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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-3671
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-1673581
- - -------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
- - ------------------------------------------------ ----------
Address of principal executive offices Zip Code
</TABLE>
Registrant's telephone number, including area code (703) 876-3000
--------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
- - ------------------- -------------------
<S> <C>
Common Stock, $1.00 Par Value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
9.95% Debentures Due 2018 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. x
----
The aggregate market value of the voting stock held by nonaffiliates
of the registrant was $3,296,027,067 at March 8, 1996, calculated in accordance
with the Securities and Exchange Commission rules as to beneficial ownership.
63,180,206 shares of the registrant's common stock were outstanding
at March 8, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and II incorporate information from certain portions of the
registrant's Annual Report to security holders for the fiscal year ended
December 31, 1995 (1995 Shareholder Report).
Part III incorporates information from certain portions of the
registrant's definitive Proxy Statement for the 1996 annual meeting of
shareholders to be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year.
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<PAGE> 2
ITEM 1. BUSINESS
INTRODUCTION
General Dynamics Corporation (the company) has historically been a
supplier of weapons systems to the U.S. government. The company is a Delaware
corporation formed in 1952 as successor to the Electric Boat Company. Two of
the company's primary operating units, General Dynamics Land Systems Inc.
(formerly Chrysler Defense, Inc.) and Bath Iron Works Corporation, were
acquired in 1982 and 1995, respectively. In addition, the company operates
other smaller businesses.
The company's three business segments are the Marine Group which is
composed of Electric Boat Corporation (Electric Boat), Bath Iron Works
Corporation (BIW), and American Overseas Marine Corporation (AMSEA); Armored
Vehicles which represents General Dynamics Land Systems Inc. (Land Systems);
and Other which is composed of Freeman Energy Corporation (Freeman Energy) and
Patriot I, II and IV Shipping Corporations (Patriots). A general description
of these businesses including products, properties and other related
information follows. The information on the amounts of revenue, operating
profit or loss and identifiable assets attributable to each of the company's
three business segments is included under the caption entitled "Business
Segment Information" on page 18 of the 1995 Shareholder Report, filed as
Exhibit 13 to this Annual Report on Form 10-K, and is incorporated herein by
reference.
MARINE GROUP
NUCLEAR SUBMARINES. Electric Boat designs and builds nuclear
submarines for the U.S. Navy. Electric Boat also performs overhaul and repair
work on submarines as well as a broad range of engineering work including
advanced research and technology development, systems and component design
evaluation, prototype development and logistics support to the operating fleet.
Electric Boat also serves as ship integrator for certain components and
subassemblies of the submarines, such as electronic equipment. Electric Boat's
net sales were $1,567, $1,678 and $1,711 in 1995, 1994 and 1993, respectively.
Electric Boat has contracts for construction of Ohio class ballistic
missile submarines (Trident) and Seawolf class attack submarines (Seawolf),
which are currently under construction at Electric Boat's two major
construction facilities. Electric Boat produces modular submarine hull
sections, components and subassemblies in leased and owned facilities at
Quonset Point, Rhode Island, and in company-owned facilities at Avenel, New
Jersey. Final assembly, test and delivery of the ships is accomplished at its
96 acre shipyard on the Thames River at Groton, Connecticut, which contains a
covered area in excess of 2.6 million square feet, and is owned by the company.
Approximately 50% of Electric Boat's property, plant and equipment was fully
depreciated at December 31, 1995.
Electric Boat competed with Newport News Shipbuilding and Drydock
Company (Newport News) for construction of the Los Angeles class and the first
two Seawolf submarines. The construction contract for a third Seawolf is
currently in final negotiation with the Navy. Electric Boat is the sole
producer of Trident and Seawolf submarines and the designer and designated
lead ship builder of the New Attack Submarine. Most engineering work is
performed on a sole-source basis by Electric Boat. For some repair work on
submarines, Electric Boat competes with Newport News.
SURFACE COMBATANTS. BIW builds and repairs surface ships, while also
performing extensive engineering and support services for the U.S. Navy. BIW
is the lead shipbuilder for Arleigh Burke class destroyers (DDG 51). It also
plays a lead role in providing design, engineering, and ongoing life cycle
support services for DDG 51 class ships.
BIW accomplishes ship assembly at its 58 acre main shipyard in Bath,
Maine, which includes an 115,000 square foot unit assembly building; a 45,000
square foot mechanized plate facility; and an 82,000 square foot extended
pre-outfit building. BIW also performs structural steel fabrication, outfit
(pipe and sheet metal) fabrication, and material warehousing at sites in East
Brunswick, Maine. Ship overhaul and repair work, including ship dry-docking,
is accomplished at leased facilities in Portland, Maine.
Construction of the DDG 51 class ships are allocated between BIW and
Ingalls Shipbuilding, Inc. (Ingalls). To date, BIW has been awarded contracts
to build 18 ships and Ingalls has received contracts to build 14 ships of the
class. BIW is also a significant member of a team that will bid competitively
in 1996 to become the lead designer and builder of the Navy's LPD 17 class
amphibious assault ships. BIW's design and support contracts are primarily
sole source, with some work awarded on a competitive basis.
1
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SHIP MANAGEMENT. AMSEA provides ship management services for five of
the U.S. Navy's Maritime Prepositioning Ships (MPS), nine of the U.S. Maritime
Administration's Ready Reserve Force ships (RRF), and two U.S. Maritime Army
War Reserve vessels (AWR-3). The MPS are under five-year contracts of which
three were renewed in 1995, and two will be renewed in 1996. These contracts
are renewable through the year 2011. The RRF ships are in the third year of
their five-year contracts for which the company competed with various other
ship management providers. The contract for the AWR-3 vessels is expected to
be renewed in March of 1996. The MPS and AWR-3 vessels operate worldwide; the
RRF vessels are located on the east, gulf and west coasts of the United States.
AMSEA's home office is in Quincy, Massachusetts.
ARMORED VEHICLES
Land Systems is the sole-source producer of main battle tanks for the
U.S. government. Land Systems designs and manufactures the M1 Series Abrams
Main Battle Tank for the U.S. Army and the U.S. Marine Corps. Land Systems
also performs engineering and upgrade work as well as provides support for
existing armored vehicles. Production of the M1A1, a version of the M1 that
incorporates increased firepower, additional crew protection features, and
improved armor, was initiated in 1985. Production of the M1A2, the latest
version of the M1 which incorporates battlefield management systems aimed at
providing improved fightability, as well as improved survivability of the
tank's four crew members, was initiated in 1992. The company continues to
upgrade M1 tanks to the M1A2 version and is negotiating a multi-year contract
to upgrade up to 120 tanks per year for five years based upon available
government funding. In addition to domestic sales, M1 tanks are being sold
through the U.S. government to various foreign governments. Land Systems
provides training in operation and maintenance and other logistic support on
international sales.
Certain components of the M1 series tank, such as the engine and the
transmission and final drive, are produced by other firms. Land Systems has
bid and is currently bidding on other armored vehicle and related programs for
the U.S. government in competition primarily with the United Defense Limited
Partnership, a partnership between FMC Corporation and Harsco Corporation. The
current international market is characterized by intense competition for a
limited number of business opportunities. The company, in cooperation with the
U.S. government, has been successful in competitive bids for production
contracts and related logistic support with Egypt, Saudi Arabia, Kuwait and
Korea, but was unsuccessful on similar bids with the United Arab Emirates and
Sweden.
Tank production is performed at a 1.6 million square foot plant on 369
acres in Lima, Ohio, and machining operations are performed at a 1.1 million
square foot plant on 145 acres in Warren (Detroit), Michigan. Each is owned by
the U.S. government and operated by Land Systems under a facilities contract.
The Warren plant is on the government base closure list, and therefore
machining operations currently at the plant will be located to other
facilities. In support of these plants, Land Systems leases property in
Scranton, Pennsylvania, and owns or leases property in a few locations in the
Detroit area.
The company, teamed with Tadiran Ltd. of Israel, was selected during
1988 as the second-source producer of the Single Channel Ground and Airborne
Radio System (SINCGARS). The company won 40% and 45% shares of the first two
competitive bids under the SINCGARS program with ITT Industries, Inc. in 1994
and 1995, respectively. The company is currently competing for the third
competitive bid with award expected in early 1996. The company leases
space in Tallahassee, Florida, to support SINCGARS production and electronics
engineering.
The company recently announced an agreement to purchase the assets of
Teledyne Vehicle Systems (TVS) for $55 million, and expects to complete the
acquisition in early 1996. The acquisition will increase Land Systems' share
of the U.S. Army's $16 billion Crusader Advanced Field Artillery System program
to more than 25%. TVS specializes in combat vehicles as well as mobility
systems, suspension technology and diesel engines for armored vehicle markets
world wide. These activities are performed at the 1.0 million square foot
facility owned by TVS and located on 438 acres in Muskegon, Michigan. TVS also
leases a 50,000 square foot building for their engineering technical center and
prototype assembly efforts.
2
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OTHER
Freeman Energy mines coal, the majority of which is sold in the spot
market or under short-term contracts to a variety of customers. Approximately
20% of Freeman Energy's coal production is sold under a long-term contract to a
midwestern utility. The contract provides price adjustments for changes in
certain costs of production. Freeman Energy operates three underground mines
and one surface mine in Illinois, along with one surface mine in Kentucky.
Coal preparation facilities and rail loading facilities are located at each
mine sufficient for its output. Total production from Freeman Energy's mines
was approximately 5 million tons in each of the last three years. In addition,
Freeman Energy owns or leases rights to over 600 million tons of coal reserves
in Illinois and Kentucky. Due to the commodity nature of the company's coal
operations, the primary factors affecting competition are price and geographic
service area.
The 1990 Clean Air Act requires, among other things, a phased
reduction in sulfur dioxide emissions by coal burning facilities over the next
few years. Virtually all of the coal in Freeman Energy's Illinois basin mines
has medium or high sulfur content. Freeman Energy's long-term contract
customer has pollution control devices which allow for utilization of Freeman
Energy's coal under the new regulations. Freeman Energy has targeted customers
with clean coal technology to mitigate the impact of regulations in the near
term. The long-term impact of the Clean Air Act is not known.
Patriots are financing subsidiaries which lease liquefied natural gas
tankers to a nonrelated company.
DISCONTINUED OPERATIONS
Since 1991, the company has sold its Tactical Military Aircraft,
Missile Systems, General Aviation, and Space Launch Systems businesses. The
remaining discontinued operations at December 31, 1995, are as follows:
The company's Convair Division was the sole-source producer of
fuselages for the McDonnell Douglas Corporation (McDonnell Douglas) MD-11 wide
body tri-jet aircraft. During 1994, the company signed an agreement to
transfer production of fuselages to McDonnell Douglas with the delivery of the
166th shipset in early 1996. The Convair Division ceased operations after
completion of its obligations under this agreement.
Material Service Corporation is engaged in the mining and sale of
aggregates (e.g. stone, sand and gravel) for use in the construction of
highways and other infrastructure projects, and for commercial and residential
building construction primarily in northern and central Illinois.
REAL ESTATE HELD FOR DEVELOPMENT
As part of the sale of businesses, certain related properties were
retained by the company. These properties have been segregated on the
Consolidated Balance Sheet as real estate held for development. The company
has retained outside experts to support the development of plans which are
intended to maximize the market value of these properties. These properties
include 232 acres in Kearny Mesa and 2,420 acres in Sycamore Canyon, both of
which are in San Diego, California; and 363 acres in Rancho Cucamonga,
California. Most of this property is undeveloped. The company owns 3.0
million square feet of building space on the aforementioned properties, a
significant portion of which will be demolished due to economic and market
considerations.
3
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GENERAL INFORMATION
U. S. Government Contracts
The company's net sales to the U.S. government include Foreign
Military Sales (FMS). FMS are sales to foreign governments through the U.S.
government, whereby the company contracts with and receives payment from the
U.S. government and the U.S. government assumes the risk of collection from
the customer. U.S. government sales were as follows (excluding discontinued
operations; dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
<S> <C> <C> <C>
1995 1994 1993
-------- --------- ---------
Domestic $ 2,422 $ 2,190 $ 2,202
FMS 476 690 801
-------- --------- -------
Total U.S. government $ 2,898 $ 2,880 $ 3,003
======== ========= =========
Percent of net sales 94% 94% 94%
</TABLE>
All U.S. government contracts are terminable at the convenience of the
U.S. government, as well as for default. Under contracts terminable at the
convenience of the U.S. government, a contractor is entitled to receive
payments for its allowable costs and, in general, the proportionate share of
fees or earnings for the work done. Contracts which are terminated for default
generally provide that the U.S. government only pays for the work it has
accepted and may require the contractor to pay for the incremental cost of
reprocurement and may hold the contractor liable for damages. In 1991, the
U.S. Navy terminated the company's A-12 aircraft contract for default; in
December 1995 the U.S. Court of Federal Claims issued an order converting the
termination for default to a termination for convenience. For further
discussion, see Note P to the Consolidated Financial Statements on page 33 of
the 1995 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form
10-K and incorporated herein by reference.
Companies engaged in supplying goods and services to the U.S.
government are dependent on congressional appropriations and administrative
allotment of funds, and may be affected by changes in U.S. government policies
resulting from various military and political developments. U.S. government
defense contracts typically involve long lead times for design and development,
and are subject to significant changes in contract scheduling. Often the
contracts call for successful design and production of very complex and
technologically advanced items.
Foreign Sales and Operations
The major portion of sales and operating earnings of the company for
the past three years was derived from operations in the United States.
Although the company purchases supplies from and subcontracts with foreign
companies, it has no substantial operations in foreign countries. The majority
of foreign sales are made as FMS through the U.S. government, but certain
direct foreign sales are made of components and support services. Direct
foreign sales were $29 million, $32 million and $35 million in 1995, 1994 and
1993, respectively.
Supplies
Many items of equipment and components used in the production of the
company's products are purchased from other manufacturers. The company is
dependent upon suppliers and subcontractors for a large number of components
and the ability of its suppliers and subcontractors to meet performance and
quality specifications and delivery schedules. In some cases the company is
dependent on one or a few sources, either because of the specialized nature of
a particular item or because of domestic preference requirements pursuant to
which it operates on a given project.
All of the company's operations are dependent upon adequate supplies
of certain raw materials, such as aluminum and steel, and on adequate supplies
of fuel. Fuel or raw material shortages could also have an adverse effect on
the company's suppliers, thus impairing their ability to honor their
contractual commitments to the company. The company has not experienced
serious shortages in any of the raw materials or fuel supplies that are
necessary for its production programs.
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Research and Development
Research and development activities in the Marine Group and Armored
Vehicles segments are conducted principally under U.S. government contracts.
These research efforts are generally either concerned with developing products
for large systems development programs or performing work under research and
development technology contracts. In addition, the defense businesses engage
in independent research and development, of which a significant portion is
recovered through overhead charges to U.S. government contracts.
The table below details expenditures for research and development
(excluding discontinued operations; dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1995 1994 1993
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<S> <C> <C> <C>
Company-sponsored $ 25 $ 30 $ 33
Customer-sponsored 178 246 142
---------- --------- --------
$ 203 $ 276 $ 175
========== ========= ========
</TABLE>
Backlog
The information on the dollar amounts of backlog orders is included
under the caption entitled "Backlog" on page 20 of the 1995 Shareholder Report,
filed as Exhibit 13 to this Annual Report on Form 10-K, and is incorporated
herein by reference.
Environmental Controls
Federal, state and local requirements relating to the discharge of
materials into the environment and other factors affecting the environment have
had and will continue to have an impact on the manufacturing operations of the
company. Thus far, compliance with the requirements has been accomplished
without material effect on the company's capital expenditures, earnings or
competitive position. While it is expected that this will continue to be the
case, the company cannot assess the possible effect of compliance with future
requirements.
Additional information relating to the impact of environmental
controls is included under the caption "Environmental" in Note O to the
Consolidated Financial Statements on page 33 of the 1995 Shareholder Report,
filed as Exhibit 13 to this Annual Report on Form 10-K, and is
incorporated herein by reference.
Patents
Numerous patents and patent applications are owned by the company and
utilized in its development activities and manufacturing operations. In many
cases, however, the U.S. government has an irrevocable, non-exclusive,
royalty-free license, pursuant to which the government may use or authorize
others to use the inventions covered by the patents. Pursuant to similar
arrangements, the government may consent to the company's use of inventions
covered by patents. While in the aggregate its patents and licenses are
considered important in the operation of the company's business, engineering,
production skills and experience are more important to the company than its
patents or licenses.
Employees
At the end of 1995, the company had approximately 27,700 employees, of
whom approximately 60% were covered by collective bargaining agreements with
various unions, the most significant of which are the International Association
of Machinists and Aerospace Workers, the Industrial Union of Marine and
Shipbuilding Workers of America, the Metal Trades Council of New London,
Connecticut, the United Auto Workers Union, the Office and Professional
Employees International Union and the United Mine Workers of America. During
1996, several collective bargaining agreements, which cover approximately 15%
of the union represented work force, are scheduled to expire and are subject to
negotiations with the respective unions.
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ITEM 2. PROPERTIES
The information required for this item is included in Item 1 of this
report.
ITEM 3. LEGAL PROCEEDINGS
The information under the captions "Litigation" and "Environmental" in
Note O and the information in Note P to the Consolidated Financial Statements
appearing on pages 32 and 33 of the 1995 Shareholder Report, included in this
Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference
in response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the company's security holders
during the fourth quarter of the year ended December 31, 1995.
SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The name, age, offices and positions held for the last five years of
the company's executive officers who are not directors are as follows:
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31
NAME, POSITION AND OFFICE 1995
------------------------- ---------------
<S> <C>
David D. Baier -- Vice President Taxes since August 1995; Staff Vice President Taxes
March 1994 -- August 1995; Corporate Tax Counsel and Director of Planning
and Litigation September 1991 -- March 1994; Assistant Tax Counsel
July 1989 -- September 1991 41
G. Kent Bankus -- Vice President Government Relations since April 1993; Staff Vice President
Aerospace Programs and Field Offices July 1991 -- April 1993; Corporate Director for
Special Projects January 1989 -- July 1991 53
Edward C. Bruntrager -- Vice President and General Counsel since March 1994; Assistant General
Counsel January 1987 -- March 1994 48
Allan C. Cameron -- Vice President of the company and President of the company's
Bath Iron Works Division since March 1996; Executive Vice President and Chief Operating
Officer of Bath Iron Works July 1994 -- March 1996; Facility Manager of the company's
Electric Boat Division May 1993 -- June 1994; Director of Operations of the company's
Electric Boat Division January 1989 -- May 1993 49
David H. Fogg -- Staff Vice President and Treasurer since November 1994; Staff Vice President
and Assistant Treasurer May 1994 -- November 1994; Corporate Director of Finance and
Assistant Treasurer January 1994 -- May 1994; Corporate Director of Risk Management
November 1991 -- January 1994; Assistant Treasurer of Uniroyal Goodrich Tire Company
August 1986 -- November 1991 40
Paul A. Hesse -- Vice President Communications and Secretary since February 1996; Vice President
Communications May 1991 -- February 1996; President and Chief Operating Officer
of Dix & Eaton 1988 -- 1991 54
Michael J. Mancuso -- Vice President and Chief Financial Officer since November 1994; Vice
President and Controller May 1994 -- November 1994; Division Vice President and Chief
Financial Officer of the company's Land Systems Division September 1993 -- May 1994;
Vice President and Controller - Commercial Engine Business, Pratt & Whitney, United
Technologies Corporation (UTC) July 1992 -- September 1993; Vice President - Finance
and Administration, Hamilton Standard, UTC August 1989 -- July 1992 53
</TABLE>
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<TABLE>
<CAPTION>
AGE AT
DECEMBER 31
NAME, POSITION AND OFFICE 1995
------------------------- ----------
<S> <C>
Daniel P. Schmutte -- Vice President Operations since August 1995; Staff Vice President and
Assistant to the President/Chief Executive Officer June 1993 -- August 1995; Assistant to
the President December 1990 -- June 1993 45
John W. Schwartz -- Staff Vice President and Controller since November 1994; Corporate Director
of Accounting July 1992 -- November 1994; Vice President- Corporate Accounting of MNC
Financial, Inc. February 1988 -- June 1992 39
Henry J. Sechler -- Vice President International Business Development since August 1991;
Staff Vice President International Business Development October 1985 -- August 1991 63
Roger E. Tetrault --Senior Vice President of the company and President of the company's
Land Systems Division since August 1995; Vice President of the company and
President of the company's Land Systems Division April 1993 -- August 1995;
Vice President of the company and President of the company's Electric Boat Division
August 1992 -- April 1993; Vice President of the company and General Manager of the
company's Electric Boat Division August 1991 -- August 1992; Vice President and Group
Executive of Babcock and Wilcox 1990 -- 1991 54
James E. Turner, Jr. -- Executive Vice President of the company's Marine Group since
October 1995; Executive Vice President of the company and President of the company's
Electric Boat Division April 1993 -- October 1995; Executive Vice President of the
company's Marine, Land Systems and Services Group February 1991 -- April 1993;
Vice President of the company and General Manager of the company's
Electric Boat Division September 1988 -- February 1991 61
Arthur J. Veitch -- Vice President of the company and Senior Operating Officer of the
company's Land Systems Division since August 1995; Division Vice President and General
Manager of the company's Convair Division August 1992 -- August 1995; Division Vice
President and Program Director - Aircraft Programs of the company's Convair Division
May 1991 -- August 1992; Division Vice President Contracts and Estimating of the
company's Convair Division December 1982 -- May 1991 49
John K. Welch -- Vice President of the company and President of the company's Electric
Boat Division since October 1995; Division Vice President Programs and Planning of
the company's Electric Boat Division April 1994 -- October 1995; Division Vice
President Program Management and Development of the company's Electric Boat Division
June 1989 -- April 1994 45
W. Peter Wylie -- Vice President Human Resources and Administration since August 1995;
Group Vice President - Hughes Missile Systems Company August 1992 -- January 1995;
Division Vice President Human Resources of the company's Missiles and Electronics
Group May 1991 -- August 1992; Division Vice President Human Resources of the
company's Air Defense Systems Division August 1989 -- May 1991 56
</TABLE>
All executive officers of the company are elected annually. There are no family
relationships, as defined, among any of the above executive officers. No
executive officer of the company was selected pursuant to any arrangement or
understanding between the officer and any other person.
7
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The company's common stock is listed on the New York Stock Exchange,
Chicago Stock Exchange and Pacific Stock Exchange.
The high and low market price of the company's common stock and the
cash dividends declared for each quarterly period during the two most recent
fiscal years are included in Note T to the Consolidated Financial Statements
appearing on page 36 of the 1995 Shareholder Report, included in this Annual
Report on Form 10-K as Exhibit 13, and are incorporated herein by reference.
There were 22,930 common shareholders of record of the company's
common stock at December 31, 1995.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing on page 38 of the 1995 Shareholder Report,
included in this Annual Report on Form 10-K as Exhibit 13, is incorporated
herein by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing on pages 18 through 22 of the 1995
Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13,
is incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information appearing on pages 23 through 38 of the 1995
Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13,
is incorporated herein by reference in response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth herein, except for a list of
the executive officers other than directors that is provided in Part I of this
report, is included under the caption entitled "Election of Directors" in the
company's definitive Proxy Statement which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be set forth herein is included under the
captions entitled "Board of Directors and Board Committees" and "Executive
Compensation" in the company's definitive Proxy Statement which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be set forth herein is included under the
captions entitled "Election of Directors" and "Principal Shareholders" in the
company's definitive Proxy Statement which is incorporated herein by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth herein is included under the
captions entitled "Employment Agreements and Other Agreements" and
"Transactions Involving Directors and Others" in the company's definitive Proxy
Statement which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Report of Independent Public Accountants and Consolidated
Financial Statements appearing in the 1995 Shareholder Report on the pages
listed in the following index are included in this Annual Report on Form 10-K
as Exhibit 13, and are incorporated herein by reference.
