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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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>
<S> <C>
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- -----------------------
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.
---
The aggregate market value of the voting stock held by nonaffiliates
of the registrant was $3,560,534,408 at March 10, 1997, calculated in accordance
with the Securities and Exchange Commission rules as to beneficial ownership.
63,267,990 shares of the registrant's common stock were outstanding at
March 10, 1997.
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, 1996 (1996 Shareholder Report).
Part III incorporates information from certain portions of the
registrant's definitive Proxy Statement for the 1997 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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GENERAL DYNAMICS CORPORATION
INDEX
<TABLE>
<S> <C> <C>
PART I PAGE
----
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Supplementary
Item. Executive Officers of the Company 7
PART II
Item 5. Market for the Company's Common Equity and
Related Shareholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 9
PART III
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners
and Management 9
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
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PART I
ITEM 1. BUSINESS
INTRODUCTION
The primary business of General Dynamics (the company) is supplying
weapons systems and services to the U.S. government and its allies. 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. and Bath Iron Works Corporation, were acquired in 1982 and
1995, respectively. On January 1, 1997, the company acquired the assets of
Defense Systems and Armament Systems, formerly business units of Lockheed
Martin Corporation. In addition, the company operates other smaller
businesses.
After divesting its tactical military aircraft, missile systems and
space launch systems businesses, the company comprises two major business
segments: Marine and Combat Systems Groups, as well as miscellaneous businesses
classified as Other. The Marine Group includes Electric Boat Corporation
(Electric Boat), Bath Iron Works Corporation (BIW) and American Overseas Marine
Corporation (AMSEA). The Combat Systems Group, formerly the Armored Vehicles
segment, includes General Dynamics Land Systems Inc. (Land Systems), General
Dynamics Defense Systems, Inc. (Defense Systems) and General Dynamics Armament
Systems, Inc. (Armament Systems). The Other business segment includes Freeman
Energy Corporation (Freeman Energy), Material Service Corporation (Material
Service) and Patriot I, II and IV Shipping Corporations (Patriots).
Information on revenues, operating profit or loss and identifiable assets
attributable to each of the company's three business segments is included in
Note Q to the Consolidated Financial Statements on page 36 of the 1996
Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K for
the year ended December 31, 1996, and is incorporated herein by reference. A
description of the company's products and services, competition, and other
related information follows.
PRODUCTS AND SERVICES
MARINE GROUP. Electric Boat designs and builds nuclear submarines for
the U.S. Navy, having contracts for the design of the New Attack Submarine
(NSSN), and for construction of the final Ohio class ballistic missile
submarine (Trident) and three Seawolf class attack submarines (Seawolf). In
addition, Electric Boat performs 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. Net sales were
$1,443, $1,567 and $1,678 in 1996, 1995 and 1994, respectively.
BIW has contracts for the construction of 11 Arleigh Burke class
destroyers (DDG 51) and plays a lead role in providing design, engineering, and
ongoing life cycle support services for DDG 51 class ships. BIW is a member of
a three-contractor team which was recently selected to design and build the
Navy's new class of amphibious transport ships (LPD 17), and is the leader of a
team participating in the design of the Navy's arsenal ship. Net sales were
$791 in 1996.
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 were renewed in 1996. These contracts are
renewable through the year 2011. The RRF ships are in the fourth year of their
five-year contracts. The MPS and AWR-3 vessels operate worldwide; the RRF
vessels are located on the east, gulf and west coasts of the United States.
COMBAT SYSTEMS GROUP. Land Systems designs and manufactures the M1
Series Abrams Main Battle Tank for the U.S. Army, U.S. Marine Corps and
various foreign governments. Land Systems also performs engineering and
upgrade work, and 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 that incorporates
battlefield management systems aimed at providing improved fighting ability, as
well as improved survivability of the tank's four crew members, was initiated
in 1992. Land Systems has a multiyear contract with the U.S. Army to upgrade
120 tanks per year for the next four years from the M1 to the M1A2 version.
1
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In addition to its tank production, Land Systems participates in four
other armored vehicle programs. The first is the Advanced Amphibious Assault
Vehicle (AAAV) program for which Land Systems was recently awarded a
development contract, including design and construction of at least three
prototypes. The second is a four-year program to upgrade 62 Fox Nuclear,
Biological and Chemical Reconnaissance System vehicles. The third is the Heavy
Assault Bridge program which is currently under development and is expected to
enter production late in this decade. The fourth is the Crusader
Self-Propelled Howitzer development program of which the company's share is
approximately 25 percent. Teamed with Tadiran Ltd. of Israel, Land Systems is
also a producer of the Single Channel Ground and Airborne Radio System
(SINCGARS).
To extend its product lines, Land Systems purchased the assets of
Teledyne Vehicle Systems (Muskegon Operations) in March 1996. Muskegon
Operations specializes in combat vehicles as well as mobility systems,
suspension technology and diesel engines for armored vehicle markets
world-wide.
The recent acquisition of Defense Systems and Armament Systems expands
the company's participation in armored vehicles from heavy tanks to light
vehicles, and from full platforms to major subsystems. 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 and ammunition handling systems based on the
Gatling principal for application on fixed-wing aircraft, helicopters, surface
vehicles and naval ships. General Dynamics Ordnance Systems, Inc., a
subsidiary of Armament Systems, is a leader in the production of ammunition and
ordnance products and operates the Milan Army Ammunition Plant in Milan,
Tennessee, for the U.S. Army.
OTHER. Freeman Energy mines coal, producing approximately 5 million
tons in each of the last three years. Freeman Energy owns or leases rights to
over 600 million tons of coal reserves in Illinois.
Material Service 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. This business is
cyclical and seasonal in nature, and therefore, sales and earnings fluctuate.
Patriots are financing subsidiaries that lease liquefied natural gas
tankers to a nonaffiliated company.
COMPETITION
Historically, competition for U.S. government defense contracts was
characterized by a number of major companies competing for a variety of weapon
system contracts. The customer's procurement policy generally required
competitive bids based on strict product specifications. In addition, the
customer often awarded more than one company contracts in order to ensure
competition on subsequent contracts.
In recent years, due to reduced defense spending, the industry has
consolidated through mergers and acquisitions to maintain critical mass
resulting in fewer and larger competitors. With fewer programs available to
win, companies frequently have formed strategic alliances to become more
competitive in pursuing these programs. The customer faces challenges due to
the reduction in available procurement funds as it must address industrial base
issues while assessing competing needs between and among the various branches
of the service. Finally, Congress continues to be very influential in its role
of selecting which programs to fund and at what level based on limited budget
dollars. As a result, the defense procurement policy is evolving and will be
affected by these various and sometimes conflicting factors.
A discussion of competition on individual programs is included in
Management's Discussion and Analysis of the Results of Operations and Financial
Condition on pages 18 through 22 of the 1996 Shareholder Report, filed as
Exhibit 13 to this Annual Report on Form 10-K and incorporated herein by
reference.
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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. The company's largest FMS sales are M1 tanks and related
services, including training in operation and maintenance, and other logistical
support. U.S. government sales were as follows (excluding discontinued
operations; dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31
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1996 1995 1994
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<S> <C> <C> <C>
Domestic $3,051 $2,422 $2,190
FMS 261 476 690
------ ------ ------
Total U.S. government $3,312 $2,898 $2,880
====== ====== ======
Percent of net sales 92% 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 for default a contract with the company and McDonnell
Douglas Corporation for the full-scale development of the U.S. Navy's A-12
aircraft. 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 N to the Consolidated Financial Statements on page
33 of the 1996 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
$38, $29 and $32 in 1996, 1995 and 1994, respectively. Direct foreign sales
are expected to increase in 1997 with the acquisition of Armament Systems and
Defense Systems, which generated sales of $53 and $32 respectively in the
international market in 1996.
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.
3
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Research and Development
Research and development activities in the Marine and Combat Systems
Groups are conducted principally under U.S. government contracts. These
research efforts are concerned with developing products for large systems
development programs or performing work under research and development
technology contracts. In 1996, the company experienced a decline in
customer-sponsored expenditures for research and development due primarily to
the NSSN program at Electric Boat moving to the design phase. 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
---------------------------------
1996 1995 1994
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<S> <C> <C> <C>
Company-sponsored $ 38 $ 25 $ 30
Customer-sponsored 89 178 246
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$127 $203 $276
==== ==== ====
</TABLE>
Backlog
Summary backlog information for each business segment follows:
<TABLE>
<CAPTION>
December 31 1996 Backlog
-------------------------- Not Filled
1996 1995 in 1997
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<S> <C> <C> <C>
Marine Group $ 7,566 $5,686 $5,123
Combat Systems Group 2,057 1,103 1,255
Other 727 597 666
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Total Backlog $10,350 $7,386 $7,044
======= ====== ======
Funded Backlog $ 6,161 $5,227 $3,308
======= ====== ======
</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. 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. For further discussion, see Management's Discussion and Analysis of
the Results of Operations and Financial Condition on pages 18 through 22 of the
1996 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K
and incorporated herein by reference.
Environmental Controls
The 1990 Clean Air Act (Act) had a significant impact on Freeman
Energy. The Act requires, among other things, a phased reduction in sulfur
dioxide emissions by coal burning facilities. Virtually all of the coal in
Freeman Energy's Illinois basin mines has medium or high sulfur content.
Freeman Energy's two long-term contract customers have clean coal technologies
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 Act is
not known.
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 M to the
Consolidated Financial Statements on page 32 of the 1996 Shareholder Report,
filed as Exhibit 13 to this Annual Report on Form 10-K, and is incorporated
herein by reference.
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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. Patents and licenses are important in the operation of the
company's business, as one of management's key objectives is developing and
providing its customers with advanced technological solutions.
Employees
At December 31, 1996, the company had approximately 23,100 employees,
of whom approximately 60 percent 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 1997, bargaining agreements with the United Auto Workers Union
and the Industrial Union of Marine and Shipbuilding Workers of America are
scheduled to expire and are subject to negotiations with the respective unions.
5
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ITEM 2. PROPERTIES
A summary of floor space at the main facilities of the Marine and
Combat Systems Groups follows (square feet in millions):
<TABLE>
<CAPTION>
COMPANY GOVERNMENT
OWNED LEASED FURNISHED
FACILITIES FACILITIES FACILITIES TOTAL
--------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
MARINE GROUP:
Electric Boat
Groton, Connecticut 2.6 2.6
Quonset Point, Rhode Island 0.4 1.1 1.5
Avenel, New Jersey 0.4 0.4
Bath Iron Works
Bath, Maine 1.1 1.1
East Brunswick, Maine 0.6 0.6
Portland, Maine 0.1 0.1
------ ------ ------ ------
TOTAL MARINE GROUP 5.1 1.2 0.0 6.3
====== ====== ====== ======
COMBAT SYSTEMS GROUP:
Land Systems
Lima, Ohio 1.6 1.6
Muskegon, Michigan 1.0 1.0
Scranton, Pennsylvania 0.3 0.3
Woodbridge, Virginia 0.1 0.1
Tallahassee, Florida 0.1 0.1
------ ------ ------- -------
TOTAL COMBAT SYSTEMS GROUP 1.1 0.4 1.6 3.1
====== ====== ======= =======
</TABLE>
OTHER. Freeman Energy operates three underground mines and one
surface mine in Illinois. The Orient No. 6 underground mine was idled in early
1997. Coal preparation facilities and rail loading facilities are located at
each mine sufficient for its output.
Material Service operates several stone quarries, as well as sand and
gravel pits and yards in the Chicago, Illinois area for its aggregates
business.
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 700,000 square feet of building space at Rancho Cucamonga and
200,000 square feet of building space at Sycamore Canyon. The buildings at
Kearny Mesa are currently in the process of demolition in preparation for
development activity.
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ITEM 3. LEGAL PROCEEDINGS
The information under the captions "Litigation" and "Environmental" in
Note M and the information in Note N to the Consolidated Financial Statements
appearing on pages 31 through 33 of the 1996 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, 1996.
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 1996
------------------------- ---------------
<S> <C>
David D. Baier -- Vice President Taxes since August 1995; Staff Vice President Taxes 42
March 1994 -- August 1995; Corporate Tax Counsel and Director of Planning
and Litigation September 1991 -- March 1994
G. Kent Bankus -- Vice President Government Relations since April 1993; Staff Vice President 54
Aerospace Programs and Field Offices July 1991 -- April 1993
Edward C. Bruntrager -- Vice President and General Counsel since March 1994; Assistant General 49
Counsel January 1987 -- March 1994
Allan C. Cameron -- Vice President of the company and President of Bath Iron Works since 50
March 1996; Executive Vice President and Chief Operating Officer of Bath Iron Works
July 1994 -- March 1996; Facility Manager of Electric Boat May 1993 -- June 1994;
Director of Operations of Electric Boat January 1989 -- May 1993
Gordon R. England -- Executive Vice President of the Combat Systems Group since March 1997; 59
President - Lockheed Fort Worth March 1993 -- March 1995; Executive Vice President
of the company and President - Aircraft Systems of the Fort Worth Division
July 1991 -- March 1993
David H. Fogg -- Staff Vice President and Treasurer since November 1994; Staff Vice President 41
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
Paul A. Hesse -- Vice President Communications and Secretary since February 1996; Vice President 55
Communications May 1991 -- February 1996
Raymond E. Kozen -- Vice President Planning and Analysis since March 1997; Staff Vice President 55
for Special Projects December 1987 -- March 1997
Kenneth J. Leenstra -- Vice President of the company and President of Armament Systems 59
since February 1997; President of Armament Systems - Lockheed Martin
January 1990 -- January 1997
</TABLE>
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<TABLE>
<CAPTION>
AGE AT
DECEMBER 31
NAME, POSITION AND OFFICE 1996
------------------------- ---------------
<S> <C>
Michael J. Mancuso -- Senior Vice President and Chief Financial Officer 54
since March 1997; Vice President and Chief Financial Officer November 1994 --
March 1997; Vice President and Controller May 1994 -- November 1994; Division
Vice President and Chief Financial Officer of Land Systems 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
Daniel P. Schmutte -- Vice President of the company and President of Defense Systems 46
since February 1997; Vice President Operations August 1995 - February 1997;
Staff Vice President and Assistant to the President/Chief Executive Officer
June 1993 -- August 1995; Assistant to the President December 1990 -- June 1993
John W. Schwartz -- Staff Vice President and Controller since November 1994; Corporate Director 40
of Accounting July 1992 -- November 1994; Vice President- Corporate Accounting of MNC
Financial, Inc. February 1988 -- June 1992
Henry J. Sechler -- Vice President International Business Development since August 1991 64
James E. Turner, Jr. -- Executive Vice President of the Marine Group since October 1995; 62
Executive Vice President of the company and President of Electric Boat April 1993 --
October 1995; Executive Vice President of the Marine, Land Systems and Services Group
February 1991 -- April 1993
Arthur J. Veitch -- Vice President of the company and President of Land Systems since 50
February 1997; Vice President of the company and Senior Operating Officer of
Land Systems August 1995 -- February 1997; Division Vice President and General Manager
of the Convair Division August 1992 -- August 1995; Division Vice President and Program
Director - Aircraft Programs of the Convair Division May 1991 -- August 1992
John K. Welch -- Vice President of the company and President of Electric Boat since 46
October 1995; Division Vice President Programs and Planning of Electric Boat
April 1994 -- October 1995; Division Vice President Program Management and
Development of Electric Boat June 1989 -- April 1994
W. Peter Wylie -- Vice President Human Resources and Administration since August 1995; 57
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
Michael W. Wynne -- Senior Vice President International, Planning and Business Development 52
since March 1997; Vice President and General Manager of Lockheed Martin, Martin
Marietta Astronautics Division May 1994 -- February 1997; Vice President of the
company and President of the Space Systems Division August 1992 -- May 1994;
Corporate Vice President and General Manager of the Space Systems Division March 1991
-- August 1992
</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.
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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 R to the Consolidated Financial Statements
appearing on page 37 of the 1996 Shareholder Report, included in this Annual
Report on Form 10-K as Exhibit 13, and are incorporated herein by reference.
There were 22,129 common shareholders of record of the company's
common stock at December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing on page 39 of the 1996 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 1996
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 39 of the 1996
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 "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 "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 "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 "Employment Agreements and Other Arrangements" 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 1996 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
1996
Shareholder
Report
------------
<S> <C>
Report of Independent Public Accountants 38
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 R) 27-37
</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 12 and 13 of this Annual Report
on Form 10-K.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of
1996.
10
<PAGE> 13
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, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 21, 1997, 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 Chairman, Chief Executive Officer and Director
- ------------------ (Principal Executive Officer)
James R. Mellor
/s/ Nicholas D. Chabraja Vice Chairman and Director
- ------------------------
Nicholas D. Chabraja
/s/ Michael J. Mancuso Senior 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
- -----------------------
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
11
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
------ ------ -----------
<S> <C> <C>
(5) 3-1A --Restated Certificate of Incorporation, effective May 21, 1991
3-2C --Bylaws as amended effective August 7, 1996
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
(3) 10-6A --General Dynamics Corporation Incentive Compensation Plan adopted February 3, 1988,
approved by the shareholders on May 4, 1988
(4) 10-6B --General Dynamics Corporation Incentive Compensation Plan (as amended),
approved by shareholders on May 1, 1991
(2) 10-7D --Facilities Contract DAAE07-83-E-A007 dated January 29, 1983, between
General Dynamics Land Systems, Inc. and the United States relating to
government-owned equipment at the Scranton Defense Plant, Eynon, Pennsylvania
(4) 10-7E --Facilities Contract DAAE07-90-E-A001 dated June 24, 1990, between General Dynamics
Land Systems, Inc. and the United States relating to government-owned facilities and
equipment at the Lima Army Tank Plant, Lima, Ohio
(7) 10-8B --General Dynamics Corporation Retirement Plan for Directors adopted March 6, 1986, as
amended May 5, 1993
10-14A --Lease Agreement dated December 20, 1996, between Electric Boat Corporation and the
Rhode Island Economic Development Corporation
(6) 10-18 --Employment Agreement between the company and James R. Mellor dated as of
March 17, 1993
(9) 10-18A --Amendment to employment agreement between the company and James R. Mellor dated as of
October 3, 1995
10-18B --Amendment to employment agreement between the company and James R. Mellor dated as of
November 5, 1996
(6) 10-22 --Form of Agreement entered into in 1993 between the company and Corporate Officers who
were being retained in employment with the company
(8) 10-24 --Asset Purchase Agreement, dated August 17, 1995, between the company and Bath Iron Works
Corporation
(9) 10-25 --Lease Agreement dated January 14, 1982, between Bath Iron Works Corporation and the City of
Portland, Maine, relating to pier facilities in the Portland, Maine harbor
(9) 10-26 --Lease Agreement dated January 14, 1982, between Bath Iron Works Corporation and the State of
Maine, relating to a dry dock facility in the Portland, Maine harbor
(9) 10-27 --Form of Employment Agreement pertaining to change of control entered into between the
company and key executives
(10) 10-28 --Asset Purchase and Sale Agreement, dated November 6, 1996, as amended December 20, 1996,
between the company and Lockheed Martin Corporation
10-29 --Employment agreement between the company and Nicholas D. Chabraja dated
November 12, 1996
10-30 --General Dynamics Corporation Incentive Compensation Plan adopted by the board of directors
as of February 5, 1997
</TABLE>
12
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C>
11 --Statement re computation of per share earnings
13 --1996 Shareholder Report (pages 18 through 39)
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, 1987, and filed with the Commission March 17,
1988, 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, 1990, and filed with the Commission March 29,
1991, 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, 1991, and filed with the Commission March 26,
1992, 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, 1992, and filed with the Commission March 30,
1993, 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, 1994, and filed with the Commission March 9,
1995, and incorporated herein by reference.
(8) 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.
(9) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1995, and filed with the Commission March 21,
1996, and incorporated herein by reference.
(10) Filed as an exhibit to the company's current report on Form 8-K filed
with the Commission January 15, 1997, and incorporated herein by
reference.
13
<PAGE> 1
Exhibit 3-2C, Annual Report on Form 10-K
for the year ended December 31, 1996
Commission File Number 1-3671
As Amended effective 7 August 1996
By-Laws
of
GENERAL DYNAMICS CORPORATION
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of General Dynamics
Corporation (hereinafter called the Corporation) in the State of Delaware shall
be in the City of Dover, County of Kent. The registered agent of the Corporation
in said State is United States Corporation Company.
SECTION 2. Other Offices. The Corporation may have such other offices in such
places, either within or without the State of Delaware, as the Board of
Directors of the Corporation (hereinafter called the Board) may from time to
time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
proper business notice of which was given in the notice of such meetings shall
be held on such date and at such time as shall be designated by the Board. If
any annual meeting shall not be held on the date designated therefor the
Board shall cause the meeting to be held as soon thereafter as conveniently may
be.
SECTION 2. Special Meetings. A special meeting of the stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board
or by a majority of the directors.
SECTION 3. Place of Meeting. All meetings of the stockholders shall be held at
such place or places, within or without the State of Delaware, as may from time
to time be designated by the Board.
SECTION 4. Notice of Meetings. Every stockholder shall furnish the Corporation
through its Secretary with an address at which notices of meetings and all other
corporate notices may be served on or mailed to him. Except as otherwise
expressly required by statute, the Certificate of Incorporation or these
By-Laws, notice of each meeting of the stockholders shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting, by delivering a written notice
thereof to him personally, or by depositing such notice in the United States
mail in a postage prepaid envelope, directed to him at his post-office address
furnished by him to the Corporation, or, if he shall not have furnished to the
Corporation his address but his address shall otherwise appear on the records of
the Corporation, then at his address as it shall so appear on the records of the
Corporation, or, if he shall not have furnished to the Corporation his
post-office address and his address shall not otherwise appear on the records of
the Corporation, then at the registered office of the Corporation in the State
of Delaware. Except as otherwise expressly required by statute, the Certificate
of Incorporation or these By-Laws, no
<PAGE> 2
publication of any notice of a meeting of the stockholders shall be required,
nor shall the giving of any notice of any adjourned meeting of stockholders be
required if the time and place thereof are announced at the meeting at which the
adjournment is taken. Every notice of a meeting of the stockholders shall state
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
SECTION 5. Quorum. At each meeting of the shareholders, except as otherwise
expressly required by statute, the Certificate of Incorporation or these
By-Laws, the holders of record of a majority of the issued and outstanding
shares of stock of the Corporation entitled to be voted at such meeting,
present either in person or by proxy, shall constitute a quorum for the
transaction of business, provided, however, that in any case where the holders
of Preferred Stock or any series thereof are entitled to vote as a class, a
quorum of the Common Stock and a quorum of the Preferred Stock or such series
thereof shall be separately determined. In the absence of a quorum at any such
meeting or any adjournment or adjournments thereof, a majority in interest of
the stockholders of the Corporation present in person or by proxy and entitled
to vote, or, in the absence of any stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn the meeting
from time to time, provided, however, that at any such meeting where the
holders of Preferred Stock or any series thereof are entitled to vote as a
class, if one class or series of stock of the Corporation but not the other has
a quorum present, the meeting may proceed with the business to be conducted by
the class or series having a quorum present, and may be adjourned from time to
time in respect of business to be conducted by the class or series not having a
quorum present. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting in person or by proxy of
stockholders holding the number of shares of stock of the Corporation entitled
to vote thereat required by statute, the Certificate of Incorporation or these
By-Laws for action upon any given matter shall not prevent action at such
meeting upon any other matter which may properly come before the meeting, if
there shall be present thereat in person or by proxy stockholders holding the
number of shares of stock of the Corporation entitled to vote thereat required
in respect of such other matter.
SECTION 6. Voting. (a) Except as otherwise expressly required by statute, the
Certificate of Incorporation or these By-Laws, each stockholder shall at each
meeting of the stockholders be entitled to one vote in person or by proxy for
each share of stock of the Corporation entitled to be voted thereat held by him
and registered in his name on the books of the Corporation on such date as may
be fixed pursuant to Article VII of these By-Laws as the record date for the
determination of stockholders entitled to notice of and to vote at such meeting.
(b) Shares of its own stock belonging to the Corporation, or to another
corporation if a majority of the shares entitled to vote in the election of
directors of such other corporation is held by the Corporation, shall not be
entitled to vote.
(c) Persons holding stock having voting power in a fiduciary capacity, or their
proxies, shall be entitled to vote the shares so held, and persons whose stock
having voting power is pledged shall be entitled to vote, unless in the transfer
by the pledgor on the books of the Corporation he shall have expressly empowered
the pledgee to vote thereon, in which case only the pledgee, or his proxy, may
represent such stock and vote thereon.
