,800 80,800 78,500
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT 31 DECEMBER (a)
Property, plant and
equipment, net $ 302 $ 339 $ 380 $ 654 $ 696
Total assets 2,635 3,530 4,177 3,883 4,566
Long-term debt (including
current portion) 38 183 613 611 610
Long-term debt - finance operations
(including current portion) 175 190 204 216 226
Shareholders' equity 1,177 1,874 1,980 1,510 2,126
Per share (b) 18.81 30.30 23.62 18.12 25.57
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH FLOW
Cash and marketable
securities (a) $ 585 $ 943 $ 812 $ 98 $ 6
Free cash flow (c) 1,382 1,557 776 339 (308)
Dividends, distributions and
tender offer 1,587 1,015 42 41 42
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Funded backlog (a) $5,487 $ 6,780 $ 8,214 $ 7,995 $ 8,274
Total backlog (a) 7,015 8,488 9,846 9,491 9,803
Shares outstanding at 31 December
(in millions) (b) 62.6 61.8 83.8 83.3 83.2
Fully diluted weighted average shares
outstanding (in millions) (b) 63.3 75.6 85.6 83.4 84.0
Common shareholders of record at
31 December 24,496 26,158 33,078 34,178 33,877
Active employees at 31 December
Total Company 30,500 56,800 80,600 98,100 102,200
Excluding discontinued
operations 23,100 26,500 30,700 37,800 37,900
===============================================================================================================================
</TABLE>
(a) Data has been restated to treat the Company's Space Launch Systems
business as a discontinued operation, and the reclassification of certain
businesses discussed in Note B from discontinued operations to continuing
operations.
(b) Data has been restated to give retroactive recognition to the Company's
announced two-for-one stock split. See Note K.
(c) The Company defines "free cash flow" as cash flow from operating and
investing activities, excluding investment in marketable securities.
(d) Includes a $95 gain ($1.26 per share) from the recognition of research and
experimentation and investment tax credits. See Note E.
(e) Includes a $140 gain ($1.64 per share) from an adjustment to the Company's
deferred income tax liability. See Note E.
-- 34 --
<PAGE> 1
EXHIBIT 21, 1993 ANNUAL REPORT
FORM 10-K, COMMISSION FILE
NUMBER 1-3671
GENERAL DYNAMICS CORPORATION
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiaries of General Dynamics Place of Percent of
Corporation (Parent and Registrant) Incorporation Voting Power
- ----------------------------------- ------------- ------------
<S> <C> <C>
American Overseas Marine Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord I Maritime Corporation . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree I Maritime Corp. . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord II Maritime Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree II Maritime Corp. . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord III Maritime Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree III Maritime Corp. . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord IV Maritime Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree IV Maritime Corp. . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord V Maritime Corporation . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree V Maritime Corp. . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Convair Aircraft Corporation . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Convair Corporation . . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Elco Company, The . . . . . . . . . . . . . . . . . . . . . . . . New Jersey . . . . . . . . . 100
Electric Boat Company . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Electrocom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
E-Metrics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics (C.I.) Limited . . . . . . . . . . . . . . . . . Cayman Islands . . . . . . . 100
General Dynamics Commercial
Launch Services, Inc. . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Foreign Sales Corporation . . . . . . . . . . . Virgin Islands . . . . . . . 100
General Dynamics H. A., Inc. . . . . . . . . . . . . . . . . . . Michigan . . . . . . . . . . 100
General Dynamics - Hellas S.A. . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics International Corporation . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Land Systems Inc. . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Land Systems Tallahassee Operations . . . Delaware . . . . . . . . . . 100
General Dynamics Land Systems International, Inc. . . . . . . Delaware . . . . . . . . . . 100
G.T. Devices, Inc. . . . . . . . . . . . . . . . . . . . . . Maryland . . . . . . . . . . 100
General Dynamics Land Systems Product Support and Services
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . 100
General Dynamics Base Corporation . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Limited . . . . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . 100
General Dynamics Manufacturing Limited . . . . . . . . . . . . . Canada . . . . . . . . . . . 100
General Dynamics Space Services Company . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Material Service Resources Company . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Century Mineral Resources, Inc. . . . . . . . . . . . . . . . Illinois. . . . . . . . . . . 100
Material Service Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Darlington Brick and Clay Products Corporation . . . . . Pennsylvania . . . . . . . . 100
Dealer's Ready Mix Company . . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
EPSP, Inc. . . . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . 100
Hulcher Quarry, Inc. . . . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Indian Point Limestone Products, Inc. . . . . . . . . . Illinois . . . . . . . . . . 100
Marblehead Lime Company . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Missouri Marblehead Lime Company . . . . . . . . . . Delaware . . . . . . . . . . 100
