SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3671
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1673581
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3190 Fairview Park Drive 22042-4523
Falls Church, Virginia (Zip Code)
(Address of principal executive offices)
(703) 876-3000
Registrant's telephone number, including area code
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 and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1 par value - July 28, 1995 62,968,113
GENERAL DYNAMICS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Earnings 4 and 5
Consolidated Statement of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURE 16
PART I
GENERAL DYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)
July 2 December 31
ASSETS 1995 1994
CURRENT ASSETS:
Cash and equivalents $ 371 $ 382
Marketable securities 867 677
1,238 1,059
Accounts receivable 94 104
Contracts in process 292 351
Other current assets 250 283
Total Current Assets 1,874 1,797
NONCURRENT ASSETS:
Leases receivable - finance operations 212 220
Real estate held for development 132 128
Property, plant and equipment, net 249 264
Other assets 233 264
Total Noncurrent Assets 826 876
$2,700 $2,673
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 58 $ 134
Other current liabilities 488 492
Total Current Liabilities 546 626
NONCURRENT LIABILITIES:
Long-term debt 38 39
Long-term debt - finance operations 150 157
Other liabilities 555 535
Commitments and contingencies (See Note F)
Total Noncurrent Liabilities 743 731
SHAREHOLDERS' EQUITY:
Common stock, including surplus
(shares issued 84,387,336) 89 87
Retained earnings 1,955 1,860
Treasury stock (shares held 1995, 21,424,054;
1994, 21,391,547) (633) (631)
Total Shareholders' Equity 1,411 1,316
$2,700 $2,673
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
Three Months Ended
July 2 July 3
1995 1994
NET SALES $ 703 $ 820
OPERATING COSTS AND EXPENSES 627 738
OPERATING EARNINGS 76 82
Interest, net 15 3
Other income, net 2 1
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 93 86
Provision for income taxes 32 30
EARNINGS FROM CONTINUING OPERATIONS 61 56
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Earnings from operations 13 -
Gain on disposal 8 15
21 15
NET EARNINGS $ 82 $ 71
NET EARNINGS PER SHARE:
Continuing operations $ .97 $ .88
Discontinued operations:
Earnings from operations .20 -
Gain on disposal .13 .24
$ 1.30 $ 1.12
WEIGHTED AVERAGE SHARES AND EQUIVALENTS
OUTSTANDING (in millions) 63.2 63.5
DIVIDENDS PER SHARE $ .375 $ .35
SUPPLEMENTAL INFORMATION:
General and administrative expenses included
in operating costs and expenses $ 48 $ 45
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
Six Months Ended
July 2 July 3
1995 1994
NET SALES $1,456 $ 1,620
OPERATING COSTS AND EXPENSES 1,301 1,458
OPERATING EARNINGS 155 162
Interest, net 28 6
Other income, net 2 3
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 185 171
Provision for income taxes 64 60
EARNINGS FROM CONTINUING OPERATIONS 121 111
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Earnings from operations 13 -
Gain on disposal 8 15
21 15
NET EARNINGS $ 142 $ 126
NET EARNINGS PER SHARE:
Continuing operations $ 1.92 $ 1.74
Discontinued operations:
Earnings from operations .20 -
Gain on disposal .13 .24
$ 2.25 $ 1.98
WEIGHTED AVERAGE SHARES AND EQUIVALENTS
OUTSTANDING (in millions) 63.2 63.6
DIVIDENDS PER SHARE $ .75 $ .70
SUPPLEMENTAL INFORMATION:
General and administrative expenses included
in operating costs and expenses $ 100 $ 103
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
Six Months Ended
July 2 July 3
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 142 $ 126
Adjustments to reconcile net earnings to net
cash provided (used) by continuing operations -
Discontinued operations (21) (15)
Depreciation, depletion and amortization 17 20
Decrease (Increase) in -
Marketable securities (190) (318)
Accounts receivable 10 (15)
Contracts in process 59 90
Leases receivable - finance operations 8 7
Other current assets 17 (10)
Increase (Decrease) in -
Accounts payable and other
current liabilities (56) (53)
Current income taxes 19 18
Deferred income taxes 25 (8)
Other, net (15) (23)
Net cash provided (used) by
continuing operations 15 (181)
Net cash provided by discontinued operations 14 17
Net Cash Provided (Used)
by Operating Activities 29 (164)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations 15 259
Proceeds from sale of investments
and other assets 8 4
Capital expenditures (14) (10)
Net Cash Provided by Investing Activities 9 253
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (45) (40)
Repurchase of stock - (19)
Repayment of long-term debt
- finance operations (4) (12)
Repayment of long-term debt (1) (1)
Proceeds from option exercises 1 14
Other - 4
Net Cash Used by Financing Activities (49) (54)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (11) 35
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 382 94
CASH AND EQUIVALENTS AT END OF PERIOD $ 371 $ 129
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAYMENTS FOR:
Federal income taxes $ 16 $ 71
Interest (including finance operations) 10 10
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
GENERAL DYNAMICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in millions, except per share amounts)
(A) Basis of Preparation
The unaudited consolidated financial statements included herein
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Although certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations,
the company believes that the disclosures included herein are adequate
to make the information presented not misleading. Operating results
for the three and six month periods ended July 2, 1995, are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1995. These unaudited consolidated financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the company's Annual Report on Form
10-K for the year ended December 31, 1994.