(d) No proxy shall be voted or acted upon after three years from its date,
unless said proxy provides for a longer period.
(e) If shares shall stand of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety or otherwise, or if two or more persons shall have the same
fiduciary relationship respecting the same shares, unless the Secretary shall
have been given written notice to the contrary and have been furnished with a
copy of the instrument or
<PAGE> 3
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect:
(i) if only one shall vote, his act shall bind all;
(ii) if more than one shall vote, the act of the majority so voting shall bind
all; and
(iii) if more than one shall vote, but the vote shall be evenly split on any
particular matter, then, except as otherwise required by the General Corporation
Law of the State of Delaware, each faction may vote the shares in question
proportionally.
If the instrument so filed shall show that any such tenancy is held in unequal
interests, the majority or even-split for the purpose of the next foregoing
sentence shall be a majority or even-split in interest.
(f) At all meetings of the stockholders all matters, except as otherwise
expressly required by statute, the Certificate of Incorporation or these
By-Laws, shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy and entitled to vote on such matters,
a quorum being present. Except in the case of votes for the election of
directors and for other matters where expressly so required, the vote at any
meeting of the stockholders on any question need not be by ballot, unless
demanded by a stockholder present in person or by proxy and entitled to vote on
such matters, or directed by the chairman of the meeting. Upon a demand of any
such stockholder, or at the direction of such chairman, that a vote by ballot be
taken on any question, such vote shall be taken. On a vote by ballot each ballot
shall be signed by the stockholder voting, or on his behalf by his proxy, and it
shall show the number of shares voted by him.
SECTION 7. Lists of Stockholders. It shall be the duty of the Secretary or other
officer who shall have charge of the stock ledger of the Corporation, either
directly or through another officer designated by him or through a transfer
agent or transfer clerk appointed by the Board, to prepare and make, at least
ten days before every meeting of the stockholders, a complete list of the
stockholders of each class entitled to vote at said meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, at the place where the meeting is to be held for
said ten days and shall be produced and kept at the time and place of the
meeting, during the whole time thereof, and may be inspected by any stockholder
who may be present. Upon the willful neglect or refusal of the directors to
produce such list at any meeting for the election of director, they shall be
ineligible for election to any office at such meeting. The stock ledger shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, such list or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
SECTION 8. Inspectors of Votes - Judges. Before, or at, each meeting of the
stockholders at which a vote by ballot is to be taken, the Board, or the
Chairman of such meeting, shall appoint two Inspectors of Votes or Judges to
conduct the vote thereat. Each Inspector of Votes or Judge so appointed shall
first subscribe an oath or affirmation faithfully to execute the duties of an
Inspector of Votes or Judge at such meeting with strict impartiality and
according to the best of his ability. Such Inspectors of Votes or Judges shall
have the duties prescribed by law and shall decide upon the qualifications of
voters and accept their votes and, when the vote is completed, shall count and
ascertain the number of shares voted respectively for and against the question
or questions on which a vote was taken and shall make and deliver a certificate
in writing to the secretary of such meeting of the results thereof. The
Inspectors of Votes or Judges need not be stockholders, and any officer or
director may be an Inspector of Votes or Judge on any question other than a vote
for or against his election to any position with the Corporation or any other
question in which he may be directly interested. The Chairman of the meeting
shall fix and announce at the meeting the date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at
the meeting.
<PAGE> 4
SECTION 9. Nomination of Directors. Only persons who are nominated in accordance
with the procedures set forth in the By-Laws shall be eligible to serve as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders (a) by or at the direction
of the Board of Directors or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 9, who shall be entitled to vote for the election of directors at the
meeting and who complies with the notice procedures set forth in this Section 9.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting or such public disclosure was made. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Corporation's books, of
such stockholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
By-Law. The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the By-Laws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 9, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section.
SECTION 10. Notice of Business. At any meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (a) by
or at the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 10, who shall be entitled to vote at such meeting
and who complies with the notice procedures set forth in this Section 10. For
business to be properly brought before a stockholder meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received no later than the close
of business on the 10th day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the meeting (a) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall be
conducted at a stockholder meeting except in accordance with the procedures set
forth in this Section 10. The Chairman of the meeting
<PAGE> 5
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of the By-Laws, and if he should so determine, he shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted. Notwithstanding the foregoing provisions of this Section 10,
a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The property, business and affairs of the Corporation
shall be managed by the Board. The Board may adopt such rules and regulations
for the conduct of its meetings and the management of the affairs of the
Corporation as it may deem proper, not inconsistent with statute, the
Certificate of Incorporation and these By-Laws.
SECTION 2. Number, Qualifications and Term of Office. The number of directors
shall be not less than five nor more than fifteen, as shall be fixed from time
to time by resolution of the Board pursuant to a vote of two-thirds of the
directors then in office. Individuals over the age of seventy-five years may
stand for election as directors only with the approval of the Executive and
Nominating Committee and a two-thirds vote of the Directors then in office for a
specified reason to be enumerated in the Corporation's proxy statement. In no
event shall a Director stand for election beyond the age of eighty. A majority
of the Board shall at all times be comprised of Outside Directors. For purposes
of this Section, an Outside Director shall mean a person who is not currently
employed by the Corporation or any of its Subsidiaries or Affiliates. All
directors who are not Outside Directors shall be known as Inside Directors.
Collectively, Inside and Outside Directors shall be known as directors. Any
Inside Director who served as the Chief Executive Officer of the Corporation
after January 1, 1992, and whose employment with the Corporation terminates, may
be invited by the Executive and Nominating Committee to continue to serve as a
member of the Board for a transitional period of up to one year following the
effective date of his/her termination or for an additional period of time
thereafter, but then only with a vote of two-thirds of the Directors then in
office and for a specified reason to be enumerated in the Corporation's proxy
statement. Each director shall hold office until the annual meeting of the
stockholders next following his/her election and until his/her successor shall
have been elected and shall have qualified, or until his/her death, or until
he/she shall earlier resign. This Section shall not be amended except upon a
vote of two-thirds of the directors then in office.
SECTION 3. Chairman and Vice Chairman. The Board of Directors shall elect a
Chairman of the Board and a Vice Chairman of the Board from among the directors.
These individuals need not be employees of the Corporation. The Chairman of the
Board shall have the overall responsibility for all matters pertaining to the
Board, including, without limitation, meetings of the Board. In the absence of
the Chairman of the Board, the Vice Chairman of the Board shall perform these
duties.
SECTION 4. Resignations. Any director may resign at any time by giving notice to
the Chairman of the Board or to the Board, in writing or by telegraph, cable or
wireless. Any such resignation shall take effect at the time specified therein
or, if no time is so specified, upon its receipt by the Chairman of the Board or
by the Board; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 5. Vacancies. Except as provided in the Certificate of Incorporation,
any vacancy in the Board, whether caused by death, resignation, increase in the
number of directors (whether by resolution of the Board, amendment of these
By-Laws or otherwise) or any other cause, may be filled either by the
stockholders of the Corporation entitled to vote for the election of directors,
at a meeting of the
<PAGE> 6
stockholders called for the purpose, or by vote of two-thirds of the directors
then in office though less than a quorum; and each director so chosen shall
hold office until the next annual meeting of stockholders and until his
successor shall have been elected and shall have qualified, or until his
earlier death, or until he shall earlier resign. This Section shall not be
amended except upon a vote of two-thirds of the directors then in office.
SECTION 6. First Meeting. Promptly after, and on the same day as, each annual
election of directors, the Board may, if a quorum be present, meet at the place
at which such election was held, for the purpose of organization, the election
of officers and the transaction of other business. Notice of such meeting need
not be given. Such meeting may be held at any other time and place which shall
be specified in a notice given as hereinafter provided for special meetings of
the Board.
SECTION 7. Regular Meetings. Regular meetings of the Board shall be held at such
times and places as the Board shall determine. Notice of regular meetings shall
be mailed to each director addressed to him at his residence or usual place of
business, at least five days before the meeting. This Section shall not be
amended except upon a vote of two-thirds of the directors then in office.
SECTION 8. Special Meetings; Notice. Special meetings of the Board shall be held
whenever called by the Chairman of the Board, or by the Secretary on the written
request of any three directors. Except as otherwise expressly required by
statute, the Certificate of Incorporation or these By-Laws, notices of each such
meeting shall be mailed to each director, addressed to him at his residence or
usual place of business, at least five days before the day on which the meeting
is to be held, or shall be sent to him at such place by telegraph, cable or
facsimile transmission, or shall be delivered personally or by telephone, not
later than two days before the day on which the meeting is to be held. The
purposes of any special meeting shall be stated with particularity in the notice
thereof. This Section shall not be amended except upon a vote of two-thirds of
the directors then in office.
SECTION 9. Place of Meetings. The Board may hold its meetings at such place or
places within or without the State of Delaware as it may from time to time
determine by resolution, or as shall be specified in the respective notices of
meetings.
SECTION 10. Quorum and Manner of Acting. Except as otherwise expressly required
by statute, the Certificate of Incorporation or these By-Laws, five directors
shall constitute a quorum for the transaction of business at any meeting, and
the vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board. In the absence of a quorum the
Chairman of the Board or a majority of the directors present may adjourn any
meeting from time to time until a quorum shall be present. At any adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the meeting as originally called. Prompt notice of any
adjourned meetings shall be given. This Section shall not be amended except upon
a vote of two-thirds of the directors then in office.
SECTION 11. Committees of Board of Directors. Except as otherwise provided in
these By-Laws, the Board may, by resolution or resolutions passed by a majority
of the Board, designate one or more committees, each committee to consist of two
or more of the directors of the Corporation, which, to the extent provided in
said resolution or resolutions, shall have and may exercise the powers of the
Board in the management of the property, business and affairs of the
Corporation, and may have power to authorize the seal of the Corporation to be
affixed to all papers which may require it. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board. A majority of all the members of such committee may fix
its rules of procedure, determine its manner of acting and fix the time and
place, whether within or without the State of Delaware, of its meetings and
specify what notice thereof, if any, shall be given unless the Board shall
otherwise by resolution provide. The Board shall have
<PAGE> 7
power to change the members of any such committee at any time, to fill vacancies
therein and to discharge any such committee or to remove any member thereof,
either with or without cause, at any time.
SECTION 12. Ex Officio Member of Committees. The Chairman of the Board shall be
a member "exofficio" of all committees of the Board, except where expressly
prohibited by statute, the Certificate of Incorporation or these By-Laws or by
the terms of any plan or other document establishing any such committee.
SECTION 13. Agenda. An agenda of matters to come before each meeting of the
Board shall be sent to each director at least five days before each regular
meeting of the Board and at least three days before each special meeting of the
Board. This Section shall not be amended except upon a vote of two-thirds of the
directors then in office.
ARTICLE IV
OFFICERS
SECTION 1. Number and Qualification of Officers. The principal officers of the
Corporation shall be a President, one or more Vice Presidents, a Controller, a
Secretary, and a Treasurer. The Board of Directors may choose such other
officers as assistants to the above as it may from time to time determine. The
President shall be chosen from among the directors.
SECTION 2. Election and Term of Office. The officers shall be chosen annually by
the Board. Each officer shall hold office until his successor shall have been
elected and shall have qualified, or until his earlier death or until his
earlier resignation or removal in the manner hereinafter provided.
SECTION 3. Powers and Duties of Officers. The powers and duties of the officers
shall be as determined from time to time by resolution of the Board, or in such
other manner as the Board may authorize, not inconsistent with statute, the
Certificate of Incorporation and these By-Laws.
SECTION 4. Resignation and Removal. Any officer may resign at any time by giving
notice to the Chairman of the Board or to the Board, in writing or by telegraph,
cable or wireless. Any such resignation shall take effect at the time specified
therein or, if no time is so specified, upon its receipt by the Chairman of the
Board or by the Board; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective. Any officer may
be removed, either with or without cause, at any time, by the vote of a majority
of the Board.
SECTION 5. Vacancies. A vacancy in any office because of death, resignation,
removal or any other cause shall be filled for the unexpired portion of the term
by the Board.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS AND PROXIES
SECTION 1. Contracts. The Board may by resolution authorize any officer or
officers, or agent or agents, to enter into any contract or engagement and to
execute and deliver any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized by the Board or by these By-Laws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable pecuniarily for any purpose or for any amount.
<PAGE> 8
SECTION 2. Checks and Drafts. All checks, drafts or other orders for the payment
of money, issued in the name of the Corporation, shall be signed in such manner
as shall from time to time be determined by resolution of the Board.
SECTION 3. Proxies. All proxies or instruments authorizing any person to attend,
vote, consent or otherwise act at any and all meetings of stockholders of any
corporation in which the Corporation shall own shares or in which it shall
otherwise be interested shall be executed by the Chairman of the Board or such
other officer as the Chairman of the Board or the Board may from time to time
determine.
ARTICLE VI
CAPITAL STOCK
SECTION I. Certificates for Stock. Every holder of shares of stock of the
Corporation shall be entitled to have a certificate, in such form as the Board
shall prescribe, certifying the number and class of shares of stock of the
Corporation owned by him. Each such certificate shall be signed in the name of
the Corporation by the Chairman of the Board, the President or a Vice-President
and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him;
provided, however, that if such certificate is countersigned (a) by a transfer
agent other than the Corporation or its employee or (b) by a registrar other
than the Corporation or its employee, the signatures of any such Chairman of the
Board, President, Vice-President, Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary may be facsimiles. In case any officer who shall have
signed, or whose facsimile signature shall have been placed upon, any such
certificate or certificates shall cease to be such officer before such
certificate or certificates shall have been issued by the Corporation, such
certificate or certificates may be issued by the Corporation with the same
effect as though he were such officer at the date of issue.
.
SECTION 2. Transfer of Stock. Title to a certificate and to the shares of stock
of the Corporation represented thereby shall be transferred only
(a) by delivery of the certificate endorsed either in blank or to a specified
person by the person appearing by the certificate to be the owner of the shares
represented thereby, or
(b) by delivery of the certificate and a separate document containing a written
assignment of the certificate or a power of attorney to sell, assign or transfer
the same or the shares represented thereby, signed by the person appearing by
the certificate to be the owner of the shares represented thereby. Such
assignment or power of attorney may be either in blank or to a specified person.
SECTION 3. Registered Holders. The Corporation shall be entitled to treat the
registered holder of any certificate for stock of the Corporation as the
absolute and exclusive owner thereof and of the shares represented thereby for
all purposes, including without limitation the right to receive dividends and to
vote and liability for calls and assessments, and, accordingly, the Corporation
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any person, whether or not the Corporation
shall have express or other notice thereof, save as expressly provided by
statute.
SECTION 4. Regulations. The Board may make such rules and regulations as it may
deem expedient, not inconsistent with statute, the Certificate of Incorporation
or these By-Laws, concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation. It may appoint, or
authorize any
<PAGE> 9
principal officer or officers to appoint, one or more Transfer Clerks or one or
more Transfer Agents and one or more Registrars, and may require all
certificates for shares of stock of the Corporation to bear the signature or
signatures of any of them.
ARTICLE VII
RECORD DATE
SECTION 1 . Fixing of Record Date. (a) In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action other than stockholder action by
written consent, the Board of Directors may fix a record date, which shall not
precede the date such record date is fixed and shall not be more than 60 nor
less than 10 days before the date of such meeting, nor more than 60 days prior
to any such other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. The Board of Directors
shall promptly, but in all events within 10 days after the date on which such a
request is received, adopt a resolution fixing the record date. If no record
date has been fixed by the Board of Directors within 10 days of the date on
which such a request is received, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by applicable law, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
any officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by applicable
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the date on which the Board of Directors adopts the resolution taking such
prior action.
ARTICLE VIII
WAIVERS OF NOTICE
Whenever notice is required to be given by statute, the Certificate of
Incorporation or these By-Laws, a written waiver thereof, signed by the person
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting of
stockholders shall
<PAGE> 10
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
ARTICLE IX
AMENDMENTS
Subject to any limitations that may be imposed by the stockholders, and except
as specifically provided in Article III of these By-Laws, the Board may make
by-laws and from time to time may alter, amend or repeal any by-laws. The
stockholders may also adopt, alter, amend or repeal any by-laws at any meeting
provided that notice of such proposed adoption, alteration, amendment or repeal
is included in the notice of such meeting.
CERTIFICATE
The undersigned,
Secretary of GENERAL DYNAMICS CORPORATION, a Delaware corporation, does hereby
certify that the foregoing is a true copy of the By-Laws of the Corporation in
effect as of this date.
WITNESS my hand and the seal of the Corporation this day of , 19
----------------------------
Secretary
(CORPORATE SEAL) Secretary
<PAGE> 1
EXHIBIT 4, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
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 company will furnish copies of the indenture to the Securities
and Exchange Commission.
Very truly yours,
/s/ Paul A. Hesse
-----------------
Paul A. Hesse
Secretary
General Dynamics Corporation
<PAGE> 1
Exhibit 10-14A, Annual Report on Form 10-K
for the year ended December 31, 1996
Commission File Number 1-3671
LEASE AGREEMENT
This Lease Agreement (this "Lease") is made and entered into on the
date, between or among the parties and upon the terms and conditions hereinafter
set forth.
SECTION 1. INFORMATION
1.1 Date of Lease: December 20,1996
1.2 "Landlord": Rhode Island Economic Development Corporation, a
Rhode Island public corporation formed pursuant to Chapter 64
of Title 42 of the Rhode Island General Laws, 1956 as amended
1.3 "Landlord's Address": 1330 Davisville Road, North Kingstown,
Rhode Island 02852
Landlord may change such address at any time by giving notice of such change to
Tenant.
1.4 "Tenant":
a. Name: Electric Boat Corporation, a Delaware corporation
b. 75 Eastern Point Road, Groton, CT 063404989
1.5 The "Premises": That portion of Landlord's land, buildings
and site improvements thereon located on the property described in Exhibit A
hereto. All Exhibits are attached hereto and made a part hereof.
1.6 Additional Parties: As a portion of the Premises is owned by
the State of Rhode Island (the "State") and subject to the terms of that certain
Lease and Operating Agreement between the State and the Rhode Island Airport
Corporation, a subsidiary corporation of Landlord ("RIAC"), dated June 25,1993
(the "Airport Lease"), the State and RIAC are parties to this Lease for the
purposes of confirming their respective consent to the terms hereof pursuant to
Section 11.2(a) of the Airport Lease.
1.7 "Term" of Lease:
From: January 1, 1997 to and including: December 31,2006
<PAGE> 2
1.8 Purpose: Operation of a business for the manufacturing and
fabrication of ships, including submarines and other metal fabrication
industries with related administrative and support uses as may be required.
1.9 Rental:
(a) The following shall be the Base Rentals ("Base Rentals")
to be paid on an annual and monthly basis for the periods set forth below:
<TABLE>
<CAPTION>
Date Rental Date Rental Annual Monthly
commences terminates Base Rental Base Rental
--------- ---------- ----------- -----------
<S> <C> <C> <C>
a. January 1,1997 December 31,1998 $1,827,428 $152,285.66
b. January 1,1999 December31, 2004 $1,327,428 $110,619.00
c. January 1, 2005 December31, 2006 $ 827,428 $ 68,952.33
</TABLE>
(b) Employment Rent Incentive.
(i) Base Rental shall be adjusted based upon employment
incentives which are the result of full-time equivalent employees of Tenant
working at the Premises or other real property and facilities owned by Tenant
and located at the Quonset/Davisville Port and Commerce Park (the Premises and
such other facilities of Tenant located at Quonset/Davisville are referred to in
this Section 1.9 as the "ERI Site"- from the term Employment Rent Incentive
Site) and employed by or on behalf of Tenant. For purposes hereof, full-time
equivalent employees ("FTE") shall mean that person or persons who work at the
ERI Site a combined equivalent of no less than 35 hours per week. Such rental
incentives shall be based upon the following amounts of FTE of Tenant located
upon the ERI Site:
<TABLE>
<S> <C>
Below 800 FTE An increase of annual basic rental equal to $500
for each FTE below 800 employed at the
Premises by Tenant.
800 to and including 1,000 FTE No change in basic annual rental
From 1,001 FTE to and including
1,500 FTE 1% reduction in annual basic rental for each 50
FTE
Above 1,500 FTE 2% reduction for each 50 FTE
</TABLE>
<PAGE> 3
(ii) Upon the commencement date of the term of this Lease,
Tenant shall notify Landlord in writing of the number of FTE working for or on
behalf of Tenant at the ERI Site. Every six months thereafter during the Term of
this Lease, Tenant shall certify to Landlord the daily average number of FTE
working for or on behalf of it at the ERI Site for the preceding six-month
period, and base annual Rental adjustment calculations shall be made by Landlord
and Tenant pursuant to the Terms hereof. Base Rental shall be adjusted, if such
adjustment is necessary pursuant to the terms hereof, based upon the FTE
calculations set forth in such certification from Tenant to Landlord.
(iii) All certifications of FTE from Tenant to Landlord shall
be subject to audit by Landlord at reasonable times and no more frequently than
four times per year.
1.10 "Additional Rent": Any amounts, payments, or other charges,
credits or funds due from Tenant to Landlord or others hereunder in any form
whatsoever (other than Base Rental) shall be "Additional Rent" hereunder, shall
be in the nature of Rental for purpose of determining Landlord's rights and
Tenant's obligations with respect thereto and shall be due and payable without
deduction or setoff other than as set forth in this Lease.
1.11 "Additional Premises": That parcel of land and building thereon
commonly known as Building 17 and more particularly identified as Parcel 4 on
Exhibit A attached hereto. Tenant shall lease the Additional Premises from
Landlord pursuant to all terms and conditions set forth herein, except as
follows:
(a) Tenant shall lease the Additional Premises for a term of
two (2) years commencing January 1, 1997 and terminating December 31, 1998 (the
"Additional Premises Initial Term"). Tenant shall have the right to lease from
Landlord the Additional Premises for two (2) renewal terms of four (4) years
each by notifying Landlord ninety days prior to the expiration of the then
current term of Tenant's desire to so exercise its option to renew (each such
renewal term is hereinafter referred to as the Additional Premises Renewal
Term).
(b) Tenant shall pay as additional rent for the use of the
Additional Premises during the Additional Premises Initial Term an amount equal
to One Hundred Thousand ($100,000) Dollars in one lump sum payment on or before
April 30, 1997. Tenant, if it exercises its right to extend the term and
continues to occupy the Additional Premises, shall pay as additional rent for
the Additional Premises Renewal Term an amount equal to Eighty Thousand
($80,000) per year of each year of the Additional Premises Renewal Term, payable
in advance in equal monthly installments.
<PAGE> 4
1.12 Exhibit Completion Deadline. Landlord and Tenant hereby agree
to cooperate and negotiate in good faith the completion, execution and delivery
of all Exhibits referred to herein or attached hereto on or before January 31,
1997. If, after such good faith efforts, Landlord and Tenant for any reason fail
to so complete, execute and deliver such Exhibits, then in such event either
party shall have the right to terminate this Lease upon notice to the other
party. In such event, Tenant agrees that it shall be deemed a holdover Tenant
pursuant to terms and conditions of existing agreements between Landlord and
Tenant prior to this Lease.
SECTION 2. -RENTAL. UTILITIES AND OTHER CHARGES
2.1 Rentals: Tenant shall pay the Base Rental amounts set forth in
this Lease, during the applicable periods, in monthly installments. Monthly Base
Rentals shall be paid in advance on or before the first day of each month;
provided, however, Landlord agrees to send to Tenant an invoice for each month's
rent no earlier than thirty (30) days prior to such rent being due, and Tenant
agrees to pay such rent within 30 days of receiving such invoice. Base Rental
for the calendar month during which a term begins or ends, if not a full month,
shall be apportioned. If any monthly Base Rental or Additional Rent or other
amount or charge due to Landlord is not received by Landlord as provided herein,
then the amount due shall bear a late charge at the rate per year equivalent to
the prime rate of interest as published in the Wall Street Journal plus two (2%)
percent until receipt by Landlord. Notwithstanding anything herein to the
contrary, in no event shall the interest charged, reserved and/or taken in this
Lease exceed the maximum allowed by and determined in accordance with applicable
law. When payments are made by check, they shall be treated as paid to Landlord
on the date of receipt of the check, if the check clears; but, if the check is
not paid, payment shall be deemed made only when Landlord has received good
funds. The foregoing shall not limit Landlord's rights in the event of a default
by Tenant.
