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 October 1, 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 - October 29, 1995 62,979,722
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 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURE 17
PART I
GENERAL DYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)
October 1 December 31
ASSETS 1995 1994
CURRENT ASSETS:
Cash and equivalents $ 143 $ 382
Marketable securities 850 677
993 1,059
Accounts receivable 121 104
Contracts in process 599 351
Other current assets 257 283
Total Current Assets 1,970 1,797
NONCURRENT ASSETS:
Leases receivable - finance operations 210 220
Real estate held for development 135 128
Property, plant and equipment, net 417 264
Other assets 385 264
Total Noncurrent Assets 1,147 876
$3,117 $2,673
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 123 $ 134
Other current liabilities 735 492
Total Current Liabilities 858 626
NONCURRENT LIABILITIES:
Long-term debt 38 39
Long-term debt - finance operations 148 157
Other liabilities 593 535
Commitments and contingencies (See Note G)
Total Noncurrent Liabilities 779 731
SHAREHOLDERS' EQUITY:
Common stock, including surplus
(shares issued 84,387,336) 90 87
Retained earnings 2,023 1,860
Treasury stock (shares held 1995, 21,408,093;
1994, 21,391,547) (633) (631)
Total Shareholders' Equity 1,480 1,316
$3,117 $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
October 1 October 2
1995 1994
NET SALES $ 718 $ 714
OPERATING COSTS AND EXPENSES 641 637
OPERATING EARNINGS 77 77
Interest, net 14 7
Other income (expense), net 2 (1)
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 93 83
Provision for income taxes 31 29
EARNINGS FROM CONTINUING OPERATIONS 62 54
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Earnings from operations 18 -
Gain on disposal 11 -
29 -
NET EARNINGS $ 91 $ 54
NET EARNINGS PER SHARE:
Continuing operations $ .98 $ .85
Discontinued operations:
Earnings from operations .29 -
Gain on disposal .17 -
$ 1.44 $ .85
WEIGHTED AVERAGE SHARES AND EQUIVALENTS
OUTSTANDING (in millions) 63.3 63.3
DIVIDENDS PER SHARE $ .375 $ .35
SUPPLEMENTAL INFORMATION:
General and administrative expenses included
in operating costs and expenses $ 55 $ 76
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)
Nine Months Ended
October 1 October 2
1995 1994
NET SALES $2,174 $2,334
OPERATING COSTS AND EXPENSES 1,942 2,095
OPERATING EARNINGS 232 239
Interest, net 42 13
Other income, net 4 2
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 278 254
Provision for income taxes 95 89
EARNINGS FROM CONTINUING OPERATIONS 183 165
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Earnings from operations 31 -
Gain on disposal 19 15
50 15
NET EARNINGS $ 233 $ 180
NET EARNINGS PER SHARE:
Continuing operations $ 2.89 $ 2.60
Discontinued operations:
Earnings from operations .49 -
Gain on disposal .30 .24
$ 3.68 $ 2.84
WEIGHTED AVERAGE SHARES AND EQUIVALENTS
OUTSTANDING (in millions) 63.3 63.5
DIVIDENDS PER SHARE $1.125 $ 1.05
SUPPLEMENTAL INFORMATION:
General and administrative expenses included
in operating costs and expenses $ 155 $ 179
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)
Nine Months Ended
October 1 October 2
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 233 $ 180
Adjustments to reconcile net earnings to net
cash provided (used) by continuing operations -
Discontinued operations (50) (15)
Depreciation, depletion and amortization 26 30
Decrease (Increase) in -
Marketable securities (173) (367)
Accounts receivable 12 (33)
Contracts in process (41) 71
Leases receivable - finance operations 9 8
Other current assets 9 (9)
Increase (Decrease) in -
Accounts payable and other
current liabilities 11 (76)
Current income taxes 13 (4)
Deferred income taxes 38 37
Other, net (12) (13)
Net cash provided (used)
by continuing operations 75 (191)
Net cash provided (used)
by discontinued operations 50 (28)
Net Cash Provided (Used)
by Operating Activities 125 (219)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Bath Iron Works (300) -
Proceeds from sale of discontinued operations 22 259
Proceeds from sale of investments
and other assets 11 4
Capital expenditures (22) (15)
Net Cash Provided (Used) by
Investing Activities (289) 248
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (68) (62)
Repurchase of stock - (19)
Repayment of long-term debt
- finance operations (6) (14)
Repayment of long-term debt (2) (1)
Proceeds from option exercises 1 14
Other - 4
Net Cash Used by Financing Activities (75) (78)
NET DECREASE IN CASH AND EQUIVALENTS (239) (49)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 382 94
CASH AND EQUIVALENTS AT END OF PERIOD $ 143 $ 45
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAYMENTS FOR:
Federal income taxes $ 40 $ 71
Interest (including finance operations) 12 12
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 nine month periods ended October 1, 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 nine month periods ended October 1, 1995 and
October 2, 1994.
