SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-3671
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1673581
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
3190 Fairview Park Drive,
Falls Church, Virginia 22042-4523
(Address of principal (Zip Code)
executive offices)
(703) 876-3000
Registrant's telephone number,
including area code
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been subject
to such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1 par value - August 6, 1997 62,840,627
<PAGE>
GENERAL DYNAMICS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Earnings
(Three Months) 3
Consolidated Statement of Earnings
(Six Months) 4
Consolidated Statement of Cash Flows 5
Notes to Unaudited Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 4 - Submission of Matters to a Vote of
Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURE 18
<PAGE>
PART I
GENERAL DYNAMICS CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)
<CAPTION>
<S> <C> <C>
June 29 December 31
1997 1996
ASSETS
CURRENT ASSETS:
Cash and
equivalents $ 205 $ 516
Marketable securities 450 378
655 894
Accounts receivable 172 97
Contracts in process 561 558
Other current assets 286 309
Total Current Assets 1,674 1,858
NONCURRENT ASSETS:
Marketable securities 133 261
Leases receivable - finance
operations 199 204
Real estate held for
development 153 147
Property, plant and equipment,
net 520 441
Intangible assets 480 165
Other assets 232 223
Total Noncurrent Assets 1,717 1,441
$3,391 $ 3,299
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 154 $ 182
Other current liabilities 725 651
Total Current Liabilities 879 833
NONCURRENT LIABILITIES:
Long-term debt 40 38
Long-term debt - finance
operations 110 118
Other liabilities 570 596
Commitments and contingencies
(See Note G)
Total Noncurrent Liabilities 720 752
SHAREHOLDERS' EQUITY:
Common stock, including surplus
(shares issued 84,387,336) 132 109
Retained earnings 2,354 2,254
Treasury stock (shares held
1997, 21,575,505;
1996, 21,285,157) (694) (650)
Unrealized gain on
investments - 1
Total Shareholders' Equity 1,792 1,714
$3,391 $3,299
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
</TABLE>
<PAGE>
GENERAL DYNAMICS CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
<CAPTION>
<S> <C> <C>
Three Months Ended
June 29 June 30
1997 1996
NET SALES $ 1,032 $ 930
OPERATING COSTS
AND EXPENSES 918 841
OPERATING EARNINGS 114 89
Interest, net 8 13
Other income (expense),
net - -
EARNINGS BEFORE
INCOME TAXES 122 102
Provision for income
taxes 42 35
NET EARNINGS $ 80 $ 67
NET EARNINGS PER SHARE $ 1.28 $ 1.06
WEIGHTED AVERAGE SHARES
OUTSTANDING (in
millions) 62.6 63.3
DIVIDENDS PER SHARE $ .41 $ .41
SUPPLEMENTAL
INFORMATION:
General and
administrative
expenses included
in operating costs
and expenses $ 78 $ 62
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
</TABLE>
<PAGE>
GENERAL DYNAMICS CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
<CAPTION>
<S>
<C> <C>
Six Months Ended
June 29 June 30
1997 1996
NET SALES $ 1,973 $ 1,823
OPERATING COSTS AND
EXPENSES 1,757 1,651
OPERATING EARNINGS 216 172
Interest, net 17 26
Other income (expense),
net (3) 2
EARNINGS BEFORE INCOME TAXES 230 200
Provision for income taxes 79 68
NET EARNINGS $ 151 $ 132
NET EARNINGS PER SHARE $ 2.40 $ 2.09
WEIGHTED AVERAGE SHARES
OUTSTANDING
(in millions) 62.8 63.2
DIVIDENDS PER SHARE $ .82 $ .82
SUPPLEMENTAL INFORMATION:
General and administrative
expenses included in
operating costs and
expenses $ 156 $ 118
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
</TABLE>
<PAGE>
GENERAL DYNAMICS CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
<S> <C> <C>
Six Months Ended
June 29 June 30
1997 1996
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 151 $ 132
Adjustments to reconcile
net earnings to net
cash provided by
continuing operations -
Depreciation, depletion
and amortization 43 29
Decrease (Increase) in -
Marketable securities (161) 557
Accounts receivable (23) (21)
Contracts in process 137 98
Leases receivable -
finance operations 5 4
Other current assets 3 (14)
Increase (Decrease) in -
Accounts payable and
other current
liabilities (98) (21)
Current income taxes (6) 60
Deferred income taxes 34 (41)
Other, net (4) (32)
Net cash provided by
continuing operations 81 751
Net cash used by
discontinued operations (25) (51)
Net Cash Provided by
Operating Activities 56 700
CASH FLOWS FROM INVESTING
ACTIVITIES:
Business acquisitions (450) (55)
Purchases of available-for
-sale securities (329) (671)
Sales/maturities of
available-for-sale
securities 546 14
Capital expenditures (37) (39)
Proceeds from the sale of
assets - 22
Other (3) -
Net Cash Used by Investing
Activities (273) (729)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
debt - finance
operations - 150
Repayment of debt -
finance operations (8) (150)
Dividends paid (51) (49)
Purchase of common stock (60) (3)
Proceeds from option exercises 25 3
Other - (6)
Net Cash Used by Financing
Activities (94) (55)
NET DECREASE IN CASH AND
EQUIVALENTS (311) (84)
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD 516 215
CASH AND EQUIVALENTS AT
END OF PERIOD $ 205 $ 131
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash payments for:
Federal income taxes $ 38 $ 83
Interest (including
finance operations) 6 8
The accompanying Notes to Unaudited Consolidated
Financial Statements are an integral part of this statement.