In the opinion of the company, the unaudited consolidated
financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the
results for the three and six month periods ended July 2, 1995 and
July 3, 1994.
(B) Discontinued Operations
The operating results of discontinued operations are summarized
below:
Second Quarter First Half
1995 1994 1995 1994
Net sales $ 131 $ 222 $ 221 $ 378
Earnings before
income taxes $ 20 $ - $ 20 $ -
Provision for
income taxes 7 - 7 -
Net earnings $ 13 $ - $ 13 $ -
Per Share $ .20 $ - $ .20 $ -
During the second quarter of 1995, the company closed the sales
of eight ready-mix yards of its Material Service business for $15 in
cash. The company recognized a gain on disposal of $8, or $.13 per
share, net of income taxes of $4.
During the second quarter of 1994, the company closed the sale of
its Space Launch Systems business to Lockheed Martin Corporation
(formerly Martin Marietta Corporation) for $209 in cash. The company
recognized a gain on disposal of $15, or $.24 per share, net of income
taxes of $8.
During the first quarter of 1994, the company closed the sales of
the lime, brick and a portion of the concrete pipe operations of its
Material Service business for a total of $50 in cash. No gains or
losses were recognized on the sales.
(C) Liabilities
A summary of significant components of other liabilities, by
current and non-current balance sheet caption, follows:
July 2 December 31
1995 1994
Workers' compensation $ 165 $ 162
Salaries and wages 52 56
Retiree medical 66 50
A-12 termination liability
and legal fees 50 61
Other 155 163
Other Current Liabilities $ 488 $ 492
July 2 December 31
1995 1994
Accrued costs on disposed businesses $ 298 $ 306
Coal mining related liabilities 77 73
Other 180 156
Other Liabilities $ 555 $ 535
(D) Deferred Tax Asset
The company had a net deferred tax asset of $291 and $316 at July
2, 1995 and December 31, 1994, the current portion of which was $195
and $185, respectively, and was included in other current assets on
the Consolidated Balance Sheet. No valuation allowance was required
for the company's deferred tax assets at July 2, 1995 and December 31,
1994.
(E) Earnings Per Share
Earnings per share are computed from the weighted average number
of common shares and equivalents outstanding during each period.
Common share equivalents are attributable primarily to outstanding
stock options. Because there is not a material difference between
primary and fully diluted earnings per share, only fully diluted
earnings per share are presented.
(F) Commitments and Contingencies
Litigation
On January 7, 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, plus interest. The company and McDonnell Douglas
have a claim pending against the U.S. government in the Court of
Federal Claims (see Note G).
On March 8, 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 the federal
securities laws, fraud, negligent misrepresentation, and breach of
fiduciary duty by the defendants with regard to disclosures made, or
omitted with regard to the subsequent divestiture of core businesses,
which disclosures were contained in the company's tender offer
completed in July 1992. The company is defending itself vigorously in
connection with this matter, and expects that resolution of this
matter will not have a material impact on the company's financial
condition or results of operations.
Certain issues related to the Internal Revenue Service (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, in July 1994, the company received a Statutory Notice of
Deficiency from the IRS which the company is contesting in the U.S.
Tax Court. The company has accrued an amount which is expected to be
adequate to cover any liability arising from this matter. Also, as
part of the Tax Court litigation, the company is contesting the
disallowance by the IRS of a portion of its claims for research and
experimentation tax credits. The resolution of the Tax Court
litigation is expected to take several years.