2.2 Utilities:
(a) Landlord shall cause to be provided to Tenant such water
and sewerage disposal services as may be reasonably required by Tenant. Except
when occasioned by the negligent performance of Landlord's obligations
hereinabove set forth, Landlord shall have no responsibility or liability for
delays, lapses or cessation of such utility services arising out of labor
disputes, strikes, fires, storms, floods, freezing, earthquakes, explosion,
civil disorders, acts of public enemy, sabotage, delays in transportation,
energy or fuel shortages, unavoidable casualties, mechanical failures, or any
other cause beyond its control. In any event, Landlord shall have no liability
for consequential damages flowing from any delay, lapse or cessation of utility
services. Landlord shall also have the right, in time of energy shortage or
rationing, to allocate utility services among the various users thereof in such
manner as is necessary and equitable or as may be required by the United States.
(b) Landlord shall permit all of its existing facilities to be
used to supply public services in common with others to the Premises, including
electricity, telephone, telegraph, trucking, railroad and other transportation
services. In particular, Landlord shall permit the Narragansett Electric Company
to provide service to Tenant over Landlord's existing power
<PAGE> 5
distribution facilities and shall cause Landlord to permit Narragansett Electric
Company, at its own expense, to install, operate and maintain such secondary
power transformation and distribution facilities as may be required to meet the
requirements of Tenant. In the event that the existing systems for providing
public services to the Premises shall become unavailable for any reason
whatsoever, Landlord shall permit access for construction of new systems to the
Premises through such portions of the other lands of Landlord as Landlord shall
reasonably deem appropriate, the cost of constructing any such distribution
system to be borne by the Tenant or the company furnishing such public services.
(c) Charges for water and sewer furnished to Tenant under the
terms of this lease shall be based on engineering estimates acceptable to
Landlord and Tenant. Charges for sewerage disposal services furnished to Tenant
shall be based upon the amount of water furnished to Tenant. Charges for utility
services shall be established from time to time by Landlord on an equitable, non
discriminatory basis. In establishing such charges, account shall be taken of
all costs and other charges associated with the provision of utility services
including without limitation, the cost of fuels, labor and materials, insurance,
repair and maintenance, appropriate charges or reserves established by Landlord
for capital improvements and replacements to the facilities rendering utility
services, and general administrative overhead.
(d) Landlord shall bill Tenant monthly for water and sewer
services furnished during the prior month. Tenant shall pay for such utility
services within thirty (30) days after the end of each month, or fifteen (15)
days after receipt by Tenant of a bill for such services whichever is later.
Notwithstanding such payment, Tenant may subsequently contest the reasonableness
of any service charges or their compliance with the provisions of this Lease,
and if such contest is not resolved by mutual agreement, it shall be resolved
consistent with the terms of this Lease.
(e) Tenant shall purchase from Landlord, and Landlord shall
sell to Tenant, steam heat utilized by Tenant pursuant to terms set forth in the
Steam Heat Supply Agreement to be entered into upon the execution of this Lease
in substantially the form of Exhibit B attached hereto.
2.3 Payment in Lieu of Taxes: Landlord shall pay from rental received
from Tenant, to the Town of North Kingstown, payments in lieu of taxes ("PILOT")
pursuant to terms and conditions agreed upon from time to time by Landlord and
said Town of North Kingstown. Tenant shall pay directly to the Town of North
Kingstown taxes and assessments lawfully imposed by the Town of North Kingstown
upon Tenant for its personal property and assessable improvements or fixtures
located upon the Premises.
<PAGE> 6
SECTION 3. PREMISES
Landlord, in consideration of the rents, covenants and agreements to be
paid, kept and performed by Tenant as herein provided, hereby demises and leases
to Tenant the Premises described above.
SECTION 4. PURPOSE
The Premises shall be used solely for the purpose set forth above and
not for any unlawful purpose. Any use of the Premises in violation of this
provision may be enjoined by Landlord without prejudice to any other remedy
therefor.
SECTION 5. RENTALS
Tenant shall pay all Base Rental and Additional Rent and other amounts
and charges due to Landlord as set forth above at Landlord's address as
hereinabove set forth or at such place as Landlord, from time to time, shall
designate in writing.
SECTION 6. MAINTENANCE AND USE OF PREMISES
6.1 Tenant shall keep the Premises neat and clean and shall promptly
remove its rubbish, waste products, garbage, refuse and trash from the Premises
at its own expense. Tenant further agrees that Tenant shall: refrain from
placing in the sewerage system any chemical, waste or substance which may
require special treatment or may cause damage or injury to the sewerage system
and pay the cost of any repair or damage in the sewerage system necessitated by
any violation of this undertaking, and not enter into any service, maintenance
or other contracts relating to the Premises which shall terminate after or not
be terminable by Tenant upon (in which latter event, Tenant shall so terminate
same) the expiration of the Term hereof.
6.2 Tenant, at its expense, shall also keep the Premises, including the
setting of glass in windows and doors, and all fixtures, piping, roofing,
equipment and apparatus of every kind, nature and description, in good order,
condition and repair, including the replacement of integral parts thereof,
reasonable wear and tear excepted. Such repairs and replacements shall be
effected with all due dispatch and shall be of good and workmanlike quality and
class equal to the original work or installation. Tenant shall not cause or
permit any waste or injury to the Premises and shall keep the Premises free from
any and all objectionable noises, odors, rubbish and debris. Tenant shall
continuously comply with and observe all statutes, ordinances, rules, codes,
requirements, laws, regulations, orders and/or decrees of the federal, state and
city governments, or any departments, bureaus or agencies thereof or of any
insurance inspection or rating bureau, whether now in force or which may in the
future be promulgated. including, but not limited to, those relating to
environmental, waste products, garbage, refuse or trash, building, zoning and
other matters and the provisions of the Occupational Safety and Health Act of
1970, as amended, and the regulations thereunder, and any expense resulting from
such compliance shall be borne by Tenant. Tenant shall, at its expense, make all
repairs and improvements to the Premises and parking areas. Tenant shall also,
at its own expense, make all repairs necessary to the exterior and
<PAGE> 7
structural components of the Premises. On or before January 31, 1997, Landlord
and Tenant shall jointly complete a video taped assessment of the condition of
the Premises which shall serve as a baseline against which Tenant will maintain
the Premises; provided, however, if during the course of completing such video
tape Landlord discovers that the Premises or any portion thereof are in need of
repair pursuant to agreements between Landlord and Tenant prior to the date of
this Lease, then Tenant and Landlord shall agree upon the extent of additional
repairs to be performed by Tenant.
6.3 Any substantial or structural alterations, improvements or
additions to the Premises shall be at Tenant's expense and made in accordance
with all applicable governmental laws and regulations, in a good and workmanlike
manner and without any lien or encumbrance therefor. Any alterations shall
become part of the realty unless Landlord otherwise agrees in writing; and, at
the expiration or termination of this Lease, shall remain on the Premises or
shall be removed by Tenant (Tenant restoring any resulting damage to the
Premises) at its expense) as Landlord may elect; provided, however, that any
structural alterations of Tenant so consented to by Landlord and agreed, in such
consent by Landlord, to remain at the Premises at the expiration or termination
of this Lease, shall not be required to be removed by Tenant. Also at the
expiration or termination of this Lease, Tenant shall remove its goods and
effects (including trade fixtures) and, at the request of Landlord (other than
as set forth in the preceding sentence), all alterations, additions,
improvements and installations, whether made in replacement of, substitution of,
or addition to existing facilities, all at Tenants expense; and shall peaceably
and quietly surrender to Landlord possession of the Premises and all erections
and additions made to the same (as Landlord may have elected), and, in any
event, Tenant shall also surrender any piping, electrical installations, switch
boxes, transformers, meters, lighting fixtures, all wiring both for light and
power up to the point that the same may be attached to any machines; and shall
leave the Premises broom clean and in good repair, order and condition in all
respects, reasonable wear and tear excepted. Tenant's obligations to observe and
perform this covenant shall survive the expiration or termination of this Lease.
In the event of Tenant's failure to remove any of Tenant's property from the
Premises, Landlord is authorized, without liability to Tenant for loss or
damages thereto, and at the sole risk of Tenant, to remove and store any of the
property at Tenant's expense, or retain same under Landlord's control or to sell
at public or private sale, without notice, any or all of the property not so
removed and to apply the net proceeds of such sale to the payment of any sum due
hereunder, or to destroy such property.
<PAGE> 8
6.4 Any contractors performing work on behalf of Tenant with respect to
the structural integrity of the Premises must be approved in writing in advance
by Landlord, such approval to not be unreasonably withheld or delayed. Tenant
may submit for Landlord's approval a list of contractors Tenant proposes to use
during the term of this Lease.
6.5 Tenant shall not erect or maintain upon the Premises any signs,
advertisements or notices unless: 1) said signs, advertisements and notices are
installed according to all applicable restrictive covenants or rules and
regulations or design criteria imposed by Landlord upon the Premises; and 2)
Tenant shall have first obtained the written approval of Landlord as to the
size, design, color and location of such sign, advertisement and notice, such
approval not to be unreasonably withheld. Tenant shall be responsible for all
damage to the Premises resulting from the installation, maintenance and removal
of such signs, advertisements and notices.
6.6 Tenant shall not permit or commit any waste in or about the
Premises.
6.7 Tenant shall not use or occupy or permit the Premises to be used or
occupied in any unlawful manner or for any illegal purpose or in such manner as
to constitute a nuisance. Tenant and its servants, employees, agents, visitors,
invitees or licensees will faithfully observe and comply with such reasonable
rules and regulations as Landlord hereafter may, at any time or from time to
time, make and communicate in writing to Tenant which, in the reasonable
judgment of Landlord, shall be necessary for the reputation, safety, care or
appearance of the Premises or the Premises or the preservation of good order
therein, or the operation or maintenance of the Premises or the equipment
thereof.
6.8 Landlord shall not be responsible for security at the Premises.
6.9 All personal property owned or installed by Tenant in the Premises
shall be listed from time to time on the so-called Electric Boat Asset List and
on the Government Property Control List, and may be removed by Tenant at any
time provided that the Tenant shall, at its expense, repair any damage, holes or
openings caused or occasioned by such removal. Any such personal property of the
Tenant left upon the Premises after the termination of the Lease may, at the
election of Landlord, be removed at Tenant's expense and sold, stored or
discarded, or be deemed to have been abandoned and to belong to Landlord.
SECTION 7. RIGHTS OF LANDLORD
In addition to any other rights of Landlord set forth herein, Landlord
shall have the following rights, exercisable without liability to Tenant for
damage or injury to property, persons or business, without effecting an
eviction, constructive or actual, diminution of services, or disturbance of
Tenant's use or possession or giving rise to a claim for setoff or abatement of
Base Rental and Additional Rent, or excusing Tenant from the full performance of
its obligations under this Lease:
a. To enter upon the Premises in accordance with Tenant's
security, procedures to inspect the Premises; and, during the last year of the
Term, to show them to
<PAGE> 9
prospective tenants; or, at any reasonable time, to prospective purchasers or
mortgagees of the Premises;
b. To take any and all measures, including inspection, making
repairs, alterations, additions and improvements to the Premises as may be for
the safety, protection, improvement, or preservation of the Premises, it being
agreed that any obligation to do so and the payment of the cost thereof shall be
in accordance with the other provisions of this Lease;
c. To close all or portions of the roads providing access to
the Premises parking lot for the purpose of effecting repairs, or alterations,
so long as reasonable access is provided to the Premises; and
d. Landlord reserves the right to alter, reduce, increase,
relocate and change, from time to time, driveways, roads, walkways so long as
reasonable access is provided to the Premises.
SECTION 8. TENANT'S INDEMNITY AND INSURANCE
(a) Tenant shall keep the Premises and its personal property,
at its sole cost and expense, insured for the mutual benefit of Landlord and
Tenant, as their interests may appear, during the term and any extensions of
this Lease, against loss or damage by fire and against loss or damage by other
risks now or hereafter embraced by "extended coverage" and "difference in
conditions coverage," in an amount equal to the full replacement value of the
Premises and its personal property.
(b) Tenant shall maintain at its sole cost and expense, but
for the mutual benefit of Landlord and Tenant, all as their interests may
appear:
(i) Liability insurance against claims for property damage,
bodily injury, or death, in the amount of Ten Million Dollars ($10,000,000)
in respect of any one accident or occurrence;
(ii) Workers' compensation insurance covering Tenant except
that Tenant may "self-insure" its Workers' Compensation liability to the extent
permitted under Rhode Island law.
Tenant may effect for its own account any insurance not required under the
provisions of this Lease.
(c) All insurance provided for in this Section 8 shall be
effected under valid, enforceable policies issued by insurers of recognized
responsibility which are licensed to do business in the State of Rhode Island.
Tenant shall furnish the Landlord copies of each policy and proof of payment of
premiums if such policy does not provide for notice to Landlord prior to
cancellation and shall provide certificates of insurance to each party insured.
<PAGE> 10
(d) All policies of insurance provided for in this Section 8
shall name Landlord, and Tenant, as an insured, all as their respective
interests may appear and shall specify that the proceeds shall be paid to
Tenant. Each such policy shall contain a provision that no act or omission of
any insured shall affect or limit the obligation of the insurance company to pay
the amount of any loss sustained, and to the extent obtainable, shall contain an
agreement by the insurer that such policy shall not be cancelled without at
least thirty (30) days' prior written notice to Landlord; and that the insurer
will not be subrogated to any claim any insured might otherwise have against any
other insured arising out of such loss.
(e) In the event of any damage or loss by fire or other
casualty to the Premises or personal property, Tenant shall, only to the extent
insurance proceeds are available or adequate for such purpose, with all
deliberate speed, at its sole cost and expense, repair, replace and restore the
Premises to their prior condition insofar as practicable.
(f) Tenant agrees to indemnify landlord against any and all
claims for damages, charges or liabilities, including attorneys' fees, arising
from Tenant's negligent activities with respect to the Premises.
SECTION 9. EMINENT DOMAIN
9.1 In the event that the entire Premises or such portion thereof as
would deprive Tenant of all beneficial use of the Premises is taken or condemned
by any competent authority for any public or quasi-public use or purpose, or is
sold as a result of an impending taking or condemnation (a "taking") this Lease
shall terminate as of the date of the taking. If a taking relates only to a
portion of the Premises or Tenant is not deprived of all beneficial use of the
Premises, Landlord (after such taking or condemnation and the determination of
Landlord's award therein) shall expend so much as may be necessary of the net
amount of Landlord's award in effecting any restoration necessary to make the
Premises tenantable and the Lease shall continue without reduction of the rent.
In any event of a taking, Tenant shall be entitled to a pro rata refund of any
rental paid in advance and all compensation awarded and" paid for such taking
shall belong to and be the property of Landlord irrespective of the basis upon
which it is awarded, Tenant hereby specifically assigning to Landlord any award
or compensation for the value of Tenant's leasehold estate. Tenant may, however,
claim and recover from the condemning authority, but not from Landlord,
compensation for damages recoverable only by Tenant, in Tenant's own right, for
or on account of any cost or loss to which Tenant might be put in removing
Tenant's merchandise, furniture, trade fixtures and equipment and loss of
business and improvements paid for by Tenant and expenses compensable to Tenant
by statute.
SECTION 10. QUIET ENJOYMENT
Tenant, subject to the terms and provisions of this Lease, on paying
the rent and performing all the covenants, terms and conditions in this Lease
contained to be performed on the part of Tenant, may peacefully hold and enjoy
the Premises during the Term hereof without any let or hindrance by Landlord or
any person claiming by, through or under it. This covenant and all other
covenants of the Landlord contained in this Lease shall be binding upon Landlord
<PAGE> 11
and Landlord's successors only with respect to breaches occurring during
Landlord's and Landlord's successors respective ownership of Landlord's interest
hereunder.
SECTION 11. SUBORDINATION. ATTORNMENT AND NON-DISTURBANCE
This lease is subject and subordinate to all mortgages and bond
indentures which may now or hereafter affect the Premises, and to all advances
made thereunder, the interest thereon, and all renewals, modifications,
consolidations, replacements and extensions thereof if the mortgagee named in
said mortgage shall elect by written notice delivered to Tenant to subject and
subordinate the rights and interest of Tenant under this Lease to the lien of
its mortgage. Alternatively, any mortgagee may elect to give the rights and
interests of Tenant under this Lease priority over the lien of its mortgage. In
the event of either of such election, and upon notification by such mortgagee to
Tenant to that effect, the rights and interests of Tenant under this Lease shall
be deemed to be subordinate to or to have priority over, as the case may be, the
lien of said mortgage whether this Lease is dated prior to or subsequent to the
date of said mortgage. This clause shall be self-operative and no further
instrument of subordination shall be required by any mortgagee. In confirmation
of such subordination, Tenant shall execute and deliver, within fifteen (15)
days of a request therefore, any certificate that Landlord may reasonably
request. Tenant hereby constitutes and appoints Landlord Tenant's
attorney-in-fact to execute any such certificate or certificates for and on
behalf of Tenant. Any subordination of this Lease pursuant to this Section 11
and Tenant's obligation to execute a subordination agreement is dependent upon
Tenant's receipt of a non-disturbance agreement with terms customary to those of
similar transactions in North Kingstown, Rhode Island at the time of the request
therefor from any lender requiring such subordination agreement. In the event
Tenant fails to execute such agreement within fifteen (15) business days after
demand in writing, Tenant does hereby make, constitute and irrevocably appoint
Landlord as its attorney in fact and in its name, place and stead so to do. The
execution by Landlord, on behalf of Tenant, of such subordination agreement
after said fifteen (15) business days period shall be conclusive evidence that
Landlord has obtained for Tenant's behalf a non-disturbance agreement in
conformance with the provisions of this Section so long as such agreement
contains a provision substantially as follows: "provided, however, anything
herein to the contrary notwithstanding, Tenant upon keeping the terms, covenants
and conditions to be kept by it pursuant to the Lease and not being in default
thereunder, shall have use and possession of the Premises as contemplated by the
Lease and any successor in interest to Landlord shall from and after the date it
succeeds to Landlord's interest in the Premises, perform Landlord's obligations
in accordance with the terms of the Lease." If, in connection with obtaining
financing for the Premises, a lender shall request reasonable modifications in
this Lease as a condition to such financing, Tenant will not unreasonably
withhold, delay or defer its consent thereto, provided that such modifications
do not materially or adversely increase the obligations of Tenant hereunder or
materially or adversely affect the leasehold interest hereby created or Tenant's
use and enjoyment of the Premises. In the event that a mortgagee or any
purchaser at foreclosure sale or judicial proceedings shall succeed to the
interest of Landlord, this Lease, nevertheless, shall continue in full force and
effect, and Tenant agrees to attorn to such mortgagee or purchaser and to
recognize such mortgagee or purchaser as its Landlord.
<PAGE> 12
SECTION 12. NO REPRESENTATIONS BY LANDLORD
No representations or promises with respect to the Premises, except as
are herein expressly set forth, have been made by Landlord or any other party on
Landlord's behalf (including any real estate broker), and Tenant agrees that it
will have examined the Premises prior to the Commencement Date and will take the
same in their condition and state of repair at the Commencement Date. The taking
of possession of the Premises by Tenant shall be conclusive evidence as against
Tenant that the Premises were in satisfactory condition and in conformity with
the provisions of this Lease at the time such possession was so or is taken.
SECTION 13. RIGHT TO PAY MONEY TO EFFECT PERFORMANCE
If Tenant at any time or from time to time shall fail to perform any of
the covenants, terms and conditions in this Lease contained to be performed on
the part of Tenant, Landlord may, only in the event of emergency, immediately,
or at any time thereafter during such emergency, without notice, perform the
same for the account of Tenant, and in any such event, any monies paid by
Landlord for such purpose shall be deemed to be Additional Rent due hereunder
and shall be payable forthwith to Landlord upon rendition of an invoice
therefor.
SECTION 14. ASSIGNMENT
Tenant shall not assign, mortgage, pledge or otherwise encumber this
Lease or its interest herein, or sublet the whole or any part of the Premises
without first obtaining on each occasion the consent in writing of Landlord,
which consent shall not be unreasonably withheld or delayed. In case of any such
approved assignment, the assignee shall assume in writing to Landlord the
performance and observance of all the covenants, terms and conditions in this
Lease contained, to be kept and performed on the part of Tenant, and such
writing of assumption shall be delivered to Landlord simultaneously with such
assignment. In the event of any such approved assignment or subletting,
notwithstanding any assumption hereof by the assignee or subtenant, Tenant shall
remain primarily liable for the performance of all of said covenants, terms and
conditions. Notwithstanding the foregoing, if Tenant desires to assign this
Lease or sublet all or a part of the Premises, Landlord shall be noticed and may
elect to terminate this Lease as to the Premises in the event of a desired
assignment or as to such part or all thereof which Tenant desires to sublet, and
enter into a new lease with the intended assignee or subtenant, upon such terms
as may be agreed between Landlord and such assignee or subtenant, and this Lease
shall terminate as to the applicable part or all of the Premises upon the
effectiveness of such new lease. Further, in any assignment or subletting
consented to by Landlord: any Base Rental and Additional Rent greater than that
set forth on this Lease shall inure to the benefit of Landlord. Tenant, by its
execution of this Lease, consents to any changes in this Lease to be made by the
Landlord and such assignee or subtenant; provided same do not materially or
adversely increase the obligations of Tenant hereunder. The foregoing
notwithstanding, upon written notice to the Landlord, Tenant may assign this
Lease to any entity owned by more than 51% by General Dynamics, and upon such
assignment, Tenant shall be relieved from its obligations hereunder; provided
that General
<PAGE> 13
Dynamics or such new assignee (subject to Landlord's reasonable approval which
will not be unreasonably withheld or delayed) assumes such obligations in
writing.
SECTION 15. LANDLORD'S REMEDIES
15.1 If, at any time subsequent to the date of this Lease, any one or
more of the following events (an "Event of Default") shall happen, time being of
the essence:
a. Tenant shall default in the due and punctual payment of any
Base Rental, Additional Rent, amount, charge or other sum due hereunder within
five (5) working days after the due date thereof; or
b. Tenant shall neglect or fail to perform or observe any of
the other covenants or agreements herein contained on the part of Tenant to be
performed or observed and Tenant shall fail to remedy the same within ten (10)
working days after notice to Tenant specifying such neglect or failure, or if
such Event of Default is of such a nature that Tenant cannot reasonable remedy
the same within such ten (10) day period, Tenant shall fail to commence promptly
to remedy the same and to prosecute such remedy to completion with all due
diligence and continuity; or
c. Tenant's leasehold interest in the Premises shall be taken
on execution, by other process of law or as a result of the exercise of any
creditor's rights; or
d. Tenant or any guarantor of this Lease shall make an
assignment for the benefit of creditors; or
e. Tenant shall vacate or abandon the Premises for ten (10)
consecutive days, except for reasons of public emergencies or damage to the
Premises; or
f. Tenant or any guarantor of this Lease shall seek or consent
to or acquiesce in the appointment of any receiver or liquidator of Tenant or of
all or any substantial part of its property; or
g. A petition shall be filed by or against Tenant or any
guarantor of this Lease under any law seeking any reorganization, arrangement,
readjustment, composition, liquidation, dissolution, stay, injunction or other
similar relief under any present or future state or federal statute, law or
regulation and shall remain undismissed or unstayed for an aggregate of thirty
(30) days, or if any debtor in possession (whether or not Tenant), receiver or
liquidator of Tenant or of all or any substantial part of Tenant's properties or
of the Premises shall be appointed without the consent or acquiescence of Tenant
and such appointment shall remain undismissed or unstayed for an aggregate of
thirty (30) days; then in any such case, Landlord may terminate this Lease by
notice to Tenant, specifying a date not less than five (5) days after the giving
of such notice on which this Lease shall terminate and this Lease shall come to
an end on the date specified therein as fully and completely as if such date was
the date herein originally fixed for the termination hereof, and Tenant shall
then peacefully quit and surrender the Premises
<PAGE> 14
to Landlord but Tenant shall remain liable as hereafter provided. All costs and
expenses incurred by or on behalf of Landlord occasioned by such Event of
Default including, without limiting the foregoing generality, reasonable
attorney's fees and other costs of collection, recovery of possession and the
exercise of any right or remedy permitted Landlord hereunder shall be paid by
Tenant.
