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 April 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 of (I.R.S. Employer
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 - April 30, 1995 62,957,742
<PAGE>
GENERAL DYNAMICS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Earnings 4
Consolidated Statement of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURE 14
<PAGE>
PART I
GENERAL DYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)
April 2 December 31
ASSETS 1995 1994
CURRENT ASSETS:
Cash and equivalents $ 531 $ 382
Marketable securities 549 677
1,080 1,059
Accounts receivable 143 104
Contracts in process 359 351
Other current assets 260 283
Total Current Assets 1,842 1,797
NONCURRENT ASSETS:
Leases receivable - finance operations 219 220
Real estate held for development 130 128
Property, plant and equipment, net 256 264
Other assets 216 264
Total Noncurrent Assets 821 876
$ 2,663 $ 2,673
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 94 $ 134
Other current liabilities 494 492
Total Current Liabilities 588 626
NONCURRENT LIABILITIES:
Long-term debt 39 39
Long-term debt - finance operations 155 157
Other liabilities 528 535
Commitments and contingencies (See Note F)
Total Noncurrent Liabilities 722 731
SHAREHOLDERS' EQUITY:
Common stock, including surplus
(shares issued 84,387,336) 89 87
Retained earnings 1,897 1,860
Treasury stock (shares held 1995, 21,430,050;
1994, 21,391,547) (633) (631)
Total Shareholders' Equity 1,353 1,316
$ 2,663 $ 2,673
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of this statement.
<PAGE>
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
Three Months Ended
April 2 December 31
1995 1994
NET SALES $ 753 $ 800
OPERATING COSTS AND EXPENSES 674 720
OPERATING EARNINGS 79 80
Interest, net 13 3
Other income, net - 2
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 92 85
Provision for income taxes 32 30
EARNINGS FROM CONTINUING OPERATIONS 60 55
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Operations - -
Disposal - -
NET EARNINGS $ 60 $ 55
NET EARNINGS PER SHARE:
Continuing Operations $ .95 $ .86
Discontinued Operations:
Operations - -
Disposal - -
$ .95 $ .86
WEIGHTED AVERAGE SHARES AND EQUIVALENTS
OUTSTANDING (in millions) 63.2 63.7
DIVIDENDS PER SHARE $ .375 $ .35
SUPPLEMENTAL INFORMATION:
General and administrative expenses included
in operating costs and expenses $ 52 $ 58
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of this statement.
<PAGE>
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
Three Months Ended
April 2 April 3
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 60 $ 55
Adjustments to reconcile net earnings to net
cash provided (used)
by continuing operations -
Depreciation, depletion and amortization 8 9
Decrease (Increase) in -
Marketable securities 128 (79)
Accounts receivable (39) (40)
Contracts in process (8) (8)
Leases receivable - finance operations 1 1
Other current assets 6 (17)
Increase (Decrease) in -
Accounts payable and
other current liabilities (29) 7
Current income taxes 2 9
Deferred income taxes 30 (1)
Other, net 2 (32)
Net cash provided (used)
by continuing operations 161 (96)
Net cash provided by discontinued operations 11 51
Net Cash Provided (Used)
by Operating Activities 172 (45)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of
discontinued operations - 50
Proceeds from sale of investments
and other assets 3 4
Capital expenditures (5) (6)
Net Cash Provided (Used)
by Investing Activities (2) 48
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (22) (18)
Repayment of debt - finance operations - (4)
Proceeds from option exercises 1 12
Other - 4
Net Cash Used by Financing Activities (21) (6)
NET INCREASE (DECREASE)
IN CASH AND EQUIVALENTS 149 (3)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 382 94
CASH AND EQUIVALENTS AT END OF PERIOD $ 531 $ 91
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAYMENTS FOR:
Federal income taxes $ - $ 47
Interest 2 4
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of this statement.
<PAGE>
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 month period ended April 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 statement of the results for the three month
periods ended April 2, 1995 and April 3, 1994.
(B) Discontinued Operations
Net sales of discontinued operations were $90 and $156 for the first
quarter of 1995 and 1994, respectively. There were no earnings (loss) from
discontinued operations in the first quarter of 1995 or 1994.
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 liabilities, by balance sheet caption, follows:
April 2 December 31
1995 1994
Workers' compensation $ 156 $ 162
Salaries and wages 61 56
Retiree Medical 63 50
A-12 termination liability and legal fees 56 61
Other 158 163
Other Current Liabilities $ 494 $ 492
Accrued costs on disposed businesses $ 289 $ 306
Coal mining related liabilities 76 73
Other 163 156
Other Liabilities $ 528 $ 535
<PAGE>
(D) Income Taxes
The company had a net deferred tax asset of $286 and $316 at April 2,
1995 and December 31, 1994, the current portion of which was $204 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 April 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.