<TABLE>
<CAPTION>
Page of
Shareholder
Report
------------
<S> <C>
Report of Independent Public Accountants 37
Consolidated Financial Statements:
Consolidated Statement of Earnings 23
Consolidated Balance Sheet 24
Consolidated Statement of Cash Flows 25
Consolidated Statement of Shareholders' Equity 26
Notes to Consolidated Financial Statements (A to T) 27 - 36
</TABLE>
2. Financial Statement Schedules
No schedules are submitted because they are either not applicable or
not required, or because the required information is included in the financial
statements or the notes thereto.
3. Exhibits--See Index on pages 11 and 12.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of
1995.
9
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GENERAL DYNAMICS CORPORATION
By: /s/ John W. Schwartz
--------------------
John W. Schwartz
Staff Vice President and Controller
March 21, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 21, 1996, by the following persons
on behalf of the Registrant and in the capacities indicated, including a
majority of the Directors.
<TABLE>
<S> <C>
/s/James R. Mellor Chief Executive Officer and Director
- - ------------------ (Principal Executive Officer)
James R. Mellor
/s/ Michael J. Mancuso Vice President and Chief Financial Officer
- - ---------------------- (Principal Financial Officer)
Michael J. Mancuso
/s/ John W. Schwartz Staff Vice President and Controller
- - -------------------- (Principal Accounting Officer)
John W. Schwartz
* Director
- - -----------------------
Frank C. Carlucci
* Director
- - -----------------------
Nicholas D. Chabraja
* Director
- - -----------------------
James S. Crown
* Director
- - -----------------------
Lester Crown
* Director
- - -----------------------
Charles H. Goodman
* Director
- - -----------------------
Gordon R. Sullivan
* Director
- - ------------------------
Carlisle A. H. Trost
</TABLE>
*By Paul A. Hesse pursuant to Power of Attorney executed by the directors
listed above, which Power of Attorney has been filed with the Securities and
Exchange Commission.
/s/ Paul A. Hesse
-----------------
Paul A. Hesse
Secretary
10
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- - ------ ------ -----------
<S> <C> <C>
(7) 3-1A --Restated Certificate of Incorporation, effective May 21, 1991
(10) 3-2B --Bylaws as amended effective May 4, 1994
4 --Letter re agreement to furnish copy of indenture
(1) 10-1A --Amendment of Mining Leases between American National Bank and Trust
of Chicago, Trustee, and La Salle National Bank, Trustee, to Freeman Coal Mining
Corporation, dated January 1, 1960
(1) 10-1B --Amendatory Agreement between Freeman United Coal Mining Company and American
National Bank and Trust Company, as Trustee, and La Salle National Bank, as Trustee,
dated January 1, 1975
(4) 10-6A --General Dynamics Corporation Incentive Compensation Plan adopted February 3, 1988,
approved by the shareholders on May 4, 1988
(6) 10-6B --General Dynamics Corporation Incentive Compensation Plan (as amended),
approved by shareholders on May 1, 1991
(3) 10-7C-2 --Facilities Contract DAAE07-83-E-A001 dated August 29, 1983, and
1984 modifications between the company's General Dynamics Land
Systems Inc. subsidiary and the United States relating to government-
owned equipment at Sterling Heights, Michigan
(2) 10-7D --Facilities Contract DAAE07-83-E-A007 dated January 29, 1983, between
the company's General Dynamics Land Systems Inc. subsidiary and the
United States relating to government-owned equipment at the Scranton
Defense Plant, Eynon, Pennsylvania
(6) 10-7E --Facilities Contract DAAE07-90-E-A001 dated June 24, 1990, between the company's
General Dynamics Land Systems Inc. subsidiary and the United States relating to
government-owned facilities and equipment at the Lima Army Tank Plant, Lima, Ohio
(6) 10-7F --Facilities Contract DAAE07-91-E-A002 dated December 21, 1990, between the company's
General Dynamics Land Systems Inc. subsidiary and the United States relating to
government-owned facilities and equipment at the Detroit Arsenal Tank Plant, Warren, Michigan
(10) 10-8B --General Dynamics Corporation Retirement Plan for Directors adopted March 6, 1986, as
amended May 5, 1993
(5) 10-13 --Indenture of Lease dated January 1, 1986, by and between State of Rhode Island and
Providence Plantations and Rhode Island Port Authority and Economic Development
Corporation and the company
(5) 10-14 --Lease Agreement dated November 28, 1978, as amended January 15, 1989, between
Rhode Island Port Authority and Economic Development Corporation and the company
(8) 10-18 --Employment Agreement between the company and James R. Mellor dated as of
March 17, 1993
10-18A --Amendment to employment agreement between the company and James R. Mellor dated as of
October 3, 1995
(8) 10-22 --Form of Agreement entered into in 1993 between the company and Corporate Officers who
were being retained in employment with the company
(9) 10-23 --Employment agreement between the company and Nicholas D. Chabraja, dated
February 3, 1993, as amended December 22, 1993
(11) 10-24 --Asset Purchase Agreement, dated August 17, 1995, between the company and Bath Iron Works
Corporation
10-25 --Lease Agreement dated January 14, 1982, between the company's Bath Iron Works Corp.
subsidiary and the City of Portland, Maine, relating to pier facilities in the Portland, Maine
harbor
10-26 --Lease Agreement dated January 14, 1982, between the company's Bath Iron Works Corp.
subsidiary and the State of Maine, relating to a dry dock facility in the Portland,
Maine harbor
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- - ------ ------ -----------
<S> <C>
10-27 --Form of Employment Agreement pertaining to change of control entered into between the
company and key executives
11 --Statement re computation of per share earnings
13 --1995 Shareholder Report (pages 18-38)
21 --Subsidiaries
23 --Consent of Independent Public Accountants
24 --Power of Attorney of the Board of Directors
27 --Financial Data Schedule
</TABLE>
NOTES
(1) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1980, and filed with the Commission March
31, 1981, and incorporated herein by reference.
(2) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1982, and filed with the Commission March
30, 1983, and incorporated herein by reference.
(3) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1984, and filed with the Commission April
1, 1985, and incorporated herein by reference.
(4) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1987, and filed with the Commission March
17, 1988, and incorporated herein by reference.
(5) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1989, and filed with the Commission March
30, 1990, and incorporated herein by reference.
(6) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1990, and filed with the Commission March
29, 1991, and incorporated herein by reference.
(7) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1991, and filed with the Commission March
26, 1992, and incorporated herein by reference.
(8) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1992, and filed with the Commission March
30, 1993, and incorporated herein by reference.
(9) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1993, and filed with the Commission March
29, 1994, and incorporated herein by reference.
(10) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1994, and filed with the Commission March
9, 1995, and incorporated herein by reference.
(11) Filed as an exhibit to the company's current report on Form 8-K filed
with the Commission September 28, 1995, and incorporated herein by
reference.
12
<PAGE> 1
EXHIBIT 4, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 1-3671
GENERAL DYNAMICS CORPORATION
LETTER RE AGREEMENT TO FURNISH COPY OF INDENTURE
Securities and Exchange Commission
450 Fifth Street, NW
Judiciary Plaza
Washington, D.C. 20549
To the Commission:
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the company is not
filing the indenture with respect to long-term debt because the amount of
securities currently authorized under the indenture does not exceed 10 percent
of the total assets of the company and its subsidiaries on a consolidated
basis. Upon request, the Corporation will furnish copies of such long-term
debt instruments to the Securities and Exchange Commission.
Very truly yours,
/s/ PAUL A. HESSE
----------------------------
Paul A. Hesse
Secretary
General Dynamics Corporation
<PAGE> 1
EXHIBIT 10-18A
JAMES R. MELLOR
EMPLOYMENT AGREEMENT
Agreement dated as of 3 October 1995 between General Dynamics Corporation, a
Delaware corporation (the "Corporation"), and Mr. James R. Mellor.
The Board of Directors of the Corporation has approved the continued employment
of Mr. Mellor as Chairman and Chief Executive Officer of the Corporation for an
additional year. Accordingly, all terms and conditions of his Employment
Agreement dated 17 March 1993 shall be extended until 31 December 1996 except
as follows:
(1) The Retirement Benefit Agreement dated 3 October 1995,
attached as an Addendum to this Agreement, shall provide Mr. Mellor
an annual supplemental retirement benefit equal to $58,272 at
retirement which represents the actuarial equivalent value of the
excess of the benefit that Mr. Mellor would have been entitled to
receive at 1 January 1997 under the General Dynamics Corporation
Retirement Program (as defined in the Addendum) over the value of the
retirement benefit that was relinquished during 1994 in the
determination of the amount of life insurance under the Split-Dollar
Insurance Agreement with the Corporation.
In addition, at retirement, Mr. Mellor will be entitled to receive a
cash payment of $84,821.33 which represents the difference in the
value of Mr. Mellor's account in the General Dynamics Corporation
Supplemental SSIP (the "Supplemental SSIP") at 31 December 1994 over
the value of the Supplemental SSIP that was relinquished during 1994
in the determination of the amount of life insurance under the
Split-Dollar Insurance Agreement with the Corporation.
Mr. Mellor agrees that he will have no further interest in the General
Dynamics Corporation Supplemental Retirement Plan or in the General
Dynamics Corporation Supplemental SSIP.
(2) The remaining balance of $3,100,000 from Mr. Mellor's
Employment Agreement dated 17 March 1993, scheduled for payment on 31
December 1995, will be disbursed on 1 January 1997, or such earlier
date which is not later than 10 days following the date of his death
or on which he becomes incapacitated or otherwise physically unable to
continue rendering services to the Corporation. The balance of
$3,100,000 will be
<PAGE> 2
credited with interest beginning on 1 January 1996 and ending on the
date of payment. Interest will accrue monthly at an annual rate equal
to the rate used for the Special Distribution accounts in the General
Dynamics Incentive Compensation Plan ("the Plan").
(3) Mr. Mellor agrees to be available to render consulting
services to the Corporation for a period of 12 months commencing on
his retirement date. In consideration for these services, the
Corporation will allow Mr. Mellor to retain all of his Performance
Restricted Stock, which will then be subject to all of the terms and
conditions under which they were granted.
This Agreement shall inure to the benefit of, and be binding upon, the
Corporation and its successors and assigns and upon Mr. Mellor and his heirs,
executors, and administrators.
This Agreement shall be construed and enforced in accordance with the laws of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed as
of the date first above written on its behalf by the Corporate Vice President,
Human Resources and Administration, and its Corporate seal to be hereunto
affixed and attested to by its Secretary, each of whom has been thereunto duly
authorized, and Mr. Mellor has signed this Agreement.
GENERAL DYNAMICS CORPORATION
By /s/ WILLIAM P. WYLIE
-------------------------------
ATTEST:
/s/ E. ALAN KLOBASA
- - --------------------
Secretary
/s/ JAMES R. MELLOR
---------------------------------
James R. Mellor
<PAGE> 3
ADDENDUM
RETIREMENT BENEFIT AGREEMENT
ADDENDUM TO AGREEMENT dated as of 3 October 1995 between General Dynamics
Corporation, a Delaware corporation (the "Corporation"), and James R. Mellor
(the "Employee").
WHEREAS, the Employee has accrued retirement benefits which will be payable to
him from the General Dynamics Retirement Plan for Salaried Employees (the
"Retirement Plan") and the Employee had rights under a supplemental
nonqualified retirement plan to the extent the accrued benefits under the
Retirement Plan were limited by Section 415, 401(a)(4) or 401(a)(17) of the
Internal Revenue Code (or similar provision), any benefit that would have been
provided by the benefit formula of the Retirement Plan in excess of those
limitations would have been provided under a nonqualified plan (Supplemental
Retirement Plan). The Retirement Plan and the Supplemental Retirement Plan are
hereinafter collectively referred to as the Retirement Program.
WHEREAS, the Employee entered into a split dollar insurance agreement with the
Corporation in November 1994 and as part of that agreement relinquished his
interest in the retirement benefits under his Employment Agreement dated 17
March 1993, his balance in the General Dynamics Corporation Supplemental
Retirement Plan and his balance in the General Dynamics Corporation
Supplemental SSIP;
WHEREAS, as a result of the Agreement dated 3 October 1995 between the
Corporation and the Employee, the Employee shall continue his employment as
Chairman and Chief Executive Officer of the Corporation for an additional year;
NOW, THEREFORE, in consideration for the Employee's past employment by the
Corporation and the Employee's future services, the Corporation and the
Employee agree as follows:
1. MEMBERSHIP IN GENERAL DYNAMICS RETIREMENT PLAN. The Employee will
continue to be a member of the General Dynamics Retirement Plan for
Salaried Employees (the "Retirement Plan").
2. RETIREMENT BENEFIT. Upon the Employee's retirement from the
Corporation, the Employee shall be entitled to such annual retirement
benefits, if any, as of the date of the Employee's termination of
employment with the Corporation, based upon the terms of the
Retirement Plan. Payment of these benefits shall commence at such
time and in the form the Employee elects pursuant to the terms of the
Retirement Plan.
1
<PAGE> 4
3. SUPPLEMENTAL RETIREMENT BENEFIT.
(a) Upon the termination of the Employee's employment with the
Corporation, the Employee shall also be paid by the
Corporation an additional annual retirement benefit in an
amount equal to $58,272. This amount shall be payable in
monthly installments commencing January 1, 1997 and continue
during his remaining lifetime.
(b) The benefit in paragraph (a) represents the actuarial
equivalent value of the excess of the benefit that the
Employee would have been entitled to receive at January 1,
1997 under the Retirement Program over the value of the
retirement benefit that was relinquished during 1994 in the
determination of the amount of life insurance under the
Split-Dollar Insurance Agreement with the Corporation.
Actuarial equivalence for this purpose is based on the 1984
Unisex Pension Mortality Table set back one year with interest
at the rate of 7% per annum compound.
(c) The benefit provided by paragraph (a) of this section will not
be provided to the Employee if the Employee causes harm to the
Corporation (financial, reputation, or product), through: (i)
an act or acts of personal dishonesty, (ii) conviction of a
felony related to the Corporation, (iii) material violation of
General Dynamics' standards of business ethics and conduct,
(iv) individually filing or participating in a lawsuit
against the Corporation, or (v) subsequent employment with a
competitor.
4. ALTERNATE FORM OF BENEFIT. The Employee shall have the option, on
written notice transmitted to the Corporation at least 30 days prior
to the date on which payment of his benefit would otherwise commence
hereunder, to elect to receive the retirement benefit described herein
payable in an alternate form as provided by the Retirement Plan or, in
the Corporation's discretion, in another form of actuarial equivalent
value. The applicable single life annual benefit shall then be
converted to the alternate form elected by the application of the
actuarial factors used for converting benefits under the Retirement
Plan at the time the retirement benefit is to commence.
5. SURVIVOR BENEFIT IN CASE OF DEATH PRIOR TO COMMENCEMENT OF BENEFITS.
If the Employee dies on or after January 1, 1996, but prior to
commencement of benefits, his spouse shall be entitled to receive
payment of the Supplement (as calculated in paragraph 3(a)) as a
pre-retirement surviving spouse annuity as defined in the Retirement
Plan (currently defined at a 50% Contingent Annuity) for her life,
commencing on the Employee's death. The amount of the benefit shall
be calculated by the application of the actuarial factors used by the
Retirement Plan for calculating the surviving spouse annuity as of the
date of the Employee's death. The Employee's Spouse shall also be
entitled to payment of such retirement benefits (as defined in
paragraph 2), if any, as provided under the terms of the Retirement
Program.
2
<PAGE> 5
6. PAYMENT. All annual retirement benefits for the life of the Employee
(or alternate form of benefit) or other amounts payable as provided in
this Agreement shall be paid as provided in the Employee's benefit
election under the Retirement Plan. Any retirement benefits to which
the Employee is entitled under this Agreement shall be paid directly
by the Corporation to the extent they are not paid under the
Retirement Plan. The Corporation may, in its sole discretion,
accelerate the payment of benefits under this Agreement in a form of
actuarial equivalent value.
7. NO ASSIGNMENT. No benefit under this Agreement shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt so to anticipate,
alienate, sell, transfer, assign, pledge, encumber or change the same
shall be void, and no such benefit shall in any manner be liable for
or subject to the debts, liabilities, engagements or torts of the
person entitled to such benefit, except as specifically provided in
the Retirement Program or pursuant to a Qualified Domestic Relations
Order and described in Code Section 414(p).
8. PAYMENT FROM GENERAL ASSETS.
(a) Unless otherwise determined by the Corporation, the Supplement
will be payable by the Corporation from its general assets.
The Corporation shall not be obliged to acquire, designate or
set aside any specific assets for payment of the Supplement.
Further, the Employee shall have no claim whatsoever to any
specific assets or group of assets of the Corporation.
(b) The Corporation may, in its discretion, designate that the
Supplement shall be satisfied from the assets of a trust,
fund, or other segregated group of assets. But, should these
assets prove to be insufficient to satisfy payment of the
Supplement or post-retirement benefits described above, the
Corporation shall remain liable for their payment unless
otherwise agreed to by the parties of this Agreement.
9. EFFECT ON OTHER AGREEMENTS. This Retirement Benefit Agreement shall
supersede any prior Retirement Benefit Agreements and any such prior
Agreements shall be null and void.
3
<PAGE> 6
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on
behalf of its Chairman and Chief Executive Officer by the Corporate Vice
President - Human Resources and Administration and its corporate seal to be
hereunto affixed and attested to by the Secretary of the Corporation, and the
Employee has executed this Agreement as of the date first above written.
ATTEST: GENERAL DYNAMICS CORPORATION
/s/ E. ALAN KLOBASA By: /s/ WILLIAM P. WYLIE
- - ------------------------- ----------------------------------
Secretary William P. Wylie
Corporate Vice President - Human
Resources and Administration
/s/ MARGARET N. HOUSE /s/ JAMES R. MELLOR
- - ------------------------- ----------------------------------
Witness Employee
4
<PAGE> 1
EXHIBIT 10-25
FINAL-1/14/82
PIER LEASE
LEASE made this 18th day of January, 1982, by and between CITY OF
PORTLAND ("the City") and BATH IRON WORKS CORPORATION ("B I W") .
WHEREAS, there is a statewide need to provide for a greater
utilization of the State's public ports and harbors and to increase the flow of
commerce and to thereby provide enlarged opportunities for gainful employment
by the people of Maine and to thus insure the preservation and betterment of
the economy of the State and its inhabitants.
WHEREAS, by Memorandum of Intent dated July 15, 1981, the parties and
the State expressed their intention to build and develop comprehensive
waterfront port facilities in Portland Harbor within the vicinity of the Maine
State Pier and to provide the necessary financing for such facility and to make
the same available for use by BIW.
WHEREAS, the parties believe that the development of such facilities
will revitalize the Port of Portland, create new employment opportunities for
residents of the State and City, improve a blighted area, support the flow of
commerce and strengthen the economic condition of the State and City.
WHEREAS, in accordance with the terms of a certain Comprehensive
Commitment between the parties and the State of Maine, the parties have agreed
to develop a port facility to be owned in part by the State and in part by the
City, with the City's portion to be leased to BIW in accordance with the terms
of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
1. PREMISES LEASED. The City does hereby lease to BIW, and BIW
does hereby lease from the City, the real estate located at Portland,
Cumberland County, Maine and more particularly described on a survey dated
October 19, 1981, as revised through November 20,
<PAGE> 2
1981, prepared by H. I. and E. C. Jordan attached hereto as Exhibit A,
including all submerged lands shown thereon ("the Premises").
2. TERM. The term of this Lease shall commence on February 1,
1982 and, except as provided by Paragraphs 19 and 20, shall expire at 11:59
P.M. on December 31, 2001. Prior to the commencement of this Lease, BIW shall
have the right to enter upon the Premises for the purposes of making
inspections, conducting tests, taking measurements and, in general, gathering
information in anticipation of its future occupancy of the Premises, provided
that such entry does not materially interfere with any existing use of the
Premises.
3. RENT. Subject to Paragraphs 5 and 6 hereof, BIW shall pay to
the City as annual rent for the Premises the amount set forth on the rent
schedule attached hereto as Exhibit B. The annual rent shall be payable in
advance in equal consecutive monthly installments on the first day of each
month. The rent provided hereunder shall be "net" to the City.
4. SECURITY DEPOSIT. BIW, as security for the payment of rent
hereunder, shall deliver to the City the sum of One Hundred and Fifty Thousand
Dollars ($150,000.00) on or before the commencement of this Lease. The City
shall hold such security deposit for its own use and benefit without accounting
to BIW for any earnings thereon until the dates on which it is required to
refund such security deposit to BIW. The City shall refund one-half of the
security deposit to BIW on or before January 1, 1985 and shall refund the
remaining one-half to BIW on or before January 1, 1986. If the City fails to
refund the amount of such security deposit to BIW and if BIW is not then in
arrears in rent to the City, then BIW, without prejudice to any other remedies
which BIW may have against the City, may offset against any amount due the City
under this Lease or any other agreement the amount of such security deposit.
5. RENT CREDIT. BIW has heretofore entered into a lease with the
City of a berthing facility in a portion of a building complex formerly known
as the "City Hospital." Such lease will provide for the payment by BIW to City
of an amount of rent based upon BIW's usage of such facility. If during any
calendar year the City's gross revenues from its rental of the berthing
facility, including rental income from parties other than BIW from that portion
of City Hospital in
<PAGE> 3
which the berthing facility is located, exceeds its "operational costs" (as
defined in such lease) for such calendar year, then BIW shall accrue for such
year a credit equal to the amount of such excess up to the maximum amount
stated on Exhibit C attached hereto. The amount of such credit accrued for any
calendar year shall be paid by the City to BIW in cash within 60 days after the
end of such year, provided that upon the termination of this Lease other than
at the end of a calendar year the amounts of such credit accrued for the last
partial calendar year shall be paid by the City to BIW within 60 days after
termination.
6. RENT ABATEMENT. Contemporaneously with the execution of this
Lease, BIW is entering into an operating agreement with respect to a dry dock
owned by the State of Maine ("the Dry Dock Operating Agreement"). The City
acknowledges that in entering into this Lease and the Dry Dock Operating
Agreement all parties have acted upon the assumption that both the Premises and
the Dry Dock and the operations conducted at each will not be subject to any
property tax presently collected by the City (or any tax in lieu thereof) so
long as they are owned by the City and the State of Maine respectively. Such
assumption does not apply to any production equipment or other property which
is owned by BIW or which is leased by BIW other than from the City or the State
of Maine and which BIW is entitled to remove from the Premises upon the
termination or expiration of this Lease. If BIW is required to pay any taxes
to the City contrary to the aforesaid assumption, then the amount of rent
payable by BIW to the City under Paragraph 3 hereof shall be abated by an
amount equal to the amount of any such taxes. If the amount of such taxes
exceeds the amount of rent which BIW is required to pay to the City hereunder,
then BIW at its option may either terminate this Lease without charge or, if
and when it purchases the Premises, apply the aggregate amount of such excess
to the option price stated on Exhibit E in reduction thereof.
7. OPERATING COSTS. It is the intention of the parties that BIW
shall pay all operating and other expenses associated with the Premises until
such time as this Lease terminates. Accordingly, BIW shall pay all charges
for gas, electricity, water, sewer, telephone, and other utilities services
used, consumed, furnished, or supplied in connection with its use of the
<PAGE> 4
Premises, together with all costs of maintenance, repair, insurance, and all
other costs associated with the Premises or its operation.
8. IMPROVEMENTS. The City acknowledges that substantial
improvements must be made to the Premises in order to put them into a condition
suitable for their intended use by BIW. For such purpose and as partial
consideration for the rent stated in Paragraph 3, the City grants to BIW an
allowance ("the Improvement Allowance") of Ten Million Four Hundred Thousand
Dollars ($10,400,000.00) less the sum of (a) the City's expenses in issuing its
bonds used in part to meet its financial commitments hereunder ("the Pier
Bonds") and (b) the costs of acquiring the Canadian National Railway Company
land and relocating the railroad tracks located thereon. The Improvement
Allowance shall be used for the purpose of constructing "Capital Improvements".