Utah Marblehead Lime Company . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Material Service Corporation of Indiana . . . . . . . . Indiana . . . . . . . . . . . 100
Material Service Foundation . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
MSC Realty & Development Company . . . . . . . . . . . . Illinois . . . . . . . . . . 100
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Subsidiaries of General Dynamics Place of Percent of
Corporation (Parent and Registrant) Incorporation Voting Power
- ----------------------------------- ------------- ------------
<S> <C> <C>
Mineral and Land Resources Corporation . . . . . . . . . Delaware . . . . . . . . . . 100
MLRT, Inc. . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . 100
Powell & Minnock Brick Works, Inc. . . . . . . . . . . . New York . . . . . . . . . . 100
Thornton Quarries Corporation . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Freeman Energy Corporation . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Freeman Coal Sales, Inc. . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Freeman Resources, Inc. . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Cheyenne Resources, Inc. . . . . . . . . . . . . . . Kentucky . . . . . . . . . . 100
Cumberland Collieries, Inc. . . . . . . . . . . . . Virginia . . . . . . . . . . 100
P C & H Construction, Inc. . . . . . . . . . . . . . Kentucky . . . . . . . . . . 100
Virginia Cumberland Collieries, Inc. . . . . . . . . Virginia . . . . . . . . . . 100
Freeman United Coal Mining Company . . . . . . . . . . . Delaware . . . . . . . . . . 100
Material Energy Sales Corporation . . . . . . . . . . . Illinois . . . . . . . . . . 100
Patriot I Shipping Corporation . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Patriot II Shipping Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Patriot IV Shipping Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Quincy Corporation . . . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
S-C 1969 Credit Corporation . . . . . . . . . . . . . . . . . . . New York . . . . . . . . . . 100
</TABLE>
<PAGE> 1
GENERAL DYNAMICS CORPORATION POWER OF ATTORNEY
COMMISSION FILE NUMBER 1-3671 REPORTS ON FORM
IRS NO. 13-1673581 10-K AND 10-Q
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors
and/or officers of GENERAL DYNAMICS CORPORATION, a Delaware corporation,
hereby constitutes and appoints each of NICHOLAS D. CHABRAJA, J. STEVEN KEATE,
E. ALAN KLOBASA, and his true and lawful attorney and agent, in the name and
on behalf of the under-signed, to do any and all acts and things and execute
any and all instruments which the attorney and agent may deem necessary or
advisable to enable General Dynamics Corporation to comply with the Securities
Act of 1933, and the Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission
(The Commission) in respect thereof, in connection with annual reports to
the commission on form 10-K, quarterly reports on form 10-Q, and other
reports as required by General Dynamics Corporation, including specifically,
but without limiting the generality of the foregoing, the power and authority
to sign the names of the undersigned in his capacity as Director and/or
Officer of General Dynamics Corporation to reports filed with the
Securities and Exchange Commission with respect thereto, to any and all
amendments, including hereby ratifying and confirming all that the attorneys
and agents, or any of them, has done, shall do or shall cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this
29th day of March 1994.
/S/ WILLIAM A. ANDERS /S/ CHARLES H. GOODMAN
- ---------------------------------- ----------------------------------
William A. Anders Charles H. Goodman
/S/ THOMAS G. AYERS /S/ HARVEY KAPNICK
- ---------------------------------- ----------------------------------
Thomas G. Ayers Harvey Kapnick
/S/ FRANK C. CARLUCCI /S/ DAVID S. LEWIS
- ---------------------------------- ----------------------------------
Frank C. Carlucci David S. Lewis
/S/ NICHOLAS D. CHABRAJA /S/ JAMES R. MELLOR
- ---------------------------------- ----------------------------------
Nicholas D. Chabraja James R. Mellor
/S/ WILLIAM J. CROWE, JR. /S/ STANLEY C. PACE
- ---------------------------------- ----------------------------------
William J. Crowe, Jr. Stanley C. Pace
/S/ JAMES S. CROWN /S/ ALLEN E. PUCKETT
- ---------------------------------- ----------------------------------
James S. Crown Allen E. Puckett
/S/ LESTER CROWN /S/ BERNARD W. ROGERS
- ---------------------------------- ----------------------------------
Lester Crown Bernard W. Rogers
/S/ ELLIOT H. STEIN
----------------------------------
Elliot H. Stein
<PAGE> 1
GENERAL DYNAMICS CORPORATION POWER OF ATTORNEY
COMMISSION FILE NUMBER 1-3671 REPORT ON FORM 10-K
----------
IRS NO. 13-1673481
--------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer, J. Steven
Keate, Corporate Vice President and Controller (Principal Financial and
Accounting Officer) of GENERAL DYNAMICS CORPORATION, a Delaware corporation,
hereby constitute and appoint each of NICHOLAS D. CHABRAJA and E. ALAN KLOBASA,
as their true and lawful attorney and agent, in the name and on behalf of the
undersigned, to do any and all acts and things and execute any and all
instruments which the attorney and agent may deem necessary or advisable to
enable General Dynamics Corporation to comply with the Securities Exchange Act
of 1934, as amended, and any rules and regulations and requirements of the
Securities and Exchange Commission (The Commission) in respect thereof, in
connection with the 1993 annual report to the Commission on Form 10-K,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign their names in their capacities to said report
filed with the Securities and Exchange Commission with respect thereto, to any
and all amendments, including hereby ratifying and confirming all that the
attorneys and agents, or any of them, has done, shall do, or shall cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 29th
day of March 1994.
/s/ J. STEVEN KEATE
---------------------
J. Steven Keate