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.
<PAGE>
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 April
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 procedural 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. Remaining issues, including
quantum, will be deferred until the court rules on the issue of egregious
default.
<PAGE>
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.
<PAGE>
GENERAL DYNAMICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
April 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. 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, but based on the current political
environment, opposition is expected from some members of Congress. The
contract for 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, which the DoD currently plans for
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. In the first quarter, the company
received long-lead funding on these additional units. 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.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the net sales and operating earnings by
business segment for the three month periods ending April 2, 1995 and
April 3, 1994:
Three Month Period
1995 1994 Increase/
(Decrease)
NET SALES
Nuclear Submarines $ 425 $ 443 $ (18)
Armored Vehicles 278 307 (29)
Other 50 50 -
$ 753 $ 800 $ (47)
OPERATING EARNINGS:
Nuclear Submarines $ 43 $ 46 $ (3)
Armored Vehicles 36 32 4
Other - 2 (2)
$ 79 $ 80 $ (1)
NUCLEAR SUBMARINES
Net sales and operating earnings decreased during the three month period
due to decreased construction activity on the Trident and SSN 688 programs.
Net sales and operating earnings are expected to continue to decline during
1995 as the final SSN 688 and one of the final three Trident submarines to be
constructed by the company are scheduled to be delivered later in 1995. The
decrease in construction activity was partially offset by increased
engineering and design work on the NSSN. During the quarter, the company was
awarded a multi-year contract for engineering and design work on the NSSN.
The decrease in construction activity was also partially offset by the
increase in the earnings rates on the SSN 688 and Trident programs in the
third quarter of 1994.
ARMORED VEHICLES
Net sales decreased during the three month period due primarily to
decreased M1 tank production, as well as related spare parts and engineering
work, partially offset by increased Single Channel Ground and Airborne Radio
System (SINCGARS) production. Operating earnings increased during the three
month period 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 month period, as well as an
increase in the interest rates on the company's investments.
<PAGE>
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
no tax payment in the first quarter of 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.
Excluding the customer deposits received by the company's former Space
Launch Systems business which was sold to Martin Marietta Corporation in the
second quarter of 1994, the net cash provided by discontinued operations
increased this year over last year. This increase is due primarily to no
tax payment being made in the first quarter of 1995 and a decrease in
payments for disposition related liabilities.
INVESTING ACTIVITIES
As previously discussed, the company received $50 in March 1994 from the
sales of the lime, brick and a portion of the concrete pipe operations of its
Material Service business. 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. These
increases reflect the Board's confidence in the sustainability of the cash
flows generated by the company's continuing businesses.
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 company anticipates renewing the line of
credit, which expires in May 1995, at a lower level.
<PAGE>
PART II
GENERAL DYNAMICS CORPORATION
OTHER INFORMATION
April 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 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
<PAGE>
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 May 15, 1995
Exhibit 11, 1st 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)
First Quarter
1995 1994
NET EARNINGS:
Continuing Operations $ 60 $ 55
Discontinued Operations:
Operations - -
Disposal - -
$ 60 $ 55
Weighted average common shares outstanding 62,993,469 62,979,428
NET EARNINGS PER SHARE - PRIMARY:
Continuing Operations $ .95 $ .86
Discontinued Operations:
Operations - -
Disposal - -
$ .95 $ .86
Common shares from above 62,993,469 62,979,428
Assumed exercise of options
(treasury stock method) 203,983 690,764
63,197,452 63,670,192
NET EARNINGS PER SHARE - FULLY DILUTED:
Continuing Operations $ .95 $ .86
Discontinued Operations:
Operations - -
Disposal - -
$ .95 $ .86
Common shares from above 62,993,469 62,979,428
Assumed exercise of options
(treasury stock method) 210,708 691,736
63,204,177 63,671,164
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 April 2, 1995, and the
related Consolidated Statement of Earnings for the three months ended April 2,
1995 and is qualified in its entirety to such financial statements.
</LEGEND>
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<PERIOD-END> APR-02-1995
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<PP&E> 1,063
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<BONDS> 39
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0
0
<OTHER-SE> 1,264
<TOTAL-LIABILITY-AND-EQUITY> 2,663
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