(B) Acquisition
On September 13, 1995, the company closed the agreement to
purchase Bath Iron Works Corporation for approximately $300 in cash.
Bath Iron Works is a premier builder of surface combatant ships for
the U.S. Navy and has a backlog which currently includes contracts for
the delivery of 11 DDG 51 destroyers. The transaction has been
accounted for under the purchase method of accounting. The excess of
the purchase price over the estimated fair value of the net tangible
assets acquired has been recorded as an intangible asset related to
the destroyer program and amounted to $141. The intangible asset,
which is included in other assets on the Consolidated Balance Sheet,
is being amortized over a 25-year period. Operating results of Bath
Iron Works have been included with those of the company from the
closing date.
The following pro forma combined financial information presents
the historical results of operations of the company and Bath Iron
Works for the three and nine month periods ended October 1, 1995 and
October 2, 1994, with pro forma adjustments as if Bath Iron Works had
been acquired as of the beginning of the periods presented. The pro
forma information is based upon certain estimates and assumptions that
the company believes are reasonable in the circumstances. The pro
forma information is not necessarily indicative of what the results of
operations actually would have been if the transaction had occurred on
the date indicated, or of future results of operations.
Third Quarter Nine Months
1995 1994 1995 1994
Net Sales $ 873 $ 922 $2,812 $2,986
Earnings From
Continuing Operations $ 64 $ 58 $ 196 $ 178
Per Share $ 1.01 $ .92 $ 3.10 $ 2.80
(C) Discontinued Operations
Earnings from operations
The operating results of discontinued operations are summarized
below:
Third Quarter Nine Months
1995 1994 1995 1994
Net sales $ 131 $ 130 $ 352 $ 508
Earnings before
income taxes $ 28 $ - $ 48 $ -
Provision for
income taxes 10 - 17 -
Net earnings $ 18 $ - $ 31 $ -
Per Share $ .29 $ - $ .49 $ -
Gain on Disposal
During the third quarter of 1995, the company closed the sales of
two concrete pipe yards of its Material Service business for $7 in
cash. In addition, the company recognized a portion of its deferred
gain from a prior disposal as a result of the favorable resolution of
a contingency. The Company recognized a gain on these transactions of
$11, or $.17 per share, net of income taxes of $2.
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 first six months 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, and 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. The company
recognized a gain on disposal of $15, or $.24 per share, net of income
taxes of $8 on these transactions.
(D) Liabilities
A summary of significant components of other liabilities, by
current and non-current balance sheet caption, follows:
October 1 December 31
1995 1994
Workers' compensation $ 230 $ 162
Salaries and wages 79 56
Accrued retirement benefits 201 50
A-12 termination liability and legal fees 45 61
Other 180 163
Other Current Liabilities $ 735 $ 492
October 1 December 31
1995 1994
Accrued costs on disposed businesses $ 298 $ 306
Coal mining related liabilities 70 73
Other 225 156
Other Liabilities $ 593 $ 535
(E) Deferred Tax Asset
The company had a net deferred tax asset of $278 and $316 at
October 1, 1995 and December 31, 1994, the current portion of which
was $196 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 October 1, 1995 and
December 31, 1994.