</TABLE>
<PAGE>
GENERAL DYNAMICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in millions, except per share amounts)
(A) Basis of Preparation
The unaudited consolidated financial statements included herein
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, the company believes
that the disclosures included herein are adequate to make the
information presented not misleading. Operating results
for the three and six month periods ended June 29, 1997, are not
necessarily indicative of the results that may be expected for
the year ended December 31, 1997. These unaudited consolidated financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the company's Annual Report on Form 10-K for
the year ended December 31, 1996.
In the opinion of the company, the unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair statement of the results for the
three and six month periods ended June 29, 1997 and June 30, 1996.
(B) Acquisitions
Effective March 29, 1996, the company purchased the assets of
Teledyne Vehicle Systems (Muskegon Operations), formerly an operating
unit of Teledyne Inc., for approximately $55 in cash. The transaction
has been accounted for under the purchase method of accounting.
Operating results of the Muskegon Operations are included with those
of the company from the closing date.
Effective January 1, 1997, the company purchased the assets of
Defense Systems and Armament Systems, formerly operating units of
Lockheed Martin Corporation, for approximately $450 in cash. Defense
Systems builds light vehicles, turrets and transmissions for combat
vehicles, as well as missile guidance and naval fire control systems.
Armament Systems designs, develops and produces advanced gun,
ammunition handling and air defense systems, and is a leader in the
production of ammunition and ordnance products. The transaction has
been accounted for under the purchase method of accounting.
Operating results of Defense Systems and Armament Systems are
included with those of the company from the closing date.
Approximately $320, the excess of the purchase price over the estimated
fair value of the net tangible assets acquired, has been recorded as
intangible assets comprised of contracts and programs acquired and
goodwill. The intangible assets are being amortized on a straight-
line basis over periods ranging from 30 to 40 years. This allocation
is based on preliminary estimates and may be revised at a later date.
<PAGE>
(C) Intangible Assets
Intangible assets consist of the following:
<TABLE>
<S> <C> <C>
June 29 December 31
1997 1996
Contracts
and programs
acquired $ 367 $ 149
Goodwill 113 16
$ 480 $ 165
</TABLE>
Intangible assets are shown net of accumulated amortization of $18
and $10 at June 29, 1997 and December 31, 1996, respectively.
Intangible assets are amortized on a straight-line basis over periods
ranging from 25 to 40 years.
(D) Liabilities
A summary of significant liabilities, by balance sheet caption,
follows:
<TABLE>
<S> <C> <C>
June 29 December 31
1997 1996
Workers'
compensation $ 230 $ 239
Retirement
benefits 201 179
Salaries and
wages 77 68
Other 217 165
Other Current
Liabilities $ 725 $ 651
Accrued costs on
disposed
businesses $ 219 $ 256
Retirement benefits 116 111
Coal mining
related
liabilities 78 77
Other 157 152
Other
Liabilities $ 570 $ 596
</TABLE>
(E) Income Taxes
The company had a net deferred tax asset of $236 and $270 at
June 29, 1997 and December 31, 1996, the current portion of which was
$207 and $231, respectively, and was included in other current assets
on the Consolidated Balance Sheet. No valuation allowance was required
for the company's deferred tax assets at June 29, 1997 and December 31, 1996.