15.2 Upon any such expiration or termination of this Lease, Tenant
shall quit and peacefully surrender the Premises to Landlord, and Landlord, upon
or at any time after any such expiration or termination, may without further
notice, enter upon and re-enter the Premises and possess and repossess itself
thereof, by "self-help", so-called (if allowed by law), summary proceedings,
ejectment or otherwise, and may dispossess Tenant and remove Tenant and all
other persons and property from the Premises and may have, hold and enjoy the
Premises and the right to receive all rental income of and from the same.
15.3 At any time or from time to time after any such expiration or
termination, Landlord may relet the Premises or any part thereof, in the name of
Landlord or otherwise, for such term or terms (which may be greater or less than
the period which would otherwise have constituted the balance of the Term of
this Lease) and on such conditions (which may include concessions or free rent)
as Landlord, in its reasonable discretion, may determine and may collect and
receive the rents therefor.
15.4 No such expiration or termination of this Lease shall relieve
Tenant of its liability and obligations under this Lease, and such liability and
obligations shall survive any such expiration or termination. In the event of
any such expiration or termination, whether or not the Premises or any part
thereof shall have been relet, Tenant shall pay to the Landlord the Base Rental,
Additional Rent and all other sums, amounts and charges required to be paid by
Tenant up to the time of such expiration or termination of this Lease, and
thereafter Tenant, until the end of what would have been the Term of this Lease
in the absence of such expiration or termination, shall be liable to Landlord
for, and shall pay to Landlord, as and for liquidated and agreed current damages
for Tenant's default: (a) the equivalent of the amount of the Base Rental,
Additional Rent and the other sums, amounts and charges which would be payable
under this Lease by Tenant if this Lease were still in effect, less (b) the net
proceeds of any reletting effected pursuant to the provisions of paragraph 15.3
hereof, after deducting all Landlord's expenses in connection with such
reletting, including, without limitation, removal and warehousing of Tenant's
property, removal of Tenant's improvements, additions, alterations and the like,
all repossession costs, brokerage commissions, legal expenses, attorneys' fees,
alteration costs and expenses of preparation of the Premises for such reletting.
Tenant shall pay such damages (herein called "deficiency") to Landlord monthly
on the days on which the Rental would have been payable under this Lease if this
Lease were still in effect, and Landlord shall be entitled to recover from
Tenant each monthly deficiency as the same shall arise; or, at any time after
any such expiration or termination, whether or not Landlord shall have collected
any monthly deficiencies as aforesaid, Landlord shall be entitled to recover
from Tenant, and Tenant shall pay to Landlord, on demand, as and for liquidated
and agreed final damages for Tenant's default the entire amount of the
deficiency if the Premises have been relet, or, if the Premises have not been
relet, the excess of the aggregate of the Base Rental for the balance of the
Term, any Additional
<PAGE> 15
Rent for the balance of the Term, any sums, amounts and other charges which may
reasonably be anticipated hereunder for the balance of the Term and Landlord's
expenses as set forth above over the then fair market rental value of the
Premises for the same period. If, after Landlord has recovered the foregoing
from Tenant, Landlord shall relet the Premises or a part thereof, it shall
reimburse Tenant to the extent Tenant has paid amounts to Landlord and in
amounts not to exceed the Base Rental, Additional Rent, sums, amounts, charges
and expenses actually paid by Tenant to Landlord.
15.5 For purposes of this Section 15, Additional Rent shall include
utilities consumed in the Premises to maintain the structural integrity of the
same while vacant; provided, however, that this provision shall not apply to
facilities to which Tenant does not apply heat in the ordinary course of its
operations.
15.6 Tenant hereby expressly waives, so far as permitted by law, the
service of any notice of intention to re-enter provided for in any statute, or
of the institution of legal proceedings to that end, and Tenant, for and on
behalf of Tenant and all persons claiming through or under Tenant also waives
any and all right of redemption or re-entry or repossession or to restore the
operation of this Lease in case Tenant shall be dispossessed by a judgment or by
warrant of any court or judge or in case of re-entry or repossession by Landlord
or in case of any expiration or termination of this Lease. Tenant, so far as
permitted by law, waives and will waive trial by jury in any action, proceeding
or counterclaim brought by either of the parties hereto against the other on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
or any claim of injury or damage. The terms "enter", "re-enter", "entry" or
"re-entry", as used in this Lease are not restricted to their technical legal
meaning.
15.7 In the event of any breach or anticipatory breach by Tenant of any
of the covenants, agreements, terms or conditions contained in this Lease, the
Landlord shall be entitled to enjoin such breach or anticipatory breach.
Landlord shall have the right to invoke any right and remedy allowed at law or
in equity or by statute or otherwise as though re-entry, summary proceedings,
and other remedies were provided for in this Lease. An anticipatory breach
shall, for purposes of this Section 15.7, be deemed to be an event which, with
the passage of time or the giving of notice or both, would constitute an Event
of Default.
15.8 Each right and remedy of Landlord provided for in this Lease or
otherwise existing at law or in equity shall be cumulative and shall be in
addition to every other right or remedy provided for in this Lease, or now or
hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by Landlord of any one or more of the
rights or remedies provided for in this Lease, or now or hereafter existing at
law or in equity or by statute or otherwise shall not preclude or waive the
simultaneous or later exercise by Landlord of any or all other rights or
remedies provided for in this Lease, if any, or now or hereafter existing at law
or in equity or by statute or otherwise.
15.9 In the event of a default by Tenant hereunder, the Tenant shall be
responsible for any reasonable attorney's fees of Landlord incurred in enforcing
the provisions of this Lease.
<PAGE> 16
SECTION 16. NO WAIVER
The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of, any covenant, term or condition of this Lease or
any of the rules established by Landlord under the provisions of this Lease,
shall not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation. The
receipt by Landlord of Base Rental or Additional Rent, with knowledge of the
breach of any such covenant, term, condition or rule shall not be deemed a
waiver of such breach and no provision of this Lease shall be deemed to have
been waived by Landlord unless such waiver be in writing signed by the Landlord.
Payment by Tenant, or acceptance by Landlord, of a lesser amount than shall be
due from Tenant to Landlord shall not be treated otherwise than as a payment on
account. The acceptance by Landlord of a check for a lesser amount with an
endorsement or statement thereon, or upon any letter accompanying such check,
that such lesser amount is payment in full, shall be given no effect, and
Landlord may accept such check without prejudice to any other rights or remedies
which Landlord may have against Tenant. No act or thing done by Landlord, its
servants and agents, during the term of this Lease, shall constitute an eviction
by Landlord, nor shall it be deemed an acceptance of a surrender of the
Premises, and no agreement to accept such surrender shall be valid unless in
writing, signed by Landlord.
SECTION 17. LANDLORD'S LIEN - Omitted Intentionally
SECTION 18. HOLDING OVER
If Tenant shall hold possession of the Premises beyond the Term without
Landlord's written consent Tenant shall pay to Landlord one and one-half (1-1/2)
times the latest Base Rental, plus Additional Rent and other sums, amounts and
charges for each month during which Tenant shall retain such possession. The
provisions of this paragraph shall not operate as a bar or as a waiver by
Landlord of any right of re-entry or election provided under Section 15 hereof
or available to Landlord under common law.
<PAGE> 17
SECTION 19. NO BROKER
Tenant represents that the Premises were not presented to it or to any
person representing it by any broker or other person, and that no broker or
person was involved in the leasing of the Premises, and warrants that no claim
for commission for said leasing shall be presented to Landlord and shall
indemnify and hold harmless Landlord from any such claims and any legal fees
incidental thereto. Landlord represents that no broker or person was involved in
the leasing of the Premises to Tenant and warrants that no claim for commission
for said leasing shall be presented to Tenant and shall indemnify and hold
harmless Tenant from any such claims and any legal fees incidental thereto.
SECTION 20. NOTICE
All notices and other communications given, authorized or required
hereunder shall be in writing and shall be given by personal delivery, mailing
the same by certified or registered mail, return receipt requested, postage
prepaid, by telecopy, or causing same to be delivered by prepaid overnight
carrier with receipt to the parties at their addresses set forth above, or in
either case, to such other person or at such other address as either party may
hereafter designate by notice to the other party. All such notices and other
communications to Landlord shall also be so given to Adler Pollock & Sheehan
Incorporated, 2300 Hospital Trust Tower, Providence, Rhode Island 02903,
Attention: Robert I. Stolzman, Esq. and all such notices and other
communications to Tenant shall also be so given to Vice President and General
Counsel, Electric Boat Corporation, 75 Eastern Point Road, Groton, Connecticut,
06340-0989 and Site Manager Electric Boat Corporation, Quonset Point/Davisville
Industrial Park, North Kingstown, Rhode Island 02852. Any such notices and other
communications given by other means shall not be effective. The date of actual
receipt of a notice shall be deemed the date of service of notice; provided,
however, that, in the event that an addressee refuses to accept delivery or
acknowledge receipt, then notice shall be deemed to have been served on the
earlier of the date of hand delivery, the next business day in the case of
delivery by overnight carrier, or five days after the date mailed.
SECTION 21. CAPTIONS
The captions appearing in this Lease are intended only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease or the intent of any provision hereof.
<PAGE> 18
SECTION 22. RECORDING OF LEASE
The parties agree that this Lease shall not be recorded, but Landlord
and Tenant hereby agree, upon request of either party, to enter into a
memorandum of lease in recordable form, setting forth the actual time of
commencement and time of termination of this Lease and such other provisions,
except rental provisions, with respect to this Lease as will put on notice any
third party of the existence of this Lease. Such notice shall expressly state
that it is executed pursuant to the provisions contained in this Lease and is
not intended to vary the terms and conditions of this Lease. Such notice shall
be substantially in the form set forth in Exhibit C. Upon the expiration or
termination of this Lease, Tenant shall execute and deliver to Landlord, upon
the request of Landlord, an instrument in recordable form, reasonably
satisfactory to Landlord, certifying that this Lease has expired or terminated.
Tenant hereby constitutes and appoints Landlord Tenant's attorney in fact to
execute any such instrument for and on behalf of Tenant, if Tenant has not
executed and delivered such instrument to Landlord within fifteen (15) days of
notice of Landlord requesting same.
SECTION 23. PARTIES AND DEFINITIONS
The terms "Landlord" and "Tenant" wherever used in this Lease shall
include the successors and assigns of said parties (subject to the assignment
provisions hereof), and if either of the parties shall not be a corporation,
said term shall also include the heirs, executors and administrators of said
party, wherever the context requires or permits of such construction, and all of
the covenants, terms and conditions herein contained shall be binding upon and
inure to the benefit of the heirs, executors, administrators, successors and
said assigns of the parties in the same manner as if they were expressly
mentioned (except as otherwise expressly provided herein). The term "Landlord"
as used in this Lease means only the owner for the time being of the Premises so
that in the event of any sale of the Premises, Landlord shall be and it hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder, it being understood and agreed that the purchaser has assumed and
agreed to carry out any and all obligations of Landlord hereunder. Each term and
provision of this Lease to be performed by Tenant shall be construed to be joint
and several and both a covenant and a condition. The reference contained to
successors and assigns of Tenant is not intended to constitute a consent to an
assignment by Tenant or to vary the provisions of Section 14 hereof.
SECTION 24. PARTIAL INVALIDITY
If any term, covenant, condition or provision of this Lease or the application
thereof to any person or circumstances shall, at any time or to any extent, be
invalid or unenforceable, the remainder of this Lease and the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby, and each
term, covenant, condition and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
<PAGE> 19
SECTION 25. HAZARDOUS WASTE
Notwithstanding any terms or conditions set forth in this Section 25 to
the contrary, Landlord and Tenant agree that Tenant shall not be liable or
responsible to Landlord for any Environmental Condition (as defined below) upon
the Premises which was caused by a party other than Tenant (or under Tenant's
control or supervision) or which existed prior to Tenant's occupancy of the
Premises.
25.1 For the purposes of this paragraph "hazardous waste" and
"hazardous substance" shall have the meaning set forth in the Resource,
Conservation and Recovery Act of 1980, 42 U.S.C. Sss.6901, et seq. ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Sss.9601, et seq. ("CERCLA"), and any Rhode Island statutes as such
statutes may be amended, or as defined in any federal or state regulations
adopted pursuant to or in furtherance of such Acts or statutes. "Oil" shall be
defined as petroleum or any petroleum products in any form.
25.2 Tenant shall:
a. Not manufacture, generate, store, treat or dispose of
(except in compliance with all laws, ordinances, and regulations pertaining
thereto) any dangerous and/or hazardous waste, material, element or substance or
oil or gas or substance detrimental to the environment on the Premises or
arrange with another person for the same;
b. Upon the request of Landlord, take all such action,
including, without limitation, the conducting of engineering tests and sampling
by parties reasonably satisfactory to Landlord (all at the sole expense of
Tenant) to confirm that no dangerous and/or hazardous waste, material element or
substance or oil or gas or substance detrimental to the environment is being
manufactured, generated, stored, treated or disposed of by Tenant or General
Dynamics Corporation on the Premises; and
c. Provide Landlord with written notice: upon Tenant's
obtaining knowledge of any potential or known release or threat of release, of
any dangerous and/or hazardous waste, material, element or substance or oil or
gas or substance determined by the appropriate governmental authority to be
detrimental to the environment at or from the Premises and by any person for
whose conduct Tenant is responsible or whose liability may result in a lien on
property of Tenant; upon Tenant's receipt of any notice to such effect from any
federal, state or other governmental authority; and upon Tenant's obtaining
knowledge of any incurrence of any reimbursable expense or loss by such
governmental authority in connection with the assessment, containment, or
removal of any dangerous and/or hazardous waste, material, element or substance
or oil or gas or substance determined by the appropriate governmental authority
to be detrimental to the environment for which expense or loss Tenant may be
liable or for which expense a lien may be imposed upon the property of Tenant.
<PAGE> 20
d. With regard to underground storage tanks (if any) used by
it or General Dynamics Corporation at the Premises, at its expense, comply with
any statute, ordinance or regulation of any governmental authority having
jurisdiction over same.
25.3 Tenant will not use the Premises at any time in such a manner as
to cause a violation of or to give rise to a removal or restoration obligation
under any statute, ordinance, order, decree or other common law of any state,
federal, municipal or other governmental body or agency having jurisdiction over
the Premises, including, without limitation, RCRA and CERCLA or any similar law,
rule, regulation, order, judgment or decree; and Tenant agrees that no such
violation or obligation will be created by the removal of any hazardous waste,
hazardous substance, oil, gas and/or substance detrimental to the environment
from the Premises by Tenant. During or after the Term, in the event Landlord's
environmental consultant reasonably determines it necessary, Landlord may, at
the expense of Tenant, conduct survey, soil and ground water sampling and such
other testing on the Premises as Landlord shall deem appropriate to assess
whether Tenant or General Dynamics Corporation is or was in violation of the
covenants contained in this Section 25 and Tenant agrees and covenants to
undertake and complete, at its sole expense, and as soon as practicable, such
removal, restoration, cleanup or other remedial action as Landlord shall, in its
reasonable discretion, deem necessary to cure or otherwise adequately respond to
any violation of environmental laws which are attributable to Tenant's or
General Dynamics Corporation's use of the Premises.
25.4 Tenant further agrees, in addition to the foregoing and not in
limitation thereof, to indemnify, defend and hold harmless Landlord from and
against any and all claims, demands, liabilities, costs, expense, penalties,
damages and losses, including, without limitation, attorney's fees, as
incurred, (payable quarterly upon written demand) resulting from or related to
any Environmental Condition (as hereinafter defined) caused by it or General
Dynamics Corporation or any violation of any Environmental Law (as hereinafter
defined) caused by it or General Dynamics Corporation in connection with the
Premises including, but not limited to, any claim for personal injury or
property damage arising from any such Environmental Condition or violation of
any Environmental Law asserted by third parties against Landlord, any
liabilities sustained or incurred by Landlord for the containment, removal,
remedy, cleanup or abatement of any contamination arising from any
Environmental Condition or any violation of any Environmental Law caused by it
or General Dynamics Corporation. The term "Environmental Law" shall mean any
law, regulation, rule or order of any governmental entity relating to pollution
or protection of the environment (including ambient air, surface water, ground
water, land surface or subsurface strata), including without limitation CERCLA,
as amended, RCRA, as amended, and other laws, regulations, rules and ordinances
relating to emissions, discharges or releases of pollutants, contaminants,
chemicals, industrial, toxic or hazardous substances or solid or hazardous
wastes or oil or gas or any substance detrimental to the environment
(collectively "Polluting Substances") or the manufacture, processing,
distribution, use, treatment, handling, storage, disposal and transportation of
Polluting Substances. The term "Environmental Condition" shall mean the
presence, whether discovered or undiscovered, in surface water, ground water,
drinking water supply, land surface, subsurface strata, above ground and
underground tanks or other containers, or ambient air of any Polluting
Substances arising out of
<PAGE> 21
or otherwise related to the operations or other activities (including the
disposition of such materials or substances) conducted or undertaken at the
Premises.
25.5 In the event of any discharge, spillage, contamination,
uncontrolled loss, seepage or filtration of a Hazardous Waste, Hazardous
Substance and/or Polluting Substance within the Premises as a result of any
conduct of or omission by Tenant, or General Dynamics Corporation, or any
employee or agent of or independent contractor engaged by Tenant or General
Dynamics Corporation. Tenant shall contain, remove or mitigate the same
immediately in accordance with all applicable federal, state or local laws,
ordinances, rules or regulations.
SECTION 26. FORCE MAJEURE.
The period of time during which either party is prevented or delayed in
their performance or the making of any improvements or repairs or fulfilling any
obligation other than the payment of Base Rental, Additional Rent, or any other
payments required under this Lease, due to unavoidable delays caused by fire,
catastrophe, strikes or labor disputes, civil disorders, Acts of God or the
public enemy, governmental prohibitions, notices of violations (whether present
or future) or regulations or inability to obtain materials by reason of such
regulations, or other causes beyond a party's reasonable control, shall be added
to a party's time for performance of the obligation and the party shall not be
liable because of such delay of performance.
SECTION 27. SUBMISSION OF INSTRUMENT
No lease or obligation on the part of Landlord or Tenant to enter into
a lease shall arise until this instrument has been executed and delivered by
Landlord and Tenant to each other.
SECTION 28. ENTIRE AGREEMENT.
This Lease contains the entire agreement between the parties,
supersedes any other and all previous leases between Tenant and Landlord with
respect to the Premises, and may not be changed orally or by any agreement
between the parties unless it is in writing, executed by the parties hereto.
Notwithstanding any terms herein to the contrary, any covenants or agreements of
Tenant with respect to Environmental Conditions shall survive and remain in full
force and effect.
SECTION 29. RELATIONSHIP OF PARTIES.
Nothing contained herein shall be deemed or construed by the parties
hereto nor by any third party as creating the relationship of principal and
agent or of partnership or joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of rent or any
other provision herein contained, nor any acts of the parties hereto, shall be
deemed to create any relationship between the parties hereto other than landlord
and tenant.
<PAGE> 22
SECTION 30. EXECUTION AND COUNTERPARTS.
This Lease may be executed in one or more parts, all of which shall
constitute but one agreement.
SECTION 31. GOVERNING LAW.
This Lease shall be construed in accordance with the laws of the State
of Rhode Island.
SECTION 32. INABILITY TO PERFORM.
This Lease and the obligations of Tenant to pay Base Rental, Additional
Rent and any other sums, amount and charges hereunder and perform all of the
other covenants and agreements hereunder on the part of Tenant to be performed
shall in no way be affected, impaired or excused because Landlord is unable to
fulfill any of its obligations under this Lease or to supply or is delayed in
supplying any service to be supplied pursuant hereto by reason of strike or
labor troubles, governmental preemption in connection with a national emergency
or by reason of any rule, order, notice of violation (whether present or future)
or regulation of any governmental agency or any department or subdivision
thereof or by reason of the conditions of supply and demand which have been or
are affected by war or natural catastrophe. The terms and provisions of this
Section 32 are subject to the terms and provisions of Section 26 of this Lease.
SECTION 33. NOTICE TO MORTGAGEE.
After receiving written notice from any person, firm or other entity
that it holds a mortgage which includes as part of the mortgaged property the
Premises, Tenant shall, so long as such mortgage is outstanding, be required to
give such holder of the same notices as may be given to Landlord under the terms
of this Lease, but such notice may be given by Tenant to Landlord and such
holder concurrently.
SECTION 34. ESTOPPEL CERTIFICATES.
Tenant and Landlord shall, at any time and from time to time upon not
less than ten (10) days prior written request by the other or any mortgagee,
execute, acknowledge and deliver to the requesting party within said period a
statement in writing (and in form reasonably satisfactory to the requesting
party) certifying that this Lease is unmodified and in full force and effect
(or, if there have been modifications, that this Lease is in full force and
effect as modified and stating the modifications), the dates to which the Base
Rental, Additional Rent and other amounts, sums and charges have been paid in
advance, if any, stating whether or not, to the best knowledge of the signer of
such certificate, Landlord or Tenant is in default in performance of any
covenant, agreement, term, provision or condition contained in this Lease and,
if so, specifying each such default to which the signer may have knowledge, the
existence of any claimed counterclaims or defenses to this Lease, the
Commencement Date and the time of termination, and any other
<PAGE> 23
matters as may be reasonably requested, it being intended that any such
statement delivered pursuant hereto may be relied upon by any prospective
purchaser of the Premises or of the interest of the Landlord therein, any
mortgagee or prospective mortgagee thereof, or any prospective assignee of any
mortgage thereof or any such party requesting the same.
SECTION 35. ASSIGNMENT OF RENTS.
With reference to any assignment by Landlord of Landlord's interest in
this Lease, or the rents payable hereunder, conditional in nature or otherwise,
Tenant consents thereto and agrees that the execution thereof by Landlord and
the acceptance thereof by the holder or the exercise by such holder of its
rights under such assignment shall never be deemed an assumption by such holder
of any of the obligations of Landlord hereunder, unless such holder shall, by
written notice to Tenant, specifically otherwise elect.
SECTION 36. MECHANIC'S LIENS.
Tenant agrees to promptly discharge (either by payment or by filing of
the necessary bond, or otherwise) any mechanic's, materialman's or other lien
against the Premises, and/or the Landlord's interest therein, which may arise
out of any payment due for or purported to be due for any labor, services,
materials, supplies or equipment alleged to have been furnished to or for Tenant
in, upon or about the Premises.
SECTION 37. ASSIGNMENT BY LANDLORD.
Landlord shall have the right to assign this Lease to any other party,
in which event Landlord's obligations under this Lease shall terminate as of the
date of such assignment for events occurring after such date.
SECTION 38. INDEPENDENT COVENANTS.
This Lease shall be construed as though the covenants herein between
Landlord and Tenant are independent and not dependent. Tenant shall not be
entitled to any setoff of the Base Rental, Additional Rent or other sums,
charges or amounts owing hereunder against the Landlord if Landlord fails to
perform its obligations set forth herein, except as herein specifically set
forth. The foregoing shall in no way impair the right of Tenant to commence a
separate action against the Landlord for any violation by Landlord of the
provisions hereof so long as notice is first given to Landlord and any holder of
a mortgage covering the Premises whose address Tenant has been notified of in
writing and an opportunity has been granted to Landlord and such holder to
correct such violation as otherwise provided herein.
SECTION 39. CONFIDENTIALITY.
Each party acknowledges that it will have access to certain financial
information of the other party. Such information shall not be released to the
public and will be provided, subject to
<PAGE> 24
this paragraph, only to those parties who have a legitimate need for such
information, including accountants, lawyers, lenders, potential buyers,
mortgagees and similar parties.
SECTION 40. LANDLORD'S LIABILITY omitted intentionally
SECTION 41. MISCELLANEOUS.
41.1 Easements. Landlord shall execute and deliver to Tenant easements
for access to the cantilever crane of Tenant and for utility access to the
cantilever crane in substantially the form of Exhibits D, E and F attached
hereto and made a part hereof. Tenant agrees to release and discharge other
easements in favor of Tenant, if any, which are superseded by such cantilever
crane easements attached hereto.
41.2 Landlord's Role as Agent. The State and RIAC acknowledge that
Landlord is their agent for purposes of administering the terms of this Lease
for those portions of the Premises which are comprised of property owned by the
State and subject to the Airport Lease. Such agencies hereby convey upon the
Landlord the right to perform all acts, give any consents and approvals, and
take any and all further action as may be required or permitted by Landlord
under the terms of this Lease and without limiting the foregoing generally, to
demand and receive rents, insurance proceeds and any other sums due and payable
under the terms of this Lease; to provide and fix utility rates as set forth
herein; to give and receive notices, including notices of default; to disperse
funds; to submit disputes to arbitration; to sue on behalf of the State and the
Rhode Island Airport Corporation with respect to the enforcement of the terms of
this Lease. Any right of indemnification, immunity or claim which may be
protected by insurance and against subrogation of claims provided for in this
Lease for the benefit of Landlord is hereby granted by Tenant to the Landlord,
and any successor agent or agents named hereafter.