"Capital Improvements" shall mean expenditures which satisfy the requirements
of the Pier Bonds. BIW shall have the right to make Capital Improvements to
the Premises on behalf of the City up to the amount of the Improvement
Allowance subject only to the following procedures, conditions and limitations:
(a) The City shall set aside in a separate account ("Capital
Improvements Account") an amount of funds not less than the
Improvement Allowance. Such funds shall not be used for any
purpose other than payment for Capital Improvements except
that the City shall have the right to place such funds in such
lawful investments as it deems appropriate and to retain the
earnings on such investments for its own use and benefit,
provided such investments do not adversely affect the
availability of such funds when they are needed to pay for
Capital Improvements.
(b) Prior to constructing any improvements for which it requests
payment by the City out of the Improvement Allowance, BIW
shall submit to the City plans and specifications for such
improvements together with an estimate of their costs for the
purpose of enabling the City to determine whether or not such
improvements constitute "Capital Improvements." Within ten
(10) working days after receipt of such plans and
specifications, the City shall notify BIW whether in its
opinion the
<PAGE> 5
proposed improvements constitute Capital Improvements. If, in
the reasonable opinion of the City, the proposed improvements
do not constitute Capital Improvements, the City may refuse to
pay for such improvements out of the Improvement Allowance
unless and until BIW obtains an opinion or ruling from either
the City's bond counsel or from a court or an administrative
agency qualified to render such an opinion or ruling to the
effect that such improvements constitute Capital Improvements.
The parties stipulate that the proposed improvements to the
Premises described on Exhibit D attached hereto constitute
Capital Improvements for purposes of this subparagraph (b),
with the recognition that Exhibit D is intended to be
illustrative and not exhaustive.
(c) BIW shall have the right to contract for services and
materials related to the construction of the Capital
Improvements with such parties and upon such terms, including
price, as it deems appropriate, provided that, to the extent
feasible, BIW shall utilize its government approved
procurement system. The cost of any Capital Improvements
constructed by BIW's own forces shall be the price therefor
established by BIW on the basis of practices usual and
customary in the industry and at the request of the City
certified as fair and reasonable by a qualified independent
professional architect or engineer, as appropriate.
(d) The City shall disburse funds to BIW from the Capital
Improvements Account within ten (10) working days after BIW's
submission of a requisition for payment, except that the City
shall not be obligated to disburse such funds prior to 30 days
after BIW notifies the City of its intention to draw down the
funds covered in the requisition. The submission of a
requisition for payment shall constitute BIW's warranty that
the services or materials for which payment is requested has
been performed or delivered in substantial conformity with the
plans and specifications previously submitted to City and that
the cost thereof (paid or due to be paid) is not less than the
amount of the requisition. If City has reasonable cause to
<PAGE> 6
believe that BIW has breached its warranty, the City may
require that BIW provide further reasonable assurances that
the work has been performed in accordance with the aforesaid
warranty. A certificate obtained by BIW from an independent
professional (e.g. architect, engineer) to the effect that BIW
is not in breach of its warranty shall constitute such
reasonable assurances.
(e) City shall have access, at reasonable times and places, to all
plans, specifications and cost information pertaining to the
construction of the Capital Improvements and may designate a
qualified person or persons to observe the construction of the
Capital Improvements, provided that such person shall not
unduly interfere with the progress of such work and further
provided that the City's rights under this subparagraph (e)
may be limited or restricted by BIW to the extent required for
reasons of national security by the Department of Defense.
9. USE OF THE PREMISES. The Premises shall be used only in
connection with the operation of a shipyard or for allied activities. The City
acknowledges that such use is generally consistent with its comprehensive plan
but that it may be necessary for BIW, as agent of the City, to obtain various
permits, licenses, and approvals under local state and federal ordinances, laws
and regulations in order to implement such use. City agrees that it will
assist BIW in obtaining any such permits, licenses and approvals to the extent
that it is able to render such assistance under applicable law. BIW's use of
the Premises shall comply with all valid laws and ordinances of the City,
including but not limited to the zoning, site plan, and building code
ordinances. Without prejudice to any rights or remedies of the City apart from
this Lease, BIW's violation of any such laws or ordinances shall not be deemed
a breach of this Lease unless, after BIW has been finally adjudged by a court
of competent jurisdiction to have committed such a violation, that violation
continues for more than (a) ninety (90) days or, if longer, (b) a reasonable
period of time in which to cure such violation, provided BIW is diligently
proceeding to cure the violation, and provided that BIW maintains reasonable
reserves for the consequences of any such violations.
<PAGE> 7
10. ALTERATIONS AND MODIFICATIONS. BIW shall not commit or suffer
any waste of the Premises. City acknowledges that BIW's intended use of the
Premises may require BIW to make alterations and modifications to the Premises
from time to time in order to accommodate various kinds of work which it may
procure for the facility. BIW shall have the right to make such alterations
and modifications to the Premises without the prior consent of the City
provided such alterations and modifications are not likely to diminish
substantially the value of the Premises, even if they necessitate the
demolition of some of the Capital Improvements. If any liens of any nature or
description are placed on record against the Premises as a result of the making
of any such alterations or modifications to the Premises or the construction of
the Capital Improvements, BIW shall take prompt action to discharge or to
contest in good faith any and all such liens, and BIW shall indemnify the City
and hold it harmless from and against any loss, damage, cost, or expense
resulting from any such lien.
11. ASSIGNMENT AND SUBLETTING. BIW shall be entitled to assign
this Lease or sublet the Premises or any part thereof to (a) any parent or
subsidiary corporation or any corporation under common control, (b) any
corporation with whom BIW may merge or consolidate, (c) any person, firm or
corporation to whom BIW may transfer substantially all of that portion of its
assets which are located at or on the Premises, or (d) any person, firm or
corporation whose business is integrally related to BIW's use of the Premises.
BIW shall not assign or sublet to any other party without the City's written
consent which shall not be unreasonably withheld or delayed.
12. REMOVAL OF BIW'S PROPERTY UPON TERMINATION OR EXPIRATION OF
LEASE. Upon the termination or expiration of this Lease, BIW shall have the
right to remove from the Premises all of its goods and effects, including all
inventory, furnishings, trade fixtures, machinery and equipment owned by it or
leased by it from any person, firm or corporation other than the City, whether
or not such removal injures or damages the Premises, provided that if any such
injury or damage impairs the structural integrity of the Premises or otherwise
creates a hazard to the public, BIW shall repair or restore the Premises to the
extent necessary to eliminate any such impairment or hazard. Notwithstanding
anything in this Lease to the contrary, if this
<PAGE> 8
Lease is terminated for any reason prior to December 31, 2001 other than as a
result of nonpayment of rent, then BIW shall be entitled to continue in
possession of the Premises on a month-to-month basis for an aggregate period of
up to one (1) year but not later than December 31, 2001 for the limited purpose
of completing any work in process at the Premises and for winding up its
operations in an orderly manner. During any such hold over period, BIW shall
continue to perform its obligations under this Lease.
13. CONDEMNATION. If the Premises or any significant portion
thereof are taken by eminent domain so as to prevent BIW from continuing to
operate the Premises as a shipyard substantially as operated prior to such
condemnation, then, at the option of BIW, this Lease shall terminate without
payment of any penalty or termination charge and BIW shall be entitled to share
in any award of damages made by the condemning authority to the extent of its
interest in the Premises.
14. INSURANCE AND INDEMNITY
(a) Public Liability. BIW shall, during the construction phase
and at all times thereafter during the term of this Lease, carry public
liability insurance in amounts reasonably satisfactory to the City, naming the
City as an additional insured. In no event shall BIW be required to provide
insurance in excess of the City's maximum possible liability under law.
(b) Property. BIW shall maintain a policy of fire and extended
coverage insurance on the Premises in an amount not less than the option price
stated on Exhibit E, subject to reasonable self-insured retention levels. Said
policy shall name the City as an additional insured but shall provide that the
proceeds thereof are payable to BIW. BIW may provide for such coverage by
blanket policies insuring it and one or more of its affiliated companies.
(c) Waiver. Neither BIW nor its agents, contractors, servants,
employees or representatives shall be liable to City or to any persons claiming
under City, by right of subrogation or otherwise, for any damage to the
Premises from fire or any other casualty usually included in the so-called
standard "extended coverage" endorsements contained in fire insurance
<PAGE> 9
policies written in the State of Maine, whether or not such damage was caused
by the negligence of BIW, its agents, contractors, servants, employees or
representatives.
Similarily, the City shall not be liable to BIW or to any
person claiming under BIW by right of subrogation or otherwise for any damage
to any property of BIW at or on the Premises from fire or any other casualty
usually included in the so-called standard "extended coverage" endorsements as
contained in fire insurance policies written in the State of Maine, whether or
not such damage was caused by the negligence of City, its agents, contractors,
servants, employees or representatives.
15. BIW INDEMNIFICATION OF CITY. BIW shall indemnify the City and
save it harmless from and against any and all claims, actions, damages,
liabilities and expenses (including reasonable litigation expenses) in
connection with loss of life, personal injury and/or damage to property arising
from or out of any occurrence in, upon or at the Premises, or the occupancy or
use by BIW of the Premises or any part thereof or occasioned wholly or in part
by any act or omission of BIW, its agents, contractors, employees, servants,
lessees or concessionaires. Notwithstanding anything herein to the contrary,
BIW shall not be required to indemnify the City nor save it harmless from and
against any claims, actions, damages, liability, or expense (including
litigation expenses) to the extent they or it arise out of (a) any negligent
act or omission of the City, its agents, contractors, employees, servants or
representatives, or (b) any act or default of any owner, occupant, tenant or
user of any property adjacent to the Premises.
16. DAMAGE TO THE PREMISES. If the Premises or any part thereof
shall be damaged by fire or other casualty, BIW shall give notice thereof to
the City. As soon as practical, BIW shall survey the damage to the Premises
and determine the estimated cost of repairing such damage. Within a
reasonable time thereafter, BIW shall either (a) repair such damage, or (b)
exercise its purchase option as provided in Paragraph 20 and apply any
insurance proceeds paid to BIW under any policy of fire or extended coverage
insurance for the uses and purposes set forth below in the following order of
priority: (i) payment of all costs necessary to eliminate any public nuisance
and make the Premises reasonably safe, (ii) payment of the option price for the
<PAGE> 10
Premises, (iii) payment to BIW of an amount equal to the proceeds of such
insurance attributable to the loss upon its property and its investment in the
Premises, (iv) payment of all costs of cleaning up the Premises to the extent
not covered under (i) above, and (v) payment in equal amounts to BIW and the
City of any remaining proceeds. BIW shall not be obligated under any
circumstances to expend its own funds in excess of any insurance proceeds made
available to it for the purpose of repairing any such damage provided BIW has
maintained insurance coverage as required by Paragraph 14(b). In repairing any
such damage as above provided, BIW shall not be obligated to restore the
Premises to the same condition they were in prior to such damage but may
undertake such repairs, alterations, modifications or improvements which have,
in the reasonable judgment of BIW, an equivalent or greater value to BIW.
17. BIW DEFAULT.
(a) If BIW defaults in the payment of rent or any other
payment or sum required of BIW hereunder and if such default is not cured
within 180 days after BIW's receipt of written notice of such default from the
City, then the City may, in addition and without prejudice to any other
remedies, immediately or at any time thereafter enter into and upon the
Premises or any part thereof in the name of the whole or mail a notice of
termination addressed to BIW and, after allowing BIW a reasonable opportunity
to remove its property from the Premises, repossess the same and expel BIW
and those claiming by, through or under BIW and remove its and their effects,
and upon such entry or mailing as aforesaid, this Lease shall terminate, BIW
hereby waiving all rights of redemption, but BIW shall remain liable as
hereinafter provided. All rental payments not paid within 10 days of the date
when due shall bear interest at a rate which is two percent in excess of the
"prime rate" from time to time charged by Manufacturers Hanover Trust Company
of New York, New York. In the event that this Lease is terminated pursuant to
the provisions of this Paragraph, BIW shall forthwith pay to the City as
damages an amount equal to the sum of (i) the amount of the rent and other
payments called for hereunder for the period from the date of such default
until the next date as of which BIW would have a right of termination under
Paragraph 19 plus (ii) if such next date of termination is the end of 1986, the
termination
<PAGE> 11
charge provided for in Paragraph 19, subject to any rebate to which BIW may be
entitled, less (iii) such rent and other payments as the City shall receive in
the good faith fulfillment of its obligation to mitigate damages.
(b) If BIW defaults in the performance of any of its
covenants, agreements or obligations hereunder other than the payment of rent,
the City shall have all rights and remedies available to it under law or
equity, other than the right to terminate this Lease, and, without limiting the
foregoing, shall be entitled to obtain either (i) an injunction from a court of
competent jurisdiction compelling BIW to cure such default forthwith and to
post a bond in an amount approximating the damages which the court determines
that the City is likely to sustain as a result of such breach. If BIW violates
any such injunction the City, in addition to other available remedies, at any
time following the expiration of sixty (60) days from the date on which BIW
received written notice of such violation, may enter into and upon the Premises
or any part hereof in the name of the whole or mail a notice of termination
addressed to BIW and repossess the same and expel BIW and those claiming by,
through or under BIW and remove its and their effects, and upon such entry or
mailing as aforesaid, this Lease shall terminate, BIW hereby waiving all rights
of redemption. If the City commences an action against BIW for the purpose of
enforcing its rights hereunder and obtains a final judgment against BIW, the
City shall be entitled to recovery from BIW, in addition to any other amounts
stated herein, that portion of its reasonable expenses, including attorneys'
fees, fairly attributable to such final judgment.
Except in the case of default for nonpayment of rent,
if BIW is in default under this Lease and if the City has not then repossessed
the Premises, BIW shall have the right to cure such default by exercising its
purchase option as provided in Paragraph 20 and, if it exercises such option,
then the City shall not be entitled to any damages as a result of such default.
18. CITY'S COVENANT OF QUIET ENJOYMENT. Upon payment by BIW of
the rent herein provided and upon the observance and performance of all the
covenants, terms and conditions on BIW's part to be observed and performed, BIW
shall peaceably and quietly hold and
<PAGE> 12
enjoy the Premises for the term hereof without hindrance or interruption by the
City or any person or persons claiming by, through or under the City. The City
will use its best efforts to prevent the use of the westerly portion of the
Maine State Pier which is located adjacent to the Premises in a manner which
would interfere with or create a hazard to BIW's operations upon the Premises
and the City will include a provision for the benefit of BIW in any leases of
such adjacent property calculated to prohibit any such use.
19. RIGHT OF TERMINATION. BIW shall have the right to terminate
this Lease at the end of 1986, 1991 and 1996 upon not less than thirty (30)
days written notice to the City. If BIW exercises its right of termination
effective at the end of 1986, it shall pay to the City, within thirty (30) days
thereafter, a termination charge of $1,630,000 in lieu of any and all other
amounts due hereunder. The City shall rebate to BIW out of any funds which it
may receive from the State of Maine from a sale or other disposition (including
lease) of the drydock facility referred to in Paragraph 6 within thirty (30)
days after its actual receipt of such funds the amount of such funds in excess
of the amount required to fund in full the retirement of its Pier Bonds through
a sinking fund, such rebate not to exceed $1,630,000. BIW shall have the right
to terminate the Lease at the end of 1991 or 1996 without payment of any
penalty or termination charge.
20. PURCHASE OPTION. At any time during the term of this Lease,
BIW, at its option, may purchase the Premises from the City for the option
price stated on Exhibit E attached hereto. If BIW exercises its option to
purchase the Premises, the City, within 30 days thereafter, shall convey the
Premises to BIW by means of quit claim deed with covenant, in form acceptable
to counsel for BIW, free and clear of all encumbrances except such encumbrances
as exist of record or are known to BIW on the commencement of the term of this
Lease. If, in the opinion of BIW's counsel, the City is not able to deliver
good and merchantable title to the Premises, then, the City shall use its best
efforts at its own expense to cure such title defects as may exist. If for any
reason the City is unable to cure such title defects, BIW may elect to close
the transaction notwithstanding them; provided, however, that there shall be no
abatement of the purchase price by reason of such defects. The option price
for the Premises shall be paid in full to the City by
<PAGE> 13
BIW at the closing by bank or certified check. There shall be no pro-rations
except for the amount of rent payable by BIW to City under Paragraph 3 hereof.
21. OPTION TO RENEW. If BIW desires to extend or renew this
Lease, it shall give written notice of its desire not less than 180 days prior
to expiration of the primary term hereof, and if the City is agreeable, the
parties shall negotiate such an extension or renewal on mutually acceptable
terms.
22. NOTICES. Any notice, demand, request or other instrument
which may be or are required to be given under this Lease shall be delivered in
person or sent by United States certified mail, postage prepaid and shall be
addressed (a) if to the City, City of Portland, 389 Congress Street, Portland,
Maine 04101, Attention: City Manager, with a copy sent to the same address
Attention: Corporation Counsel, and (b) if to BIW at 700 Washington Street,
Bath, ME 04530, Attention: Corporate Secretary and at such other addresses as
the parties shall designate by written notice in accordance with this
Paragraph, with copies thereof to the State, Department of Transportation,
Augusta, ME 04333, Attention: Commissioner.
23. FORCE MAJEURE. Neither party shall be liable for its failure
to perform its respective obligations under this Lease, if prevented from so
doing by any cause beyond the reasonable control of such party such as, but not
limited to, strike, lockout, breakdown, accident, order or regulation of or by
any governmental authority, or failure of supply, or inability, by the exercise
of reasonable diligence, to obtain supplies, parts, or employees necessary to
perform such obligations, or because of war or other emergency, or for any
cause due to any act or neglect of the other party hereto, or its servants,
agents, employees or any assignee, sublessee, or successor in interest to such
other party. The time within which such obligations shall be performed shall
be extended for a period of time equivalent to the delay from such cause. This
Paragraph 23 shall not modify BIW's obligation to pay rent as otherwise
provided by this Agreement or by law.
24. MISCELLANEOUS.
<PAGE> 14
(a) The captions appearing in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of this Lease, nor in any way affect this Lease.
(b) This Lease shall not be recorded, but each party
agrees, at the request of the other, to enter into a mutually satisfactory
Memorandum of Lease in recordable form.
(c) This Lease, including the Exhibits attached hereto
and the Comprehensive Commitment, including the Exhibits attached hereto,
constitute the complete and exclusive statement of the agreement of the parties
as to the subject matter hereof.
(d) This Lease cannot be amended except by written
instrument executed by both the City and BIW.
(e) This Lease shall be construed and enforced in
accordance with the laws of the State of Maine.
25. SUCCESSORS AND ASSIGNS. The provisions of this Lease shall
be binding upon and inure to the benefit of the respective successors and
assigns of the City and BIW provided that during the term of this Lease the
City shall not voluntarily transfer, assign, pledge or otherwise encumber its
ownership interest in the Premises other than a transfer to the State of Maine
pursuant to the terms of the Purchase and Sale Agreement.
IN WITNESS WHEREOF, the City and BIW have executed this Lease as of
the date first above written.
CITY OF PORTLAND
/s/ Ann A. Madigan
- - --------------------
Witness
/s/ David Laurie
- - --------------------
Corporate Counsel
/s/ Stephen T. Honey
- - --------------------
City Manager
BATH IRON WORKS CORPORATION
/s/ F. James Gardner
- - --------------------
Witness
/s/ John Sullivan
- - ---------------------------
Chairman of the Board
and Chief Executive Officer
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT B
RENT SCHEDULE
(Year of Payment)
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
$ 661 $ 695 $ 710 $1,006 $1,026 $1,046 $1,168 $1,192 $1,226 $1,245
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
$1,300 $1,300 $1,300 $1,350 $1,350 $1,400 $1,400 $1,400 $1,400 $1,400
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT C
MAXIMUM RENT CREDIT SCHEDULE
(Year of Accrual)
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
$161 $195 $210 $256 $276 $296 $318 $342 $376 $395
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
$400 $400 $400 $400 $400 $400 $400 $400 $400 $400
</TABLE>
<PAGE> 17
EXHIBIT D
CAPITAL IMPROVEMENTS
MAINE STATE PIER
- Provide Services:
<TABLE>
<S> <C>
- Electrical Power 2-3000 KVA
- Steam 10-15000#/hr., 200 PSI
- Gases Mapp, Oxygen, Hel.Arg., CO 2
- Compress Air 10-1500 CFM, 125 PSIG
- Potable Water 250 GPM
- Fire Pumps 15-2500 GPM
- Sewerage Collection connected to the city sewerage system.
</TABLE>
- Rebuild/Expand Pier to Accommodate 25 Ton Crane
- Provide 40,000 sq. ft. of Converted Warehouse for
Shop Use with 5 Ton Bridge and utilities.
- Provide Security fencing for area.
- Provide 5000 sq. ft. Improved Office Area Ready for
Occupancy.
NEW PIER
- Construct Pier Parallelto Maine State Pier for
Drydock and a Berth for Ships on Opposite Side
- Provide Services:
<TABLE>
<S> <C>
- Electrical Power 3-5000 KVA
- Steam 15-25,000#/hr., 200 PSI
- Gases Mapp, Oxygen, Hel.Arg., CO 2
- Compressed Air 1500-2500 CFM, 125 PSIG
- Potable Water 500 GPM
- Fire Pumps 25-4000 GPM at 125 PSIG
- Sewerage Collection connected to the city sewerage system.
</TABLE>
DREDGING OF AREA AND PILE REMOVAL
- Removal of Existing Piling
- Dredging of Estimated 150,000 cubic yds.
DESIGN AND ENGINEERING
- Provide Soil Study
- Environmental Permit Applications
- Preliminary and Detail Engineering Study
LAND ACQUISITION
- Acquire Canadian National Land
- Relocate Tracks
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT E
OPTION PRICE SCHEDULE
(Year of Purchase)
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
$15,000 $14,250 $13,500 $1,006 $12,750 $12,000 $10,500 $9,750 $9,000 $8,250
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
$ 7,500 $ 6,750 $ 6,000 $5,443 $ 5,433 $ 5,433 $ 5,433 $5,433 $5,433 $5,433
</TABLE>
<PAGE> 1
EXHIBIT 10-26
FINAL-1/14/82
DRY DOCK OPERATING AGREEMENT
AGREEMENT made this 18th day of January, 1982, by and between
STATE OF MAINE (the "State") and BATH IRON WORKS CORPORATION ("B I W").
WHEREAS, there is a statewide need to provide for a greater
utilization of the State's public ports and harbors and to increase the flow of
commerce and to thereby provide enlarged opportunities for gainful employment
by the people of Maine and to thus insure the preservation and betterment of
the economy of the State and its inhabitants.
WHEREAS, the State, by Private and Special Laws 1981, Chapter 65
declared it to be a public purpose of the State to supervise and operate port
facilities or cause the same to be operated in cooperation with the State,
either by lease, sale, transfer or other conveyance to public or private users.
WHEREAS, by Memorandum of Intent dated July 15, 1981, the parties
expressed their intention to build and develop comprehensive waterfront port
facilities in Portland Harbor within the vicinity of the Maine State Pier and
to provide the necessary financing for such facility and to make the same
available for use by BIW.
WHEREAS, the parties believe that the development of such
facilities will revitalize the port of Portland, create new employment
opportunities for residents of the State and City, improve a blighted area,
support the flow of commerce and strengthen the economic condition of the State
and City.
WHEREAS, in accordance with the terms of a certain Comprehensive
Commitment (the "Commitment") between the parties and the City of Portland, the
parties have agreed to develop a port facility to be owned in part by the State
and in part by the City, with the State's portion to be operated by BIW in
accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
<PAGE> 2
1. FACILITY TO BE OPERATED. BIW agrees to operate as herein
provided on behalf of the State the dry dock facility to be located in the City
of Portland in accordance with the terms of the aforesaid Commitment (the "Dry
Dock").
2. USE OF DRY DOCK. During the term of this Agreement BIW shall
operate the Dry Dock only in Portland Harbor for the overhauling, repair,
refitting and building of ships and allied activities as part of the Project
described in the aforesaid Commitment.
3. TERM. The term of this Agreement shall commence on the date
hereof and, except as provided in Paragraphs 13, 14, 15, 16 and 17, shall
expire at 11:59 P.M. on December 31, 2021.
4. CONSIDERATION. As consideration for the right to operate the
Dry Dock as herein provided, BIW shall, for the benefit of the State:
(a) Pay the sum of Four Million Five Hundred Thousand
Dollars ($4,500,000) for Project costs in accordance with Paragraph 5.