<PAGE>
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.
Further, in June 1997, the company filed refund claims of approximately
$80 (plus interest) related to additional research and experimentation tax
credits for the years 1981 through 1990. This brings to approximately $355
(plus interest) the total refund claims filed to date. A portion of the
claims relates to the years 1981 through 1986 and is part of the litigation
discussed above, while the remaining claims are being contested at the IRS
administrative level. 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 decision in Fairchild Industries v. United States, which held for the
taxpayer on this issue. The timing of the resolution of the Tax Court
litigation is uncertain. A trial date has been set for April 1998.
(F) 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.
(G) Commitments and Contingencies
Litigation
Claims made by and against the company regarding the development of the
Navy's A-12 aircraft are discussed in Note H.
On May 1, 1997, a jury in San Diego County rendered a verdict of $101
against the company in favor of 97 former Convair employees. In this
lawsuit, Argo, et al. v. General Dynamics, the plaintiffs alleged that the
company interfered with their right to join an earlier class action lawsuit
and concealed its plans to close its Convair division. The jury awarded the
plaintiffs a total of $1.8 in actual damages, and $99 in punitive damages.
The company is appealing the judgment. The company believes it has
substantial legal defenses, but in any case, it believes the punitive damage
award is excessive as a matter of law. While the company is unable to
assess the ultimate outcome of this matter, management currently believes it
will not have a material impact on its results of operations or financial
condition.
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
losses of up to $30 in excess of a $40 attachment 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.
The company does not expect that the matter will have a material impact on
the company's results of operations or financial condition.
<PAGE>
Hughes Missile Systems Company (HMSC) has filed an amended complaint
against the company alleging breaches of certain representations and
warranties contained in the Asset Purchase Agreement dated May 8, 1992, for
the sale of the company's missile business. The amended complaint which was
filed in the Superior Court of the State of California, seeks $42 in damages.
The company does not expect that the lawsuit will have a material impact on
the company's results of operations or financial condition.
In March 1996, the company received a judgment for $26 against the
government in General Dynamics v. U.S., a case tried in U.S. District Court
for the Central District of California. The company sued the government
under the Federal Tort Claims Act, alleging that the Defense Contract Audit
Agency negligently audited the Division Air Defense contract, which led to
the company's indictment in 1985. The indictment was later dropped. The
government has appealed the 1996 judgment. HMSC will receive 30 percent of
the net recovery as a result of its purchase of the company's missile
business in 1992. The company has not recognized any claim revenue from
this matter.
The company has been sued as the "alter ego" of Asbestos Corporation
Ltd., a Canadian company, in which General Dynamics owned shares between
1969 and 1982. The company, along with more than 50 other defendants, has
been sued in several thousand cases filed in Texas by plaintiffs alleging
exposure to asbestos. Although the gross claims attributable to the
plaintiffs cannot be estimated, including the share of the company or any
other defendant, any losses arising from these matters are largely covered
by insurance. Therefore, the company does not believe that these matters
will have a material impact on the company's results of operations or
financial condition.
The company is a defendant in tort cases pending in state and federal
court in Arizona, as well as a Comprehensive Environmental Response,
Compensation and Liability Act case. The litigation arises out of
groundwater and soil contamination at the Tucson airport. The company's
predecessor in interest, Consolidated Aircraft Company, operated a
modification center at the site during World War II. The company has
defenses to the claims, as well as a claim against the government for
indemnification. The company is unable to estimate its share of any
liability arising from these claims. However, the company believes it is
entitled to indemnity from the U.S. for any liability. Therefore, the
company does not believe the litigation will have a material impact on the
company's results of operations or financial condition.
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 results of operations or financial condition.
Environmental
The company adopted the provisions of the Statement of Position
(SOP) 96-1, "Environmental Remediation Liabilities" as of January 1, 1997.
SOP 96-1 provides authoritative guidance regarding the recognition,
measurement, display and disclosure of environmental remediation
liabilities resulting from Superfund or analogous laws and regulations.
The adoption of the statement did not have a material impact on the
company's results of operations or financial condition.
<PAGE>
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 enacted
laws and existing regulations, and on the technology expected to be
approved to complete the remediation effort. The estimated cost to
perform each of the elements of the remediation effort is based on
when those elements are expected to be performed. Where a reasonable
basis for apportionment exists with other PRPs, the company estimates
only its allowable share of the joint and several remediation liability
for a site, taking into consideration the solvency of other participating
PRPs. Based on a site by site analysis, the company believes it has
adequate accruals for any liability it may incur arising from the
sites.