(F) 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.
(G) 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 H).
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 October 1, 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.
(H) A-12 Termination
As stated in Note G, 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
October 1, 1995
(Dollars in millions, except per share amounts)
Business Environment
Background
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 response to this changing business environment, management
initiated a program requiring its major businesses to be market
leaders and to have "critical mass" - the appropriate size to retain
key capabilities and ensure economies of scale, and sought to meet
these criteria through mergers, acquisitions, or sales of businesses
if necessary. In following this strategy, the company sold in recent
years its Tactical Military Aircraft, Missile Systems and Space Launch
Systems businesses. More recently, on September 13, 1995, the company
acquired Bath Iron Works Corporation. Bath Iron Works is a premier
builder of surface combatant ships for the U.S. Navy, and has served
as the lead shipyard for 10 of 20 classes of surface combatants built
for the Navy since World War II. Their backlog includes contracts for
the delivery of 11 DDG 51 destroyers. Navy plans call for the
construction of an additional 25 destroyers which are expected to be
allocated between Bath Iron Works and its principal competitor.
As a result of the acquisition, the company has formed a new
business segment, the Marine Group. This segment includes the
company's Electric Boat Division, which represented the former Nuclear
Submarines segment; the company's ship management operations, which
were previously reported in the Other segment; and Bath Iron Works.
The company continues to have an Armored Vehicles segment and an Other
segment, which now principally represents its coal mining operations
in the midwest.
Legislative Developments
Congress approved funding for long-lead activity on the third
Seawolf in 1992 and for the New Attack Submarine (NSSN) development
program in 1994, both of which are to be built at Electric Boat. The
third Seawolf provides 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 1996 Defense Appropriations Conference (the Conference)
Report included $700 million of the remaining $1.5 billion funding
required for the third Seawolf and $1.1 billion for the NSSN. The
Conference Report also provided funding for two DDG 51 destroyers. The
House of Representatives voted down the Conference Report, while the
Senate has yet to bring it to the floor for final passage. As a
result, the Conference has been reopened in an attempt to
resolve certain of the issues that led to the House action. The issues
to be addressed by the Conference are not expected to affect
the funding of the aforementioned programs.
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 Conference
Report included approval for a multi-year program which the company
believes will result in a stable five-year tank procurement. The company
is confident this provision will be supported in future Conference actions.
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 and by participating in other armored vehicle programs.
Strategic Focus
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 will continue to
consider 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 October 1, 1995 and December 31, 1994.
October 1 December 31
1995 1994
Marine Group $4,113 $2,486
Armored Vehicles 1,149 1,378
Other 702 698
Funded Backlog $5,964 $4,562
Total Backlog $7,836 $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 nine month periods
ending October 1, 1995 and October 2, 1994:
Three Month Period Nine Month Period
Inc/ Inc/
1995 1994 (Dec) 1995 1994 (Dec)
NET SALES:
Marine Group $ 430 $ 403 $ 27 $1,279 $1,314 $ (35)
Armored Vehicles 255 277 (22) 794 912 (118)
Other 33 34 (1) 101 108 (7)
$ 718 $ 714 $ 4 $2,174 $2,334 $(160)
OPERATING EARNINGS:
Marine Group $ 47 $ 46 $ 1 $ 143 $ 149 $ (6)
Armored Vehicles 35 37 (2) 106 103 3
Other (5) (6) 1 (17) (13) (4)
$ 77 $ 77 $ - $ 232 $ 239 $ (7)
Marine Group
Net sales and operating earnings decreased during the nine month
period due to decreased construction activity on the Trident and SSN
688 programs, partially offset by increased engineering and design
work on the NSSN. Net sales and operating earnings increased during
the three month period due to the acquisition of Bath Iron Works.