41.3 Restrictive Covenants. Tenant shall not erect on the Premises any
building, structure or object which would constitute an obstruction or hazard to
airport operations or air navigation pursuant to all federal regulations; Tenant
agrees to permit, for the use and benefit of the public, the passage of aircraft
in the air space above the Premises, together with such noise and such air space
as may be inherent in the operation of aircraft, now known or hereafter used,
for navigation or flight in said air space, or for the landing on, taking off
from, or operating of Quonset State Airport; this Lease shall be subordinate to
such rules and regulations governing the use, maintenance, operation and
development of the Quonset State Airport, as may be from time to time
promulgated by Landlord, RIAC or the State pursuant to Federal Aviation
Administration Regulations; and this Lease shall be subject to deed restrictions
appearing of record including:
(a) Non-Discrimination Easement for Passage of Aircraft -
those covenants not to discriminate and the easement for unobstructed passage of
aircraft above the Premises and those other easements and restrictions contained
in those deeds of the United States of America to the Landlord (former Rhode
Island Port Authority and Economic Development Corporation ) the first such
dated November 20, 1978 and recorded in the Town of North Kingstown Land
<PAGE> 25
Evidence Records located at Book 317, Page 65, and the second such dated
November 11,1980 and recorded in the Town of North Kingstown Land Evidence
Records at Book 348, Page 243, and also contained in the Airport Deed, as the
same may be appertain to and run with the Premises; and
(b) Protective Controls - that Declarations of Restrictions dated
November 12, 1982 by the Grantor recorded in the Town of North Kingstown Land
Evidence Records at Book 380, Page 211, and, without limiting the foregoing
generally, the Quonset Point/Davisville Development Restrictions referred to
therein, a copy of which has been granted to Tenant and General Dynamics
Corporation.
<PAGE> 26
SECTION 42. AMENDMENTS, ADDITIONS AND DELETIONS TO LEASE
Any alterations or deletions herein were made in the Lease before
execution and any additional provisions to which the parties have agreed and
which are added herein or in any Addenda attached hereto shall be considered a
part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease on the date set forth
above.
WITNESS: LANDLORD:
Rhode Island Economic Development
Corporation
/s/ ROBERT STOLZMAN /s/ MARCEL A. VALOIS
- ----------------------------- -------------------------------
By: Marcel A. Valois
----------------------------
Its: Executive Director
-----------------------------
WITNESS: TENANT:
Electric Boat Corporation
/s/ D.S. HAPKE, JR. /s/ JOHN K. WELCH
- ----------------------------- --------------------------------
By: John K. Welch
-----------------------------
Its: President
------------------------------
<PAGE> 27
EXHIBIT A
(Detailed plan and Description of Premises and Additional Premises)
<PAGE> 28
EXHIBIT B
STEAM HEAT SUPPLY AGREEMENT
(to be negotiated, completed, executed and delivered pursuant to the terms of
the Lease)
<PAGE> 29
EXHIBIT C
MEMORANDUM OF LEASE
1. Lessor: Rhode Island Economic Development Corporation
2. Lessee: Electric Boat Corporation
3. Description of Premises: See Exhibit annexed hereto and made a
part hereof.
4. Term of Lease: From January 1, 1997 to and including December
21, 2006.
5. The terms and conditions of the Lease Agreement of which this
instrument is a Memorandum are hereby incorporated herein by reference.
6. This Memorandum of Lease is executed pursuant to the
provisions contained in Section 22 of that Lease Agreement and is not intended
to vary the terms and conditions of that Lease Agreement.
IN WITNESS WHEREOF, Lessor and Lessee have executed these presents this
_____ day of ____________, 1996.
WITNESS:
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
STATE OF RHODE ISLAND
COUNTY OF
In said County of and State on the ________ day of December, 1996,
before me personally appeared ________, to me known and known by me to be the
persons executing the foregoing instrument, and they acknowledged said
instrument, by them executed, to be their free act and deed.
---------------------------------
Notary Public
(In accordance with Section 34-11 of the
Rhode Island General Laws, 1956, as amended)
<PAGE> 30
EXHIBIT D
TEMPORARY CANTILEVER CRANE EASEMENT
KNOW ALL MEN BY THESE PRESENTS, that the RHODE ISLAND ECONOMIC
DEVELOPMENT CORPORATION, a Rhode Island public corporation, for and in
consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration paid by ELECTRIC BOAT CORPORATION, a Delaware corporation with an
address of 75 Eastern Point Road, Groton, CT 06340-0989, the receipt and
sufficiency of which is hereby acknowledged, does hereby grant unto said
Grantee, its successors and assigns, a non-exclusive easement in, on and over
the parcel of real estate set forth and more particularly described on Schedule
A attached hereto and made a part hereof, for a term of ten (10) years
commencing on January 1, 1997 and terminating December 31, 2006 for the purpose
of ingress and egress to and from a cantilever crane providing access to waters
of the Narragansett Bay, with all riparian rights attendant thereto.
The Grantee, its successors and assigns, shall have the right to enter
upon the parcel of real estate described on Schedule A attached hereto with men
and equipment for the purpose of ingress and egress by it to said cantilever
crane.
The Grantee, for itself, its successors and assigns, by accepting and
recording this easement, acknowledges and agrees that: It accepts the rights to
the parcel of real estate described on Schedule A in its present condition; it
shall, thereafter, at its expense, install, repair, maintain and operate said
easement area and cantilever crane; upon any occasion of disturbance by any of
the Grantee, its successor and assigns, of the land area within the parcel
described above, said Grantee, its successors and assigns, shall restore that
land area as nearly as possible to its former condition prior to such
disturbance (or as mutually agreed upon by said Grantee and Grantor), said
restoration to be without delay; and the maintenance of said easement area shall
be the responsibility and at the sole risk of said Grantee, its successors and
assigns.
The Grantor, its successors and assigns, reserves the right to utilize
the parcel of real estate described above for any purpose whatsoever; provided,
however, that such use does not interfere with the easement herein granted.
TO HAVE AND TO HOLD the same with all rights, privileges and
appurtenances thereof or "hereunto pertaining and to the use of said Grantee,
its successors and assigns, for the term of ten years as set forth herein, for
the special purpose of being used and improved as said Cantilever Crane
Easement.
<PAGE> 31
IN WITNESS WHEREOF, the Rhode Island Economic Development Corporation
has executed this Easement as of this day of December, 1996.
THE RHODE ISLAND ECONOMIC
DEVELOPMENT CORPORATION
By:
--------------------------
Its:
--------------------------
STATE OF RHODE ISLAND
COUNTY OF PROVIDENCE
In said County and State on the _____ day of December, 1996, before me
personally appeared , of the Rhode Island Economic Development Corporation, to
me known and known by me to be the party executing the foregoing instrument and
he/she acknowledged said instrument by him so executed to be his free act and
deed and the free act and deed of said corporation.
------------------------------
NOTARY PUBLIC
My Commission Expires:
----------
<PAGE> 32
SCHEDULE A
(LEGAL DESCRIPTION OF EASEMENT AREA)
<PAGE> 33
EXHIBIT E
PERMANENT CANTILEVER CRANE EASEMENT
KNOW ALL MEN BY THESE PRESENTS, that the RHODE ISLAND ECONOMIC
DEVELOPMENT CORPORATION, a Rhode Island public corporation, for and in
consideration of the sum of $1.00 and other good and valuable consideration paid
by ELECTRIC BOAT CORPORATION, a Delaware corporation with an address of 75
Eastern Point Road, Groton, Connecticut 06340-0989, the receipt and sufficiency
of which is hereby acknowledged, does hereby grant unto said Grantee, its
successors and assigns, a non-exclusive easement in, on and over the parcel of
real estate set forth and more particularly described on Exhibit A attached
hereto and made a part hereof for the purpose of ingress and egress to and from
a cantilever crane providing access to waters of the Narragansett Bay, with all
riparian rights attendant thereto, such easement to be perpetual and run with
land of said Grantee, subject to the terms and conditions hereof.
The Grantor, on behalf of itself, its successors and assigns, shall
have the right to relocate said easement area from time to time; provided,
however, that (i) such relocated easement area shall be confirmed in writing by
said Grantor and delivered to Grantee and recorded with the Land Evidence
Records of the Town of North Kingstown; and (ii) such relocated easement area
shall be in an area and of a type and nature which will allow Grantee the
ability to move to and from said cantilever crane its machinery, equipment, and
product made by it; and (iii) such relocated easement area shall have a load
bearing capacity to so facilitate such movement by said Grantee.
The Grantee, its successors and assigns, shall have the right to enter
upon the parcel of real estate described on Schedule A attached hereto, or as
relocated from time to time as set forth herein, with men and equipment for the
purpose of ingress and egress by it of said cantilever crane.
The Grantee, for itself, its successors and assigns, by accepting and recording
this Easement, acknowledges and agrees that: It accepts the rights of the parcel
of real estate described on Schedule A, or as relocated by Grantor from time to
time as set forth herein, in its present condition; it shall, thereafter, at its
expense, install, repair, maintain and operate said easement area and cantilever
crane; upon any occasion of disturbance by any of the Grantee, its successors
and assigns, of the land area within the parcel described above. said Grantee,
its successors and assigns, shall restore that land area as nearly as possible
to its former condition prior to such disturbance (or as mutually agreed upon by
said Grantee and Grantor), said restoration to be without delay; and the
maintenance of said easement area shall be the responsibility and at the sole
risk of said Grantee, its successors and assigns.
The Grantor, its successors and assigns, reserves the right to utilize
the parcel of real estate described above for any purpose whatsoever; provided,
however, that such use does not interfere with the easement granted herein.
<PAGE> 34
TO HAVE AND TO HOLD the same with all rights, privileges and
appurtenances thereof or "hereunto pertaining and to the use of said Grantee,
its successors and assigns for the perpetual term as set forth herein, for the
special purpose of being used and improved as said cantilever crane easement.
IN WITNESS WHEREOF, the RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION
has executed this easement as of this ___ day of December, 1996.
THE RHODE ISLAND ECONOMIC
DEVELOPMENT CORPORATION
By:
---------------------------
Its:
----------------------------
STATE OF
COUNTY OF
In said County and State on the day of December, 1996 before me
personally appeared _ , of THE RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION, to
me known and known by me to be the party executing the foregoing instrument and
helshe acknowledged said instrument by him so executed to be his free act and
deed and the free act and deed of the corporation.
-------------------------------
NOTARY PUBLIC
My Commission Expires:
----------
<PAGE> 35
EXHIBIT F
TEMPORARY UTILITY EASEMENTS
KNOW ALL MEN BY THESE PRESENTS. that the RHODE ISLAND ECONOMIC
DEVELOPMENT CORPORATION, a Rhode Island public corporation, for and in
consideration of the sum of $1.00 and other good and valuable consideration paid
by Electric Boat Corporation, a Delaware corporation with an address of 75
Eastern Point Road, Groton, Connecticut 06340-0989, the receipt and sufficiency
of which is hereby acknowledged, does hereby grant unto said Grantee, its
successors and assigns, a non-exclusive easement in, on and over the parcel of
real estate set forth and more particularly described on Exhibit A attached
hereto and made a part hereof, for a term of ten years commencing on January 1,
1997 and terminating December 31, 2006 for the purpose of installation, repair,
maintenance and operation of utility and electric lines, conduits and service
equipment for facilities of Grantee and leased from Grantee from Grantor.
The Grantee, its successors and assigns, shall have the right to enter
upon the parcel of real estate described on Exhibit A attached hereto with men
and equipment for the purpose of such installation, repair, maintenance and
operation by it of said utility and electric lines, conduits and equipment.
The Grantee, for itself, its successors and assigns, by accepting and
recording this easement, acknowledges and agrees that: It accepts the rights to
the parcel of real estate described on Exhibit A in its present conditions; it
shall, thereafter, at its expense, install, repair, maintain and operate said
easement area and such utility lines, conduit and equipment; upon any occasion
of disturbance by any of the Grantee, its successors and assigns, of the land
area within the parcel described above, said Grantee, its successors and
assigns, shall restore that land area as nearly as possible to its former
condition prior to such disturbance (or as mutually agreed upon by said Grantee
and Grantor), said restoration to be without delay; and the maintenance of said
easement area shall be the responsibility and at the sole risk of said Grantee,
its successors and assigns.
The Grantor, its successors and assigns, reserves the right to utilize
the parcel of real estate described above for any purpose whatsoever; provided,
however, that such use does not interfere with the easement herein granted.
<PAGE> 36
TO HAVE AND TO HOLD the same with all rights, privileges and
appurtenances thereof or "hereunto pertaining and to the use of said Grantee,
its successors and assigns, for the term of ten years as set forth herein, for
the special purpose of being used and improved as said utility easement.
IN WITNESS WHEREOF, the RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION
has executed this easement as of this _day of December, 1996.
THE RHODE ISLAND ECONOMIC
DEVELOPMENT CORPORATION
By:
----------------------------
Its:
-----------------------------
STATE OF
COUNTY OF
In said County and State on the _____day of December, 1996 before me
personally appeared ____________________, _______________________ of THE RHODE
ISLAND ECONOMIC DEVELOPMENT CORPORATION, to me known and known by me to be the
party executing the foregoing instrument and he/she acknowledged said instrument
by him so executed to be his free act and deed and the free act and deed of said
corporation.
-------------------------------
NOTARY PUBLIC
My Commission Expires:
-----------
<PAGE> 1
Exhibit 10-18B, Annual Report on Form 10-K
for the year ended December 31, 1996
Commission File Number 1-3671
AMENDMENT TO EMPLOYMENT AGREEMENT
FOR JAMES R. MELLOR
This Amendment to Employment Agreement dated as of this fifth
day of November 1996 by and between General Dynamics Corporation, a Delaware
corporation (the "Corporation") and Mr. James R. Mellor.
WHEREAS, effective October 3, 1995, the Corporation and Mr.
Mellor entered into an Employment Agreement (the "1995 Agreement") amending Mr.
Mellor's March 17, 1993, Employment Agreement, pursuant to which Mr. Mellor
agreed to extend his services as Chairman and Chief Executive Officer of the
Corporation from December 31, 1995, until December 31, 1996; and
WHEREAS, the Corporation and Mr. Mellor desire to extend his
services as Chairman and Chief Executive Officer of the Corporation until May
31, 1997, and to provide for Mr. Mellor to provide services to the Corporation
thereafter to an extent greater than contemplated in the 1995 Employment
Agreement, and in connection therewith desire to amend and modify in certain
respects the terms of his 1995 Employment Agreement.
NOW THEREFORE, the Corporation and Mr. Mellor hereby agree as
follows:
1. The Corporation hereby agrees to extend Mr. Mellor's employment as Chairman
and Chief Executive Officer of the Corporation until May 31, 1997, and Mr.
Mellor hereby agrees to serve in such capacity until such time upon the
terms and conditions hereinafter set forth.
2. In consideration of extending his services to the Corporation as Chairman
and Chief Executive Officer until May 31, 1997, the Corporation hereby
agrees that (i) Mr. Mellor's bonus compensation for the year 1996, which
will be paid to him in 1997 when bonuses are paid to other senior executive
officers of the Corporation, shall be in the amount of $1,750,000; (ii)
that Mr. Mellor's base compensation for the period January 1, 1997, through
May 31, 1997, shall be at the same annual rate of base compensation as is
currently being paid to Mr. Mellor; (iii) his bonus for the period January
1, 1997, through May 31, 1997, will be the pro rata amount of the bonus
payable to him with respect to 1996 or $730,000, payable upon his
resignation on May 31, 1997; and (iv) in lieu of Mr. Mellor's participation
in the 1997 Long-Term Incentive Program, a cash payment of $840,000 (the
equivalent present value of 5/12 of the 1997 Long-Term Award he would
otherwise have received), payable upon his resignation on May 31, 1997.
<PAGE> 2
3. For the 12-month period following his resignation as Chairman and Chief
Executive Officer on May 31, 1997, Mr. Mellor will render services to the
Corporation in such manner and upon such terms and conditions as the
Corporation and Mr. Mellor shall agree to, provided that, upon the request
of the Corporation, Mr. Mellor will devote not less than 5 days during each
calendar month during such 12-month period to the rendition of such
services. In consideration of the rendition of such services, the
Corporation hereby agrees that upon Mr. Mellor's resignation as Chairman
and Chief Executive Officer of the Corporation on May 31, 1997, it shall
pay to Mr. Mellor the sum of $580,000.
4. Paragraph 1 of Section 1 of the 1995 Employment Agreement is hereby
modified, in order to reflect the additional months of service which Mr.
Mellor has agreed to render to the Corporation as hereinabove provided, so
that the annual supplemental retirement benefit to which he is entitled
pursuant to said Paragraph 1 is amended to be "$147,064." Mr. Mellor may
receive that amount, upon his request, in a lump-sum payment upon his
retirement, said lump-sum payment to represent the normal value accumulated
in the General Dynamics Pension Plan for Salaried Employees using the
formulas provided for therein.
In addition, the amount to be paid to Mr. Mellor pursuant to Paragraph 2
of Section 1 of the 1995 Employment Agreement shall be $100,957 in order
to reflect the additional months of service to the Corporation as provided
for in this Amendment to the Employment Agreement.
5. The amount to be paid to Mr. Mellor pursuant to Section 2 of the 1995
Employment Agreement shall be deferred until May 31, 1997, with interest
thereon computed in accordance with the terms and provisions of Section 2
of said 1995 Employment Agreement.
6. The Addendum to the Retirement Benefit Agreement attached as an Addendum to
the 1995 Employment Agreement is hereby amended so that the amount provided
for in Section 3(a) therein is changed from "$58,272" to "$147,064."
7. Except as expressly provided herein, the terms and conditions of the 1995
Employment Agreement, including the Addendum thereto, shall remain in full
force and effect.
8. 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
<PAGE> 3
hereunto affixed and attested to by its Secretary, each of whom has been
"hereunto duly authorized, and Mr. Mellor has signed this Agreement.
GENERAL DYNAMICS CORPORATION
By: /s/ William P. Wylie
--------------------
ATTEST:
/s/ Paul A. Hesse
- --------------------------
Secretary
/s/ James R. Mellor
-------------------
James R. Mellor
<PAGE> 1
Exhibit 10-29, Annual Report on Form 10-K
for the year ended December 31, 1996
Commission File Number 1-3671
EMPLOYMENT AGREEMENT FOR NICHOLAS D. CHABRAJA
This Employment Agreement dated as of November 12, 1996, by and between
General Dynamics Corporation, a Delaware Corporation (the "Corporation") and Mr.
Nicholas D. Chabraja;
WHEREAS, since January 1, 1993, Mr. Chabraja has served as Senior Vice
President and General Counsel of the Corporation, and since March 4, 1994, has
served as Executive Vice President and a member of the Board of Directors of the
Corporation;
WHEREAS, the Corporation desires to employ Mr. Chabraja, effective
January 1, 1997, as its Vice Chairman, and effective June 1, 1997, as its
Chairman and Chief Executive Officer; and
WHEREAS, Mr. Chabraja is willing to serve in such capacity with the
Corporation and to devote his full business time and attention to the business
and affairs of the Corporation and, in connection therewith, to withdraw as a
partner of the law firm of Jenner & Block, Chicago, Illinois, effective January
1, 1997;
NOW THEREFORE, it is hereby agreed by and between the Corporation and
Mr. Chabraja as follows:
1. Effective January 1, 1997, the Corporation hereby agrees to employ Mr.
Chabraja, and Mr. Chabraja hereby agrees to accept such employment, as the
Vice Chairman of the Corporation and to discharge such duties and
responsibilities as are provided for in the Bylaws of the Corporation and
as may from time to time be assigned to him by the Chairman and Chief
Executive Officer of the Corporation. Furthermore, the Corporation hereby
agrees to employ Mr. Chabraja effective June 1, 1997, and Mr. Chabraja
hereby agrees to accept such employment, as the Chairman and Chief
Executive Officer of the Corporation with such duties and responsibilities
as are provided for in the Bylaws of the Corporation and as may be assigned
to him from time to time by the Board of Directors of the Corporation.
2. Effective January 1, 1997, Mr. Chabraja shall be paid base compensation at
the rate of $600,000 per year and effective June 1, 1997, Mr. Chabraja
shall be paid base compensation at the rate of $700,000 per year.
Thereafter, Mr. Chabraja shall receive increases in his base compensation
as may from time to time be determined by the Compensation Committee of the
Board of Directors of the Corporation provided that in no event during the
term of this Employment Agreement shall Mr. Chabraja be paid base
compensation at a rate of less than $700,000 per year.
<PAGE> 2
In addition to base compensation, Mr. Chabraja shall be granted compensation
incentives and annual incentive compensation awards commensurate with the
Corporation's performance in comparison to strategic and operational plans and
the performance pay levels of other chief executive officers both on a national
basis and in the defense industry. In addition, Mr. Chabraja shall be eligible
for all other benefits and perquisites offered to other salaried officers of
the Corporation who are employed at the Corporate Headquarters, including
retirement plan benefits, SSIP benefits, group insurance coverage and other
benefits provided to such senior executive officers. In addition, Mr. Chabraja
shall be entitled to the use of corporate aircraft, consistent in all cases
with Board resolutions and the Corporation's policies regarding the use of such
aircraft.
3. Effective January 1, 1997, Mr. Chabraja will withdraw as a partner of the
law firm of Jenner & Block, but shall remain "of counsel" to such firm for
the period from January 1, 1997, to May 31, 1997, in order to enable him to
effectively transition his client practice to other individuals in the
firm. On June 1, 1997, Mr. Chabraja shall terminate the "of counsel"
relationship to such firm and after said date and during his employment by
the Corporation shall have no employment relationship with Jenner & Block.
4. Effective January 1, 1997, Mr. Chabraja will move his residence to the
Washington, D. C., metropolitan area. In that regard, the Corporation
hereby agrees to pay to Mr. Chabraja a one-time housing allowance of up to
$250,000, "grossed-up" for all federal, state and local taxes payable in
connection with that payment, in order to defray the cost and expenses of
such move, provided Mr. Chabraja shall provide to the Corporation written
evidence or other satisfactory substantiation of the expenditure of such
amounts.
5. In recognition of Mr. Chabraja's separation from Jenner & Block and
employment as Vice Chairman and thereafter Chairman and Chief Executive
Officer of the Corporation, the Corporation hereby agrees to provide to Mr.
Chabraja with the Supplemental Retirement Benefit Agreement of even date
herewith, attached as an Addendum to this Employment Agreement which will
provide to him an annual retirement benefit of $280,000, if Mr. Chabraja
voluntarily terminates his employment during the first three years of this
Agreement, increasing by $6,296 per full month of service with the
Corporation that Mr. Chabraja completes during the period from January 1,
2000, to December 31, 2002. In the event Mr. Chabraja's employment with the
Corporation is terminated prior to December 31, 2002, by the Corporation
other than "for cause," as defined in Paragraph 6 hereto, then for purposes
of the Supplemental Retirement Benefit Agreement, Mr. Chabraja will be
deemed to have completed his employment on December 31, 2002. Payment of
retirement benefits to Mr. Chabraja may not commence prior to January 1,
2003.
6. This Employment Agreement shall be effective on the date hereof and shall
terminate on December 31, 2002. In the event this Employment Agreement is
terminated by the Corporation prior to December 31, 2002, other than "for
cause," the Corporation shall pay to Mr. Chabraja at the time of such
termination the amounts Mr. Chabraja would have been entitled to for the
full term hereof, based on his base compensation on the date of such
termination. If this Employment Agreement is terminated prior to December
31, 2002, by Mr. Chabraja, or is terminated by the Corporation "for cause,"
the Corporation shall pay Mr. Chabraja, at the time of such termination,
all amounts due hereunder through the date of such termination. Termination
of this Employment Agreement prior to December 31, 2002, shall in no event
affect Mr. Chabraja's rights under Section 5 hereof.
For purposes of this Section 6, termination "for cause" shall mean action by Mr.
Chabraja: (i) an act or acts of personal dishonesty, (ii) conviction of a felony
<PAGE> 3
related to the Corporation, (iii) material violation of General Dynamics'
standards of business ethics and conduct, or (iv) individually filing or
participating in a lawsuit against the Corporation.