Other
The company was contingently liable for debt and lease
guarantees and other arrangements of approximately $90 at June 29,
1997.
(H) Termination of A-12 Program
The A-12 contract was a fixed-price incentive contract for the
full-scale development and initial production of the Navy's new
carrier-based Advanced Tactical Aircraft. The Navy terminated the
company's A-12 aircraft contract for default. Both the company and
McDonnell Douglas (the contractors) were parties to the contract with
the Navy, each had full responsibility to the 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 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. 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. On December 19, 1995,
following a trial on the merits, the court issued an order converting
the termination for default to a termination for convenience.
<PAGE>
The parties have concluded their litigation over incurred costs,
the final phase in the U.S. Court of Federal Claims. The contractors
are seeking a judgment of $1,202 plus interest. The U.S. government
is challenging $378 of the total costs incurred by the contractors as
unallowable. A final judgment in the U.S. Court of Federal Claims is
expected later this year. Final resolution of the A-12 litigation
will depend on the entry of final judgment, the outcome of expected
appeals, and further litigation or negotiation with the government.
The company has not recognized any claim revenue from the Navy.
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 on appeal, 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 losses of approximately
$675, plus interest, may be recognized by the company. This result is
considered remote.
<PAGE>
GENERAL DYNAMICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
June 29, 1997
(Dollars in millions, except per share amounts)
Forward-Looking Statements
Management's Discussion and Analysis of the Results of Operations and
Financial Condition contains forward-looking statements that are based on
management's expectations, estimates, projections and assumptions. Words
such as "expects," "anticipates," "plans," "believes," "estimates,"
variations of such words and similar expressions are intended to
identify such forward-looking statements which include but are not limited
to projections of revenues, earnings, segment performance, cash flows and
contract awards. Such forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These statements are not guarantees of future performance and
involve certain risks and uncertainties which are difficult to predict.
Therefore, actual future results and trends may differ materially from what
is forecast in forward-looking statements due to a variety of factors
including the company's successful execution of internal performance plans;
performance issues with key suppliers and subcontractors; labor negotiations;
changing priorities or reductions in the U.S. government defense budget;
and termination of government contracts due to unilateral government action.
Business Segments
The company comprises two major business segments: Marine and Combat
Systems Groups, as well as miscellaneous businesses classified as Other.
The following table sets forth the net sales and operating earnings by
business segment for the three and six month periods ending June 29, 1997
and June 30, 1996:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Month Period Six Month Period
Inc/ Inc/
1997 1996 (Dec) 1997 1996 (Dec)
NET
SALES:
Marine
Group $ 587 $ 612 $ (25) $1,146 $1,226 $ (80)
Combat
Systems
Group 378 261 117 715 507 208
Other 67 57 10 112 90 22
$1,032 $ 930 $ 102 $1,973 $1,823 $ 150
OPERATING
EARNINGS:
Marine
Group $ 61 $ 55 $ 6 $ 120 $ 109 $ 11
Combat
Systems
Group 41 35 6 86 68 18
Other 12 (1) 13 10 (5) 15
$ 114 $ 89 $ 25 $ 216 $ 172 $ 44
</TABLE>
<PAGE>
Marine Group
Results of Operations and Outlook
Net sales decreased during the three and six month periods due to
lower submarine construction activity, partially offset by increased
engineering and design work on the New Attack Submarine (NSSN) and
increased volume on the Arleigh Burke class destroyer (DDG-51) program.
Operating earnings increased during the three and six month periods as a
result of higher margins obtained from cost reduction efforts and
diminishing operating risks as the submarine construction programs mature.
For the remainder of 1997, net sales and operating earnings are expected to
approach levels reported during the first half of the year.
Business and Market Considerations
Significant programs in which the Marine Group participates continue to
be well supported by Congress in the fiscal year 1998 (FY98) budget process.
The House and Senate committees responsible for the authorization and
appropriation of the Department of Defense budget each have recommended FY98
funding for the NSSN and DDG-51 programs that either meet or exceed the
President's budget request.