This transaction has been accounted for under the purchase method of
accounting, wherein an intangible asset related to the destroyer
program of $141 million was recognized and is being amortized over a
25-year period. The operating results of Bath Iron Works have been
included with those of the company from the closing date. The
inclusion of two weeks of Bath Iron Works' results in the results of
the quarter more than offset the volume decrease at Electric Boat.
As long-term 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 of 1995. 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.
Armored Vehicles
Net sales and operating earnings decreased during the three month
period due primarily to decreased M1 tank production. Net sales
decreased during the nine month period also due primarily to decreased
M1 tank production, as well as related spare parts and engineering
work. Operating earnings increased during the nine month period due
to the increase in the earnings rates on the M1 and Single Channel
Ground and Airborne Radio System 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 nine
month periods, as well as an increase in the interest rates on the
company's investments.
Discontinued Operations
Earnings from discontinued operations in 1995 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 of 1995.
Discussed in Note C to the Consolidated Financial Statements are
several transactions which occurred during the nine months ended
October 1, 1995 and October 2, 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 decrease in the amount of cash
used for investment in marketable securities, and the increase in
proceeds from investment income. Net cash provided by discontinued
operations increased this year over last year due primarily to the
receipt of scheduled payments by the company's Commercial Aircraft
Subcontracting business in accordance with the terms of the
termination agreement with McDonnell Douglas Corporation.
For a discussion of environmental matters and other
contingencies, see Note G 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 acquired Bath Iron Works
Corporation on September 13, 1995 for $300 in cash. Also previously
discussed, the company has sold the assets of several businesses
during the nine month periods ended October 1, 1995 and October 2,
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
October 1, 1995
Item 1. Legal Proceedings
Reference is made to Note G, 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
On August 17, 1995, the company reported to the Securities and
Exchange Commission (SEC) under Item 5, Other Events, that on that
day the company had reached an agreement to acquire all the
outstanding shares of Bath Iron Works Corporation for $300 million
in cash.
On September 28, 1995, the company reported to the SEC under
Item 2, Acquisition or Disposition of Assets, that on
September 13, 1995 the company had acquired all the outstanding
shares of Bath Iron Works Corporation. Included in the filing
were the separate financial statements of Bath Iron Works and
pro forma combined financial information.
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
Controller
(Principal Accounting Officer)
Dated November 3, 1995
Exhibit 11, 3rd 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)
Third Quarter Nine Months
1995 1994 1995 1994
NET EARNINGS:
Continuing Operations $ 62 $ 54 $ 183 $ 165
Discontinued Operations:
Earnings from operations 18 - 31 -
Gain on disposal 11 - 19 15
$ 91 $ 54 $ 233 $ 180
Weighted average common
shares outstanding 62,968,276 63,076,884 62,973,350 63,074,088
NET EARNINGS PER SHARE - PRIMARY:
Continuing Operations $ .98 $ .85 $ 2.90 $ 2.60
Discontinued Operations:
Earnings from operations .29 - .49 -
Gain on disposal .17 - .30 .24
$ 1.44 $ .85 $ 3.69 $ 2.84
Common shares from above 62,968,276 63,076,884 62,973,350 63,074,088
Assumed exercise of options 269,797 219,609 196,759 403,654
(treasury stock method)
63,238,073 63,296,493 63,170,109 63,477,742
NET EARNINGS PER SHARE - FULLY DILUTED:
Continuing Operations $ .98 $ .85 $ 2.89 $ 2.60
Discontinued Operations:
Earnings from operations .29 - .49 -
Gain on disposal .17 - .30 .24
$ 1.44 $ .85 $ 3.68 $ 2.84
Common shares from above 62,968,276 63,076,884 62,973,350 63,074,088
Assumed exercise of options 347,257 224,157 347,257 405,013
(treasury stock method)
63,315,533 63,301,041 63,320,607 63,479,101
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 October 1, 1995, and the
related Consolidated Statement of Earnings for the nine months ended October 1,
1995 and is qualified in its entirety to such financial statements.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-01-1995
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<ALLOWANCES> 0
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<COMMON> 90
0
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<OTHER-SE> 1390
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