Upon any termination of Mr. Chabraja's employment by the Corporation, in
addition to any and all other sums Mr. Chabraja may then be entitled, the
Corporation hereby agrees that he shall also be entitled to a directed
buy-out of the residence being acquired by him contemporaneously with the
execution of this Employment Agreement, which is located in McLean,
Virginia, in an amount which is equal to the greater of (a) the then
appraised value of said residence, (b) the original cost to Mr. Chabraja
of such property, plus all improvements made by him thereto, as defined in
the Corporation's Relocation Policy.
7. Mr. Chabraja is currently a party to a Severance Protection Agreement with
the Corporation dated January 18, 1996, which provides certain benefits to
Mr. Chabraja in the event of a termination of Mr. Chabraja's employment
with the Corporation. The parties agree that in the event of a termination
of Mr. Chabraja's employment with the Corporation, such that he has rights
under this Employment Agreement and the Severance Protection Agreement, or
any extension or modification thereof, Mr. Chabraja shall be entitled to
receive the benefits under the provisions of Sections 2.1(b)(i) and (ii) of
the Severance Protection Agreement or the First Paragraph of Section 6 of
his Employment Agreement, whichever is greater. In addition, as to those
benefits provided for in both the Severance Protection Agreement, or any
extension or modification thereof, and this Employment Agreement, Mr.
Chabraja will be entitled to those benefits which are the more favorable to
him. Except as provided for in this Section 7, the Severance Protection
Agreement shall remain in full force and effect.
8. This Employment Agreement shall ensure to the benefit of and be binding
upon the Corporation and successors and assigns and upon Mr. Chabraja and
his heirs, executors, and assigns and shall be construed and enforced in
accordance with the laws of the State of Delaware.
<PAGE> 4
IN WITNESS WHEREOF, the Corporation and Mr. Chabraja have executed this
Employment Agreement as of the day and year first above written.
General Dynamics Corporation
By /s/William P. Wylie
---------------------
Attest:
/s/Paul A. Hesse
- --------------------------
Secretary
/s/ Nicholas D. Chabraja
--------------------------
Nicholas D. Chabraja
<PAGE> 5
ADDENDUM
RETIREMENT BENEFIT AGREEMENT
ADDENDUM TO AGREEMENT dated as of 12 November 1996 between General Dynamics
Corporation, a Delaware corporation (the `'Corporation"), and Nicholas D.
Chabraja (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 to the extent the accrued benefits under the Retirement
Plan are 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
will be 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, this Agreement provides for retirement benefits to be paid on the
Employee's retirement.
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
Program, a copy of which has been furnished to him.
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 Program. Payment of these
benefits shall commence at such time and in the form the Employee elects
pursuant to the terms of the Retirement Plan.
3. SUPPLEMENTAL RETIREMENT BENEFIT.
(a) Upon the termination of the Employee's employment with the Corporation,
but no earlier than 1 January 2003, the Employee shall also be paid by
the Corporation each year, as an additional annual retirement benefit
for his life, an amount (the "Supplement"), if any, by which the
Estimated Retirement Plan Benefit for his life (as described in
Paragraph (c)) exceeds the annual retirement benefit for his life that
he is entitled to be paid pursuant to the Retirement Program.
<PAGE> 6
(b) 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 without Compensation Committee approval.
(c) The Estimated Retirement Benefit shall equal an annual retirement benefit
of $280,000 for the first three years of the Employment Agreement and
shall increase $6,296 per full month of service with the Corporation
that Mr. Chabraja completes during the period of 1 January 2000 to 31
December 2002.
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 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.
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.
.
<PAGE> 7
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 charge 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 as 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 postretirement
benefits described above, the Corporation shall remain liable for their
payment unless otherwise agreed to by the parties of this Agreement.
<PAGE> 8
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/ Paul A. Hesse By /s/ William P. Wylie
- ------------------ -------------------------------
Secretary William P. Wylie
Corporate Vice President - Human
Resources and Administration
/s/ Margaret N. House /s/ Nicholas D. Chabraja
- --------------------------- ----------------------------
Witness Employee
<PAGE> 1
Exhibit 10-30, Annual Report on Form 10-K
for the year ended December 31, 1996
Commission File Number 1-3671
This plan was approved by the Board of Directors of the Corporation on February
5, 1997. The plan is subject to the approval at the 1997 Annual Meeting of
Shareholders.
GENERAL DYNAMICS CORPORATION
1997 INCENTIVE COMPENSATION PLAN
1. Purpose. This plan is an amendment and restatement of the 1988 Incentive
Compensation Plan; it is renamed the 1997 Incentive Compensation Plan and is
referred to hereinafter as the "Plan." The purpose of the Plan is to provide
General Dynamics Corporation and its subsidiaries (the "Corporation") with an
effective means of attracting, retaining, and motivating officers and other key
employees and to provide them with incentives to enhance the growth and
profitability of the Corporation.
2. Eligibility. Any officer or key employee of the Corporation in an
executive, administrative, professional, scientific, engineering, technical, or
advisory capacity is eligible for an award under the Plan.
3. Committee. The Plan shall be administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Corporation comprised of two
or more members of the Board of Directors, all of whom shall be "non-employee
directors". Except as otherwise expressly provided in the Plan, the Committee
shall have full power and authority to interpret and administer the Plan, to
determine the officers and key employees to receive awards and the amounts and
types of the awards, to adopt, amend, and rescind rules and regulations, and to
establish terms and conditions, not inconsistent with the provisions of the
Plan, for the administration and implementation of the Plan, provided, however,
that the Committee may not, after the date of any award, make any changes that
would adversely affect the rights of a recipient under any award without the
consent of the recipient. The determination of the Committee on these matters
shall be final and conclusive and binding on the Corporation and all
participants.
Code Section 162(m) Subcommittee. Notwithstanding the foregoing paragraph, the
Plan shall be administered by a subcommittee of the Committee (the
"Subcommittee") with respect to persons covered by the deduction limitation of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Subcommittee shall comprise two or more members of the Committee, all of
whom shall be "outside directors" as that term is used in Code Section 162(m).
With respect to such persons subject to Code Section 162(m), the Subcommittee
shall have all of the powers, rights, and duties granted to the Committee under
this Plan and each reference to the "Committee" herein shall be deemed to be a
reference to the " Subcommittee. "
4. Awards. Awards may be made by the Committee in such amounts as it shall
determine in cash, in common stock of the Corporation ("Common Stock"), in
options to purchase Common Stock of the Corporation ("Stock Options"), or in
shares of Common Stock subject to certain restrictions ("Restricted Stock"),
or any combination thereof. Awards of Stock Options shall be limited to awards
for such number of shares as shall be allocated for that purpose by the Board
of Directors and approved by the shareholders.
5. Code Section 162(m) Awards. Awards to persons covered by the deduction
limitation of Code Section 162(m), as described by Code Section 162(m)(3),
shall be subject to the following additional limitations:
<PAGE> 2
a. Adjustments. The Subcommittee shall have no discretion to increase an
award of Stock Options and/or Restricted Stock once granted; except that
adjustments are permitted under Sections 11 and 12 of this Plan to the
extent permissible under regulations interpreting Code Section 162(m).
b. Maximum Awards. Awards of Stock Options and/or Restricted Stock under the
Plan shall be limited as follows:
(l) Awards of Stock Options shall be limited to 250,000 shares awarded to any
one individual in any calendar year and shall be issued at Fair Market
Value.
(2) Awards of Restricted Stock shall be limited to 50,000 shares awarded to
any one individual in any calendar year. Notwithstanding the foregoing,
Restricted Stock granted under the Restricted Stock Performance Formula,
described below, shall be limited to an initial grant of 50,000 shares,
but shall be adjusted upwards or downwards in accordance with that
formula.
c. Performance Goals. The Subcommittee, in its sole discretion, shall
establish performance goals applicable to awards of Restricted Stock in
such a manner as shall permit payments with respect thereto to qualify as
"performance-based compensation" as described in Code Section
162(m)(4)(C). Such awards shall be based on attainment of, over a
specified period of individual performance, specified targets or other
parameters relating to one or more of the following business criteria:
market price of Common Stock, earnings per share, net profits, total
shareholder return, return of shareholders' equity, cash flow, and
cumulative return on net assets employed. In addition, awards of
Restricted Stock may be based on the Restricted Stock Performance Formula,
described below.
6. Restricted Stock Performance Formula. Awards of Restricted Stock may be
granted pursuant to the formula described in this section, referred to herein
as the "Restricted Stock Performance Formula." The Committee shall make an
initial grant of shares of Restricted Stock (the "Initial Grant"). At the end
of a specified performance period (determined by the Committee), the number of
shares in the Initial Grant shall be increased or decreased based on the
increase or decrease in the value of the Common Stock over the performance
period.
The increase or decrease described in the preceding paragraph shall be
determined in the following manner:
At the end of each performance period, the Fair Market Value (as defined in
Section 7 below) of the Common Stock is compared to the Fair Market Value per
share on the grant date. That difference is multiplied by the number of shares
of Restricted Stock to be earned at the end of each performance period and the
resulting product is divided by the Fair Market Value at the end of the
performance period. The number of shares of Common Stock so determined is added
to (in the case of a higher Fair Market Value) or subtracted from (in the case
of a lower Fair Market Value) the number of shares of Restricted Stock to be
earned at that time. Once the number of shares of Restricted Stock has been
adjusted, restrictions will continue to be imposed for a period of time.
7. Common Stock. In the case of awards in Common Stock, the number of
shares shall be determined by dividing the amount of the award by the average
between the highest and lowest quoted selling prices of the Corporation's
Common Stock on the New York Stock Exchange on the date of the award. The
average is referred to throughout this Plan as the "Fair Market Value."
<PAGE> 3
8. Dividend Equivalents and Interest.
a. Dividends. If any award in Common Stock or Restricted Stock is to be paid
on a deferred basis, the recipient may be entitled, on terms and
conditions to be established, to receive a payment of, or credit
equivalent to, any dividend payable with respect to the number of shares
of Common Stock or Restricted Stock which, as of the record date for the
dividend, has been awarded or made payable to the recipient but not
delivered.
b. Interest. If any award in cash is to be paid on a deferred basis, the
recipient may be entitled, on terms and conditions to be established, to
be paid interest on the unpaid amount.
9. Restricted Stock Awards. Restricted Stock represents awards made in
Common Stock in which the shares granted may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated except upon passage of time,
or upon satisfaction of other conditions, or both, in every case as provided by
the Committee in its sole discretion. The recipient of an award of Restricted
Stock shall be entitled to vote the shares awarded and to the payment of
dividend equivalents on the shares from the date the award of shares is made;
and, in addition, all Special Distributions (as defined in Section 11 hereof)
thereon shall be credited to an account similar to the Account described in
Section 11. The recipient of an award of Restricted Stock shall have a
nonforfeitable interest in amounts credited to such account in proportion to
the lapse of restrictions on the Restricted Stock to which such amounts relate.
For example, when restrictions lapse on fifty percent (50%) of the Restricted
Stock granted in an award, the holder of such Restricted Stock shall have a
nonforfeitable interest in fifty percent (50%) of the amount credited to his
account which is attributable to such Restricted Stock. The holder of
Restricted Stock shall receive a payment in cash of any amount in his account
as soon as practicable after the lapse of restrictions relating thereto.
10. Stock Option Awards
a. Available Shares. Shares available for awards of Stock Options under the
Plan at the Effective Date of the restatement of the Plan shall be
available for awards of Stock Options under the Plan. Shares available for
awards of Stock Options may be authorized but unissued shares or may be
treasury shares. If any option awarded under the Plan or any predecessor
plan shall expire, terminate, or be canceled for any reason without having
been exercised in full, the corresponding number of unpurchased shares
which were reserved for issuance upon exercise thereof shall again be
available for the purposes of the Plan.
b. Type of Options. Options shall be in the form of incentive stock options,
non-statutory stock options, or both, as the Committee may determine. The
term "incentive stock option" means any option, or portion thereof,
awarded under the Plan which meets the applicable requirements of Section
422 of the Internal Revenue Code, as it may be amended from time to time.
The term "non-statutory stock option" means any option, or portion
thereof, awarded under the Plan which does not qualify as an incentive
stock option.
c. Incentive Stock Option Limitation. For incentive stock options granted
under the Plan, the aggregate fair market value (determined as of the date
the option is awarded) of the number of whole shares with
<PAGE> 4
respect to which incentive stock options are exercisable for the first time by
any employee during any calendar year under all plans of the Corporation shall
not exceed $100,000.
d. Purchase Price. The purchase price of the Common Stock under each option
shall be determined by the Committee, but shall not be less than 100% of
the Fair Market Value of the Common Stock on the date of the award of the
option.
e. Terms and Conditions. The Committee shall, in its discretion, establish
(i) the term of each option, which in the case of incentive stock options
shall not be more than ten years, (ii) the terms and conditions upon which
and the times when each option shall be exercised, and (iii) the terms and
conditions under which options may be exercised after termination of
employment for any reason for periods not to exceed three years after
termination of employment but not beyond the term established above.
f. Purchase by Cash or Stock. The purchase price of shares purchased upon the
exercise of any stock option shall be paid (i) in full in cash, or (ii) in
whole or in part (in combination with cash) in full shares of Common Stock
owned by the optionee and valued at its Fair Market Value on the date of
exercise, all pursuant to procedures approved by the Committee.
g. Transferability. Options shall not be transferable. During the lifetime of
the person to whom an option has been awarded, it may be exercisable only
by such person or one acting in his stead or in a representative capacity.
Upon or after the death of the person to whom an option is awarded, an
option may be exercised by the optionee's legatee or legatees under his
last will, or by the option holder's personal representative or
distributee's executive, administrator, or personal representative or
designee in accordance with the terms of the option.
h. Option Exchange. Subject to the restrictions of Section 5, the Committee,
in its sole discretion, shall have the authority at any time, and from
time to time, to enter into option exchanges with one or more or all
holders of options awarded under the Plan, upon such terms and conditions
as it deems appropriate and advisable. Such terms and conditions need not
be uniform among all holders of outstanding options.
11. Adjustments for Special Distributions. The Committee shall have the
authority to change all Stock Options granted under this Plan to adjust
equitably the purchase price thereof to reflect a special distribution to
shareholders or other extraordinary corporate action involving distributions or
payments to shareholders (collectively referred to as "Special Distributions").
In the event of any Special Distribution, the Committee may, to the extent that
it determines in its judgment that the adjustment of the purchase price of Stock
Options does not fully reflect such Special Distribution, increase the number of
shares of Common Stock covered by such Stock Options or cause to be created a
Special Distribution account (the "Account") in the name of each individual to
whom Stock Options have been granted hereunder (sometimes herein referred to as
a "Grantee") to which shall be credited an amount determined by the Committee,
or, in the case of noncash Special Distributions, make appropriate comparable
adjustments for or payments to or for the benefit of the Grantee. Amounts
credited to the Account in accordance with the preceding rules shall be
credited with interest, accrued monthly, at an annual rate equal to the higher
of Moody's Corporate Bond Yield Average or the
<PAGE> 5
prime rate in effect from time to time, and such interest shall be credited in
accordance with rules to be established by the Committee. Notwithstanding the
foregoing, at no time shall the Committee permit the amount credited to the
Grantee's Account to exceed ninety percent (90%) of the purchase price of the
Grantee's outstanding Stock Options to which such amount relates. To the extent
that any credit would cause the Account to exceed that limitation, such excess
shall be distributed to the Grantee in cash.
Amounts credited to the Grantee's Account shall be paid to the Grantee or, if
the Grantee is deceased, his or her beneficiary at the time that the options to
which it relates are exercised or expire, whichever occurs first.
The Account shall for all purposes be deemed to be an unfunded promise to pay
money in the future in certain specified circumstances. As to amounts credited
to the Account, a Grantee shall have no rights greater than the rights of a
general unsecured creditor of the Corporation, and amounts credited to the
Grantee's Account shall not be assignable or transferrable other than by will or
the laws of descent and distribution, and such amounts shall not be subject to
the claims of the Grantee's creditors.
12. Adjustments and Reorganizations. The Committee may make such adjustments
to awards granted under the Plan (including the terms, exercise price,
and otherwise) as it deems appropriate in the event of changes that
impact the Corporation, the Corporation's share price, or share status.
In the event of any merger, reorganization, consolidation, change of control,
recapitalization, separation, liquidation, stock dividend, stock split,
extraordinary dividend, spin-off, split-up, rights offering, share combination,
or other change in the corporate structure of the Corporation affecting the
Common Stock, the number and kind of shares that may be delivered under the Plan
shall be subject to such equitable adjustment as the Committee, in its sole
discretion, may deem appropriate. The determination of the Committee on these
matters shall be final and conclusive and binding on the Corporation and all
participants.
In the preceding paragraph, "change of control" means any of the following
events:
a. An acquisition (other than directly from the Corporation) of any voting
securities of the Corporation by any person who previously was the
beneficial owner of less than 10% of the combined voting power of the
Corporation'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 Corporation's then outstanding voting securities; provided
that, in determining whether a change of control has occurred, voting
securities which are acquired by (i) an employee benefit plan (or a trust
forming a part thereof) maintained by the Corporation or any subsidiary of
the Corporation, (ii) the Corporation or any subsidiary of the
Corporation, or (iii) any person in connection with a Non-Control
Transaction (as hereinafter defined), will not constitute an acquisition
which results in a change of control;
b. Approval by stockholders of the Corporation of:
(1) a merger, consolidation, or reorganization involving the Corporation,
unless:
(A) the stockholders of the Corporation immediately before such merger,
consolidation, or reorganization will own, directly or indirectly,
immediately following such merger, consolidation, or reorgaruzation, at
least 51% of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger,
<PAGE> 6
consolidation, or reorganization (the "Surviving Corporation") in substantially
the same proportion as their ownership of the voting securities of the
Corporation immediately before such merger, consolidation, or reorganization;
and
(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 Corporation, any subsidiary of the Corporation,
any employee benefit plan (or any trust forming a part thereof)
maintained by the Corporation, 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
Corporation) 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;"
(2) the complete liquidation or dissolution of the Corporation; or
(3) an agreement for sale or other disposition of all or substantially all of
the assets of the Corporation to any person (other than a transfer to a
subsidiary of the Corporation).
c. Notwithstanding the foregoing, a change of 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 Corporation as a result of the acquisition of voting
securities by the Corporation 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 of
control would occur (but for the operation of this sentence) as a result
of the acquisition of voting securities by the Corporation, and after
such share acquisition by the Corporation, 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 of control will be deemed to have
occurred.
13. Tax Withholding. The Corporation shall have the right to (i) make
deductions from any settlement of an award under the Plan, including the
delivery or vesting of shares, or require shares or cash or both be
withheld from any award, in each case in an amount sufficient to satisfy
withholding of any federal, state, or local taxes required by law, or (ii)
take such other action as may be necessary or appropriate to satisfy any
such withholding obligations. The Committee may determine the manner in
which such tax withholding may be satisfied, and may permit shares of
Common Stock (rounded up to the next whole number) to be used to satisfy
required tax withholding based on the Fair Market Value of any such shares
of Common Stock, as of the appropriate time of each award.
14. Expenses. The expenses of administering the Plan shall be borne by the
Corporation.
<PAGE> 7
15. Amendments. The Board of Directors of the Corporation shall have
complete power and authority to amend the Plan, provided that the Board
of Directors shall not, without shareholder approval, adopt any
amendment which would (a) increase the number of shares for which
options may be awarded under the Plan, (b) modify the class of employees
eligible to receive awards, (c) extend the period during which incentive
stock options may be awarded, or (d) materially increase the benefits of
employees receiving awards under the Plan. No amendment to the Plan may,
without the consent of the individual to whom the award shall
theretofore have been awarded, adversely affect the rights of an
individual under the award.
16. Effective Date of the Plan. The Plan shall become effective on its
adoption by the Board of Directors of the Corporation on February 5,
1997, subject to approval at the 1997 Annual Meeting of Shareholders.
17. Termination. The Board of Directors of the Corporation may terminate the
Plan or any part thereof at any time, provided that no termination may,
without the consent of the individual to whom any award shall
theretofore have been made, adversely affect the rights of an individual
under the award.
18. Other Actions. Nothing contained in the Plan shall be deemed to preclude
other compensation plans which may be in effect from time to time or be
construed to limit the authority of the Corporation to exercise its
corporate rights and powers, including, but not by way of limitation,
the right of the Corporation (a) to award options for proper corporate
purposes otherwise than under the Plan to an employee or other person,
firm, corporation, or association, or (b) to award options to, or assume
the option of, any person in connection with the acquisition, by
purchase, lease, merger, consolidation, or otherwise, of the business
and assets (in whole or in part) of any person, firm, corporation, or
association.
<PAGE> 1
EXHIBIT 11, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
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
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET EARNINGS:
Continuing Operations $ 270 $ 247 $ 223
Discontinued Operations:
Earnings from operations - 55 -
Gain on disposal - 19 15
------------- -------------- -------------
$ 270 $ 321 $ 238
============= ============== =============
Weighted average common shares outstanding 63,171,625 62,992,558 63,068,328
NET EARNINGS PER SHARE - PRIMARY:
Continuing Operations $ 4.26 $ 3.91 $ 3.51
Discontinued Operations:
Earnings from operations - .87 -
Gain on disposal - .30 .24
------------- -------------- -------------
$ 4.26 $ 5.08 $ 3.75
============= ============== =============
Common shares from above 63,171,625 62,992,558 63,068,328
Assumed exercise of options (treasury stock method) 258,542 226,734 355,793
------------- -------------- -------------
63,430,167 63,219,292 63,424,121
============= ============== =============
NET EARNINGS PER SHARE - FULLY DILUTED:
Continuing Operations $ 4.25 $ 3.90 $ 3.51
Discontinued Operations:
Earnings from operations - .87 -
Gain on disposal - .30 .24
------------- -------------- -------------
$ 4.25 $ 5.07 $ 3.75
============= ============== =============
Common shares from above 63,171,625 62,992,558 63,068,328
Assumed exercise of options (treasury stock method) 363,462 371,590 357,447
------------- -------------- -------------
63,535,087 63,364,148 63,425,775
============= ============== =============
</TABLE>
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except per share amounts)
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of the Results of Operations and Financial
Condition and other sections of this Annual Report contain 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 that 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 that 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 OVERVIEW
The company's primary business is supplying weapons systems and services to the
U.S. government and its international allies. Over the last decade, U.S. defense
budgets have declined sharply in response to the end of the Cold War.
Consequently, there has been a necessary contraction and consolidation by
participants in the defense industry. As part of the industry consolidation in
the early 1990s, management focused on strengthening certain businesses by both
internal and external means, while divesting other businesses. Further,
management has been focusing on developing and providing its customers with
advanced technological solutions to meet operational requirements, while
continually improving cost structure. These efforts have created highly
efficient businesses that are positioned to capture new programs and contracts.
Through early 1997, the company's businesses have been awarded new programs with
the potential for significant production, as well as several important contracts
on existing programs. Since September 1995, the company has acquired for
approximately $800 the net assets of four businesses that have strengthened the
company's franchises. These acquisitions have been and are expected to be
immediately accretive to earnings. As a result of these internal and external
actions, the company doubled total backlog between September 1995 and January
1997.
The company intends to continue to strengthen its current businesses by
pursuing acquisitions that bring real value to its shareholders, affordability
to its customers and that address the following strategic criteria:
- offer the opportunity to achieve savings through consolidation;
- leverage on the company's operating strength and core competencies;
- broaden product lines;
- provide technology that improves the company's competitive position;
- result in marketplace leadership.
The company may not be able to achieve each of these goals in each acquisition.
Management believes there may be additional opportunities to acquire new
franchises outside of its current market area on favorable financial terms. With
increasing cash flows and earnings, virtually no debt, and approximately $700 in
funds on hand after the most recent acquisition, the company has the financial
capacity to take advantage of these potential opportunities.
EARNINGS FROM CONTINUING OPERATING CASH FLOWS
OPERATIONS
1994 $223 1994 $248
1995 $247 1995 $349
1996 $270 1996 $415
BUSINESS SEGMENTS
The company comprises two major business segments: Marine and Combat Systems
Groups, as well as miscellaneous businesses classified as Other. The Marine
Group includes Electric Boat, which designs and builds nuclear submarines for
the U.S. Navy; Bath Iron Works (BIW), which designs and builds surface
combatants for the U.S. Navy; and American Overseas Marine, which provides ship
management services for the U.S. government on prepositioning and ready reserve
ships.