On July 14, 1995, General Dynamics Corporation was served with a
complaint filed in the Circuit Court of St. Louis County, Missouri,
titled Hunt, et al. v. General Dynamics and Lloyd Thompson, seeking a
declaratory judgment and rescission of certain excess loss insurance
contracts covering the company's self-insured workers' compensation
program at its Electric Boat division for the period July 1, 1988 to
June 30, 1992. The named plaintiff, Paul Hunt, is an individual suing
on behalf of himself and other individuals who are members of the
Lloyd's of London syndicates and other British insurers who have
underwritten the risk. The company intends to defend itself in this
matter, and does not expect the matter will have a material impact on
the company's financial condition or results of operations.
The company is also a defendant in other lawsuits and claims and
in other investigations of varying nature. The company believes its
liabilities in these proceedings, in the aggregate, are not material
to the company's financial condition or results of operations.
Environmental
The company is directly or indirectly involved in fifteen
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 or a state
environmental agency with respect to past shipments of hazardous waste
to sites now requiring environmental cleanup. Based on a site by site
analysis of the estimated quantity of waste contributed by the company
relative to the estimated total quantity of waste, the company
believes it is a small contributor and its liability at any individual
site is not material. The company is also involved in the cleanup and
remediation of various conditions at sites it currently or formerly
owned or operated.
The company measures its environmental exposure based on
currently available facts, existing technologies, and presently
enacted laws and regulations. Where a reasonable basis for
apportionment exists with other PRPs, the company has considered only
its share of the liability. The company considers the solvency of
other PRPs, whether responsibility is being disputed, and its
experience in similar matters in determining its share. Based on a
site by site analysis, the company has recorded an amount which it
believes will be adequate to cover any liability arising from the
sites.
Other
The company was contingently liable for debt and lease guarantees
and other arrangements aggregating up to a maximum of approximately
$105 at July 2, 1995 and December 31, 1994.
In connection with the sale of its defense businesses, the company
remains contingently liable for contract performance by the purchasers
of these businesses under agreements 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 in the
aggregate 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.
(G) A-12 Termination
As stated in Note F, the U.S. Navy terminated the company's A-12
aircraft contract for default. The 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 (the contractors)
were parties to the contract with the U.S. Navy, each had full
responsibility to the U.S. Navy for performance under the contract,
and both are jointly and severally liable for potential liabilities
arising from the termination. As a consequence of the termination for
default, the U.S. Navy demanded that the contractors repay $1,352 in
unliquidated progress payments, but agreed to defer collection of the
amount pending a decision by the U.S. Court of Federal Claims on the
contractors' appeal of the termination for default, or a negotiated
settlement.
The contractors filed a complaint on June 7, 1991, in the U.S.
Court of Federal Claims contesting the default termination. The suit,
in effect, seeks to convert the termination for default to a
termination for convenience of the U.S. government and seeks other
legal and equitable relief. In the aggregate, the contractors seek to
recover payment for all costs incurred in the A-12 program and its
termination, including interest. The total amount sought, as updated
through the end of 1994, is approximately $2 billion, over and above
amounts previously received from the U.S. Navy. The company has not
recognized any claim revenue from the U.S. Navy.
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 1994, the court issued an order vacating the
termination for default, finding that the A-12 contract was not
terminated for contractor default, but because the Office of the
Secretary of Defense withdrew support and funding from the A-12. In
November 1995, a trial will be held to determine whether,
notwithstanding the errors committed by the U.S. Navy in
terminating the A-12 contract, the contractors' performance was so
seriously deficient that conversion to a termination for convenience
would create an unconscionable windfall for the contractors.
Specifically, in order to prevail the U.S. government must prove
either that the U.S. Navy overlooked or severely misinterpreted
critical information on performance failures, or that the contractors
withheld, concealed, or provided misleading critical information which
would have changed the Navy's attitude concerning the A-12. The
company does not believe the evidence will support either theory.
Remaining issues, including quantum, will be deferred until the court
rules on whether a termination for convenience should be ordered.
The company has fully reserved the contracts in process balance
associated with the A-12 program and has accrued the company's
estimated termination liabilities, and the liability associated with
pursuing the litigation through trial. In the unlikely event the
contractors are ultimately found to be in default of the A-12 contract
and are required to repay all unliquidated progress payments,
additional losses of approximately $675 (before tax), plus interest,
may be recognized by the company. This result is considered remote.