(b) Pay all Project costs, as described in Paragraph 5,
in excess of Twenty-Four Million One Hundred Thousand Dollars ($24,100,000).
(c) Waive any state tax credit to which it may become
entitled pursuant to Chapter 822 of Title 36 of the Maine Revised Statutes by
reason of investment in the Project and if any such credit is received by BIW,
BIW shall pay the same to the State as additional consideration hereunder,
whether or not this Agreement is then in force. The foregoing waiver shall not
extend to any investment in the Dry Dock subsequent to its completion.
5. PAYMENT OF PROJECT COSTS. The estimated amount of Project
costs with respect to the development of the Dry Dock is Twenty-Four Million
One Hundred Thousand Dollars ($24,100,000), including the costs of the
following items: the acquisition, moving, and renovation of the Dry Dock, all
dredging and pile removal within that area of the Project which is more than
50' eastward of the existing Maine State Pier, the construction of a service
ramp, engineering and design,. obtaining all necessary permits, licenses and
approvals, mobilization, cathodic protection and other similar items directly
related to development of the Dry Dock. BIW shall pay, for the benefit of the
State, Four Million Five Hundred Thousand-Dollars ($4,500,000) of such Project
costs as hereinafter provided plus all
<PAGE> 3
such costs in excess of Twenty-Four Million One Hundred Thousand Dollars
($24,100,000). The first Nine Million Dollars ($9,000,000) .of such Project
costs shall be paid one-half by BIW and one-half by the State on a dollar for
dollar basis. The State shall pay all such Project costs in excess of such
Nine Million Dollars ($9,000,000) until the total Project costs reach
Twenty-Four Million One Hundred Thousand Dollars ($24,100,000.00). BIW shall
supervise the construction of the Dry Dock Facility and procure all labor and
materials therefor in accordance with the provisions of this Agreement. BIW
shall have the right to obtain reimbursement or payment from the State for the
State's share of any such Project costs which BIW may incur subject to the
following conditions and limitations:
(a) BIW shall have the right to contract for services and
materials related to acquisition of the Dry Dock and the improvements thereto
with such parties and upon such terms, including price, as it, in its
discretion, deems appropriate, provided that, to the extent feasible, BIW shall
utilize its government approved procurement system.
(b) If BIW proposes to improve the Dry Dock with its own
forces, the price therefor shall be established by BIW on the basis of
practices which are usual and customary in the shipbuilding industry, provided
that such price shall consist only of BIW's costs of labor, material and
overhead unless the aggregate of such costs and overhead charges together with
other Project costs related to the Dry Dock (as defined in the Commitment)
exceed $24,100,000. The State shall have the right to review the plans and
specifications therefor and BIW shall submit to the State an accounting of all
costs incurred in constructing the Dry Dock. If the State questions the
accuracy of said accounting or the reasonableness of any costs incurred, it may
require BIW to produce a substantiating opinion from an independent marine
surveyor or other qualified professional satisfactory to BIW and to the State.
If BIW is unable or unwilling to provide such substantiation or other
substantiation reasonably acceptable to the State, then BIW may either (i)
require that the issue be submitted to arbitration as soon as practical in
accordance with the rules and procedures of the American Arbitration
Association, or (ii) may pay an additional amount, over and above the
$4,500,000.00 paid under Paragraph 4(a), equal to that portion of the cost
which the State deems excessive.
<PAGE> 4
(c) Until such time as the aggregate Dry Dock Project
costs exceed $24,100,000 or the Dry Dock portion of the Project is completed,
whichever occurs first, BIW, prior to constructing any improvements to the Dry
Dock, shall submit to the State plans and specifications for such improvements
together with an estimate of their costs solely for the purpose of enabling the
State to determine whether or not such improvements are within the scope of the
Project.
(d) The State shall disburse funds to BIW within ten (10)
days after BIW's submission of a request for payment, except that the State
shall not be obligated to disburse such funds prior to 30 days after BIW
notifies the State of its intention to draw down the funds covered in the
requisition. Such submission shall constitute BIW's representation that the
materials for which payment is requested have been received, that the services
for. which payment is requested have been performed, and that the payment
requested is for Project costs properly -incurred. Before payment the State
shall be entitled to satisfy itself as to the accuracy of such representation.
(e) The State shall have access, at reasonable times and
places, to all plans, specifications, and cost information pertaining to the
acquisition or renovation of the Dry Dock and may designate a technically
qualified person to observe such acquisition and renovation for the purpose of
ascertaining that the same is progressing in accordance with the plans and
.specifications, and the agreements between the parties. Further, the access
of the State and its representatives to plans, specifications, cost
information, and any location where work is being performed pursuant to this
Agreement shall be subject to such restrictions and limitations as may be
imposed by the United States Department of Defense.
(f) BIW shall cause Congoleum Corporation to guarantee
the completion and delivery of the Dry Dock or any major improvements thereto
if and to the extent the same are constructed by BIW's own forces. Such
guarantee shall be in a form satisfactory to counsel for the State.
6. DISCLAIMER. The State does not make any representations or
warranties expressed or implied, to BIW or to any other party as to the
condition of the Dry Dock or as to its title to the Dry Dock, and BIW
acknowledges that it is not relying upon any such representations or
warranties.
<PAGE> 5
7. OPERATING COSTS. It is the intention of the parties that BIW
shall pay all operating and other expenses associated with the Dry Dock until
such time as this Agreement terminates. Accordingly, BIW shall pay all charges
for gas, electricity, water, sewer, telephone, and other utilities services
used, consumed, furnished, or supplied in connection with its use of the Dry
Dock, together with all costs of maintenance, insurance and taxes payable, and
all other costs associated with repair, insurance, and taxes payable, and all
other costs associated with the Dry Dock or its operation during the term of
this Agreement.
8. OPERATION OF THE DRY DOCK. Contemporaneously with the
execution of this Agreement, BIW is entering into a lease with the City of
Portland (the "Pier Lease") of certain pier facilities located in Portland
Harbor (the "Pier Facilities"). During the team of this Agreement, the Dry
Dock shall be used in conjunction with such Pier Facilities. The State shall
cooperate with BIW in obtaining all necessary permits, approvals and licenses
required for purposes of its intended use of the Dry Dock under any local,
state or federal ordinance, law or regulation to the extent that it may render
such assistance under applicable law, provided that nothing herein contained
shall commit the State to grant any waiver or other exception to any
requirements of State law. BIW's use of the Dry Dock shall comply with all
valid laws, provided that BIW's violation of any such laws shall not be deemed
a breach of this Agreement unless, after BIW has been finally adjusted by a
court of competent jurisdiction to have committed such a violation, that
violation continues for more than (a) thirty (30) days or (b) a reasonable
period of time in which to cure such violation, whichever period is longer,
provided BIW is diligently proceeding to cure the default, and provided that
BIW maintains reasonable reserves for the consequences of any such violations.
9. ALTERATIONS AND MODIFICATIONS. State acknowledges that BIW's
intended use of the Dry Dock may require BIW to make alterations and
modifications time to time in order to accommodate various kinds of work which
it may procure for the Dry Dock. BIW shall have the right to make such
alterations and modifications to the Dry Dock without prior consent of the
State, provided such alterations and modifications are not likely to diminish
substantially the value of the Dry Dock. BIW shall give the State 10 days
notice of any material alterations or modifications which it intends to
<PAGE> 6
make to the Dry Dock and if the State believes that the intended alterations or
modifications will have such an adverse effect upon value, it shall so notify
BIW and unless the parties otherwise agree, the issue shall be submitted to
arbitration as soon as practical in accordance with the rules of the American
Arbitration Association, time being of the essence. In such event the
alterations or modifications shall be delayed until the decision of the
arbitrators is tendered.
10. ASSIGNMENT. BIW shall not be entitled to assign this
Agreement except as follows:
(a) BIW may not assign the Agreement prior to the Project
being completed and operational as contemplated by the Commitment, except with
the prior written consent of the State, which shall not be unreasonably
withheld.
(b) After the Project as defined in the Commitment is
completed and operational, BIW may assign the Agreement to any person in
connection with a transfer to that person of substantially all of the Project
and other assets of BIW located at the Project, provided that the assignee (i)
intends to continue to operate the Project and other assets for the purposes
described in this Agreement, (ii) after the transfer is a substantial employer
at the Project and (iii) has a demonstrated ability to perform BIW's
obligations under this Agreement.
(c) No other assignment may be made without the prior
written consent of the State, which shall not be unreasonably withheld.
11. REMOVAL OF BIW'S PROPERTY UPON TERMINATION OR EXPIRATION OF
AGREEMENT. Upon the termination or expiration of this Agreement, BIW shall
have the right to remove from the Dry Dock all of its goods and effects,
including all inventory, furnishings, fixtures, machinery and equipment owned
by it or leased by it from any party other than the State, provided that if
such removal materially injures or damages the Dry Dock, BIW shall repair or
restore the Dry Dock or, if such repair or restoration is impractical, pay to
the State an amount equal to the diminution in value caused by such damages.
Notwithstanding anything in this Agreement to the contrary, if this Agreement
is terminated for any reason prior to December 31, 2021 other than as a result
of the termination of the Pier Lease pursuant to paragraph 19 thereof, then BlW
shall be entitled to continue in possession of the Dry Dock on a month-to-month
basis for an aggregate period of up to one (1) year
<PAGE> 7
but not later than December 31, 2021 for the limited purpose of completing any
work in process at the Dry Dock and for winding up its operations in an orderly
manner. During any such hold over period, BIW shall continue to perform its
obligations under this Agreement.
12. GOVERNMENTAL TAKING. If the State's or BIW's rights to
operate the Dry Dock are taken by eminent domain or other governmental action,
then this Agreement shall automatically terminate and the award shall be shared
by the State and BIW as owner and operator, respectively, under the Agreement
in accordance with the value of their respective interests as determined by the
appropriate forum but in no event shall the State's share of the award be less
than an amount equal to the then outstanding balance of its bonds.
13. INSURANCE AND INDEMNITY.
(a) Public Liability Insurance. BIW shall, during
the construction phase and at all times thereafter in the operation of the
Project, carry public liability insurance in amounts reasonably satisfactory to
the City and to the State, naming the City and the State as additional
insureds. BIW shall not be required to provide insurance in excess of the
State's maximum possible liability under law. BIW shall indemnify, defend and
hold the City and the State harmless from and against any and all claims of any
nature whatsoever arising in any way out of the ownership, construction,
improvements or operation of the Project, except for claims arising solely from
the negligence of the State or City, their respective agents and employees.
(b) Fire and Extended Coverage. BIW shall maintain
fire and extended coverage insurance on the Dry Dock in an amount reasonably
satisfactory to the State, subject to deductible levels reasonably satisfactory
to the State. Said policy shall name the State as the owner of the Dry Dock
and BIW as an additional insured.
(c) Waiver. Neither BIW nor its agents, contractors,
servants, employees or representatives shall be liable to the State, or to any
persons claiming under the State, by right of subrogation or otherwise for any
damage to the Dry Dock from fire or any other casualty usually included in the
so-called standard "extended coverage" endorsements contained in fire insurance
policies written in the State of Maine, whether or not such damage was caused
by the negligence of
<PAGE> 8
BIW, its agents, contractors, servants, employees or representatives provided
that BIW has maintained adequate insurance to compensate the State for any such
loss as herein provided. Similarly, neither the State nor its servants,
agents, employees or representatives, shall be liable to BIW or to any person
claiming under BIW by right of subrogation or otherwise for any damage to the
personal property of BIW from fire or any casualty usually included in the
so-called standard "extended coverage" endorsements as contained in fire
insurance policies written in the State of Maine, whether or not such damage
was caused by the negligence of State, its servants, agents, employees or
representatives.
14. DAMAGE TO THE DRY DOCK. If the Dry Dock or any part thereof
shall be damaged by fire or other casualty to such an extent that it is not
usable by BIW in its operations, BIW shall give notice thereof to the State.
As soon as practical, BIW shall survey the damage to the Dry Dock and determine
the estimated cost of repairing such damage. Within a reasonable time
thereafter, BIW shall either (a) repair such damage by restoring the Premises
to substantially the same condition they were in prior to such damage or to a
condition having an equivalent or greater value and retain any insurance
proceeds made available to it to pay the costs of such repairs, provided that
BIW shall not be obligated under any circumstances to expend its own funds in
excess of any insurance proceeds made available to it for the purpose of making
such repairs provided BIW has maintained insurance coverage as provided in
Paragraph 13(b) hereof, or (b) terminate this Agreement in which event any
insurance proceeds paid with respect to such loss under any policy of fire or
extended coverage insurance shall be applied for the uses and purposes set
forth below in the following order of priority: (i) payment of all costs
necessary to eliminate any public nuisance, (ii) payment to the State and BIW
in proportion to (A) the State's investment in the Dry Dock of $19,600,000 (or
such lesser amount as is invested by the State) and (B) the historic cost of
BIW's investment in the Dry Dock in excess of the amounts stated in Paragraph
4(a) and 4(c). "Historic cost" means, in the case of work or materials
performed or furnished by BIW (whether before or after completion of the Dry
Dock) an amount determined in accordance with Paragraph 5(b), and, in all other
cases, the original book value thereof (without regard to depreciation).
<PAGE> 9
15. BIW DEFAULT. If BIW defaults in the performance of any of its
covenants, agreements or obligations hereunder, the State shall have all rights
and remedies available to it under law or equity, other than the right to
terminate this Agreement, and, without limiting the foregoing, shall be
entitled to obtain an injunction from a court of competent jurisdiction
compelling BIW to cure such default forthwith and to post a bond in an amount
approximating the damages which the Court determines the State is likely to
sustain as a result of such breach. If BIW violates any such injunction the
State, in addition to other available remedies, at any time following the
expiration of 60 days from the date on which BIW received written notice of
such violation, enter into and upon the Dry Dock or any part thereof in the
name of the whole or mail a notice of termination addressed to BIW and
repossess the same and expel BIW and those claiming by, through or under BIW
and remove its and their effects, and upon such entry or mailing as aforesaid,
this Agreement shall terminate, BlW hereby waiving all rights of redemption.
If the State commences an action against BIW for the purpose of enforcing its
rights hereunder and obtains a final judgment against BIW, the State shall be
entitled to recovery from BIW, in addition to any other amounts stated herein,
that portion of its reasonable expenses, including attorneys' fees, fairly
attributable to such final judgment.
16. TERMINATION OF AGREEMENT.
(a) Automatic Termination. If BIW voluntarily
terminates the Pier Lease, then this Agreement shall automatically terminate as
of the termination date of the Pier Lease unless BlW acquires the Pier
Facilities upon termination of the Pier Lease, in which case this Agreement
shall continue unless and until terminated as otherwise herein provided.
(b) Termination by BIW. BIW shall have the right
to terminate this Agreement as of the end of calendar years 1986, 1991, 1996,
2001, 2006, 2011, and 2016 upon not less than thirty (30) days' written notice
to the State. If BIW elects to terminate this Agreement as herein provided,
BIW shall pay all costs of maintaining the Dry Dock for the six months next
following the effective date of such termination, provided that BlW's
obligation to maintain the Dry Dock shall cease if the State leases, sells, or
otherwise transfers its interest in the Dry Dock. The State shall reimburse BIW
for such maintenance costs out of the first proceeds of any sale, lease, or
other transfer
<PAGE> 10
of the State's interest in the Dry Dock. Additionally, if BIW purchases the
Pier Facility and elects to terminate this Agreement, BIW shall permit the
State to moor the Dry Dock at the Project site and grant it reasonable access
thereto until such time as the State transfers its interest in the Dry Dock to
a third party provided that BIW shall have the right to move the Dry Dock or
cause it to be moved to a substitute location within the general vicinity of
Portland Harbor at its sole cost and expense.
(c) Termination by State. The State shall have
the right to terminate this Agreement without cause as of the end of calendar
years 2006, 2011, and 2016 upon not less than six (6) months written notice to
BIW. If the State elects to terminate this Agreement other than for cause,
then for ninety (90) days following the effective date of such termination, BIW
shall have the right to purchase the Dry Dock at a price of One Million Six
Hundred Sixty-Seven Thousand Dollars ($1,667,000). If such right is not
exercised, BIW shall have no further right to purchase the Dry Dock and the
State shall have no further obligation to offer the same to BIW.
(d) Recovery of Investment; Expiration or Termination
by BIW of Agreement. If this Agreement expires or is automatically
terminated pursuant to Paragraph 16(a) or is terminated by BIW for any reason,
and the State sells, leases, transfers or grants a license to operate the Dry
Dock to a party other than BIW, any proceeds realized by the State from such
sale, lease, transfer or grant shall be shared by the State and BIW in
proportion to (i) the State's investment in the Dry Dock of $19,600,000 (or
such lesser amount as is invested by the State) and (ii) the historic cost (as
defined in Paragraph 14) of BIW's investment in the Dry Dock in excess of the
amounts stated in Paragraph 4(a) and 4(c) until BIW has received such excess
amount; and thereafter all such proceeds shall belong to the State.
(e) Recovery of Investment; Termination of Agreement by
State. If this Agreement is terminated by the State for any reason, and the
State sells, leases, transfers or grants a license to operate the Dry Dock to a
party other than BIW, any proceeds realized by the State from such sale, lease,
transfer or grant shall be shared by the State and BIW in proportion to (i) the
State's investment in the Dry Dock of $19,600,000 (or such lesser amount as is
invested by the State) and (ii)
<PAGE> 11
the historic cost (as defined in Paragraph 14) of BIW's investment in the Dry
Dock in excess of the amounts stated in Paragraph 4(a) and 4(c).
The parties agree that for purposes of Paragraphs
16(d) and 16(e), the amounts that each is to receive represents the respective
interests of the parties as owner and operator under this Agreement.
17. RIGHT TO FIRST REFUSAL. BIW shall have a right of first
refusal to purchase the Dry Dock upon the terms and conditions hereinafter
described which right shall survive the expiration of the term of this
Agreement to the extent hereinafter provided. If this Agreement is not
terminated prior to the expiration of the 40-year term hereof and if within
three (3) years immediately following such expiration the State desires to sell
its interest in the Dry Dock, the State shall first offer to sell the Dry Dock
to BIW at a price of One Million Six Hundred Sixty-Seven Thousand Dollars
($1,667,000). If BIW does not accept such offer within 90 days after receipt
of written notice thereof, the State may sell the Dry Dock to any third party
at such price or any higher price, but not at a lesser price. If the State
desires to sell the Dry Dock at a lesser price, it shall first offer the Dry
Dock to BIW at such lesser price in accordance with the foregoing procedures.
If BIW does not exercise its right of first refusal as herein provided, then
the State may sell its interest in the Dry Dock to any party.
18. NOTICES. Any notice, demand, request or other
instrument which may be or are required to be given under this Agreement shall
be delivered in person or sent by United States certified mail, postage prepaid
and shall be addressed (a) if to the State, Department of Transportation,
Augusta, ME 04333; Attention: Commissioner, and (b) if to BIW at 700 Washington
Street, Bath, ME 04530, Attention: Corporate Secretary and at such other
addresses as the parties shall designate by written notice in accordance with
this Paragraph, with copies thereof to the City of Portland, 389 Congress
Street, Portland, ME 04101, Attention: City Manager.
19. MISCELLANEOUS.
(a) The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of this Agreement, nor in any way affect this
Agreement.
<PAGE> 12
(b) To the extent not inconsistent herewith, the
provisions of the Comprehensive Commitment are incorporated herein by
reference.
(c) This Agreement and the Comprehensive Commitment
constitute the sole and entire agreement between the parties relating to the
Dry Dock Facility.
(d) This Agreement cannot be amended except by written
instrument executed by both the State and BIW.
(e) This Agreement shall be construed and enforced in
accordance with the laws of the State of Maine.
20. SUCCESSORS AND ASSIGNS.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the State and
BIW provided that during the term of this Agreement neither the State nor BIW
shall voluntarily transfer, assign or encumber its ownership interest in the
Dry Dock, except as otherwise provided in this Agreement.
IN WITNESS WHEREOF, the State and BIW have executed this Agreement as
of the date first above written.
WITNESSED:
STATE OF MAINE
/s/ S. Kirk Stutstrup
- - ------------------------------
Witness
/s/ George N. Campbell, Jr.
- - ------------------------------
Commissioner of the Department of Transportation
BATH IRON WORKS CORPORATION
/s/ F. James Gardner
- - ------------------------------
Witness
/s/ JOHN SULLIVAN
- - ------------------------------
John Sullivan
Chairman of the Board
and Chief Executive Officer
Approved:
/s/ JOSEPH BRENNAN
- - ------------------------------
Joseph E. Brennan,
Governor of the State of Maine
<PAGE> 1
EXHIBIT 10-27
SEVERANCE PROTECTION AGREEMENT
SEVERANCE PROTECTION AGREEMENT dated (AGDATE) ,
by and between General Dynamics Corporation, a Delaware corporation (the
"Company"), and (INIT) (SNAME) (the "Executive").
The Board of Directors of the Company (the
"Board") recognizes that the possibility of a Change in Control (as hereinafter
defined) of the Company exists and that the threat or occurrence of a Change in
Control may result in the distraction of its key management personnel because
of the uncertainties inherent in such a situation.
The Board has determined that it is essential and
in the best interests of the Company and its stockholders to retain the
services of the Executive in the event of the threat or occurrence of a Change
in Control and to ensure the Executive's continued dedication and efforts in
such event without undue concern for the Executive's personal financial and
employment security.
In order to induce the Executive to remain in the
employ of the Company, particularly in the event of the threat or occurrence of
a Change in Control, the Company desires to enter into this Agreement to
provide the Executive with certain benefits in the event the Executive's
employment is terminated as a result of, or in connection with, a Change in
Control.
NOW, THEREFORE, in consideration of the respective
agreements of the parties contained herein, it is agreed as follows:
Section 1. Definitions. For purposes of
this Agreement, the following terms have the meanings set forth below:
"Accounting Firm" has the meaning set forth in
Section 5.2.
"Accrued Compensation" means an amount which
includes all amounts earned or accrued by the Executive through and including
the Termination Date but not paid to the Executive on or prior to such date,
including (a) all base salary, (b) reimbursement for all reasonable and
necessary expenses incurred by the Executive on behalf of the Company during
the period ending on the Termination Date, (c) all vacation pay and (d) all
bonuses and incentive compensation (other than the Pro Rata Bonus).
"Base Amount" means the greater of the Executive's
annual base salary (a) at the rate in effect on the Termination Date and (b) at
the highest rate in effect at any time during the 180-day period prior to a
Change in Control, and will include all amounts of the Executive's base salary
that are deferred under any qualified or non-qualified employee benefit plan of
the Company or any other agreement or arrangement.
<PAGE> 2
"Beneficial Owner" has the meaning as used in Rule
13d-3 promulgated under the Securities Exchange Act. The term "Beneficially
Owned" has a correlative meaning.
"Board" means the Board of Directors of the
Company.
"Bonus Amount" means the most recent annual bonus,
excluding the Pro Rata Bonus, paid or payable to the Executive.
"Cause" for the termination of the Executive's
employment with the Company will be deemed to exist if the Executive has been
convicted of a felony or if the Board determines by a resolution adopted in
good faith by at least two-thirds of the Board that the Executive has (a)
intentionally and continually failed to perform in all material respects the
Executive's reasonably assigned duties with the Company (other than a failure
resulting from the Executive's incapacity due to physical or mental disability
or illness or from the Executive's assignment of duties that would constitute
Good Reason for the Executive's termination of employment with the Company)
which failure has continued for a period of at least 30 days after a written
notice of demand for performance has been delivered to the Executive specifying
the manner in which the Executive has failed in all material respects to so
perform or (b) intentionally engaged in conduct which is demonstrably and
materially injurious to the Company; provided that no termination of the
Executive's employment will be for Cause as set forth in clause (b) hereof
unless (i) there has been delivered to the Executive a written notice
specifying in reasonable detail the conduct of the Executive of the type
described in clause (b) and (ii) the Executive has been provided an opportunity
to be heard in person by the Board (with the assistance of the Executive's
counsel if the Executive so desires). No act, nor failure to act, on the
Executive's part will be considered intentional unless the Executive has acted,
or failed to act, with a lack of good faith and with a lack of reasonable
belief that the Executive's action or failure to act was in or not opposed to
the best interests of the Company.