The company has entered into a Team Agreement, dated February 25, 1997,
with Newport News Shipbuilding and Drydock Company (Newport News) for the
NSSN program. The Team Agreement provides that Electric Boat will be the
prime contractor on construction contracts for the NSSNs, though
construction and assembly work will be equally shared with Newport News
through a subcontracting arrangement. Electric Boat will retain the lead
design role. The Team Agreement requires the approval of the Navy,
Department of Defense, and a change in the existing law which currently
requires competition between Electric Boat and Newport News for construction
of NSSNs after each has produced two ships. The Senate recommends the
adoption of a provision that would authorize the Secretary of the Navy to
enter into a contract for the construction of NSSNs under the terms of the
Team Agreement. While the House has withheld such recommendation, the
company believes the cost savings to be provided to the Navy will enhance
support for the Team Agreement during the House-Senate Authorization
Conference.
During the third quarter, the collective bargaining agreements
with two unions at Bath Iron Works (BIW) are scheduled to expire.
Negotiations on new agreements are currently ongoing, and the company
does not anticipate any business disruption.
Combat Systems Group
Results of Operations and Outlook
Net sales and operating earnings increased during the three and
six month periods due primarily to the acquisition of Defense Systems
and Armament Systems from Lockheed Martin Corporation on January 1,
1997. The acquisition has been accretive to the company's net
earnings. For a discussion of the accounting for this transaction
and related information, see Note B to the Consolidated Financial
Statements.
<PAGE>
Net sales and operating earnings in the second half of the year
are expected to exceed the first half due to the timing of deliveries
at Defense Systems and Armament Systems. Operating margins, while
subject to quarter-to-quarter volatility, are expected to be similar
to those reported during the first half of the year.
Business and Market Considerations
Significant programs in which the Combat Systems Group
participates continue to be well supported by Congress in the FY98
budget process. The House and Senate committees responsible for the
authorization and appropriation of the Department of Defense budget
have recommended in virtually every case FY98 funding that meets or
exceeds the President's budget request for the upgrade of M1 tanks to
the M1A2 configuration, the Advanced Amphibious Assault Vehicle, the
Crusader Self-Propelled Howitzer development program, the Heavy
Assault Bridge, the Hydra Rocket and derivatives of the Bradley
combat vehicle.
Other
Operating earnings increased during the three and six month
periods due to the improved performance of both the aggregates
business and coal operations. The aggregates business improved due
to increased sales volumes and cost reduction efforts. The coal
operations improved due to the suspension of mining activity at an
unprofitable location.
Backlog
The following table details the backlog of each business segment
as calculated at June 29, 1997 and December 31, 1996:
<TABLE>
<S> <C> <C>
June 29 December 31
1997 1996
Marine Group $ 6,986 $ 7,566
Combat Systems
Group 2,581 2,057
Other 699 727
Total Backlog $10,266 $10,350
Funded Backlog $ 6,180 $ 6,161
</TABLE>
Total backlog represents the estimated remaining sales value of
work primarily performed under authorized U.S. government contracts.
Funded backlog represents the portion of total backlog that has been
appropriated by Congress and funded by the procuring agency. The
increase in backlog at the Combat Systems Group is due primarily to
the acquisition of Defense Systems and Armament Systems. To the extent
backlog has not been funded, there is no assurance that congressional
appropriations or agency allotments will be forthcoming. Total backlog also
includes amounts for long-term coal contracts.
<PAGE>
Additional Financial Information
Interest, Net
Interest income decreased during the three and six month periods
due to a decline in the average cash balance resulting from the
acquisition of Defense Systems and Armament Systems on January 1,
1997.
Environmental Matters
For a discussion of environmental matters and other
contingencies, see Note G to the Consolidated Financial Statements.
The company's liability, in the aggregate, with respect to these
matters, is not deemed to be material to the company's results of
operations or financial condition.
New Accounting Standards
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share"
in February 1997 and No. 130, "Reporting Comprehensive Income" in
June 1997. SFAS 128 requires a company to present basic and diluted
earnings per share amounts on the face of the Consolidated Statement
of Earnings. The company is required to adopt the provisions of the
standard during the fourth quarter of 1997, and when adopted, will
require restatement of prior years' earnings per share. The standard
will not have a material impact on historical earnings per share
reported by the company. SFAS 130 requires a company to report
comprehensive income and its components in a full set of general-
purpose financial statements. The company is required to adopt the
provisions of the standard during the first quarter of 1998, and when
adopted, will require reclassification of prior years' financial
statements. There will be no material difference between
comprehensive income and historical net earnings reported by the
company.