GENERAL DYNAMICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
July 2, 1995
(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 anticipated 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 proved to be true as evidenced by declines, in real
terms, in the defense budget and by the number of industry
combinations in recent years. The company has been involved in a
number of these transactions, including the sales of its Tactical
Military Aircraft, Missile Systems and Space Launch Systems
businesses.
In response to budgetary pressures, the Department of Defense
(DoD) completed in 1993 the "Bottom-Up Review" (BUR), a comprehensive
study to reassess, in the post-Cold War environment, potential threats
to national security and to determine the military capabilities needed
to address those threats. The company was encouraged by the results
of the BUR which recommended construction of a third Seawolf and the
New Attack Submarine (NSSN), as well as designated the company's
Electric Boat Division as the shipyard to build those submarines. The
U.S. Navy has clarified that competition on the NSSN could be
considered when production rates were at a level that would support
two shipbuilders. Recent legislative actions by Congress has
demonstrated an interest in competition on the NSSN.
Congress approved funding for long-lead activity on the third
Seawolf in 1992 and for the NSSN development program in 1994. The
president's FY96 budget, as submitted to Congress, includes the
remaining funding for the third Seawolf. In Congress, the Senate is
supporting the third Seawolf, while the House of Representatives is
opposing it, but would provide $1 billion for alternative submarine
projects at Electric Boat. Ultimately these differences will be
resolved in the preparation of the authorization and appropriation
bills which will be presented to the President for approval in the
fall. Funding of the third Seawolf would provide the level of
construction activity necessary to maintain operation of all of
Electric Boat's facilities until construction begins on the NSSN. The
DoD currently plans and the relevant congressional committees have
provided the requested long-lead funding in authorization and
appropriation bills to support construction of the NSSN in 1998.
The U.S. Army has a stated acquisition objective to upgrade 1,079
of its M1 Abrams tanks to the M1A2 configuration by the year 2003.
The first 210 units of this program have been funded. The president's
FY96 budget submission includes the upgrade of approximately 100
additional units, which the company expects Congress to support. The
company is working with the U. S. Army to secure a multi-year contract
which would permit the procurement of 120 units per year. Because the
anticipated procurement rate of the upgrade program is significantly
less than previous domestic tank production programs, the company is
seeking to supplement volumes by further expanding international
sales.
The company is working closely with its customers to meet demands
for capability and affordability at significantly reduced procurement
rates. Accordingly, management is continuing to focus on aggressively
reengineering the cost structures of all operations to create highly
efficient businesses capable of operating profitably at significantly
lower volumes. With DoD initiatives to reduce its own
infrastructure, additional opportunities may be available for greater
involvement in overhaul, maintenance, upgrade and modification work.
In addition, the company continues to explore ways to utilize its
financial capacity to strengthen its 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.
BACKLOG
The following table shows the approximate backlog of the company
as calculated at July 2, 1995 and December 31, 1994.
July 2 December 31
1995 1994
Nuclear Submarines $2,079 $2,463
Armored Vehicles 1,312 1,378
Other 738 721
Funded Backlog $4,129 $4,562
Total Backlog $5,940 $6,006
Funded backlog represents the total estimated remaining sales
value of authorized work that has been appropriated by Congress, and
authorized and funded by the procuring agency. Funded backlog also
includes amounts for long-term coal contracts. To the extent backlog
has not been funded, there is no assurance that congressional
appropriations or agency allotments will be forthcoming.
RESULTS OF OPERATIONS
The following table sets forth the net sales and operating
earnings by business segment for the three and six month periods
ending July 2, 1995 and July 3, 1994:
Three Month Period Six Month Period
Inc/ Inc/
1995 1994 (Dec) 1995 1994 (Dec)
NET SALES:
Nuclear Submarines $ 395 $ 441 $(46) $ 820 $ 884 $ (64)
Armored Vehicles 261 328 (67) 539 635 (96)
Other 47 51 (4) 97 101 (4)
$ 703 $ 820 $(117) $1,456 $1,620 $(164)
OPERATING EARNINGS:
Nuclear Submarines $ 41 $ 46 $(5) $ 84 $ 92 $ (8)
Armored Vehicles 35 34 1 71 66 5
Other - 2 (2) - 4 (4)
$ 76 $ 82 $(6) $ 155 $ 162 $ (7)
NUCLEAR SUBMARINES
Net sales and operating earnings decreased during the three and
six month periods due to decreased construction activity on the
Trident and SSN 688 programs, partially offset by increased
engineering and design work on the NSSN. One of the final three
Trident submarines to be constructed by the company was delivered
during the quarter and the final SSN 688 is scheduled to be delivered
in the third quarter. Accordingly, net sales and operating earnings
are expected to be lower in 1995 as the number of ships under
construction decreases.