"Change in Control" means any following events:
(a) An acquisition (other than
directly from the Company) of any voting
securities of the Company by any Person who on the
date of this Agreement is the Beneficial Owner of
less than 10% of the combined voting power of the
Company's outstanding voting securities and who
immediately after such acquisition is the
Beneficial Owner of 30% or more of the combined
voting power of the Company's then outstanding
voting securities; provided that in determining
whether a Change in Control has occurred, voting
securities which are acquired by (i) an employee
benefit plan (or a trust forming a part thereof)
maintained by the Company or any Subsidiary of the
Company, (ii) the Company or any Subsidiary of the
Company or (iii) any Person in connection with a
Non-Control Transaction
-2-
<PAGE> 3
(as hereinafter defined), will not constitute an
acquisition which results in a Change in Control;
(b) Approval by stockholders of the
Company of:
(i) a merger, consolidation or
reorganization involving the Company,
unless:
(A) the stockholders of
the Company immediately before such
merger, consolidation or reorganization
will own, directly or indirectly,
immediately following such merger,
consolidation or reorganization, at
least 51% of the combined voting power
of the outstanding voting securities of
the corporation resulting from such
merger, consolidation or reorganization
(the "Surviving Corporation") in
substantially the same proportion as
their ownership of the voting
securities of the Company immediately
before such merger, consolidation or
reorganization;
(B) the individuals who were
members of the Board
immediately prior to the execution of
the agreement providing for such
merger, consolidation or reorganization
constitute a majority of the members of
the board of directors of the Surviving
Corporation; and
(C) no Person (other than the
Company, any Subsidiary of the
Company, any employee benefit plan (or
any trust forming a part thereof)
maintained by the Company, the
Surviving Corporation, any Subsidiary
of the Surviving Corporation, or any
Person who, immediately prior to such
merger, consolidation or
reorganization, was the Beneficial
Owner of 20% or more of the then
outstanding voting securities of the
Company) is the Beneficial Owner of 20%
or more of the combined voting power of
the Surviving Corporation's then
outstanding voting securities.
(D) a transaction described
in clauses (A) through (C)
above is referred to herein as a
"Non-Control Transaction";
(ii) the complete liquidation or
dissolution of the Company; or
(iii) an agreement for sale or other
disposition of all or substantially all of
the assets of the Company to any Person
(other than a transfer to a Subsidiary of
the Company).
-3-
<PAGE> 4
(c) Notwithstanding the foregoing, a
Change in Control will not be deemed to occur
solely because any Person (a "Subject Person")
acquires Beneficial Ownership of more than the
permitted amount of the outstanding voting
securities of the Company as a result of the
acquisition of voting securities by the Company
which, by reducing the number of voting securities
outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur
(but for the operation of this sentence) as a
result of the acquisition of voting securities by
the Company, and after such share acquisition by
the Company, the Subject Person becomes the
Beneficial Owner of any additional voting
securities which increases the percentage of the
then outstanding voting securities Beneficially
Owned by the Subject Person, then a Change in
Control will be deemed to have occurred.
(d) Notwithstanding anything
contained in this Agreement to the contrary, if
the Executive's employment with the Company is
terminated prior to a Change in Control and the
Executive reasonably demonstrates that such
termination (i) was at the request of a Person
who has indicated an intention or taken steps
reasonably calculated to effect a Change in
Control and who subsequently effects a Change in
Control or (ii) otherwise occurred in connection
with, or in anticipation of, a Change in Control
which subsequently occurs, then for all purposes
of this Agreement, the date of such Change in
Control with respect to the Executive will mean
the date immediately prior to the date of such
termination of the Executive's employment.
"Code" means the Internal Revenue Code of
1986, as amended.
"Company" means General Dynamics
Corporation, a Delaware corporation, and includes
its Successors.
"Continuation Period" has the meaning set
forth in Section 3.1(b)(iii).
"Determination" has the meaning set forth
in Section 5.2.
"Disability" means a physical or mental
disability or illness which substantially impairs
the Executive's ability to perform the Executive's
regular duties with the Company for a period of
180 consecutive days or for a period of 270 days
in any 365-day period.
"Dispute" has the meaning set forth in
Section 5.2.
"Excess Payment" has the meaning set forth
in Section 5.3.
"Excise Tax" has the meaning set forth in
Section 5.1. "Final Determination" has the
meaning set forth in Section 5.3.
-4-
<PAGE> 5
"Good Reason" means the occurrence after a
Change in Control of any of the events or
conditions described in clauses (a) through (h)
hereof:
(a) any (i) change in the Executive's
status, title, position or responsibilities
(including reporting responsibilities) which, in
the Executive's reasonable judgment, represents an
adverse change from the Executive's status,
title, position or responsibilities as in effect
at any time within 180 days preceding the date of
the Change in Control or at any time thereafter,
(ii) assignment to the Executive of duties or
responsibilities which, in the Executive's
reasonable judgment, are inconsistent with the
Executive's status, title, position or
responsibilities as in effect at any time within
180 days preceding the date of the Change in
Control or at any time thereafter, or (iii)
removal of the Executive from or failure to
reappoint or reelect the Executive to any of such
offices or positions, in each case except in
connection with the termination of the Executive's
employment for Disability, Cause, as a result of
the Executive's death or by the Executive other
than for Good Reason;
(b) a reduction in the Executive's
base salary or any failure to pay the Executive
any compensation or benefits to which the
Executive is entitled within five days after the
date when due;
(c) the imposition of a requirement
that the Executive be based at any place outside a
50-mile radius from (LOCATION) , except for
reasonably required travel on Company business
which is not materially greater in frequency or
duration than prior to the Change in Control;
(d) the failure by the Company to (i)
continue in effect (without reduction in benefit
level or reward opportunities and without
unreasonably establishing or modifying any
performance or other criteria used to determine
reward levels) any material compensation or
employee benefit plan in which the Executive was
participating at any time within 180 days
preceding the date of the Change in Control or at
any time thereafter, unless such plan is replaced
with a plan that provides substantially equivalent
compensation or benefits to the Executive or (ii)
provide the Executive with compensation and
benefits, in the aggregate, at least equal (in
terms of benefit levels and reward opportunities)
to those provided for under each other employee
benefit plan, program and practice in which the
Executive was participating at any time within 180
days preceding the date of the Change in Control
or at any time thereafter;
(e) the insolvency or the filing (by
any party, including the Company) of a petition
for bankruptcy with respect to the Company, which
petition is not dismissed within 60 days;
-5-
<PAGE> 6
(f) any material breach by the
Company of any provision of this Agreement;
(g) any purported termination of the
Executive's employment for Cause by the Company
which does not comply with the terms of this
Agreement; or
(h) the failure of the Company to
obtain, as contemplated in Section 6, an
agreement, reasonably satisfactory to the
Executive, from any Successor to assume and agree
to perform this Agreement.
Any event or condition described in clauses (a)
through (h) which occurs prior to a Change in Control but which the Executive
reasonably demonstrates (a) was at the request of a Person who has indicated
the intention or takes steps reasonably calculated to affect a Change in
Control and who subsequently effects a Change in Control or (b) otherwise arose
in connection with, or in anticipation of, a Change in Control which
subsequently occurs, will constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control.
"Gross-Up Payment" has the meaning set forth in
Section 5.1.
"Notice of Termination" means a written notice
from the Company of the termination of the Executive's employment which
indicates the specific termination provision in this Agreement relied upon and
which sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
"Person" has the meaning as used in Section 13(d)
or 14(d) of the Securities Exchange Act, and will include any "group" as such
term is used in such sections.
"Pro Rata Bonus" means an amount equal to the
Bonus Amount multiplied by a fraction, the numerator of which is the number of
days elapsed in the then fiscal year through and including the Termination Date
and the denominator of which is 365.
"Securities Exchange Act" means the Securities
Exchange Act of 1934, as amended.
"Subsidiary" means any corporation with respect to
which another specified corporation has the power under ordinary circumstances
to vote or direct the voting of sufficient securities to elect a majority of
the directors.
-6-
<PAGE> 7
"Successor" means a corporation or other entity
acquiring all or substantially all the assets and business of the Company,
whether by operation of law, by assignment or otherwise.
"Supplemental Retirement Benefit" will mean the
lump sum actuarial equivalent of the aggregate retirement benefit the Executive
would have been entitled to receive under the Company's supplemental and other
retirement plans, including the General Dynamics Corporation Retirement Plan
for Salaried Employees (the "Pension Plan"). For purposes of the foregoing,
the "actuarial equivalent" will be determined in accordance with the actuarial
assumptions used for the calculation of benefits under the Pension Plan as
applied immediately prior to the Termination Date in accordance with past
practices.
"Termination Date" means (a) in the case of the
Executive's death, the Executive's date of death, (b) in the case of the
termination of the Executive's employment with the Company by the Executive for
Good Reason, the last day of the Executive's employment, and (c) in all other
cases, the date specified in the Notice of Termination; provided that if the
Executive's employment is terminated by the Company for Cause or due to
Disability, the date specified in the Notice of Termination will be at least 30
days after the date the Notice of Termination is given to the Executive.
"Underpayment" has the meaning set forth in
Section 5.3.
"Window Period" has the meaning set forth in
Section 3.1(a).
Section 2. Term of Agreement. This
Agreement will commence as of (AGDATE) , and will continue in effect until
(EXPDATE) ; provided that in the event a Change in Control occurs prior to
(EXPDATE) , the term of this Agreement will be extended to the date 24
months after the date of the occurrence of such Change in Control.
Section 3. Termination of Employment.
3.1. If, during the term of this
Agreement, the Executive's employment with the Company is terminated within 24
months following a Change in Control, the Executive will be entitled to the
following compensation and benefits:
(a) If the Executive's employment
with the Company is terminated (i) by the Company
for Cause or Disability, (ii) by reason of the
Executive's death or (iii) by the Executive other
than for Good Reason and other than during the
60-day period commencing on the first anniversary
of the date of the occurrence of a Change in
Control (the "Window Period"), the Company will
pay to the Executive the Accrued Compensation
-7-
<PAGE> 8
and, if such termination is other than by the
Company for Cause, a Pro Rata Bonus.
(b) If the Executive's employment
with the Company is terminated for any reason
other than as specified Section 3.1(a) or during
the Window Period, the Executive will be entitled
to the following:
(i) the Company will pay the
Executive all Accrued Compensation and a
Pro Rata Bonus;
(ii) the Company will pay the
Executive as severance pay, and in lieu of
any further compensation for periods
subsequent to the Termination Date, in a
single payment an amount in cash equal to
(MULTI) times the sum of (A) the Base
Amount and (B) the Bonus Amount;
(iii) for a period of (CMONTHS)
months (the "Continuation Period"), the
Company will at its expense continue on
behalf of the Executive and the Executive's
dependents and beneficiaries the life
insurance, disability, medical, dental and
hospitalization benefits provided (A) to
the Executive at any time during the
180-day period prior to the Change in
Control or at any time thereafter or (B)
to other similarly situated executives who
continue in the employ of the Company
during the Continuation Period. The
coverage and benefits (including
deductibles and costs) provided in this
Section 3.1(b)(iii) during the
Continuation Period will be no less
favorable to the Executive and the
Executive's dependents and beneficiaries
than the most favorable of such coverages
and benefits during any of the periods
referred to in clauses (A) and (B) above.
The Company's obligation hereunder with
respect to the foregoing benefits will be
limited to the extent that the Executive
obtains any such benefits pursuant to a
subsequent employer's benefit plans, in
which case the Company may reduce the
coverage of any benefits it is required to
provide the Executive hereunder as long as
the coverages and benefits of the combined
benefit plans are no less favorable to the
Executive than the coverages and benefits
required to be provided hereunder. This
Section 3.1(b) will not be interpreted so
as to limit any benefits to which the
Executive or the Executive's dependents or
beneficiaries may be entitled under any of
the Company's employee benefit plans,
programs or practices following the
Executive's termination of employment,
including retiree medical and life
insurance benefits;
(iv) the Company will pay in a single
payment an amount in cash equal to the
excess of (A) the Supplemental Retirement
Benefit determined as if (1) the Executive
had remained employed by the
-8-
<PAGE> 9
Company for an additional (SYRS)
year(s) of credited service, (2) the
Executive's annual compensation during
such period had been equal to the
Executive's Base Salary and the Bonus
Amount and (3) the Executive had been
fully vested in the Executive's benefit
under each retirement plan in which the
Executive was a participant, over (B) the
lump sum actuarial equivalent of the
aggregate retirement benefit the Executive
is actually entitled to receive under such
retirement plans; and
(v) any restrictions on any
outstanding restricted stock awards
granted to the Executive will lapse and
such restricted stock awards will become
fully vested, all in-the-money stock
options will become fully vested, and the
Executive will have the right to require
the Company to purchase, for cash, any
out-of-the-money stock options held by the
Executive at a price equal to the fair
market value of such options on the date
of purchase determined by the Company
using the Black-Scholes option pricing
model. For purposes of this Section
3.1(b)(v), a stock option will be deemed
(A) to be in-the-money if, as of the date
of determination, the New York Stock
Exchange composite quotation for the
Company's Common Stock, as reported in the
Wall Street Journal, as of the close of
business, New York City time, on the
immediately preceding trading day (the
"Applicable Price"), exceeds the exercise
price per share required to be paid by the
holder upon the exercise of such option
and (B) to be out-of-the-money if, as of
the date of determination, the Applicable
Price is equal to or less than such
exercise price.
(c) The amounts provided for in
Section 3.1(a) and Sections 3.1(b)(i), (ii) and
(iv) will be paid in a single lump sum cash
payment by the Company to the Executive within
five days after the Termination Date.
(d) The Executive will not be
required to mitigate the amount of any payment
provided for in this Agreement by seeking other
employment or otherwise, and no such payment will
be offset or reduced by the amount of any
compensation or benefits provided to the Executive
in any subsequent employment except as
specifically provided in Section 3.1(b)(iii).
3.2. The compensation to be paid to
the Executive pursuant to Sections 3.1(a), 3.1(b)(i) and 3.1(b)(ii) of this
Agreement will be in lieu of any similar severance or termination compensation
(i.e., compensation based directly on the Executive's annual salary or annual
salary and bonus) to which the Executive may be entitled under any other
Company severance or termination agreement, plan, program, policy, practice or
arrangement. With respect to any other compensation and benefit to be paid or
provided to the Executive pursuant to this Section 3, the Executive will have
the right to receive such compensation
-9-
<PAGE> 10
or benefit as herein provided or, if determined by the Company to be more
advantageous to the Executive, similar compensation or benefits to which the
Executive may be entitled under any other Company severance or termination
agreement, plan, program, policy, practice or arrangement. The Executive's
entitlement to any compensation or benefits of a type not provided in this
Agreement will be determined in accordance with the Company's employee benefit
plans and other applicable programs, policies and practices as in effect from
time to time.
Section 4. Notice of Termination. Following
a Change in Control, any purported termination of the Executive's employment by
the Company will be communicated by a Notice of Termination to the Executive.
For purposes of this Agreement, no such purported termination will be effective
without such Notice of Termination.
Section 5. Excise Tax Payments.
5.1. In the event that any payment or
benefit (within the meaning of Section 280G(b)(2) of the Code) to the Executive
or for the Executive's benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, the Executive's employment with the Company or a change in
ownership or effective control of the Company or of a substantial portion of
its assets (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Code, or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to herein as the
"Excise Tax"), then the Executive will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes and the Excise Tax, other than interest and penalties
imposed by reason of the Executive's failure to file timely a tax return or pay
taxes shown due on the Executive's return, and including any Excise Tax imposed
upon the Gross-Up Payment), the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
5.2. An initial determination as to
whether a Gross-Up Payment is required pursuant to this Agreement and the
amount of such Gross-Up Payment will be made at the Company's expense by an
accounting firm of recognized national standing selected by the Company and
reasonably acceptable to the Executive (the "Accounting Firm"). The Accounting
Firm will provide its determination (the "Determination"), together with
detailed supporting calculations and documentation, to the Company and the
Executive within five days of the Termination Date, if applicable, or such
other time as requested by the Company or by the Executive (provided the
Executive reasonably believes that any of the Payments may be subject to the
Excise Tax). If the Accounting Firm determines
-10-
<PAGE> 11
that no Excise Tax is payable by the Executive with respect to a Payment or
Payments, it will furnish the Executive with an opinion reasonably acceptable
to the Executive that no Excise Tax will be imposed with respect to any such
Payment or Payments. Within ten days of the delivery of the Determination to
the Executive, the Executive will have the right to dispute the Determination
(the "Dispute"). The Gross-Up Payment, if any, as determined pursuant to this
Section 5.2 will be paid by the Company to the Executive within five days of
the receipt of the Determination. The existence of the Dispute will not in any
way affect the Executive's right to receive the Gross-Up Payment in accordance
with the Determination. If there is no Dispute, the Determination will be
binding, final and conclusive upon the Company and the Executive, subject to
the application of Section 5.3.
5.3. As a result of uncertainty in the
application of Sections 280G and 4999 of the Code, it is possible that a
Gross-Up Payment (or a portion thereof) will be paid which should not be paid
(an "Excess Payment") or that a Gross-Up Payment (or a portion thereof) which
should be paid will not be paid (an "Underpayment"). An Underpayment will be
deemed to have occurred (a) upon notice (formal or informal) to the Executive
from any governmental taxing authority that the Executive's tax liability
(whether in respect of the Executive's current taxable year or in respect of
any prior taxable year) may be increased by reason of the imposition of the
Excise Tax on a Payment or Payments with respect to which the Company has
failed to make a sufficient Gross-Up Payment, (b) upon a determination by a
court, (c) by reason of a determination by the Company (which will include the
position taken by the Company, together with its consolidated group, on its
federal income tax return) or (d) upon the resolution of the Dispute to the
Executive's satisfaction. If an Underpayment occurs, the Executive will
promptly notify the Company and the Company will promptly, but in any event at
least five days prior to the date on which the applicable government taxing
authority has requested payment, pay to the Executive an additional Gross-Up
Payment equal to the amount of the Underpayment plus any interest and penalties
(other than interest and penalties imposed by reason of the Executive's failure
to file timely a tax return or pay taxes shown due on the Executive's return)
imposed on the Underpayment. An Excess Payment will deemed to have occurred
upon a Final Determination (as hereinafter defined) that the Excise Tax will
not be imposed upon a Payment or Payments (or portion thereof) with respect to
which the Executive had previously received a Gross-Up Payment. A "Final
Determination" will be deemed to have occurred when the Executive has received
from the applicable government taxing authority a refund of taxes or other
reduction in the Executive's tax liability by reason of the Excise Payment and
upon either (i) the date a determination is made by, or an agreement is entered
into with, the applicable governmental taxing authority which finally and
conclusively binds the Executive and such taxing authority, or in the event
that a claim is brought before a court of competent jurisdiction, the date upon
which a final determination has been made by such court and either all appeals
have been taken and finally resolved or the time for all appeals has expired or
-11-
<PAGE> 12
(ii) the statute of limitations with respect to the Executive's applicable tax
return has expired. If an Excess Payment is determined to have been made, the
amount of the Excess Payment will be treated as a loan by the Company to the
Executive and the Executive will pay to the Company on demand (but not less
than 10 days after the determination of such Excess Payment and written notice
has been delivered to the Executive) the amount of the Excess Payment plus
interest at an annual rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment (to which the
Excess Payment relates) was paid to the Executive until the date of repayment
to the Company. The Executive will use reasonable cooperative efforts at the
request of the Company to assist in the determination of the amount of any
Excess Payment or Underpayment made to the Executive pursuant to this
Agreement.
5.4. Notwithstanding anything
contained in this Agreement to the contrary, in the event that, according to
the Determination, an Excise Tax is imposed on any Payment or Payments, the
Company will pay to the applicable government taxing authorities as Excise Tax
withholding the amount of the Excise Tax that the Company has actually withheld
from the Payment or Payments.
Section 6. Successors; Binding Agreement.
This Agreement will be binding upon and will inure to the benefit of the
Company and its Successors, and the Company will require any Successors to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession or assignment had taken place. Neither this Agreement nor any right
or interest hereunder will be assignable or transferable by the Executive or by
the Executive's beneficiaries or legal representatives, except by will or by
the laws of descent and distribution. This Agreement will inure to the benefit
of and be enforceable by the Executive's legal representatives. (DIVSALE=Y)
In the event that the Division/Subsidiary (or part thereof) is sold, divested or
otherwise disposed of by the Company subsequent to a Change in Control and the
Executive is offered employment by the purchaser or acquiror thereof, the
Company will require such purchaser or acquiror to assume and agree to perform
the Company's obligations under this Agreement, in the same manner and to the
same extent that the Company would be required to perform if no such
acquisition or purchase had taken place.
Section 7. Fees and Expenses. The Company
will pay as they become due all legal fees and related expenses (including the
costs of experts) incurred by the Executive as a result of (a) the Executive's
termination of employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination of employment) and (b)
the Executive seeking to obtain or enforce any right or benefit provided by
this Agreement (including any such fees and expenses incurred in connection
with (i) the Dispute and (ii) the Gross-Up Payment, whether as a result of any
applicable government taxing authority proceeding, audit or otherwise) or by
any other plan or arrangement
-12-
<PAGE> 13
maintained by the Company under which the Executive is or may be entitled to
receive benefits.
Section 8. Notice. For the purposes of this
Agreement, notices and all other communications provided for in the Agreement
(including the Notice of Termination) will be in writing and will be deemed to
have been duly given when personally delivered or sent by certified mail,
return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other, provided that all notices to
the Company will be directed to the attention of the Board with a copy to the
Secretary of the Company. All notices and communications will be deemed to
have been received on the date of delivery thereof or on the third business day
after the mailing thereof, except that notice of change of address will be
effective only upon receipt.
Section 9. Nonexclusivity of Rights.
Nothing in this Agreement will prevent or limit the Executive's continuing or
future participate in any benefit, bonus, incentive or other plan or program
provided by the Company (except for any severance or termination policies,
plans, programs or practices) for which the Executive may qualify, nor will
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company (except for any severance or termination
agreement). Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company will be
payable in accordance with such plan or program, except as specifically
modified by this Agreement.
Section 10. No Set-Off. The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder will not be affected by any circumstances,
including any right of set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others.
Section 11. Miscellaneous. No provision of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the Executive
and the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
Section 12. Governing Law. This Agreement
will be governed by and construed and enforced in accordance with the laws of
the State of Delaware without giving effect to the conflict of laws principles
thereof. Any action
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<PAGE> 14
brought by any party to this Agreement will be brought and maintained in a
court of competent jurisdiction in New Castle County in the State of Delaware.
Section 13. Severability. The provisions of
this Agreement will be deemed severable and the invalidity or unenforceability
of any provision will not affect the validity or enforceability of the other
provisions hereof.
Section 14. Entire Agreement. This Agreement
constitutes the entire agreement between the parties hereto and supersedes all
prior agreements, if any, understandings and arrangements, oral or written,
between the parties hereto with respect to the subject matter hereof.
* * * * *
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed and
delivered this Agreement as of the date first above written.