Financial Condition
Operating Activities
Cash flows from continuing operations decreased this year over
last year due primarily to the change in the amount the company
invested in marketable securities classified as trading per SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Cash flows from discontinued operations improved this year over last
year due primarily to lower allocated federal income tax payments.
Investing Activities
As discussed in Note B, the company acquired the assets of
Defense Systems and Armament Systems on January 1, 1997, for
approximately $450 in cash.
The company is considering an investment of approximately $200 to
modernize the facilities at its BIW shipyard, for the purpose of
improving productivity.
<PAGE>
Financing Activities
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. As of June 29, 1997,
the company had repurchased approximately 1.8 million shares, including
approximately 0.9 million shares during 1997.
The company expects to generate sufficient funds from operations
to meet both its short-term 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.
<PAGE>
PART II
GENERAL DYNAMICS CORPORATION
OTHER INFORMATION
June 29, 1997
Item 1. Legal Proceedings
Reference is made to Note G, Commitments and Contingencies,
to the Consolidated Financial Statements in Part I, for a statement
relevant to activities in the quarter covering certain litigation to
which the company is a party.
Item 4. Submission of Matters to a Vote of
Security Holders
(a) The Annual Meeting of Shareholders of the Company, for
which proxies were solicited pursuant to Regulation 14, was held on
May 7, 1997.
(b) & (c) A brief discussion of each matter voted upon and the number
of votes cast is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Matter Votes Cast
For Against Abstain Non-Votes
Election of
Directors:
Carlucci, F.C. 56,392,972 677,763
Chabraja, N.D. 56,466,670 604,065
Crown, J.S. 56,447,916 622,819
Crown, L. 56,433,640 637,095
Goodman, C.H. 56,448,271 622,464
Mellor, J.R. 56,457,994 612,741
Sullivan, G.R. 56,484,697 586,038
Trost, C.A.H. 56,487,522 583,213
Selection of
Independent
Auditors 56,695,879 214,705 160,151
Incentive
Compensation
Plan
Amendment
and
Restatement 49,816,316 6,888,345 366,074
Shareholders
Proposal
Regarding:
Foreign
Military
Sales 1,714,778 48,822,960 3,296,392 3,236,605
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11, Statement Re Computation of Per Share Earnings
(b)
Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GENERAL DYNAMICS CORPORATION
by /s/John W. Schwartz
John W. Schwartz
Staff Vice President and Controller
(Principal Accounting Officer)
Dated August 12, 1997
<PAGE>
Exhibit 11, 2nd Quarter 1997
Form 10-Q, Commission File
Number 1-3671
GENERAL DYNAMICS CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Second Quarter First Half
1997 1996 1997 1996
NET
EARNINGS $ 80 $ 67 $ 151 $ 132
Weighted
average
common
shares
outstanding 62,557,094 63,270,592 62,817,318 63,244,234
NET EARNINGS
PER SHARE
- PRIMARY $ 1.27 $ 1.05 $ 2.39 $ 2.08
Common
Shares
from above 62,557,094 63,270,592 62,817,318 63,244,234
Assumed
exercise of
options
(treasury
stock
method ) 297,217 238,367 272,160 220,145
62,854,311 63,508,959 63,089,478 63,464,379
NET EARNINGS
PER SHARE -
FULLY
DILUTED $ 1.27 $ 1.05 $ 2.39 $ 2.08
Common shares
from above
62,557,094 63,270,592 62,817,318 63,244,234
Assumed
exercise of
options
(treasury
stock
method) 371,905 239,741 371,905 239,741
62,928,999 63,510,333 63,189,223 63,483,975
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the General Dynamics
Corporation Consolidated Balance Sheet as of June 29, 1997, and the related
consolidated Statement of Earnings for the six months ended June 29, 1997 and is
qualified in its entirety to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 205
<SECURITIES> 450
<RECEIVABLES> 172
<ALLOWANCES> 0
<INVENTORY> 561
<CURRENT-ASSETS> 1674
<PP&E> 1633
<DEPRECIATION> 1113
<TOTAL-ASSETS> 3391
<CURRENT-LIABILITIES> 879
<BONDS> 40
0
0
<COMMON> 132
<OTHER-SE> 1660
<TOTAL-LIABILITY-AND-EQUITY> 3391
<SALES> 1973
<TOTAL-REVENUES> 1973
<CGS> 1757
<TOTAL-COSTS> 1757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 230
<INCOME-TAX> 79
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 2.39
</TABLE>