As these mature programs near completion and risks are removed,
and the benefits of cost reduction efforts are realized, the company
regularly assesses their estimated earnings at completion. Based on
this assessment, the earnings rate on the Trident program was
increased in the second quarter. Previously, the earnings rates on
both the SSN 688 and Trident programs were increased in the third
quarter of 1994. These earnings rate increases also partially offset
the decrease in net sales and operating earnings resulting from
decreased construction volume.
In July, members of Electric Boat's Metal Trades Council (MTC)
ratified a new three-year contract. Union leadership and management
developed an agreement that meets cost goals that will keep Electric
Boat competitive, while protecting the interest of the employees.
Among the significant terms of the agreement, the MTC eliminated its
post-65 retiree medical program and added a pension supplement, a
benefits change the company first introduced in 1993 for its non-
represented employees. Also as part of the agreement, the company is
offering a voluntary early retirement incentive package. A similar
package is being offered to the non-represented employees. Together,
these changes are expected to reduce the company's unfunded retiree
medical obligation approximately $30, while increasing its pension
obligation, for which funding is already in place, by approximately
$130. The impact of these changes on the company's results of
operations and financial condition is not expected to be significant.
ARMORED VEHICLES
Net sales decreased during the three and six month periods due
primarily to decreased M1 tank production, as well as related spare
parts and engineering work, and the absence in 1995 of nonrecurring
activity on various contracts during the second quarter of 1994.
These decreases in volume were partially offset by increased Single
Channel Ground and Airborne Radio System (SINCGARS) production. Net
sales during the second half of 1995 for the Armored Vehicles segment
are expected to remain at levels similar to the first half. Operating
earnings increased during the three and six month periods due to the
increase in the earnings rates on the M1 and SINCGARS programs in the
third quarter of 1994, which more than offset the aforementioned
volume decrease.
INTEREST, NET
Interest income (net of interest expense) increased due to the
significant increase in the average balance of cash and marketable
securities held by the company during the comparative three and six
month periods, as well as an increase in the interest rates on the
company's investments.
DISCONTINUED OPERATIONS
As described in Note B to the Consolidated Financial Statements,
the company reported earnings from discontinued operations of $13 in
the second quarter of 1995. These earnings are attributable primarily
to the MD-11 program at the company's Commercial Aircraft
Subcontracting business. Previously, the company had ceased earnings
recognition on the MD-11 program due to uncertainties
surrounding its completion. As a result of resolving these and other
matters related to the shut-down of the operations, the company began
recognizing earnings on the program once again in the second quarter.
Also discussed in Note B are several transactions which occurred
during the six months ended July 2, 1995 and July 3, 1994 involving
the disposal of discontinued operations.
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," which requires the adjustment of the carrying value of
long-lived assets and certain identifiable intangibles, if their value
is determined to be impaired as defined by the standard. The company
is required to adopt the provisions of this standard on January 1,
1996 and is currently studying its impact.
FINANCIAL CONDITION
OPERATING ACTIVITIES
Net cash provided by continuing operations increased this year
over last year due primarily to the net change in the amount the
company invested in marketable securities from period to period. In
addition, the company made lower tax payments in 1995 which also
contributed to the increase in cash provided by continuing operations.
For a discussion of environmental matters and other
contingencies, see Note F to the Consolidated Financial Statements.
The company's liability, in the aggregate, with respect to these
matters, is not deemed to be material to the company's financial
condition or results of operations.
INVESTING ACTIVITIES
As previously discussed, the company has sold the assets of
several businesses during the six month periods ended July 2, 1995 and
July 3, 1994. The proceeds from these transactions are reported as
proceeds from sale of discontinued operations in the Consolidated
Statement of Cash Flows.