GENERAL DYNAMICS CORPORATION
By:
----------------------------------
Edward C. Bruntrager
Corporate Vice President &
General Counsel
By:
----------------------------------
(INIT) (SNAME)
-15-
<PAGE> 1
EXHIBIT 11
EXHIBIT 11, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 1-3671
GENERAL DYNAMICS CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET EARNINGS:
Continuing Operations $ 247 $ 223 $ 270
Discontinued Operations:
Earnings (loss) from operations 55 - (30)
Gain on disposal 19 15 645
------------ ------------- ------------
$ 321 $ 238 $ 885
============ ============= ============
Weighted average common shares outstanding 62,992,558 63,068,328 62,187,874
============ ============= ============
NET EARNINGS PER SHARE - PRIMARY:
Continuing Operations $ 3.91 $ 3.51 $ 4.27
Discontinued Operations:
Earnings (loss) from operations .87 - (.47)
Gain on disposal .30 .24 10.21
------------ ------------- ------------
$ 5.08 $ 3.75 $ 14.01
============ ============= ============
Common shares from above 62,992,558 63,068,328 62,187,874
Assumed exercise of options (treasury stock method) 226,734 355,793 994,276
------------ ------------- ------------
63,219,292 63,424,121 63,182,150
============ ============= ============
NET EARNINGS PER SHARE - FULLY DILUTED:
Continuing Operations $ 3.90 $ 3.51 $4.27
Discontinued Operations:
Earnings (loss) from operations .87 - (.47)
Gain on disposal .30 .24 10.19
------------ ------------- ------------
$ 5.07 $ 3.75 $13.99
============ ============= ============
Common shares from above 62,992,558 63,068,328 62,187,874
Assumed exercise of options (treasury stock method) 371,590 357,447 1,085,702
------------ ------------- ------------
63,364,148 63,425,775 63,273,576
============ ============= ============
</TABLE>
<PAGE> 1
EXHIBIT 13
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- - --------------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
BUSINESS SEGMENT INFORMATION
A description of the company's business segments follows:
MARINE GROUP. The company's Electric Boat subsidiary designs and
builds nuclear submarines for the U.S. Navy. The company has contracts for
construction of Ohio class ballistic missile submarines (Trident) and Seawolf
class attack submarines (Seawolf). Electric Boat also performs overhaul and
repair work on submarines as well as a broad range of engineering work,
including the design of the New Attack Submarine (NSSN). The company's Bath
Iron Works subsidiary, which was acquired in 1995, designs and builds surface
combatants for the U.S. Navy. The company has contracts for construction of
Arleigh Burke class destroyers (DDG 51) as well as engineering and life cycle
support for this class of ships. The company's American Overseas Marine
subsidiary provides ship management services for the U.S. government on
prepositioning and ready reserve ships. The ship management operations were
previously reported in the Other business segment. Accordingly, data for 1994
and 1993 has been restated to reflect the new presentation.
ARMORED VEHICLES. The company's Land Systems subsidiary designs and
manufactures the M1 Series Abrams Main Battle Tank for the U.S. Army and the
U.S. Marine Corps. The company is currently under contract with the U.S. Army
to upgrade M1 tanks to the M1A2 configuration, the latest version of the M1. In
addition to domestic sales, the company is under contract with the U.S. Army to
manufacture M1A2 tanks for Kuwait and M1A1 kits - including hulls, turrets and
other major components - to be shipped to Egypt for final assembly as part of a
coproduction program. The company also provides training, maintenance and other
logistical support on international sales. The company is the second-source
producer of the Single Channel Ground and Airborne Radio System (SINCGARS) for
the U.S. Army.
OTHER. The company has coal mining operations located primarily in
central Illinois and leases liquefied natural gas tankers.
<TABLE>
<CAPTION>
Net Sales Operating Earnings Sales to U.S. Government
- - ----------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine Group $ 1,884 $ 1,733 $ 1,764 $ 194 $ 196 $ 145 $ 1,869 $ 1,721 $ 1,737
Armored Vehicles 1,050 1,184 1,286 140 140 174 1,029 1,159 1,266
Other 133 141 137 (19) (15) (10) -- -- --
- - ----------------------------------------------------------------------------------------------------------------
$ 3,067 $ 3,058 $ 3,187 $ 315 $ 321 $ 309 $ 2,898 $ 2,880 $ 3,003
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Depreciation, Depletion
Identifiable Assets Capital Expenditures and Amortization
- - ----------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine Group $ 935 $ 381 $ 400 $ 8 $ 6 $ 4 $ 23 $ 20 $ 25
Armored Vehicles 237 239 296 8 5 5 9 10 11
Other 317 344 359 3 6 4 5 8 5
Corporate* 1,675 1,709 1,580 13 6 1 1 1 15
- - ----------------------------------------------------------------------------------------------------------------
$ 3,164 $ 2,673 $ 2,635 $ 32 $ 23 $ 14 $ 38 $ 39 $ 56
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Corporate identifiable assets include cash and equivalents and marketable
securities, deferred taxes, real estate held for development, net assets of
discontinued operations and prepaid pension cost.
18
<PAGE> 2
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 prior years its Tactical Military Aircraft, Missile Systems
and Space Launch Systems businesses. In 1995, the company acquired Bath Iron
Works, a builder of surface combatant ships for the U.S. Navy. Bath Iron Works
has served as the lead shipyard for 10 of 20 classes of surface combatants
built for the Navy since World War II, and its backlog includes contracts for
the delivery of 10 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. With the company's marketing
experience, Bath Iron Works is now looking to pursue international defense
customers for its products and services.
More recently, on February 12, 1996, the company announced it had
agreed to buy the assets of Teledyne Vehicle Systems (TVS), an operating unit
of Teledyne Inc., for $55 in cash. The acquisition is subject to certain
conditions, including clearance by the appropriate governmental agencies. TVS
specializes in combat vehicles as well as mobility systems, suspension
technology, and diesel engines for armored vehicle markets world-wide. The
acquisition brings the company's share of the U.S. Army's Crusader Advanced
Field Artillery System (Crusader) program to more than 25 percent. TVS is also
a subcontractor on the company's candidate for the U.S. Marine Corps' Advanced
Amphibious Assault Vehicle (AAAV) development program. TVS will be reported in
the company's Armored Vehicles segment.
LEGISLATIVE DEVELOPMENTS
MARINE GROUP. For fiscal year 1996 (FY96), Congress approved $700 million of
the remaining $1.5 billion funding required for the third Seawolf, and $1.25
billion for the continued design and long-lead materials for construction of
the first two ships of the NSSN program. 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. Current Department of
Defense (DoD) plans call for the construction of the NSSN lead ship to begin at
Electric Boat in 1998, with a total of 30 ships in the program. Current
Congressional directives call for the first four NSSNs to be equally allocated
between Electric Boat and its competitor, with competition on subsequent ships.
Also in 1995, Congress approved the procurement of an additional DDG 51
destroyer in 1996, which is expected to be directed to the company, and
provided funding for the design and construction of the lead ship in the LPD 17
class amphibious assault ship program. Bath Iron Works is teamed with other
major contractors competing for the LPD 17 which the Navy anticipates to be a
12-ship program.
ARMORED VEHICLES. The U.S. Army has begun a program to upgrade over
1,000 of its M1 Abrams tanks to the M1A2 configuration by the year 2003. For
FY96, Congress approved the authority to enter into a multi-year contract under
this program, and included the first year's funding. This contract should
stabilize domestic tank production and provide the foundation for further
international opportunities. Congress also approved funding for four armored
vehicle programs in which the company is participating. The first is a
four-year program to upgrade approximately 90 Fox Nuclear, Biological and
Chemical Reconnaissance System (Fox) vehicles. The second is the Heavy Assault
Bridge which is currently under development and is expected to enter production
late in the decade. In addition, the company (including TVS) is teamed with two
other contractors on the Crusader development contract which could lead to a
production program worth as much as $13 billion. Finally, the company is
competing for the AAAV development contract which is expected to be awarded in
mid-1996 and followed by a multibillion dollar production program in the next
decade. Additional funding was also approved for the FY96 SINCGARS procurement
which the Army plans to continue to dual source.
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.
19
<PAGE> 3
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
BACKLOG
The following table shows the approximate backlog of the company as calculated
at December 31, 1995 and 1994, and the portion of the December 31, 1995,
backlog not reasonably expected to be filled in 1996:
<TABLE>
<CAPTION>
December 31
- - -------------------------------------------------------------
Not Filled
1995 1994 in 1996
- - -------------------------------------------------------------
<S> <C> <C> <C>
Marine Group $ 3,671 $ 2,486 $ 1,932
Armored Vehicles 959 1,378 303
Other 597 698 540
- - -------------------------------------------------------------
Funded Backlog $ 5,227 $ 4,562 $ 2,775
- - -------------------------------------------------------------
Total Backlog $ 7,386 $ 6,006 $ 4,759
- - -------------------------------------------------------------
</TABLE>
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.
In January 1996, the company agreed to the initial terms of a
nine-year, $1.5 billion contract for design of the NSSN, and is currently
negotiating the contracts for the construction of the third Seawolf and the
upgrade of M1 tanks. While this new business was appropriated by Congress, it
was not authorized as of year end and, therefore, not reflected in the December
31, 1995, backlog data reported above.
RESULTS OF OPERATIONS
MARINE GROUP. Net sales increased $151 in 1995 due primarily to the
acquisition of Bath Iron Works. For a discussion of the accounting for this
transaction and related information, see Note B to the Consolidated Financial
Statements. The operating results of Bath Iron Works have been included with
those of the company from the closing date, September 13, 1995.
Excluding the results of Bath Iron Works, net sales and operating
earnings decreased over 5 percent during 1995 due primarily to decreased
construction activity on the Trident and Los Angeles class attack submarine
(688) programs, partially offset by increased engineering and design work on
the NSSN. The company delivered the final 688 and one Trident in 1995. The two
remaining Tridents are scheduled for delivery in 1996 and 1997, while the first
two Seawolf Submarines are scheduled for delivery in 1996 and 1998.
Accordingly, submarine construction revenues will continue to decline as the
company delivers these ships.
As these long-term submarine programs near completion, operating risks
are diminishing and the benefits of cost reduction efforts are being realized.
Accordingly, the company regularly assesses the estimated earnings at
completion on these programs. Based on such an assessment, the earnings rate on
the Trident program was increased in the second quarter of 1995. Previously,
the earnings rates on both the 688 and Trident programs were increased in the
third quarter of 1994. These earnings rate increases partially offset the
effect on operating earnings of decreased construction volume.
Net sales for the Marine Group are expected to increase in 1996 due to
the operating results of Bath Iron Works being included in the company's
results for a full year, which more than offsets the expected decline in
submarine construction revenue. However, operating earnings are not expected to
increase proportionately due to the lower margin currently being earned on the
destroyer program as compared to the margins reported by the mature submarine
programs in 1995.
Net sales decreased $31 during 1994 due primarily to decreased
submarine construction activity. Operating earnings increased $51 during 1994
due primarily to the earnings rate increases on the Trident and 688 programs.
ARMORED VEHICLES. Net sales decreased $134 during 1995 due primarily
to decreased M1 production, as well as related spare parts and engineering
work. Production of 315 tanks for Saudi Arabia was completed in 1994 and was
only partially replaced in 1995 by increased activity on the domestic upgrade
program, resulting in an overall decrease in M1 revenue. However, the M1
program still accounted for nearly one half of Armored Vehicles' revenues in
1995. With volume on the upgrade program expected to remain at similar levels
in 1996 and production of 218 M1A2 tanks for Kuwait completed in the first
quarter of 1996, M1 revenues will continue to decrease in 1996. Because the
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.
Operating earnings were unchanged in 1995 due to the increase in the
earnings rates on the M1 and SINCGARS programs in the third quarter of 1994
which offset the aforementioned volume decrease. The current M1 program
earnings rate, which yields a substantially higher margin than other armored
vehicle business, has benefited from the company's cost reengineering efforts
and conservative revenue recognition practices during the early stages of the
program when greater uncertainty as to operating risks existed. Due to the
method of pricing business under government contracts, the cost reengineering
benefits the company is currently realizing will be passed on to the customer
in future contracts and will result in new business that will yield a lower
margin than the current contracts which complete in 1996. However, the company
will continue its cost-cutting efforts which may enhance the margins on these
new contracts.
Production levels continued to increase on the SINCGARS program during
1995. The company began recognizing earnings on the program during the third
quarter of 1994 due to improving performance and the favorable impact of the
approximate 40 percent share of the FY94 dual-source competitive procurement.
The company was awarded an approximate 45 percent share of the FY95 procurement
and anticipates at least a similar share in FY96.
Through 1995, the company has delivered 383 of the 499 M1A1 kits it is
under contract to manufacture for Egypt. Recently, the government of Egypt
exercised an option to purchase an additional 31 kits. Revenues from the
coproduction program are expected to remain relatively even through the end of
1996 as production completes in mid-1997.
20
<PAGE> 4
Net sales decreased $102 in 1994 due primarily to the completion of
the Fox program in the fourth quarter of 1993. Operating earnings decreased $34
during 1994 due primarily to the absence of approximately $40 of nonrecurring
revenue from the close-out of certain non-production contracts in 1993.
OTHER. Operating earnings decreased during the three year period
ended 1995 due primarily to the declining market conditions for the company's
coal operations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased during 1994 due primarily to a lower provision for state and
local income taxes. State and local income taxes, which are allocable to U.S.
government contracts, were significantly higher in 1993 as a result of the tax
on the gain on disposal of the Tactical Military Aircraft business.
INTEREST, NET. The company's interest income varies from period to
period based primarily on the average balance of cash and equivalents and
marketable securities. The average balance has fluctuated significantly during
the last three years as a result of transactions such as the sales of
businesses and special distributions to shareholders.
OTHER INCOME, NET. In 1993, the company recognized a $37 gain from
the sale of Federal Express Corporation stock and recognized an additional $14
in excess of scheduled amortization of the deferred gain on the sale of the
company's information technology operations due to the disposal of other
operations. For further discussion of other income items, see Note N to the
Consolidated Financial Statements.
PROVISION FOR INCOME TAXES. The company is litigating the
disallowance of a research and experimentation tax credit refund
claim relating to certain prior years' tax returns. The outcome of this
litigation could have a material favorable impact on the company's results of
operations and financial condition. For further discussion of this and other
tax litigation, as well as a discussion of the company's net deferred tax
asset, see Note E to the Consolidated Financial Statements.
DISCONTINUED OPERATIONS. The company has sold or intends to sell
certain businesses which are accounted for as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30. Earnings from
operations increased in 1995 due 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 1995. Due to the completion of the MD-11
program in early 1996, earnings from discontinued operations are expected to
decrease in 1996. Operating results also improved in 1994 without the loss
recognized by the company's Space Launch Systems business in 1993. For a
discussion of the financial impact from the disposal of discontinued
operations, see Note C to the Consolidated Financial Statements.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," in March 1995 and No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS 121 requires a company to adjust the
carrying value of long-lived assets and certain identifiable intangibles if
their value is determined to be impaired as defined by the standard. SFAS 123
encourages companies to adopt a fair value approach to valuing stock options
which would require a charge to earnings in the period the options are granted.
Companies are permitted to continue to follow the current method of accounting
for stock options with supplemental disclosures as to the pro forma impact of
applying the new method. The company is required to adopt the provisions of
these standards in 1996 and expects the standards will not have a material
impact on the results of operations or financial condition.
FINANCIAL CONDITION
The company's liquidity and financial condition continued to improve during
1995 as the balance of cash and equivalents and marketable securities increased
from $1,059 at December 31, 1994, to $1,095 at December 31, 1995. A discussion
of the company's financial condition in terms of its operating, investing and
financing activities as defined in the Consolidated Statement of Cash Flows
follows.
OPERATING ACTIVITIES - CONTINUING. The net cash provided by
continuing operations as reported on the Consolidated Statement of Cash Flows
is summarized by type as follows:
<TABLE>
<CAPTION>
Year Ended December 31
- - ----------------------------------------------------------------------------------
1995 1994 1993
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations $ 405 $ 343 $ 344
Allocated federal income
tax payments (89) (89) (78)
Purchase of marketable
securities, net (203) (136) (109)
Other 33 (6) 24
- - ----------------------------------------------------------------------------------
$ 146 $ 112 $ 181
- - ----------------------------------------------------------------------------------
</TABLE>
The four types of cash flows are described as follows:
- - - Operations represent the pre-tax cash flows generated by the company's
three business segments. Cash flows from operations generally approximate
operating earnings plus depreciation. In 1995, cash flows from operations
increased due to a reduction in operating working capital, but the company
expects cash flows to return to historical levels in 1996.
- - - For purposes of preparing the Consolidated Statement of Cash Flows,
federal income tax payments are allocated between continuing and discontinued
operations based on the portion of taxable income attributed to each.
21
<PAGE> 5
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
- - - As the company classifies its marketable securities as trading
securities in accordance with SFAS 115, the net purchases are included in
operating activities on the Consolidated Statement of Cash Flows.
- - - Other cash flows include items which are not directly attributable to
a business segment such as interest received from investments in excess of
interest paid on debt. Other cash flows were negative in 1994 due primarily to
the payment of previously deferred compensation.
For a discussion of environmental matters and other contingencies, see
Note O to the Consolidated Financial Statements. The company believes that the
amount it has recorded with respect to these matters is adequate, and any
amount by which the liability exceeds the recorded amount would not be deemed
material to the company's financial condition or results of operations.
OPERATING ACTIVITIES - DISCONTINUED. The net cash provided by
discontinued operations increased during 1995 and 1994 due to lower allocated
federal income tax payments, improved operating cash flows and a decrease in
payments for disposition related liabilities. In 1993, tax payments included
approximately $180 related to the gain on disposal of the company's Tactical
Military Aircraft business. The improvement in operating cash flows was 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 further
discussion, see Note C to the Consolidated Financial Statements). Net cash
provided by discontinued operations is expected to decrease significantly in
1996 due to the completion of operations at the Commercial Aircraft
Subcontracting business and the payment of its deferred federal income tax
liability.
INVESTING ACTIVITIES. As previously discussed, the company acquired
Bath Iron Works Corporation on September 13, 1995, for $300 in cash. In
December 1995, the company received a purchase price adjustment of $8 in
accordance with the terms of the purchase agreement.
The company has received proceeds of $1.8 billion over the last three
years from the sale of discontinued operations (for a discussion of individual
transactions, see Note C to the Consolidated Financial Statements). The company
has also received proceeds over the last three years from the sale of excess
assets and miscellaneous investments, including $37 in 1993 from the sale of
its investment in Federal Express Corporation stock.
As part of the sale of discontinued operations, certain properties
located primarily in southern California were retained by the company. These
properties have been segregated on the Consolidated Balance Sheet as real
estate held for development. The company has retained outside experts to
support the development of plans which will maximize the market value of these
properties. The company does not expect to hold these properties long term.
Development work began on certain of these properties during 1994 which is the
primary reason for the overall increase in the company's capital expenditures
for the past two years.
FINANCING ACTIVITIES. In the first quarter of 1995, the company's
board of directors declared an increased regular quarterly dividend of $.375
per share, reflecting the board's confidence in the sustainability of the cash
flows generated by the company's continuing operations. The company had
previously increased the dividend to $.35 and $.30 per share in March 1994 and
September 1993, respectively.
In 1994, the company's board of directors reconfirmed management's
authority to repurchase, at its discretion, up to 3 million shares of the
company's common stock. During 1994, the company repurchased approximately
530,000 shares of its stock on the open market for a total of $22.
The company made three special distributions to shareholders during
1993 totaling $1,531. The special distributions represent substantially all of
the funds available for tax-advantaged distribution to shareholders from the
sales of businesses under the company's 1992 plan of contraction (for further
discussion, see Note D to the Consolidated Financial Statements). Also during
1993, the company redeemed the entire series of 9 3/8 percent Notes which had a
face value of $100 and the remaining $45 of 5 3/4 percent Debentures.
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
$600 line of credit. The line of credit expires in May 1996 at which time the
company anticipates renewing or replacing it if deemed appropriate.
22
<PAGE> 6
CONSOLIDATED STATEMENT OF EARNINGS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
- - -------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts) 1995 1994 1993
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 3,067 $ 3,058 $ 3,187
OPERATING COSTS AND EXPENSES 2,752 2,737 2,878
- - -------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS 315 321 309
Interest, net 55 22 36
Other income, net 5 -- 68
- - -------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 375 343 413
Provision for income taxes 128 120 143
- - -------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 247 223 270
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Earnings (loss) from operations 55 -- (30)
Gain on disposal 19 15 645
- - -------------------------------------------------------------------------------------------------------------------
74 15 615
- - -------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 321 $ 238 $ 885
- - -------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER SHARE:
Continuing operations $ 3.92 $ 3.53 $ 4.34
Discontinued operations:
Earnings (loss) from operations .88 -- (.48)
Gain on disposal .30 .24 10.37
- - -------------------------------------------------------------------------------------------------------------------
$ 5.10 $ 3.77 $ 14.23
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
23
<PAGE> 7
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
CONSOLIDATED BALANCE SHEET
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
- - ------------------------------------------------------------------------------------------------
(Dollars in millions) 1995 1994
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 215 $ 382
Marketable securities 880 677
- - ------------------------------------------------------------------------------------------------
1,095 1,059
Accounts receivable 105 104
Contracts in process 567 351
Net assets of discontinued operations 68 44
Other current assets 178 239
- - ------------------------------------------------------------------------------------------------
Total Current Assets 2,013 1,797
- - ------------------------------------------------------------------------------------------------
NONCURRENT ASSETS:
Leases receivable-finance operations 213 220
Real estate held for development 136 128
Property, plant and equipment, net 398 264
Other assets 404 264
- - ------------------------------------------------------------------------------------------------
Total Noncurrent Assets 1,151 876
- - ------------------------------------------------------------------------------------------------
$ 3,164 $ 2,673
- - ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 130 $ 134
Other current liabilities 729 492
- - ------------------------------------------------------------------------------------------------
Total Current Liabilities 859 626
- - ------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 38 39
Long-term debt-finance operations 132 157
Other liabilities 568 535
Commitments and contingencies (See Note O)
- - ------------------------------------------------------------------------------------------------
Total Noncurrent Liabilities 738 731
- - ------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, including surplus (shares issued 84,387,336) 98 87
Retained earnings 2,087 1,860
Treasury stock (shares held 1995, 21,141,961; 1994, 21,391,547) (625) (631)
Unrealized gain on investments 7 --
- - ------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,567 1,316
- - ------------------------------------------------------------------------------------------------
$ 3,164 $ 2,673
- - ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
24
<PAGE> 8
CONSOLIDATED STATEMENT OF CASH FLOWS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
- - -----------------------------------------------------------------------------------------------------------
(Dollars in millions) 1995 1994 1993
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 321 $ 238 $ 885
Adjustments to reconcile net earnings to net
cash provided by continuing operations -
Discontinued operations (74) (15) (615)
Depreciation, depletion and amortization 38 39 56
Decrease (Increase) in -
Marketable securities (203) (136) (109)
Accounts receivable 21 (42) 6
Contracts in process 6 91 (10)
Leases receivable - finance operations 14 15 14
Other current assets 21 6 (8)
Increase (Decrease) in -
Accounts payable and other current liabilities (22) (105) (73)
Current income taxes 3 27 60
Deferred income taxes 36 4 5
Other, net (15) (10) (30)
- - -----------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 146 112 181
Net cash provided (used) by discontinued operations 84 31 (438)
- - -----------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities 230 143 (257)
- - -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Bath Iron Works (292) -- --
Proceeds from sale of discontinued operations 24 259 1,534
Proceeds from sale of investments and other assets 13 17 60
Capital expenditures (32) (23) (14)
Other (5) -- --
- - -----------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (292) 253 1,580
- - -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (2) (2) (146)
Repayment of debt - finance operations (15) (14) (15)
Dividends paid (92) (84) (56)
Special distributions to shareholders -- -- (1,531)
Purchase of common stock -- (22) --
Proceeds from option exercises 4 14 8
- - -----------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (105) (108) (1,740)
- - -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (167) 288 (417)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 382 94 511
- - -----------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 215 $ 382 $ 94
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
25
<PAGE> 9
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts) Common Stock Treasury Stock Unrealized
----------------------------------- Retained ---------------------- Gain on
Shares Par Surplus Earnings Shares Amount Investments
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 84,387,336 $ 84 $ -- $ 2,432 22,545,130 $ 642 $ --
- - -----------------------------------------------------------------------------------------------------------------------------------
Net earnings 885
Cash dividends declared ($1.00 per share) (62)
Special distributions to shareholders (1,546)
Shares issued under Incentive
Compensation Plan 8 (721,306) (18)
- - -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 84,387,336 84 8 1,709 21,823,824 624 --
- - -----------------------------------------------------------------------------------------------------------------------------------
Net earnings 238
Cash dividends declared ($1.40 per share) (87)
Shares purchased 529,600 22
Shares issued under Incentive
Compensation Plan (5) (961,877) (15)
- - -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 84,387,336 84 3 1,860 21,391,547 631 --
- - -----------------------------------------------------------------------------------------------------------------------------------
Net earnings 321
Cash dividends declared ($1.50 per share) (94)
Shares issued under Incentive
Compensation Plan 11 (249,586) (6)
Unrealized gains on available-for-
sale securities 7
- - -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 84,387,336 $ 84 $ 14 $ 2,087 21,141,961 $ 625 $ 7
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
26
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include the
accounts of the company and all majority-owned subsidiaries.
ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period.
SALES AND EARNINGS UNDER LONG-TERM CONTRACTS AND PROGRAMS. Major
defense programs are accounted for using the percentage-of-completion method of
accounting. The combination of estimated profit rates on similar, economically
interdependent contracts is used to develop program earnings rates. These rates
are applied to contract costs, including general and administrative expenses,
for the determination of sales and operating earnings. Program earnings rates
are reviewed quarterly to assess revisions in contract values and estimated
costs at completion. Based on these assessments, any changes in earnings rates
are made prospectively.
Any anticipated losses on contracts or programs are charged to
earnings when identified. Such losses encompass all costs, including general
and administrative expenses, allocable to the contracts. Revenue arising from
the claims process is not recognized either as income or as an offset against a
potential loss until it can be reliably estimated and its realization is
probable.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses amounted to $234, $234 and $292 in 1995, 1994 and 1993, respectively,
and are included in operating costs and expenses on the Consolidated Statement
of Earnings.
INTEREST, NET. Interest income was $59, $27 and $40 in 1995, 1994 and
1993, respectively. Interest expense of $6 was allocated to discontinued
businesses in 1993 on the ratio of net assets of discontinued operations to
consolidated net assets. Interest expense incurred by the company's finance
operations totaled $13, $13 and $15, in 1995, 1994 and 1993, respectively, and
is classified as operating costs and expenses. Interest payments for the total
company were $18, $16 and $28 in 1995, 1994 and 1993, respectively.
NET EARNINGS PER SHARE. As there is no material dilution, net
earnings per share is based upon the weighted average number of common shares
outstanding during each period. Prior period amounts have been restated to
present simple earnings per share. The weighted average shares were 63.0, 63.1
and 62.2 million in 1995, 1994 and 1993, respectively.
CASH AND EQUIVALENTS AND MARKETABLE SECURITIES. The company considers
securities with a remaining maturity of three months or less when purchased to
be cash equivalents. Marketable securities consist primarily of investment
grade tax-exempt municipal notes and bonds, commercial paper, and other
short-term investment funds.
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS. Accounts receivable
represent only amounts billed and currently due from customers. Recoverable
costs and accrued profit related to long-term contracts and programs on which
revenue has been recognized, but billings have not been presented to the
customer (unbilled receivable), are included in contracts in process.
REAL ESTATE HELD FOR DEVELOPMENT. As a result of the sale of
businesses, certain properties were retained by the company. These properties
are carried at the lower of cost or net realizable value.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is
carried at cost net of accumulated depreciation. The company primarily uses
accelerated methods of depreciation for depreciable assets. Depletion of coal
properties is computed using the units-of-production method.
IMPAIRMENT OF LONG-LIVED ASSETS. Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result from the use of the
asset. The company is required to adopt this standard on January 1, 1996. The
company believes that adoption will not have a material impact on its financial
condition or results of operations.
INTANGIBLE ASSET. The intangible asset related to the destroyer
program is amortized on a straight-line basis over an estimated benefit period
of 25 years. The intangible asset is included in other assets on the
Consolidated Balance Sheet.
ENVIRONMENTAL LIABILITIES. The company accrues environmental costs
when it is probable that a liability has been incurred and the amount can be
reasonably estimated. Cleanup and other environmental exit costs related to
sold businesses were recorded at the time of disposal. Recorded liabilities
have not been discounted. To the extent the U.S. government has specifically
agreed to pay the ongoing maintenance and monitoring costs at sites currently
used in the conduct of the company's government contracting business, these
costs are treated as contract costs and recognized as paid.
CLASSIFICATION. Consistent with industry practice, assets and
liabilities relating to long-term contracts and programs are classified as
current although a portion of these amounts is not expected to be realized
within one year.
27
<PAGE> 11
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
B. ACQUISITIONS
On September 13, 1995, the company closed an agreement to purchase Bath Iron
Works Corporation for approximately $300 in cash. In December 1995, the company
received a purchase price adjustment of $8 in accordance with the terms of the
purchase agreement. Bath Iron Works is a builder of surface combatant ships for
the U.S. Navy and has a backlog which currently includes contracts for the
delivery of 10 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 primarily
recorded as an intangible asset related to the destroyer program and amounted
to approximately $140. 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
years ended December 31, 1995 and 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 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.
<TABLE>
<CAPTION>
Year Ended December 31
(Unaudited)
- - -----------------------------------------------------------------
1995 1994
- - -----------------------------------------------------------------
<S> <C> <C>
Net Sales $ 3,705 $ 3,951
- - -----------------------------------------------------------------
Earnings From Continuing Operations $ 260 $ 242
- - -----------------------------------------------------------------
Per Share $ 4.13 $ 3.84
- - -----------------------------------------------------------------
</TABLE>
On February 12, 1996, the company announced an agreement to purchase
the assets of Teledyne Vehicle Systems (TVS) for approximately $55 in cash. The
acquisition is subject to certain conditions, including clearance by the
appropriate governmental agencies. TVS specializes in combat vehicles as well
as mobility systems, suspension technology, and diesel engines for armored
vehicle markets worldwide.
C. DISCONTINUED OPERATIONS
TACTICAL MILITARY AIRCRAFT. In March 1993, the company closed the sale of its
Tactical Military Aircraft business to Lockheed Corporation for $1,525 in cash.
The company recognized a gain on disposal of $645, or $10.37 per share, net of
income taxes of $331. Any contingencies associated with the terminated A-12
aircraft program (see discussion at Note P) have been retained by the company.
SPACE LAUNCH SYSTEMS. On May 1, 1994, the company closed the sale of
its Space Launch Systems business to 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.
COMMERCIAL AIRCRAFT SUBCONTRACTING. On July 1, 1994, the company and
McDonnell Douglas Corporation (McDonnell Douglas) announced an agreement to
terminate their contract for the company's production of fuselage sections for
the MD-11 jetliner. Under the agreement, the responsibility for production of
fuselages was transferred from the company's Commercial Aircraft Subcontracting
business to McDonnell Douglas with the delivery of the 166th shipset in early
1996. Also as part of the agreement, all previous unnegotiated contract changes
were settled. The company's Commercial Aircraft Subcontracting business ceased
operations after the completion of its obligations under this agreement.
OTHER. During 1995, the company closed the sale of the remaining
concrete pipe and ready-mix operations of its Material Service business for $24
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 $19, or $.30 per share,
net of income taxes of $6.
During 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.
EARNINGS FROM OPERATIONS. The operating results of discontinued
operations are:
<TABLE>
<CAPTION>
Year Ended December 31
- - ------------------------------------------------------------------------
1995 1994 1993
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 467 $ 644 $ 1,474
- - ------------------------------------------------------------------------
Earnings (loss) before
income taxes $ 84 $ -- $ (44)
Provision (credit) for
income taxes 29 -- (14)
- - ------------------------------------------------------------------------
Net earnings (loss) $ 55 $ -- $ (30)
- - ------------------------------------------------------------------------
Net earnings (loss) per share $ .88 $ -- $ (.48)
- - ------------------------------------------------------------------------
</TABLE>
The 1993 results reflect a charge of $25 ($16 after tax, or $.26 per
share), related to Space Launch Systems' Commercial Atlas Expendable Launch
Vehicle program. This charge was the direct result of launch failures in that
period.
NET ASSETS OF DISCONTINUED OPERATIONS. The assets and liabilities of
discontinued operations are:
<TABLE>
<CAPTION>
December 31
- - ---------------------------------------------------------
1995 1994
- - ---------------------------------------------------------
<S> <C> <C>
Current assets $ 43 $ 52
Noncurrent assets 99 124
- - ---------------------------------------------------------
Total Assets $ 142 $ 176
- - ---------------------------------------------------------
Current liabilities $ 64 $ 79
Noncurrent liabilities 10 53
- - ---------------------------------------------------------
Total Liabilities $ 74 $ 132
- - ---------------------------------------------------------
Net Assets $ 68 $ 44
- - ---------------------------------------------------------
</TABLE>
28
<PAGE> 12
D. SPECIAL DISTRIBUTIONS TO SHAREHOLDERS
On May 6, 1992, the board of directors of the company adopted a formal plan of
contraction of the company's business within the meaning of Internal Revenue
Code Section 302(e)(1)(B). Under the plan, the company anticipated the sale of
certain qualifying businesses and the subsequent tax-advantaged distribution of
the proceeds on or before December 31, 1993. The company made the following
special distributions in 1993:
<TABLE>
<CAPTION>
Charged to Retained Earnings
- - ----------------------------------------------------------------
Date Declared Paid Deferred Total
- - ----------------------------------------------------------------
<S> <C> <C> <C>
March 18 $ 612 $ 10 $ 622
June 2 551 8 559
September 15 368 5 373
- - ----------------------------------------------------------------
$ 1,531 $ 23 $ 1,554
- - ----------------------------------------------------------------
</TABLE>
The deferred portion of the distributions relates to restricted
shares. These amounts are payable as the restrictions lapse. In addition, as
the deferred amounts represent deductible compensation for federal income tax
purposes when the restrictions on the related shares lapse, the company
recorded a tax benefit of $8 directly to retained earnings related to the
distributions. The total of the three special distributions represents
substantially all of the funds available for tax-advantaged distribution to
shareholders.
E. INCOME TAXES
The provision for federal income taxes for continuing operations is summarized
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
- - -------------------------------------------------
1995 1994 1993
- - -------------------------------------------------
<S> <C> <C> <C>
Current $ 92 $ 116 $ 138
Deferred 36 4 5
- - -------------------------------------------------
$ 128 $ 120 $ 143
- - -------------------------------------------------
</TABLE>
The reconciliation from the statutory federal income tax rate to the
company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
- - ----------------------------------------------------------------
1995 1994 1993
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 35.0%
Other (.9) -- (.4)
- - ----------------------------------------------------------------
Effective income tax rate 34.1% 35.0% 34.6%
- - ----------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
- - ----------------------------------------------------------------
1995 1994
- - ----------------------------------------------------------------
<S> <C> <C>
Accrued costs on disposed businesses $ 96 $ 107
A-12 termination 96 90
Long-term contract costing methods 63 120
Coal mining liabilities 24 27
Other 130 157
- - ----------------------------------------------------------------
Deferred Assets $ 409 $ 501
- - ----------------------------------------------------------------
Lease income $ 77 $ 79
Commercial pension asset 40 40
Intangible asset 23 --
Other 60 66
- - ----------------------------------------------------------------
Deferred Liabilities $ 200 $ 185
- - ----------------------------------------------------------------
Net Deferred Asset $ 209 $ 316
- - ----------------------------------------------------------------
</TABLE>
No material valuation allowance was required for the company's
deferred tax assets at December 31, 1995 and 1994. The current portion of the
net deferred tax asset is $120 and $185 at December 31, 1995 and 1994,
respectively, and is included in other current assets on the Consolidated
Balance Sheet. Deferred taxes for the discontinued operations which have not
yet been sold or ceased operations are included in the net assets of
discontinued operations on the Consolidated Balance Sheet.
The company made federal income tax payments of $83, $107 and $316 in
1995, 1994 and 1993, respectively.
The Internal Revenue Service (IRS) has completed its examination of
the company's consolidated tax returns through the year 1989. Certain issues
related to the years 1977 through 1986 are in litigation (for further
discussion see Note O). Other issues related to the years 1987 through 1989
have been protested to the IRS Appeals Division. In addition, the IRS is
currently examining the company's consolidated tax returns for the years 1990
through 1993. As the company has recorded liabilities for tax contingencies,
resolution of these matters is not expected to have a material unfavorable
impact on the company's financial condition or results of operations.
In addition, the company has filed refund claims for approximately
$275 (plus interest) in additional research and experimentation tax credits for
the years 1981-1990. A portion of the claims relates to the years 1981-1986 and
is part of the litigation discussed above, while the remaining claims are being
contested at the IRS administrative level. As the ultimate allowance of these
claims is expected to be dependent upon the outcome of the litigation, no
benefits will be recognized until the completion of the litigation.
The provision for state and local income taxes, which is allocable to
U.S. government contracts, is included in operating costs and expenses.
29
<PAGE> 13
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
F. CONTRACTS IN PROCESS
Contracts in process consist of the following:
<TABLE>
<CAPTION>
December 31
- - ------------------------------------------------------------------------------------
1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Contract costs and estimated profits $ 5,916 $ 4,072
Other costs 398 160
- - ------------------------------------------------------------------------------------
6,314 4,232
- - ------------------------------------------------------------------------------------
Less advances and progress payments 5,747 3,881
- - ------------------------------------------------------------------------------------
$ 567 $ 351
- - ------------------------------------------------------------------------------------
</TABLE>
Contracts costs include production costs and related overhead,
including general and administrative expenses. Other costs primarily
represent amounts required to be recorded under GAAP which are not currently
allocable to contracts, such as a portion of the company's estimated workers'
compensation, retiree medical and environmental expenses. These costs have been
deferred because their recovery under contracts is considered probable based on
existing backlog. If the level of backlog in the future does not support the
continued deferral of these costs, their recognition could impact the
profitability of the company's remaining contracts.
Under the contractual arrangements by which progress payments are
received, the U.S. government asserts that it has a security interest in the
contracts in process identified with the related contracts.
G. PROPERTY, PLANT AND EQUIPMENT, NET
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31
- - ------------------------------------------------------------------------------------
1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 80 $ 72
Coal reserves 52 52
Buildings and improvements 212 152
Machinery and equipment 864 797
- - ------------------------------------------------------------------------------------
1,208 1,073
Less accumulated depreciation,
depletion and amortization 810 809
- - ------------------------------------------------------------------------------------
$ 398 $ 264
- - ------------------------------------------------------------------------------------
</TABLE>
Certain of the company's armored vehicle plant facilities are provided
by the U.S. government.
H. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
- - ------------------------------------------------------------------------------------
1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Workers' compensation $ 233 $ 162
Retirement benefits 199 50
Salaries and wages 74 56
A-12 termination liability and legal fees 38 61
Other 185 163
- - ------------------------------------------------------------------------------------
$ 729 $ 492
- - ------------------------------------------------------------------------------------
</TABLE>
I. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
- - ------------------------------------------------------------------------------------
1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C>
9.95% Debentures due 2018 $ 39 $ 39
Other -- 2
- - ------------------------------------------------------------------------------------
39 41
- - ------------------------------------------------------------------------------------
Less:
Unamortized discount 1 1
Current portion -- 1
- - ------------------------------------------------------------------------------------
$ 38 $ 39
- - ------------------------------------------------------------------------------------
</TABLE>
Annual sinking fund payments to retire the 9.95 percent Debentures,
will commence in 2011. Among the restrictions under the Indenture
covering the unsecured Debentures are provisions limiting the company's ability
to secure additional debt through mortgages on existing properties and sale and
leaseback transactions of principal properties as defined.
The company may borrow up to $600 under a committed, short-term line
of credit. Under the line of credit, the company pays a fee on the commitment
and would pay interest at varying rates based on market conditions. There were
no borrowings under the line of credit during 1995 and 1994.
J. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
- - ------------------------------------------------------------------------------------
1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Accrued costs on disposed businesses $ 274 $ 306
Coal mining related liabilities 69 73
Other 225 156
- - ------------------------------------------------------------------------------------
$ 568 $ 535
- - ------------------------------------------------------------------------------------
</TABLE>
The company has recorded liabilities for contingencies retained by the
company related to disposed businesses. These liabilities include retiree
medical, environmental, legal and the estimated cost
30
<PAGE> 14
of facility dispositions and other costs contemplated as a result of the
company's plan of contraction.
The company has certain liabilities which are specific to the coal
mining industry, including workers' compensation and reclamation. The company
is subject to the Federal Coal Mine Health & Safety Act of 1969, as amended,
and the related workers' compensation laws in the states in which it operates.
These laws require the company to pay benefits for occupational disability
resulting from coal workers' pneumoconiosis (black lung). The liability for
known claims and an actuarially-determined estimate of future claims that will
be awarded to current and former employees is discounted based on a rate of
7.25 percent at December 31, 1995 and 1994, respectively. Liabilities to
reclaim land disturbed by the mining process and to perform other closing
functions are recorded over the production lives of the mines.
K. SHAREHOLDERS' EQUITY
STOCK SPLIT. On March 4, 1994, the company's board of directors authorized a
two-for-one stock split effected in the form of a 100 percent stock dividend
distributed on April 11, 1994, to shareholders of record on March 21, 1994.
Shareholders' equity has been restated to give retroactive recognition to the
stock split in prior periods by reclassifying from retained earnings to common
stock the par value of the additional shares arising from the split. In
addition, all references in the financial statements to number of shares, per
share amounts, stock option data and market prices of the company's common
stock have been restated.
AUTHORIZED STOCK. The authorized capital stock of the company
consists of 200 million shares of $1 par value common stock and 50 million
shares of $1 par value preferred stock issuable in series, with the rights,
preferences and limitations of each series to be determined by the board of
directors.
L. FINANCE OPERATIONS
The company owns three liquefied natural gas (LNG) tankers which have been
leased to a nonrelated company. The leases are financed through Title XI Bonds
which are secured by the LNG tankers. Under Title XI financing, the debt is
guaranteed by the U.S. government with no recourse to the company. Accordingly,
in the event the lessee defaults on the lease payments, the company is not
obligated to repay the debt.
The following is a summary of the comparative financial statements
for the finance operations:
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31
1995 1994
- - ---------------------------------------------------------------------
<S> <C> <C>
ASSETS
Leases receivable $ 222 $ 236
Due from parent 72 83
- - ---------------------------------------------------------------------
$ 294 $ 319
- - ---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt $ 146 $ 161
Income taxes 77 79
Shareholder's equity 71 79
- - ---------------------------------------------------------------------
$ 294 $ 319
- - ---------------------------------------------------------------------
</TABLE>
EARNINGS DATA
<TABLE>
<CAPTION>
Year Ended December 31
- - -------------------------------------------------------------------------------
1995 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 17 $ 16 $ 17
Interest expense and
income taxes 14 14 16
- - -------------------------------------------------------------------------------
Net earnings $ 3 $ 2 $ 1
- - -------------------------------------------------------------------------------
</TABLE>
On October 1, 1995, the leases were extended from 2004 through the
year 2009. These leases are classified as direct financing leases. The lease
extension increased aggregate future minimum lease payments and unearned
interest income, but did not alter the company's net investment in leases
receivable. The components of the company's net investment in the leases
receivable are as follows:
<TABLE>
<CAPTION>
December 31
- - --------------------------------------------------------------
1995 1994
- - --------------------------------------------------------------
<S> <C> <C>
Aggregate future minimum
lease payments $ 380 $ 288
Unguaranteed residual value 38 38
Less unearned interest income 196 90
- - --------------------------------------------------------------
$ 222 $ 236
- - --------------------------------------------------------------
</TABLE>
The company is scheduled to receive minimum lease payments of $31
annually in each of the next five years.
Semiannual sinking fund payments, sufficient to retire 100 percent of
the aggregate principal amount of the debt, have commenced and will continue
through maturity in 2004. The interest rate on the debt varies from 8 percent
to 9 percent, with a weighted average rate of 8.1 percent. The schedule of
principal payments for the next five years is $14 in 1996, $15 in 1997, $16 in
1998, $18 in 1999, and $19 in 2000.
M. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31
- - -----------------------------------------------------------------------------------
1995 1994
- - -----------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents
and marketable
securities $ 1,095 $ 1,095 $ 1,059 $ 1,059
Other investments 50 50 -- --
Long-term debt 38 43 40 42
Long-term debt-
finance
operations 146 168 161 163
- - -----------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 15
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
Fair value is based on quoted market prices, except for long-term
debt-finance operations where fair value is based on a risk-adjusted discount
rate.
The company adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," as of January 1, 1994. The company determined
all of its investments classified as cash equivalents and marketable securities
are trading securities as defined by SFAS 115 and as such are recorded at fair
value. Unrealized gains and losses (the adjustment to fair value) recognized in
earnings during 1995 and 1994 on these securities were not significant.
Included in other investments at December 31, 1995, are equity
securities of $10 whose sale are restricted for a period of less than one year.
Also included in other investments at December 31, 1995, are U.S. government
obligations of $40 that are restricted for payment of workers' compensation
benefits under an agreement with the State of Maine. The amortized cost of the
U.S. government obligations is $39 at December 31, 1995. Approximately $9 of
these obligations matures within one year, and $31 matures between 1997 and
2000.
Both investments are available-for-sale securities as defined by SFAS
115 and as such are recorded at fair value. The unrealized gain of $7, net of
income taxes of $4, is classified as a separate component of shareholders'
equity at December 31, 1995. The proceeds from the sale and the realized gain
on sale of these investments was $7 in 1995.
The company was contingently liable for debt and lease guarantees and
other arrangements aggregating up to a maximum of approximately $85 and $105 at
December 31, 1995 and 1994, respectively. The company knows of no event of
default which would require it to satisfy these guarantees and, therefore, the
fair value of these contingent liabilities is considered immaterial.
N. OTHER INCOME, NET
Other income, net consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31
- - ------------------------------------------------------------------------------
1995 1994 1993
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sale of Federal
Express Corporation stock $ -- $ -- $ 37
Amortization of gain on
sale of DSD -- 7 26
Gain on sale of equity
securities 7 -- --
Other, net (2) (7) 5
- - ------------------------------------------------------------------------------
$ 5 $ -- $ 68
- - ------------------------------------------------------------------------------
</TABLE>
As stated in Note M, the company realized gains from the sale of
investments classified as available-for-sale securities of $7 in 1995.
During 1993, the company redeemed its remaining 53/4 percent
Debentures which were exchangeable for shares of Federal Express Corporation
common stock owned by the company and having no book value. As a result, the
company sold these shares during the third quarter of 1993 for $37, with the
corresponding gain reported as other income.
In November 1991, the company signed an agreement with Computer
Sciences Corporation (CSC) for the sale of the information technology
operations of the company's Data Systems Division (DSD). As the company had a
significant continuing involvement in the use of the assets sold, the $51 gain
(before tax) on the sale was being deferred and amortized on a straight-line
basis over three years into other income. Due to the novation of the company's
agreement with CSC allowing the buyers of the company's sold businesses to
assume the remaining obligation applicable to businesses sold, the company's
continuing involvement had diminished. Accordingly, after completing an
analysis during the second quarter of 1993, the company recorded $14 of the
previously deferred gain which was attributable to businesses sold. The
remaining balance was recognized on a straight-line basis through the end of
1994, which was consistent with the original amortization period.
O. COMMITMENTS AND CONTINGENCIES
LITIGATION. On January 7, 1991, the U.S. Navy terminated for default a contract
with the company and McDonnell Douglas for the full-scale development of the
U.S. Navy's A-12 aircraft. The U.S. Navy 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 P).
On March 8, 1993, a class action lawsuit, Berchin et al v. 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 parties have reached a tentative agreement to
settle the litigation, which agreement must be approved by the Court. The
expected settlement will not have a material impact on the company's financial
condition or results of operations.
Certain issues related to the IRS audit of the company's consolidated
federal income tax returns for the years 1977 through 1986 were not resolved at
the administrative level. Accordingly, 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
its refund claim for additional research and experimentation tax credits for
the years 1981 through 1986. The company's position is that it is entitled to a
tax credit for certain research performed pursuant to fixed price government
contracts. The company believes that its position has been strengthened by the
recent decision in Fairchild Industries v. United States, which held for the
taxpayer on this issue. 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 insurance contracts
cover
32
<PAGE> 16
losses of up to $30 million in excess of a $40 million point in each of the
four policy years. 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. A
similar lawsuit, Bath Iron Works v. Institute of London Underwriters, is
pending in Maine. The company does not expect that 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
fourteen 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. In the ordinary course of business, the company has entered
into letter of credit agreements and other arrangements with financial
institutions aggregating approximately $100 at December 31, 1995. For
discussion of other financial guarantees, see Note M. The company's rental
commitments under existing leases at December 31, 1995, are not significant.