<PAGE> 2
The Combat Systems Group, formerly the Armored Vehicles segment, includes
Land Systems which designs and manufactures the M1 Series Abrams Main Battle
Tank for the U.S. Army and international customers, along with other armored
vehicle products. On March 29, 1996, Land Systems purchased the assets of
Teledyne Vehicle Systems (Muskegon Operations), an operating unit of Teledyne
Inc. Muskegon Operations specializes in combat vehicles as well as mobility
systems, suspension technology and diesel engines for armored vehicle markets
world-wide. On January 1, 1997, the company purchased the assets of Defense
Systems and Armament Systems, operating units of Lockheed Martin Corporation.
Defense Systems builds light vehicles, turrets and transmissions for
18
<PAGE> 3
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 acquisition expands the company's
participation in armored vehicles from heavy tanks to light vehicles, and from
full platforms to major subsystems. The acquisition also creates a presence in
fire control systems and components.
A third business segment (Other) includes coal mining and aggregates
operations located in Illinois, and leasing operations for liquefied natural gas
tankers.
A discussion of each business segment's backlog position, anticipated
programs, operating results and outlook follows. As noted earlier, the
anticipated programs of the Marine and Combat Systems Groups are subject to,
among other events, changing priorities or reductions in the U.S. government
defense budget. For a summary of business segment information, see Note Q to the
Consolidated Financial Statements which is incorporated herein by reference.
MARINE GROUP
Backlog
1995 $5,686
1996 $7,566
In 1996, Electric Boat obtained a $1.1 billion contract for the construction of
the third and final Seawolf class attack submarine. The president's fiscal year
1998 (FY98) budget, as submitted to Congress, includes $150 million to complete
the funding of the third Seawolf. Also in 1996, Electric Boat obtained a $1.3
billion contract for the design of the New Attack Submarine (NSSN). Current
Department of Defense plans call for 30 ships in the NSSN program. The
president's FY98 budget includes approximately $3 billion in funding for the
NSSN program, consisting of $400 million for continued design, $2.3 billion for
construction of the first ship, and $300 million for long-lead materials for the
second and third ships. Congress previously approved approximately $1.3 billion
in funding for the continued design and long-lead materials for construction of
the first two ships of the NSSN program.
The company has entered into a Team Agreement 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 U.S. Navy, Department of Defense and a change in existing law which
currently requires competition between Electric Boat and Newport News for
construction of NSSNs after each has produced two ships. Based on estimates
developed by the team, the company believes the Team Agreement will provide
significant cost savings to the Navy, therefore enhancing government support for
full funding of the first four ships and obtaining the required administrative
and legislative approvals.
In 1996, BIW obtained $1.1 billion in contracts for the construction of
three Arleigh Burke class destroyers (DDG 51). The procurement of these DDG 51s
was fully funded by Congress for FY97. BIW now has firm contracts for
construction of 11 DDG 51s to be delivered through 2002. Congress has authorized
the Secretary of the Navy to initiate multiyear contracts for the procurement of
an additional 12 DDG 51s between FY98 and FY01. The president's FY98 budget
request provides for approximately $2.8 billion in funding for the first three
ships in the multiyear procurement. The Navy currently intends to allocate the
12 destroyers between BIW and its competitor.
BIW is also a member of a three-contractor team that was recently selected
to design and build the Navy's new class of amphibious transport ships (LPD 17).
Congressional funding was previously approved for the design and construction of
the lead LPD 17. The Navy anticipates this to be a 12-ship program. If the Navy
receives congressional funding for all 12 ships, BIW has agreed with its
partners that it will construct four ships. The LPD 17 award is being protested
by a competing contractor team led by Litton Industries. The company believes
the basis for the Navy's selection will be upheld in the appeal process.
BIW was awarded a contract in early 1997 for the Phase II design of the
Navy's arsenal ship. BIW is the leader of one of three remaining contractor
teams competing for the Phase III design and construction contract which is
expected to be awarded in 1998. Congress approved funding this program for FY97,
and the president's FY98 budget request includes an additional $150 million in
funding.
Results of Operations and Outlook
<TABLE>
<CAPTION>
-----------------------------------
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Net Sales $2,332 $1,884 $1,733
Operating Earnings $ 216 $ 194 $ 196
- --------------------------------------------------------------------------------
</TABLE>
Net sales and operating earnings increased $448 and $22, respectively, in 1996
due primarily to the acquisition of BIW. For a discussion of the accounting for
this transaction and related information, see Note B to the Consolidated
Financial Statements. The operating results of BIW have been included with those
of the company from the closing date, September 13, 1995.
Excluding the results of BIW, net sales decreased approximately 5 percent
during 1996 due to lower construction activity on the Trident and Los Angeles
class submarine programs. The impact of lower submarine construction activity on
operating earnings was offset by an increase in the earnings rate on the Trident
program. As the Trident program nears completion, performance risks have
diminished and the benefits of cost reduction efforts are being realized.
Accordingly, the
19
<PAGE> 4
company assessed the estimated earnings at completion on this program in the
third quarter of 1996 and concluded an increase was appropriate. Previously, the
earnings rate was increased in the second quarter of 1995.
Net sales increased $151 during 1995 due primarily to the acquisition of
BIW. Operating earnings were basically unchanged during 1995 as the effect of
the acquisition was offset by decreased submarine construction volume.
Looking forward, the final Trident is scheduled for delivery in 1997, while
the first two Seawolf submarines are scheduled for delivery in 1997 and 1998.
Accordingly, submarine construction revenues are expected to decline, but not
materially, as these ships are delivered.
BIW is realizing the benefits of reengineering efforts that are reducing
costs on the DDG 51 program. At Electric Boat, as the Seawolf program matures
with construction of the first ship approximately 98 percent complete and as
performance improves, operating risks are expected to diminish. In addition, the
NSSN program is stabilizing the business base at Electric Boat which in turn is
expected to benefit all submarines under construction. As a result, return on
sales of the Marine Group is expected to improve in 1997.
COMBAT SYSTEMS GROUP
Backlog
1995 $1,103
1996 $2,057
In 1996, Land Systems obtained a $1.3 billion multiyear contract for the upgrade
of 600 M1 Abrams tanks over five years. This contract is a part of a U.S. Army
program to upgrade over 1,000 of its M1 tanks to the M1A2 configuration by the
year 2003. The president's FY98 budget request includes $600 million to fund the
second year of production and long-lead procurement for the third year of the
contract. Congress had previously approved funding for the first year. Based on
the stated objectives of the U.S. Army, the company anticipates that this
multiyear contract will be followed by an Army requirement for additional
upgrades.
Also during 1996, Land Systems obtained a contract for the development of
the Advanced Amphibious Assault Vehicle (AAAV), including design and
construction of at least three prototypes. Additional funds were requested in
the president's FY98 budget for the AAAV development program. The Marine Corps
plans to build more than 1,000 vehicles in the next decade, a production program
worth as much as $4 billion.
In addition to domestic sales, Land Systems is under contract to the U.S.
Army to manufacture M1A1 kits--including hulls, turrets and other major
components--to be shipped to Egypt for final assembly as part of a coproduction
program. Through 1996, Land Systems delivered 482 of the 530 M1A1 kits it is
under contract to manufacture. Land Systems is pursuing an order for an
additional 100 kits which, if obtained, will extend the coproduction program
beyond its scheduled December 1997 completion date. Land Systems continues to
pursue international sales aggressively. The acquisition of Defense Systems and
Armament Systems will enhance the company's international presence.
Land Systems is one of two producers of the Single Channel Ground and
Airborne Radio System (SINCGARS) for the U.S. Army. The president's FY98 budget
requests $290 million in funding for SINCGARS. Land Systems was recently awarded
40 percent of the latest production contract. The Army is soliciting bids from
Land Systems and its competitor and will select one contractor for the remaining
two years of the production program.
Further, the president's FY98 budget requests funding for three additional
armored vehicle programs in which Land Systems is participating. The first is a
four-year program to upgrade Fox Nuclear, Biological and Chemical Reconnaissance
System vehicles. The second is the Heavy Assault Bridge program which is under
development and is expected to enter production late this decade. The third is
the Crusader Self-Propelled Howitzer development program in which the company's
share is approximately 25 percent. The U.S. Army plans to build over 800
Crusader systems, a program that could be worth as much as $13 billion. The
president's FY98 budget requests approximately $325 million for the Crusader,
which remains the Army's largest single research and development program.
Finally, the president's FY98 budget request supports product lines of the
new Defense Systems and Armament Systems subsidiaries. This includes funding for
several derivatives of the Bradley combat vehicle, Hydra Rocket production, and
60mm and 120mm mortar ordnance.
Results of Operations and Outlook
<TABLE>
<CAPTION>
-----------------------------------
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Net Sales $1,026 $1,050 $1,184
Operating Earnings $ 140 $ 140 $ 140
- --------------------------------------------------------------------------------
</TABLE>
Net sales decreased $24 during 1996 due primarily to decreased M1 production
resulting from the delivery of the last of 218 M1A2 tanks to Kuwait in the first
quarter of 1996. This decrease was partially offset by increased activity on the
domestic upgrade program and the impact of the Muskegon Operations acquisition.
Operating earnings were unchanged in 1996 due to slightly higher volume on
the SINCGARS program and the impact of the Muskegon Operations acquisition,
which offset the aforementioned decrease in M1 production.
Net sales decreased $134 in 1995 due primarily to decreased M1 production,
resulting from the delivery of the last of 315 M1A2 tanks to Saudi Arabia in
late 1994. Operating earnings were unchanged in 1995 due to the increase in the
earnings rate on the M1 and SINCGARS programs in the third quarter of 1994,
which offset the aforementioned volume decrease.
20
<PAGE> 5
Looking forward, M1 revenues are expected to remain relatively even in 1997,
as the multiyear upgrade contract provides for consistent production of 120
tanks in each of the next four years. Also, the outcome of the SINCGARS sole
source award will not affect the company's 1997 results. However, the
acquisition of Defense Systems and Armament Systems will increase overall Combat
Systems Group sales in 1997.
Defense Systems and Armament Systems earn lower margins compared to those
historically reported by the company's domestic and foreign tank programs.
Accordingly, operating earnings of the Combat Systems Group are expected to
increase in 1997, but not proportionately to the increase in sales.
The company continues to seek improvements in operating margins in the
Combat Systems Group by the consolidation and rationalization of facilities such
as the closure of Warren Logistics Center and the consolidation of electronics
manufacturing at the Tallahassee facility in 1996.
Other
<TABLE>
<CAPTION>
-----------------------------
1996 1995 1994
-----------------------------
<S> <C> <C> <C>
Net Sales $ 223 $ 133 $ 141
Operating Losses $ (3) $ (19) $ (15)
- --------------------------------------------------------------------------------
</TABLE>
Net sales increased $90 and operating losses decreased $16 during 1996 due
primarily to the reclassification of the aggregates business to continuing
operations in the second quarter of 1996 (for further discussion see Note C to
the Consolidated Financial Statements). Operating losses also decreased during
1996 due to the extension of the ship leases.
ADDITIONAL FINANCIAL INFORMATION
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased during 1996 due primarily to the acquisition of BIW. However, general
and administrative expenses as a percentage of net sales have remained basically
even with 1995 and 1994.
INTEREST, NET. Interest income was $59 in 1996 and 1995, up from $27 in
1994. Interest remained the same in 1996 as in 1995 due to a similar average
cash balance and average interest rate. Interest income increased in 1995 over
1994 due to an increase in the average cash balance resulting from cash from
operations and asset sales, as well as higher interest rates. Interest income is
expected to decrease significantly in 1997 due to a decline in the average
balance resulting from the acquisition of Defense Systems and Armament Systems
in early 1997.
OTHER INCOME, NET. Other income varies from period to period based on
the timing of transactions such as the sales of investments and miscellaneous
assets.
PROVISION FOR INCOME TAXES. The company is litigating the disallowance of a
research and experimentation tax credit claim relating to certain prior years'
tax returns. The outcome of this litigation could have a materially 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 net deferred tax asset, see Note D to the Consolidated Financial Statements.
DISCONTINUED OPERATIONS. The company has operated certain businesses that
were accounted for as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30. Earnings from discontinued operations decreased
in 1996, as the commercial aircraft subcontracting business ceased operations
after the delivery of its final shipset, and the aggregates business was
reclassified to continuing operations. Both events occurred in early 1996. For
additional discussion, refer to Note C to the Consolidated Financial Statements.
Earnings from operations increased in 1995 due primarily to the MD-11
program at the 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 shutdown of the operations, the company began
recognizing earnings on the program once again in 1995.
For a discussion of the financial impact from the disposal of discontinued
operations, see Note C to the Consolidated Financial Statements. There are no
businesses classified as discontinued operations as of December 31, 1996.
ENVIRONMENTAL MATTERS. For a discussion of environmental matters and other
contingencies, see Note M 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.
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. The company adopted the provisions of SFAS
121 as of January 1, 1996, which had no material impact on the company's results
of operations or financial condition. SFAS 123 encourages companies to adopt a
fair value approach to valuing stock options which would require compensation
cost to be recognized based on the fair value of stock options granted. The
company has elected, as permitted by the standard, to follow its intrinsic value
based method of accounting for stock options consistent with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the intrinsic method, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the company's stock at the
measurement date over the exercise price.
The Accounting Standards Executive Committee issued Statement of Position
(SOP) 96-1, "Environmental Remediation Liabilities," in October 1996. SOP 96-1
provides benchmarks to aid in the determination of when environmental
liabilities should be recognized, as well as requirements for what the accrual
of environmental liabilities should include. The company is required to adopt
the provisions of the statement in 1997 and expects the statement will not have
a material impact on the results of operations or financial condition.
FINANCIAL CONDITION
The company's liquidity and financial condition remained strong during 1996 as
the balance of cash and equivalents and marketable securities increased from
$1,095 at December 31, 1995, to $1,155 at December 31, 1996. 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.
21
<PAGE> 6
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:
Year Ended December 31
-------------------------------
1996 1995 1994
-------------------------------
[S] [C] [C] [C]
Operations $ 520 $ 405 $ 343
Allocated federal income tax payments (127) (89) (89)
Other 22 33 (6)
- --------------------------------------------------------------------------------
Operating cash flows 415 349 248
Decrease (increase) in
marketable securities, net 742 (203) (136)
- --------------------------------------------------------------------------------
Net cash provided by
continuing operations $ 1,157 $ 146 $ 112
- --------------------------------------------------------------------------------
The four types of cash flows are described as follows:
- Operations represent the pretax cash flows generated by the three business
segments. Cash flows from operations historically approximate operating earnings
plus depreciation. In 1996 and 1995, cash flows exceeded this level due to a
reduction in operating working capital. The company believes that cash flows
will again exceed operating earnings plus depreciation in 1997, due to the
expected favorable impact that scheduled product deliveries will have on working
capital.
- 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.
- Other cash flows include items that 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.
- The company classifies its marketable securities as either trading or
available-for-sale in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, the purchases, sales
and maturities of trading securities are reflected as cash flows from operating
activities, and the purchases, sales and maturities of available-for-sale
securities are reflected as cash flows from investing activities. For additional
discussion of the company's marketable securities, see Note L to the
Consolidated Financial Statements. In 1996, approximately $500 of the $742
decrease in marketable securities, net, was due to the amount the company
invested in available-for-sale securities as opposed to trading securities in
order to favorably affect the performance of its investment portfolio.
OPERATING ACTIVITIES--DISCONTINUED. Cash flows from discontinued operations
decreased during 1996 due primarily to the commercial aircraft subcontracting
business ceasing operations and the resulting higher federal income tax payments
associated with the delivery of its final shipset. Cash flows from discontinued
operations increased during 1995 due to lower allocated federal income tax
payments, improved operating cash flows and a decrease in payments for
disposition related liabilities. Cash flows from discontinued operations are
expected to improve in 1997 due to lower allocated federal income tax payments.
For discussion of the A-12 program litigation, see Note N to the Consolidated
Financial Statements.
[PHOTO]
Michael J. Mancuso/Sr. Vice President and Chief Financial Officer
INVESTING ACTIVITIES. As previously discussed, the company has purchased
available-for-sale securities, which pursuant to SFAS 115, are classified as
cash flows from investing activities. Those securities, with maturities longer
than one year, are classified as noncurrent assets. Although the maturities
extend beyond one year, the securities are still currently available to fund
internal and external investment opportunities.
The company received proceeds in 1995 and 1994 from the sale of discontinued
operations (for a discussion of individual transactions, see Note C to the
Consolidated Financial Statements). As part of the sale of discontinued
operations, certain properties located in southern California were retained.
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 that will maximize the value the company receives from
these properties. Development work began on certain of these properties during
1994 and is included in capital expenditures.
Cash flows from investing activities are expected to be negative in 1997,
due to the effect of business acquisitions.
FINANCING ACTIVITIES. In the first quarter of 1996, the board of directors
increased the regular quarterly dividend to $.41 per share, reflecting the
board's confidence in the sustainability of the cash flows generated by the
company's operations. The company had previously increased the dividend to $.375
and $.35 per share in March 1995 and March 1994, respectively.
In 1994, the board of directors reconfirmed management's authority to
repurchase, at its discretion, up to 3 million shares of the company's common
stock. During 1996, the company repurchased approximately 390,000 shares of its
stock on the open market for a total of $23. During 1994, the company
repurchased approximately 530,000 shares of its stock on the open market for a
total of $22.
The Title XI Bonds issued by the ship financing business were retired in
1996. This retirement was financed by the private placement of new bonds that
are callable under certain conditions and that are also nonrecourse to the
company. The refinancing had no material impact on the company's results of
operations or financial condition.
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 1997, at which time the
company anticipates renewing or replacing it if deemed appropriate.
22
<PAGE> 7
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1996 1995 1994
------------------------
<S> <C> <C> <C>
NET SALES $3,581 $3,067 $3,058
OPERATING COSTS AND EXPENSES 3,228 2,752 2,737
- ----------------------------------------------------------------------------------
OPERATING EARNINGS 353 315 321
Interest, net 55 55 22
Other income, net 1 5 --
- ----------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 409 375 343
Provision for income taxes 139 128 120
- ----------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 270 247 223
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Earnings from operations -- 55 --
Gain on disposal -- 19 15
- ----------------------------------------------------------------------------------
-- 74 15
- ----------------------------------------------------------------------------------
NET EARNINGS $ 270 $ 321 $ 238
- ----------------------------------------------------------------------------------
NET EARNINGS PER SHARE:
Continuing operations $ 4.27 $ 3.92 $ 3.53
Discontinued operations:
Earnings from operations -- .88 --
Gain on disposal -- .30 .24
- ----------------------------------------------------------------------------------
$ 4.27 $ 5.10 $ 3.77
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
23
<PAGE> 8
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
------------------------
(Dollars in millions) 1996 1995
------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 516 $ 215
Marketable securities 378 880
- ---------------------------------------------------------------------------------------
894 1,095
Accounts receivable 97 105
Contracts in process 558 567
Other current assets 309 246
- ---------------------------------------------------------------------------------------
Total Current Assets 1,858 2,013
- ---------------------------------------------------------------------------------------
NONCURRENT ASSETS:
Marketable securities 261 --
Leases receivable--finance operations 204 213
Real estate held for development 147 136
Property, plant and equipment, net 441 398
Other assets 388 404
- ---------------------------------------------------------------------------------------
Total Noncurrent Assets 1,441 1,151
- ---------------------------------------------------------------------------------------
$ 3,299 $ 3,164
- ---------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 182 $ 130
Other current liabilities 651 729
- ---------------------------------------------------------------------------------------
Total Current Liabilities 833 859
- ---------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 38 38
Long-term debt--finance operations 118 132
Other liabilities 596 568
Commitments and contingencies (See Note M)
- ---------------------------------------------------------------------------------------
Total Noncurrent Liabilities 752 738
- ---------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, including surplus (shares issued 84,387,336) 109 98
Retained earnings 2,254 2,087
Treasury stock (shares held 1996, 21,285,157; 1995, 21,141,961) (650) (625)
Unrealized gain on available-for-sale securities 1 7
- ---------------------------------------------------------------------------------------
Total Shareholders' Equity 1,714 1,567
- ---------------------------------------------------------------------------------------
$ 3,299 $ 3,164
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
24
<PAGE> 9
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
(Dollars in millions) 1996 1995 1994
------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 270 $ 321 $ 238
Adjustments to reconcile net earnings to net
cash provided by continuing operations -
Discontinued operations -- (74) (15)
Depreciation, depletion and amortization 67 38 39
Decrease (Increase) in -
Marketable securities 742 (203) (136)
Accounts receivable 25 21 (42)
Contracts in process 41 6 91
Leases receivable--finance operations 8 14 15
Other current assets -- 21 6
Increase (Decrease) in -
Accounts payable and other current liabilities 2 (22) (105)
Current income taxes 76 3 27
Deferred income taxes (61) 36 4
Other, net (13) (15) (10)
- ------------------------------------------------------------------------------------
Net cash provided by continuing operations 1,157 146 112
Net cash provided (used) by discontinued operations (121) 84 31
- ------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 1,036 230 143
- ------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (986) -- --
Sales/maturities of available-for-sale securities 484 7 --
Business acquisitions (59) (292) --
Capital expenditures (75) (32) (23)
Proceeds from sale of assets 41 6 17
Proceeds from sale of discontinued operations -- 24 259
Other (10) (5) --
- ------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (605) (292) 253
- ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt--finance operations 150 -- --
Repayment of debt--finance operations (158) (15) (14)
Dividends paid (101) (92) (84)
Purchase of common stock (23) -- (22)
Proceeds from option exercises 8 4 14
Other (6) (2) (2)
- ------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (130) (105) (108)
- ------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 301 (167) 288
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 215 382 94
- ------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 516 $ 215 $ 382
- ------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
25
<PAGE> 10
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Unrealized Gain
----------------------------------- Retained ------------------- on Available-for-
Shares Par Surplus Earnings Shares Amount Sale Securities
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 gain on
available-for-sale
securities 7
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 84,387,336 84 14 2,087 21,141,961 625 7
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings 270
Cash dividends declared
($1.64 per share) (103)
Shares purchased 391,900 23
Shares issued
under Incentive
Compensation Plan 11 (248,704) 2
Change in unrealized gain
on available-for-sale
securities (6)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 84,387,336 $ 84 $ 25 $ 2,254 21,285,157 $ 650 $ 1
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
26
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
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. Actual results could differ from these estimates.
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 $275, $234 and $234 in 1996, 1995 and 1994, respectively, and are
included in operating costs and expenses on the Consolidated Statement of
Earnings.
INTEREST, NET. Interest income was $59, $59 and $27 in 1996, 1995 and 1994,
respectively. Interest expense incurred by the company's finance operations
totaled $10, $13 and $13 in 1996, 1995 and 1994, respectively, and is classified
as operating costs and expenses. Interest payments for the total company were
$14, $18 and $16 in 1996, 1995 and 1994, 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. The weighted average shares were 63.2, 63.0 and 63.1 million
in 1996, 1995 and 1994, 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 corporate and
municipal debt securities. Marketable securities with maturities greater than
one year from the balance sheet date are classified as noncurrent.
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. Assets are depreciated when placed
into service.
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 mineral reserves 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 company
estimates the future cash flows expected to result from the use or sale of the
asset. The adoption of the standard did not have a material impact on the
company's financial condition or results of operations.
INTANGIBLE ASSETS. Intangible assets, net of accumulated amortization, were
$149 and $138 at December 31, 1996 and 1995, respectively. These assets are
related to contracts and programs acquired, and are amortized over the estimated
benefit period of 25 years. Costs in excess of net assets acquired (goodwill) is
amortized ratably over appropriate periods, primarily 40 years. Goodwill, net of
accumulated amortization, was $16 and $11 at December 31, 1996 and 1995,
respectively. The carrying values of intangible assets are reviewed if the facts
and circumstances indicate potential impairment. Any impairment would be
recorded in the current period.
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 that 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.
STOCK-BASED COMPENSATION. The Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation" in October 1995. SFAS
123 encourages companies to adopt a fair value approach to valuing stock options
that would require compensation cost to be recognized based on the fair value of
stock options granted. The company has elected, as permitted by the standard, to
continue to follow its intrinsic value based method of accounting for stock
options consistent with Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the intrinsic method,
compensation cost for stock
27
<PAGE> 12
options is measured as the excess, if any, of the quoted market price of the
company's stock at the measurement date over the exercise price.
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. In
addition, certain prior year amounts have been reclassified to conform to the
current year presentation.