FINANCING ACTIVITIES
The company's Board of Directors increased the regular quarterly
dividend on the company's common stock from $0.30 to $0.35 per share
and from $0.35 to $0.375 per share in March 1994 and March 1995,
respectively.
During the second quarter of 1994, the company repurchased
approximately 450,000 shares of its stock on the open market for a
total of $19.
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 $300 line of credit.
PART II
GENERAL DYNAMICS CORPORATION
OTHER INFORMATION
July 2, 1995
Item 1. Legal Proceedings
Reference is made to Note F, Commitments and Contingencies, which
is incorporated herein by reference, for a statement relevant to
activities in the quarter covering certain litigation to which the
company is a party.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Company, for
which proxies were solicited pursuant to Regulation 14, was held
on May 3, 1995.
(b) & (c) A brief description of each matter voted upon and the number
of votes cast is as follows:
MATTER VOTES CAST
For Against Abstain Non-Votes
Election of Directors:
Carlucci, F.C. 55,174,424 806,995
Chabraja, N.D. 55,198,651 782,768
Crown, J.S. 55,482,334 499,085
Crown, L. 55,167,772 813,647
Goodman, C.H. 55,492,469 488,950
Mellor, J.R. 55,494,122 487,297
Trost, C.A.H. 55,494,088 487,331
Selection of
Independent Auditors 55,662,459 219,160 99,800
Shareholder Proposal Regarding:
Composition of Board 13,210,085 36,803,477 1,365,315 4,602,542
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11, Statement Re Computation of Per Share Earnings
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements 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/John W. Schwartz
John W. Schwartz
Staff Vice President and Controller
(Principal Accounting Officer)
Dated August 15, 1995
<TABLE>
<CAPTION>
Exhibit 11, 2nd Quarter 1995
Form 10-Q, Commission File
Number 1-3671
GENERAL DYNAMICS CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(Dollars in millions, except per share data)
Second Quarter First Half
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET EARNINGS:
Continuing Operations $ 61 $ 56 $ 121 $ 111
Discontinued Operations:
Earnings from operations 13 - 13 -
Gain on disposal 8 15 8 15
$ 82 $ 71 $ 142 $ 126
Weighted average common
shares outstanding 62,958,300 63,165,924 62,975,885 63,072,689
NET EARNINGS PER SHARE - PRIMARY:
Continuing Operations $ .97 $ .88 $ 1.92 $ 1.74
Discontinued Operations:
Earnings from operations .20 - .20 -
Gain on disposal .13 .24 .13 .24
$ 1.30 $ 1.12 $ 2.25 $ 1.98
Common shares from above 62,958,300 63,165,924 62,975,885 63,072,689
Assumed exercise of options
(treasury stock method) 201,587 312,432 200,701 499,788
63,159,887 63,478,356 63,176,586 63,572,477
NET EARNINGS PER SHARE - FULLY DILUTED:
Continuing Operations $ .97 $ .88 $ 1.92 $ 1.74
Discontinued Operations:
Earnings from operations .20 - .20 -
Gain on disposal .13 .24 .13 .24
$ 1.30 $ 1.12 $ 2.25 $ 1.98
Common shares from above 62,958,300 63,165,924 62,975,885 63,072,689
Assumed exercise of options
(treasury stock method) 201,587 312,412 200,701 500,163
63,159,887 63,478,336 63,176,586 63,572,852
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the General
Dynamics Corporation Consolidated Balance Sheet as of July 2, 1995, and the
related Consolidated Statement of Earnings for the six months ended July 2,
1995 and is qualified in its entirety to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> QTR-2
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUL-02-1995
<CASH> 371
<SECURITIES> 867
<RECEIVABLES> 94
<ALLOWANCES> 0
<INVENTORY> 292
<CURRENT-ASSETS> 1,874
<PP&E> 1,058
<DEPRECIATION> 809
<TOTAL-ASSETS> 2,700
<CURRENT-LIABILITIES> 546
<BONDS> 38
<COMMON> 89
0
0
<OTHER-SE> 1,322
<TOTAL-LIABILITY-AND-EQUITY> 2,700
<SALES> 1,456
<TOTAL-REVENUES> 1,456
<CGS> 1,301
<TOTAL-COSTS> 1,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 185
<INCOME-TAX> 64
<INCOME-CONTINUING> 121
<DISCONTINUED> 21
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 2.25
</TABLE>