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.
P. TERMINATION OF A-12 PROGRAM
As stated in Note O, 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 1995, is approximately $2.2 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. On December 19, 1995, following a trial on issues the U.S. government
raised with respect to the contractors' performance and the U.S. Navy's
knowledge thereof, the court issued an order converting the termination for
default to a termination for convenience. The court has set November 1996 as
the date for the trial on damages.
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 that the court's decision
converting the termination to a termination for convenience is reversed, and
the contractors are ultimately found to be in default of the A-12 contract and
are required to repay all unliquidated progress payments, additional pre-tax
losses of approximately $675, plus interest, may be recognized by the company.
This result is considered remote.
Q. INCENTIVE COMPENSATION PLAN
Under the 1988 Incentive Compensation Plan, as amended, the company may grant
awards in combination of cash, common stock, stock options and restricted
stock. In 1993, the company introduced a long-term incentive program which
granted Performance Restricted Stock and Performance Stock Options. The terms
of these grants generally provide for the quantity of restricted stock and the
exercisability of the stock options to be tied to the performance of the
company's stock price over a two year period. Stock options granted in 1995 did
not include the aforementioned performance feature.
33
<PAGE> 17
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
There were 199,395 shares of restricted stock awarded in 1995, and
746,008 shares outstanding at year end. Information with respect to stock
options is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
- - -----------------------------------------------------------------------------------
1995 1994 1993
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES
UNDER STOCK
OPTIONS:
Outstanding at
beginning of year 1,820,887 3,610,428 2,937,704
Granted 719,650 135,810 1,394,190
Exercised (171,264) (1,705,172) (493,308)
Canceled (66,550) (220,179) (228,158)
- - -----------------------------------------------------------------------------------
Outstanding at
end of year 2,302,723 1,820,887 3,610,428
- - -----------------------------------------------------------------------------------
STOCK OPTIONS
EXERCISABLE AT
END OF YEAR 979,311 509,866 205,518
- - -----------------------------------------------------------------------------------
PRICE OF STOCK OPTIONS:
Granted $43.44 - 60.44 $39.81-46.84 $46.66-50.07
Exercised $ 7.21 - 47.00 $ 7.21-23.56 $ 7.21-39.16
Canceled $ 7.58 - 47.00 $18.06-47.00 $ 7.58-38.19
Outstanding $ 7.21 - 60.44 $ 7.21-47.00 $ 7.21-47.00
- - -----------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, 1,346,617 treasury shares have been reserved for
options which may be granted in the future in addition to the shares reserved
for issuance on the exercise of options outstanding.
Federal income tax benefits of $3, $21 and $7 were credited to
shareholders' equity during 1995, 1994 and 1993, respectively, primarily as a
result of the exercise of non-qualified stock options which generated
deductions for the company equal to the difference between the market price at
the date of exercise and the option price.
R. RETIREMENT PLANS
PENSION. The company has seven trusteed noncontributory defined benefit
pension plans covering substantially all employees. Under certain of the plans,
benefits are primarily a function of both the employee's years of service and
level of compensation, while under other plans, benefits are a function
primarily of years of service.
It is the company's policy to fund the plans to the maximum extent
deductible under existing federal income tax regulations. Such contributions
are intended to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future.
Net periodic pension cost for the total company included the following:
<TABLE>
<CAPTION>
Year Ended December 31
- - ------------------------------------------------------------------------------
1995 1994 1993
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during period $ 47 $ 65 $ 70
Interest cost on projected
benefit obligation 158 146 164
Actual loss (gain) on
plan assets (933) 152 (350)
Net amortization and deferral 737 (334) 129
- - ------------------------------------------------------------------------------
$ 9 $ 29 $ 13
- - ------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
December 31
- - -----------------------------------------------------------------------
1995 1994
- - -----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ (2,453) $ (1,780)
- - -----------------------------------------------------------------------
Accumulated benefit obligation $ (2,487) $ (1,814)
- - -----------------------------------------------------------------------
Projected benefit obligation $ (2,657) $ (1,946)
Plans' assets at fair value 3,441 2,429
- - -----------------------------------------------------------------------
Plans' assets in excess of
projected benefit obligation 784 483
Unrecognized net gain (607) (196)
Unrecognized prior service cost 257 315
Unrecognized net asset at
January 1, 1986 (47) (56)
- - -----------------------------------------------------------------------
Prepaid pension cost $ 387 $ 546
- - -----------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
December 31
- - --------------------------------------------------------------------------
1995 1994 1993
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7% 8% 7%
Varying rates of increase in
compensation levels
based on age 4.5-10% 4.5-10% 4.5-10%
Expected long-term rate of
return on assets 8% 8% 8%
- - --------------------------------------------------------------------------
</TABLE>
Under SFAS No. 87, "Employers' Accounting for Pensions," the company
is required to assume a discount rate at which the obligation could be
currently settled. Reflecting the movement in interest rates, the company
decreased its discount rate assumption from 8 percent to 7 percent at December
31, 1995, which increased the projected benefit obligation approximately $280.
34
<PAGE> 18
Changes in prior service cost resulting from plan amendments are
amortized on a straight-line basis over the average remaining service period of
employees expected to receive benefits under the plan.
Since 1992, the company has deferred gains realized by the commercial
plan for the purpose of offsetting any costs associated with its final
disposition, either through reversion or other actions. These deferred gains
have been classified against the prepaid pension cost related to the commercial
plan of approximately $220 resulting in the recognition of a net asset of $115
at December 31, 1995 and 1994, which is included in other noncurrent assets on
the Consolidated Balance Sheet.
The company's contractual arrangements with the U.S. government
provide for the recovery of contributions to the company's government plans.
Historically, the amount contributed to these plans, charged to contracts and
included in net sales has exceeded the net periodic pension cost included in
operating costs and expenses as determined under SFAS 87. Therefore, the
company has deferred recognition of earnings resulting from the difference
between contributions and net periodic pension cost to provide better matching
of revenues and expenses. Similarly, pension settlements and curtailments
under the government plans have also been deferred. As the U.S. government will
receive an equitable interest in the excess assets of a government pension plan
in the event of plan termination, the aforementioned deferrals have been
classified against the prepaid pension cost related to the government plans
resulting in the recognition of no net asset on the Consolidated Balance Sheet.
In 1995, the company realized curtailment losses of approximately
$120, including the cost of special termination benefits which amounted to $50,
in connection with retirement incentive programs at its government contracting
business. These losses, which have been deferred as described above, were the
primary reason for the overall decrease in prepaid pension cost in 1995.
At December 31, 1995, approximately 90 percent of the plans' assets
are invested in securities of the U.S. government or its agencies, and 10
percent in mortgage-backed securities and diversified corporate fixed income
securities.
In addition to the defined benefit plans, the company provides
eligible employees the opportunity to participate in savings plans that permit
contributions on both a pre-tax and after-tax basis. Generally, salaried
employees and certain hourly employees with at least one year of continuous
service are eligible to participate. Under most plans, the employee may
contribute to various investment alternatives, including investment in the
company's common stock. In certain of the plans, the company matches a portion
of the employees' contributions with contributions to a fund which invests in
the company's common stock. The company's contributions amounted to $25, $30
and $43 in 1995, 1994 and 1993, respectively. Approximately 6 million shares of
the company's common stock were held by the plans at both December 31, 1995 and
1994, respectively.
The company also sponsors several unfunded non-qualified supplemental
executive plans that provide participants with additional benefits, including
any excess of such benefits over limits imposed on qualified plans by federal
law. The recorded liability and expense related to these plans are not material
to the company's results of operations and financial condition.
OTHER POSTRETIREMENT BENEFITS. The company maintains plans providing
retiree medical coverage for many of its current and former employees. The
coverage provided and the extent to which the retirees share in the cost of the
program vary throughout the company. Postretirement life insurance benefits
are also provided to certain retirees. These benefits vary by employment status
and age, service and salary level at retirement. Both medical and life
insurance benefits are provided only to those employees who retire directly
from the service of the company and not to those who terminate
service/seniority prior to eligibility for retirement.
The company established and began funding a Voluntary Employee's
Beneficiary Association (VEBA) trust in 1992 for certain plans in the amount of
their related annual net periodic postretirement benefit cost under SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The remaining plans are primarily funded as claims are received.
The net periodic postretirement benefit cost for the total company
included the following:
<TABLE>
<CAPTION>
Year Ended December 31
- - -------------------------------------------------------------------------------------
1995 1994 1993
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during period $ 8 $ 12 $ 13
Interest cost on projected
benefit obligation 51 51 41
Actual loss (gain) on plan assets (32) 1 (6)
Amortization of unrecognized
transition obligation 35 44 40
Net amortization and deferral 20 (7) 1
- - -------------------------------------------------------------------------------------
$ 82 $ 101 $ 89
- - -------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
December 31
- - -------------------------------------------------------------------------------
1995 1994
- - -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ 483 $ 405
Other fully eligible participants 43 73
Other active participants 162 195
- - -------------------------------------------------------------------------------
688 673
Less plans' assets at fair value 179 134
- - -------------------------------------------------------------------------------
Obligation in excess of plans' assets 509 539
Unrecognized transition obligation (272) (428)
Unrecognized net loss (6) (2)
Unrecognized prior service cost (4) --
- - -------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 227 $ 109
- - -------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 19
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
Assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
December 31
- - -------------------------------------------------------------------------------
1995 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7% 8% 7%
Expected long-term rate of
return on assets 8% 8% 8%
Assumed health care cost trend
rate for next year:
Post-65 claim groups 7% 8% 9%
Pre-65 claim groups 9.5-13% 10.5-14% 11.5-15%
- - -------------------------------------------------------------------------------
</TABLE>
As stated above, the company decreased its discount rate assumption
from 8 percent to 7 percent at December 31, 1995, which increased the
accumulated postretirement benefit obligation approximately $60. In addition,
the obligation decreased approximately $80 in 1995 due to certain plan
amendments.
The health care cost trend rates are assumed to gradually decline to
4.5 percent and 5 percent for post-65 and pre-65 claim groups, respectively, in
the year 2004 and thereafter over the projected payout period of the benefits.
The effect of a one percent increase each year in the health care cost
trend rate used would result in an increase of $68 in the accumulated
postretirement benefit obligation at December 31, 1995, and an increase of $7
in the aggregate of the service and interest cost components of the 1995 net
periodic cost.
At December 31, 1995, approximately 55 percent of the trusts' assets
were invested in securities of the U.S. government and its agencies, 35 percent
in diversified U.S. common stocks, and 10 percent in mortgage-backed
securities.
The company's contractual arrangements with the U.S. government
provide for the recovery of contributions to a VEBA and costs based on claims
paid. The net periodic postretirement benefit cost calculated pursuant to SFAS
106 exceeds the company's cost currently allocable to contracts. To the extent
the company has contracts in backlog sufficient to recover the excess SFAS 106
cost, the company is deferring the charge in contracts in process until such
time that the cost is allocable to contracts. Similarly, the company is
deferring curtailments, including a $50 loss realized in 1995 in connection
with the previously discussed retirement incentive programs.
The company has certain employees covered by multiemployer plans,
including the fund established by the Coal Industry Retiree Health Benefit Act
of 1992 (the Act). The company estimates its obligation under the Act to former
employees to be approximately $25 at December 31, 1995. The Act also provides
for the allocation of beneficiaries who cannot be assigned to an employer. The
company's obligation related to such beneficiaries cannot be determined at this
time. The company accounts for its contributions related to these plans on the
cash basis in accordance with GAAP.
S. BUSINESS SEGMENT INFORMATION
The company's primary business is supplying weapons systems to the U.S.
government. For a discussion of the company's business segments, including
their current business environment, operating results and related
uncertainties, see Management's Discussion and Analysis of the Results of
Operations and Financial Condition.
T. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
- - --------------------------------------------------------------------------------------------------------
Market Price
Range
Net Operating Net Net Earnings ---------------------- Dividends
Sales Earnings Earnings Per Share High Low Declared
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
4th Quarter (b) $ 893 $ 83 $ 88 $ 1.40 $ 63 $ 51 3/8 $.375
3rd Quarter (b) 718 77 91 1.45 56 1/8 44 1/8 .375
2nd Quarter 703 76 82 1.30 48 1/4 42 1/2 .375
1st Quarter 753 79 60 .95 47 1/2 42 3/8 .375
- - --------------------------------------------------------------------------------------------------------
1994
4th Quarter $ 724 $ 82 $ 58 $ .92 $ 45 1/8 $ 38 1/4 $ .35
3rd Quarter 714 77 54 .85 46 5/8 38 .35
2nd Quarter (a) 820 82 71 1.13 45 39 .35
1st Quarter 800 80 55 .87 47 5/8 41 3/16 .35
- - --------------------------------------------------------------------------------------------------------
</TABLE>
Note: Quarterly data is based on a 13 week period.
(a) Includes gain from the sale of the Space Launch Systems business which
increased net earnings and net earnings per share by $15 and 24 cents,
respectively. See Note C.
(b) Includes results from Bath Iron Works which was acquired on September
13, 1995. See Note B.
36
<PAGE> 20
STATEMENT OF FINANCIAL RESPONSIBILITY
- - --------------------------------------------------------------------------------
To the Shareholders of General Dynamics Corporation:
The management of General Dynamics Corporation is responsible for the
consolidated financial statements and all related financial information
contained in this report. The financial statements, which include amounts based
on estimates and judgments, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis.
The company maintains a system of internal accounting controls
designed and intended to provide reasonable assurance that assets are
safeguarded, that transactions are executed and recorded in accordance with
management's authorization and that accountability for assets is maintained. An
environment that establishes an appropriate level of control consciousness is
maintained and monitored by management. An important element of the monitoring
process is an internal audit program that independently assesses the
effectiveness of the control environment.
The Audit and Corporate Responsibility Committee of the board of
directors, which is composed of five outside directors, meets periodically and,
when appropriate, separately with the independent auditors, management and
internal audit to review the activities of each.
The financial statements have been audited by Arthur Andersen LLP,
independent public accountants, whose report follows.
/s/ MICHAEL J. MANCUSO /s/ JOHN W. SCHWARTZ
- - ------------------------ ------------------------
Michael J. Mancuso John W. Schwartz
Vice President and Controller
Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- - --------------------------------------------------------------------------------
To General Dynamics Corporation:
We have audited the accompanying Consolidated Balance Sheet of General Dynamics
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related Consolidated Statements of Earnings, Shareholders'
Equity and Cash Flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of General Dynamics
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Washington, D.C.,
February 12, 1996
37
<PAGE> 21
GENERAL DYNAMICS CORPORATION
- - -------------------------------------------------
SELECTED FINANCIAL DATA (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- - --------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share and per employee amounts)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 3,067 $ 3,058 $ 3,187 $ 3,225 $ 3,161
Operating costs and expenses 2,752 2,737 2,878 2,970 2,950
Interest, net 55 22 36 27 10
Provision (credit) for income taxes 128 120 143 5(a) (82)(b)
Earnings from continuing operations 247 223 270 305(a) 274(b)
Earnings per share from
continuing operations (d) 3.92 3.53 4.34 4.03(a) 3.20(b)
Cash dividends on common stock 1.50 1.40 1.00 .80 .50
Sales per employee 152,100(c) 143,900 138,100 121,500 102,800
- - --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT DECEMBER 31
Cash and equivalents and marketable securities $ 1,095 $ 1,059 $ 585 $ 943 $ 812
Property, plant and equipment, net 398 264 302 339 380
Total assets 3,164 2,673 2,635 3,530 4,177
Long-term debt (including current portion) 38 40 38 183 613
Long-term debt - finance operations
(including current portion) 146 161 175 190 204
Shareholders' equity 1,567 1,316 1,177 1,874 1,980
Per share 24.78 20.89 18.81 30.30 23.62
- - --------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Funded backlog $ 5,227 $ 4,562 $ 5,487 $ 6,780 $ 8,214
Total backlog 7,386 6,006 7,015 8,488 9,846
Shares outstanding at December 31 (in millions) 63.2 63.0 62.6 61.8 83.8
Weighted average shares outstanding (in millions)(d) 63.0 63.1 62.2 75.6 85.6
Common shareholders of record at December 31 22,930 23,935 24,496 26,158 33,078
Active employees at December 31:
Total company 27,700 24,200 30,500 56,800 80,600
Excluding discontinued operations 26,800 21,300 23,100 26,500 30,700
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes a $95 gain ($1.26 per share) from the recognition of research and
experimentation and investment tax credits.
(b) Includes a $140 gain ($1.64 per share) from an adjustment to the company's
deferred income tax liability.
(c) Excludes Bath Iron Works for comparative purposes.
(d) Simple earnings per share is presented for 1993-1995, fully diluted
earnings per share is presented for 1991-1992.
38
<PAGE> 1
EXHIBIT 21, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 1-3671
GENERAL DYNAMICS CORPORATION
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiaries of General Dynamics Place of Percent of
Corporation (Parent and Registrant) Incorporation Voting Power
----------------------------------- ------------- ------------
<S> <C> <C>
American Overseas Marine Corporation . . . . . . . . . . . Delaware . . . . . . . . . . 100
Bath Iron Works Corporation . . . . . . . . . . . . . . . . Maine . . . . . . . . . . . . 100
BIW Acquisition Corporation . . . . . . . . . . . . . . . . Maine . . . . . . . . . . . . 100
Concord I Maritime Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree I Maritime Corp. . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord II Maritime Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree II Maritime Corp. . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord III Maritime Corporation . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree III Maritime Corp. . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord IV Maritime Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree IV Maritime Corp. . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Concord V Maritime Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Braintree V Maritime Corp. . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Convair Aircraft Corporation . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Convair Corporation . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Elco Company, The . . . . . . . . . . . . . . . . . . . . . New Jersey . . . . . . . . . 100
Electric Boat Corporation . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Electrocom, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics (C.I.) Limited . . . . . . . . . . . . . . Cayman Islands . . . . . . . 100
General Dynamics Commercial Launch Services, Inc. . . . . . Delaware . . . . . . . . . . 100
General Dynamics Foreign Sales Corporation . . . . . . . . Virgin Islands . . . . . . . 100
General Dynamics International Corporation . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Land Systems Inc. . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Amphibious Systems, Inc. . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Land Systems Tallahassee Operations, Inc. Delaware . . . . . . . . . . 100
General Dynamics Land Systems International, Inc. . . . Delaware . . . . . . . . . . 100
G.T. Devices, Inc. . . . . . . . . . . . . . . . . . . . Maryland . . . . . . . . . . 100
General Dynamics Land Systems Product Support and Services
Company . . . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . 100
General Dynamics Support Services Company . . . . . Delaware . . . . . . . . . . 100
Global Support Services Company . . . . . . . . . . Virgin Islands . . . . . . . 100
General Dynamics Limited . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . 100
General Dynamics Manufacturing Limited . . . . . . . . . . Canada . . . . . . . . . . . 100
General Dynamics Properties, Inc. . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Space Services Company . . . . . . . . . . Delaware . . . . . . . . . . 100
Material Service Resources Company . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Century Mineral Resources, Inc. . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Material Service Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
EPSP, Inc. . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . 100
Hulcher Quarry, Inc. . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Material Service Foundation . . . . . . . . . . . . Illinois . . . . . . . . . . 100
MLRB, Inc. . . . . . . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
MSC Realty & Development Company . . . . . . . . . . Illinois . . . . . . . . . . 100
Mineral and Land Resources Corporation . . . . . . . Delaware . . . . . . . . . . 100
MLRT, Inc. . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . 100
Thornton Quarries Corporation . . . . . . . . . . . Illinois . . . . . . . . . . 100
Freeman Energy Corporation . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Freeman Coal Sales, Inc. . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Freeman Resources, Inc. . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Subsidiaries of General Dynamics Place of Percent of
Corporation (Parent and Registrant) Incorporation Voting Power
----------------------------------- ------------- ------------
<S> <C> <C>
Cheyenne Resources, Inc. . . . . . . . . . . . . . . Kentucky . . . . . . . . . . 100
P C & H Construction, Inc. . . . . . . . . . Kentucky . . . . . . . . . . 100
Cumberland Collieries, Inc. . . . . . . . . . . . . Virginia . . . . . . . . . . 100
Freeman United Coal Mining Company . . . . . . . . . Delaware . . . . . . . . . . 100
Patriot I Shipping Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Patriot II Shipping Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Patriot IV Shipping Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
S-C 1969 Credit Corporation . . . . . . . . . . . . . . . . New York . . . . . . . . . . 100
</TABLE>
<PAGE> 1
EXHIBIT 23, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 1-3671
GENERAL DYNAMICS CORPORATION
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report incorporated by reference into this Form 10-K for
the year ended December 31, 1995, into the company's previously filed
registration statements on Form S-8 file numbers 33-23448, 2-23904, 2-23032,
2-28952, 2-50980, 2-24270 and 2-88053.
/s/ ARTHUR ANDERSEN LLP
-------------------------
ARTHUR ANDERSEN LLP
Washington, D.C.,
March 21, 1996
<PAGE> 1
EXHIBIT 24
GENERAL DYNAMICS CORPORATION POWER OF ATTORNEY
COMMISSION FILE NUMBER 1-3671 REPORTS ON FORM
IRS NO. 13-1673581 ----------- 10-K AND 10-Q
---------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
Directors and/or officers of GENERAL DYNAMICS CORPORATION, a Delaware
corporation, hereby constitutes and appoints each of NICHOLAS D. CHABRAJA,
MICHAEL J. MANCUSO, PAUL A. HESSE, and his true and lawful attorney and agent,
in the name and on behalf of the under-signed, to do any and all acts and
things and execute any and all instruments which the attorney and agent may
deem necessary or advisable to enable General Dynamics Corporation to comply
with the Securities Act of 1933, and the Exchange Act of 1934, as amended, and
any rules and regulations and requirements of the Securities and Exchange
Commission (The Commission) in respect thereof, in connection with annual
reports to the commission on form 10-K, quarterly reports on form 10-Q, and
other reports as required by General Dynamics Corporation, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the names of the undersigned in his capacity as Director
and/or Officer of General Dynamics Corporation to reports filed with the
Securities and Exchange Commission with respect thereto, to any and all
amendments, including hereby ratifying and confirming all that the attorneys
and agents, or any of them, has done, shall do or shall cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands this 21st day of March 1996.
/s/ Frank C. Carlucci /s/ Charles H. Goodman
- - -------------------------------- ---------------------------------
Frank C. Carlucci Charles H. Goodman
/s/ Nicholas D. Chabraja /s/ James R. Mellor
- - -------------------------------- ---------------------------------
Nicholas D. Chabraja James R. Mellor
/s/ James S. Crown /s/ Gordon R. Sullivan
- - -------------------------------- ---------------------------------
James S. Crown Gordon R. Sullivan
/s/ Lester Crown /s/ Carlisle A. H. Trost
- - -------------------------------- ---------------------------------
Lester Crown Carlisle A. H. Trost
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from General
Dynamics Corporation Consolidated Balance Sheet as of December 31, 1995,
and the related Consolidated Statement of Earnings for the year ended December
31, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 215
<SECURITIES> 880
<RECEIVABLES> 105
<ALLOWANCES> 0
<INVENTORY> 567
<CURRENT-ASSETS> 2,013
<PP&E> 1,208
<DEPRECIATION> 810
<TOTAL-ASSETS> 3,164
<CURRENT-LIABILITIES> 859
<BONDS> 38
0
0
<COMMON> 98
<OTHER-SE> 1,469
<TOTAL-LIABILITY-AND-EQUITY> 3,164
<SALES> 3,067
<TOTAL-REVENUES> 3,067
<CGS> 2,752
<TOTAL-COSTS> 2,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 375
<INCOME-TAX> 128
<INCOME-CONTINUING> 247
<DISCONTINUED> 74
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 321
<EPS-PRIMARY> 5.08
<EPS-DILUTED> 5.07
</TABLE>