B. ACQUISITIONS
Effective September 13, 1995, the company purchased the stock of Bath Iron Works
Corporation (BIW) for approximately $300 in cash. This 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. Operating results of BIW 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 BIW for the years ended
December 31, 1995 and 1994, with pro forma adjustments as if BIW 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>
Effective March 29, 1996, the company purchased the assets of Teledyne
Vehicle Systems (Muskegon Operations), an operating unit of Teledyne Inc., for
approximately $55 in cash. Muskegon Operations specializes in combat vehicles as
well as mobility systems, suspension technology and diesel engines for armored
vehicle markets worldwide. This transaction has been accounted for under the
purchase method of accounting. The excess of the purchase price over the
estimated fair value of the net tangible assets acquired has been recorded as
intangible assets related to the Muskegon Operations' product lines and
goodwill. The results of the Muskegon Operations are included with those of the
company from the closing date. Pro forma results are not presented because the
effects of the acquisition are not material to the company's results of
operations or financial condition.
Effective January 1, 1997, the company purchased the assets of Defense
Systems and Armament Systems, 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 will be
accounted for under the purchase method of accounting. The results of Defense
Systems and Armament Systems will be included with those of the company in 1997.
C. DISCONTINUED OPERATIONS
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. The company's commercial aircraft subcontracting business ceased
operations after the completion of its obligations under this agreement.
OTHER. In early 1996, the aggregates operations of the company's Material
Service business were reclassified to continuing operations. During 1995 and
1994 the company sold the lime, brick, concrete pipe and ready-mix operations.
As the results of operations and financial condition of Material Service are not
material to the company, prior periods have not been restated to reflect this
reclassification.
In addition, during 1995, the company recognized a portion of its deferred
gain from a prior disposal as a result of the favorable resolution of a
contingency.
There are no businesses classified as discontinued operations as of
December 31, 1996.
EARNINGS FROM OPERATIONS. The operating results of discontinued operations
are:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1996 1995 1994
------------------------------
<S> <C> <C> <C>
Net sales $ 28 $ 467 $ 644
- --------------------------------------------------------------------------------
Earnings before income taxes $ -- $ 84 $ --
Provision for income taxes -- 29 --
- --------------------------------------------------------------------------------
Net earnings $ -- $ 55 $ --
- --------------------------------------------------------------------------------
Net earnings per share $ -- $ .88 $ --
- --------------------------------------------------------------------------------
</TABLE>
D. INCOME TAXES
The provision for federal income taxes for continuing operations is summarized
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Current $ 200 $ 92 $ 116
Deferred (61) 36 4
- --------------------------------------------------------------------------------
$ 139 $ 128 $ 120
- --------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 13
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
--------------------------------
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 35.0%
Other (1.0) (.9) --
- --------------------------------------------------------------------------------
Effective income tax rate 34.0% 34.1% 35.0%
- --------------------------------------------------------------------------------
</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
------------------------
1996 1995
------------------------
<S> <C> <C>
Long-term contract costing methods $117 $ 63
A-12 termination 91 96
Accrued costs on disposed businesses 90 96
Coal mining liabilities 27 24
Other 125 130
- --------------------------------------------------------------------------------
Deferred Assets $450 $ 409
- --------------------------------------------------------------------------------
Lease income $ 74 $ 77
Commercial pension asset 43 40
Intangible asset 33 23
Other 30 60
- --------------------------------------------------------------------------------
Deferred Liabilities $180 $ 200
- --------------------------------------------------------------------------------
Net Deferred Asset $270 $ 209
- --------------------------------------------------------------------------------
</TABLE>
No material valuation allowance was required for the company's deferred tax
assets at December 31, 1996 and 1995. The current portion of the net deferred
tax asset is $231 and $120 at December 31, 1996 and 1995, respectively, and is
included in other current assets on the Consolidated Balance Sheet.
The company made federal income tax payments of $199, $83 and $107 in 1996,
1995 and 1994, 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 M). 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 materially unfavorable impact on the company's
financial condition or results of operations.
Further, the company has filed refund claims for approximately $275 (plus
interest) in additional research and experimentation tax credits for the years
1981 through 1990. 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. 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.
<PAGE> 14
E. CONTRACTS IN PROCESS
Contracts in process consist of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Contract costs and estimated profits $ 6,076 $5,916
Other costs 352 398
- --------------------------------------------------------------------------------
6,428 6,314
Less advances and progress payments 5,870 5,747
- --------------------------------------------------------------------------------
$ 558 $ 567
- --------------------------------------------------------------------------------
</TABLE>
Contract costs include production costs and related overhead, including
general and administrative expenses. Other costs primarily represent amounts
required to be recorded under GAAP that 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 affect 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.
F. PROPERTY, PLANT AND EQUIPMENT, NET
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31
----------------------
1996 1995
----------------------
<S> <C> <C>
Land and improvements $ 78 $ 80
Mineral reserves 93 52
Buildings and improvements 250 212
Machinery and equipment 974 864
- --------------------------------------------------------------------------------
1,395 1,208
Less accumulated depreciation, depletion and amortization 954 810
- --------------------------------------------------------------------------------
$ 441 $ 398
- --------------------------------------------------------------------------------
</TABLE>
Certain of the company's plant facilities are provided by the U.S.
government.
29
<PAGE> 15
G. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Workers' compensation $ 239 $ 233
Retirement benefits 179 199
Salaries and wages 68 74
A-12 termination liability and legal fees 21 38
Other 144 185
- --------------------------------------------------------------------------------
$ 651 $ 729
- --------------------------------------------------------------------------------
</TABLE>
H. LONG-TERM DEBT
Long-term debt consists of 9.95 percent Debentures to be retired by annual
sinking fund payments between 2011 and 2018. 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 1996 or 1995.
I. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
------------------------
1996 1995
------------------------
<S> <C> <C>
Accrued costs on disposed businesses $ 256 $ 274
Retirement benefits 111 65
Coal mining related liabilities 77 69
Other 152 160
- --------------------------------------------------------------------------------
$ 596 $ 568
- --------------------------------------------------------------------------------
</TABLE>
The company has recorded liabilities for contingencies related to disposed
businesses. These liabilities include retiree medical, environmental, legal and
other costs.
The company has certain liabilities that 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 has operated.
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, 1996 and 1995, respectively. Liabilities to reclaim land
disturbed by the mining process and to perform other closing functions are
recorded over the estimated production lives of the mines.
J. 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.
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.
K. FINANCE OPERATIONS
The company owns three liquefied natural gas (LNG) tankers that have been leased
to a nonrelated company. The U.S. government guaranteed Title XI Bonds, which
financed the leases, were retired in 1996. This retirement was financed by the
private placement of new bonds that are also secured by the LNG tankers. The new
bonds are callable under certain conditions and are also nonrecourse to the
company. Accordingly, in the event the lessee defaults on the lease payments,
the company is not obligated to repay the debt. The refinancing did not have a
material impact on the company's results of operations or financial condition.
The following is a summary of the comparative financial statements for the
finance operations:
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31
-------------------------
1996 1995
-------------------------
<S> <C> <C>
ASSETS
Leases receivable $ 214 $ 222
Due from parent 64 72
- --------------------------------------------------------------------------------
$ 278 $ 294
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt $ 135 $ 146
Income taxes 74 77
Shareholder's equity 69 71
- --------------------------------------------------------------------------------
$ 278 $ 294
- --------------------------------------------------------------------------------
</TABLE>
EARNINGS DATA
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Interest income $ 23 $ 17 $ 16
Interest expense and income taxes 17 14 14
- --------------------------------------------------------------------------------
Net earnings $ 6 $ 3 $ 2
- --------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 16
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
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Aggregate future minimum
lease payments $ 349 $ 380
Unguaranteed residual value 38 38
Less unearned interest income 173 196
- --------------------------------------------------------------------------------
$ 214 $ 222
- --------------------------------------------------------------------------------
</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 weighted average interest rate on the debt is 6.2 percent.
The schedule of principal payments for the next five years is $17 in 1997, $18
in 1998, $19 in 1999, $19 in 2000, and $21 in 2001.
L. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the company's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------------
1996 1995
--------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents $516 $516 $215 $215
Current marketable securities:
Trading 138 138 880 880
Available-for-sale 240 240 -- --
Noncurrent marketable securities:
Available-for-sale 261 261 -- --
Other investments:
Available-for-sale 51 51 50 50
Long-term debt 38 41 38 43
Long-term debt--finance operations 135 137 146 168
- --------------------------------------------------------------------------------
</TABLE>
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. Through December 31, 1995,
the company determined that all of its investments classified as cash
equivalents and marketable securities were trading securities as defined by SFAS
115. During 1996, the company purchased securities with longer maturities, which
pursuant to SFAS 115, are classified as available-for-sale. Trading securities
are recorded at fair value with unrealized gains and losses (the adjustments to
fair value) recognized in earnings. Available-for-sale securities are recorded
at fair value with unrealized gains and losses charged to a separate component
of shareholders' equity. As required by SFAS 115, purchases, sales and
maturities of available-for-sale securities are classified as cash flows from
investing activities. Purchases, sales and maturities of trading securities are
classified as cash flows from operating activities.
Marketable securities classified as available-for-sale at December 31, 1996,
include corporate debt securities of $443 and municipal debt securities of $58.
Other investments classified as available-for-sale include U.S. government debt
obligations and corporate equity securities. U.S. government debt obligations
are $50 and $40 at December 31, 1996 and 1995, respectively, and are restricted
for payment of workers' compensation benefits under an agreement with the State
of Maine. The amortized cost of U.S. government obligations is $50 and $39 at
December 31, 1996 and 1995, respectively. The company's investment in equity
securities is $1 and $10 at December 31, 1996 and 1995, respectively. The sale
of these equity investments is restricted for a period of less than one year.
The unrealized gain net of taxes for these securities was not material at
December 31, 1996 and 1995, and is classified as a separate component of
shareholders' equity.
The proceeds from the sale of available-for-sale securities were $228 and $7
in 1996 and 1995. The realized gain on the sale of available-for-sale securities
was not significant in each of the last three years. For debt securities
classified as available-for-sale, $250 mature within one year, $283 between one
and five years, and $18 between five and ten years.
Unrealized gains and losses recognized in earnings each of the last three
years on trading securities were not significant.
The company was contingently liable for debt and lease guarantees and other
arrangements aggregating up to a maximum of approximately $70 at December 31,
1996. The company knows of no event of default that would require it to satisfy
these guarantees, and therefore, the fair value of these contingent liabilities
is considered immaterial.
M. 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 has demanded repayment of unliquidated
progress payments, plus interest. The company and McDonnell Douglas have a claim
pending against the U.S. government in the Court of Federal Claims (see Note N).
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 that the company is contesting in
the U.S. Tax
31
<PAGE> 17
Court. The company has accrued an amount that 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.
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.
On July 26, 1996, a jury in Los Angeles County rendered a verdict in favor
of the plaintiffs in the trial of Dolores Blanton and William B. Forti v.
General Dynamics. The plaintiffs, former employees of the company's E-Metrics
subsidiary, claimed they were promised an equity interest in E-Metrics, and were
not compensated when the assets and liabilities were transferred to Hughes
Aircraft Company as part of the sale of the Missile Systems business in 1992.
The company asserted that the decision on equity interests was left to the
E-Metrics board of directors, which never considered the issue. The jury found
for the plaintiffs in the amount of $7.4 for breach of contract, plus punitive
damages of $100. On motion by the company, the trial judge reduced the punitive
damage award to $30 for a total judgment of $37.4. The company does not expect
that this matter will have a material impact on the company's results of
operations or financial condition.
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 $54 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 adverse 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 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 that it believes will be adequate to cover any
liability arising from the sites.
32
<PAGE> 18
OTHER. In the ordinary course of business, the company has entered into
letter of credit agreements and other arrangements with financial institutions
aggregating approximately $240 at December 31, 1996. For discussion of other
financial guarantees, see Note L. The company's rental commitments under
existing leases at December 31, 1996, are not significant.
N. TERMINATION OF A-12 PROGRAM
As stated in Note M, 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. 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 of convenience.
Based on the court's ruling on quantum issues, the parties have agreed to a
stipulation on damages totaling $1,071. The court has also ruled that plaintiffs
are entitled to interest on the judgment from June 26, 1991, until paid. Through
December 31, 1996, the interest on the stipulated amount was $399.
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
U.S. 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.
O. 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.
Prior to October 1993, stock options granted under the plan were awarded for a
maximum term of 10 years and were exercisable in their entirety beginning 18
months after the date of award.
In October 1993, the company introduced a long-term incentive program that
granted stock options and restricted stock. The stock options are generally
exercisable at the fair market value of the common stock on the date of grant
with 50 percent of the stock options vesting on the one year anniversary of the
grant and the remaining 50 percent vesting on the two year anniversary of the
grant. The stock options have a maximum term of five years. The restricted stock
has a feature that will increase or decrease the number of shares initially
granted based on movement in the company's stock price from the date of grant to
the end of the two year performance period. Once the number granted has been
adjusted, restrictions will continue to be imposed for an additional two years,
at which time all restrictions will lapse.
There were 45,773, 199,395 and 15,590 shares of restricted stock awarded in
1996, 1995 and 1994, respectively. There are 442,870 shares of restricted stock
outstanding at December 31, 1996. Information with respect to stock options is
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES UNDER STOCK OPTIONS:
Outstanding at beginning of year 2,302,723 1,820,887 3,610,428
Granted 68,800 719,650 135,810
Exercised (495,005) (171,264) (1,705,172)
Canceled (49,666) (66,550) (220,179)
- --------------------------------------------------------------------------------
Outstanding at end of year 1,826,852 2,302,723 1,820,887
- --------------------------------------------------------------------------------
EXERCISABLE AT END OF YEAR 1,429,372 979,311 509,866
================================================================================
WEIGHTED AVERAGE EXERCISE PRICE:
Granted $60.80 $60.23 $45.56
Exercised 25.19 22.42 14.44
Canceled 58.03 46.89 46.84
Outstanding at end of year 51.48 45.69 37.80
Exercisable at end of year 48.99 34.32 14.56
================================================================================
</TABLE>
33
<PAGE> 19
Information with respect to stock options outstanding and stock options
exercisable at December 31, 1996, is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------
Options Outstanding
----------------------------------------------------
Number Weighted Weighted
Range of Outstanding Average Remaining Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 7.21-22.75 49,420 3.5 years $ 15.65
39.81-47.00 1,038,370 1.9 46.81
58.13-64.63 739,062 4.0 60.44
- --------------------------------------------------------------------------------
1,826,852
================================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
Options Exercisable
----------------------------------------------------
Range of Number Exercisable Weighted Average
Exercise Prices at 12/31/96 Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
$ 7.21-22.75 49,420 $ 15.65
39.81-47.00 1,038,370 46.81
58.13-64.63 341,582 60.44
- --------------------------------------------------------------------------------
1,429,372
================================================================================
</TABLE>
At December 31, 1996, 1,327,483 treasury shares have been reserved for
options that may be granted in the future, in addition to the shares reserved
for issuance on the exercise of options outstanding.
The company applies APB 25 and related interpretations in accounting for its
plan. Accordingly, no compensation cost has been recognized for stock options.
The compensation cost for restricted stock has been appropriately recognized at
fair market value of the company's stock in 1996 and 1995, respectively. Had
compensation costs for stock options been determined based on the fair value at
the grant dates for awards under this plan consistent with the method of SFAS
123, the company's net earnings and net earnings per share would have been
reduced to the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
-----------------------
1996 1995
-----------------------
<S> <C> <C> <C>
Net Earnings: As Reported $ 270 $ 321
Pro Forma 268 321
Net Earnings Per Share: As Reported $4.27 $5.10
Pro Forma 4.24 5.10
- --------------------------------------------------------------------------------
</TABLE>
In accordance with SFAS 123, the fair value approach to valuing stock
options used for pro forma presentation has not been applied to stock options
granted prior to January 1, 1995. The compensation cost calculated under the
fair value approach is recognized over the vesting period of the stock options.
The weighted average fair value of options granted was $7.54 and $7.38
during 1996 and 1995, respectively. The fair value is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1996 and 1995, respectively: dividend
yield of 2.3 and 2.5 percent; expected volatility of 20 percent for both years;
risk-free interest rates of 5.7 and 5.6 percent; and expected lives of four
months after the vesting period.
P. RETIREMENT PLANS
PENSION. The company has nine 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
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during period $ 50 $ 47 $ 65
Interest cost on projected
benefit obligation 182 158 146
Actual loss (gain) on
plan assets (12) (933) 152
Net amortization and deferral (212) 737 (334)
- --------------------------------------------------------------------------------
$ 8 $ 9 $ 29
- --------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (2,405) $(2,453)
================================================================================
Accumulated benefit obligation $ (2,450) $(2,487)
================================================================================
Projected benefit obligation $ (2,597) $(2,657)
Plans' assets at fair value 3,356 3,441
- --------------------------------------------------------------------------------
Plans' assets in excess of projected benefit obligation 759 784
Unrecognized net gain (550) (607)
Unrecognized prior service cost 240 257
Unrecognized net asset at January 1, 1986 (39) (47)
- --------------------------------------------------------------------------------
Prepaid pension cost $ 410 $ 387
- --------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 7% 8%
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>
34
<PAGE> 20
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 increased its
discount rate assumption from 7 percent to 7.5 percent at December 31, 1996,
which decreased the projected benefit obligation approximately $165.
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 certain 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 resulting in a net
asset of $124 and $115 at December 31, 1996 and 1995, respectively, 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.
At December 31, 1996, approximately 53 percent of the plans' assets are
invested in securities of the U.S. government or its agencies, 20 percent in
diversified U.S. common stocks, 17 percent in mortgage-backed securities and 10
percent in diversified U.S. corporate debt 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 pretax 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 that invests in the
company's common stock. The company's contributions amounted to $22, $25 and $30
in 1996, 1995 and 1994, respectively. Approximately 6 million shares of the
company's common stock were held by the plans at both December 31, 1996 and
1995, 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. Postretirement
life insurance benefits are also provided to certain retirees. These benefits
vary by employment status and age, service and salary level at retirement. The
coverage provided and the extent to which the retirees share in the cost of the
program vary throughout the company. 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
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Service cost--benefits earned during period $ 7 $ 8 $ 12
Interest cost on projected benefit obligation 46 51 51
Actual loss (gain) on plan assets (17) (32) 1
Amortization of unrecognized
transition obligation 29 35 44
Net amortization and deferral 4 20 (7)
- --------------------------------------------------------------------------------
$ 69 $ 82 $101
- --------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 459 $ 483
Other fully eligible participants 32 43
Other active participants 137 162
- --------------------------------------------------------------------------------
628 688
Less plans' assets at fair value 203 179
- --------------------------------------------------------------------------------
Obligation in excess of plans' assets 425 509
Unrecognized transition obligation (217) (272)
Unrecognized net (loss) gain 56 (6)
Unrecognized prior service cost (3) (4)
- --------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 261 $ 227
</TABLE>
35
<PAGE> 21
Assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 7% 8%
Expected long-term rate of return on assets 8% 8% 8%
Assumed health care cost trend
rate for next year:
Post-65 claim groups 6% 7% 8%
Pre-65 claim groups 8.5% 9.5-13% 10.5-14%
- --------------------------------------------------------------------------------
</TABLE>
As stated above, the company increased its discount rate assumption from
7 percent to 7.5 percent at December 31, 1996, which decreased the accumulated
postretirement benefit obligation approximately $32. In addition, the obligation
decreased approximately $30 in 1996 due to a decrease in assumed health care
cost trend rates.
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 1 percent increase each year in the health care cost trend
rate used would result in an increase of $47 in the accumulated postretirement
benefit obligation at December 31, 1996, and an increase of $6 in the aggregate
of the service and interest cost components of the 1996 net periodic cost.
At December 31, 1996, approximately 51 percent of the trusts' assets were
invested in diversified U.S. common stocks, 26 percent in mortgage-backed
securities, 19 percent in securities of the U.S. government and its agencies and
4 percent in cash and equivalents.
The company's contractual arrangements with the U.S. government provide for
the recovery of contributions to a VEBA, and for non-funded plans, for 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.
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 discounted obligation under the Act to
former employees to be $13 at December 31, 1996. 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.
Q. BUSINESS SEGMENT INFORMATION
The company's primary business is supplying weapons systems and services to the
U.S. government and its international allies. For a description of the company's
three business segments, see Management's Discussion and Analysis of the Results
of Operations and Financial Condition.
Summary financial information for each of the company's three segments
follows:
<TABLE>
<CAPTION>
Net Sales Operating Earnings Sales to U.S. Government
------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine Group $ 2,332 $ 1,884 $ 1,733 $ 216 $ 194 $ 196 $ 2,316 $ 1,869 $ 1,721
Combat Systems Group 1,026 1,050 1,184 140 140 140 996 1,029 1,159
Other 223 133 141 (3) (19) (15) -- -- --
- -----------------------------------------------------------------------------------------------------------------
$ 3,581 $ 3,067 $ 3,058 $ 353 $ 315 $ 321 $ 3,312 $ 2,898 $ 2,880
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Depreciation, Depletion
Identifiable Assets Capital Expenditures and Amortization
------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine Group $ 806 $ 935 $ 381 $ 18 $ 8 $ 6 $ 40 $ 23 $ 20
Combat Systems Group 336 237 239 14 8 5 12 9 10
Other 388 317 344 12 3 6 12 5 8
Corporate* 1,769 1,675 1,709 31 13 6 3 1 1
- -----------------------------------------------------------------------------------------------------------------
$3,299 $3,164 $2,673 $ 75 $ 32 $ 23 $ 67 $ 38 $ 39
- -----------------------------------------------------------------------------------------------------------------
</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.
36
<PAGE> 22
R. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Market Price
Range
Net Operating Net Net Earnings ------------------ Dividends
Sales Earnings Earnings Per Share(b) High Low Declared
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
4th Quarter $ 896 $92 $ 70 $ 1.11 $75 1/2 $66 3/4 $ .41
3rd Quarter 862 89 68 1.08 69 5/8 57 1/2 .41
2nd Quarter 930 89 67 1.06 65 1/4 57 .41
1st Quarter 893 83 65 1.03 62 7/8 57 5/8 .41
- ------------------------------------------------------------------------------------------------------------
1995
4th Quarter $ 893 $83 $ 88 $ 1.40 $63 $51 3/8 $ .375
3rd Quarter 718 77 91 1.45 56 1/8 44 1/8 .375
2nd Quarter(a) 703 76 82 1.30 48 1/4 42 1/2 .375
1st Quarter(a) 753 79 60 .95 47 1/2 42 3/8 .375
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Quarterly data is based on a 13 week period.
(a) Does not include results from BIW, which was acquired on September 13, 1995.
See Note B.
(b) The sum of the earnings per share for the four quarters in 1996 differs from
the annual earnings per share due to the required method of computing the
weighted average number of shares in interim periods.
37
<PAGE> 23
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
Senior 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, 1996
and 1995, and the related Consolidated Statements of Earnings, Shareholders'
Equity and Cash Flows for each of the three years in the period ended December
31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Washington, D.C.,
January 21, 1997
38
<PAGE> 24
SELECTED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------
(Dollars in millions, except per share
and per employee amounts)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 3,581 $ 3,067 $ 3,058 $ 3,187 $ 3,225
Operating costs and expenses 3,228 2,752 2,737 2,878 2,970
Interest, net 55 55 22 36 27
Provision for income taxes 139 128 120 143 5(a)
Earnings from continuing operations 270 247 223 270 305(a)
Earnings per share from
continuing operations (d) 4.27 3.92 3.53 4.34 4.03(a)
Cash dividends on common stock 1.64 1.50 1.40 1.00 .80
Sales per employee 155,500 138,200(c) 143,900(b) 138,100(b) 121,500(b)
=================================================================================================================
FINANCIAL POSITION AT DECEMBER 31
Cash and equivalents and marketable securities $ 1,155 $ 1,095 $ 1,059 $ 585 $ 943
Property, plant and equipment, net 441 398 264 302 339
Total assets 3,299 3,164 2,673 2,635 3,530
Long-term debt (including current portion) 38 38 40 38 183
Long-term debt--finance operations
(including current portion) 135 146 161 175 190
Shareholders' equity 1,714 1,567 1,316 1,177 1,874
Per share 27.16 24.78 20.89 18.81 30.30
=================================================================================================================
OTHER INFORMATION
Funded backlog $ 6,161 $ 5,227 $ 4,562 $ 5,487 $ 6,780
Total backlog 10,350 7,386 6,006 7,015 8,488
Shares outstanding at December 31
(in millions) 63.1 63.2 63.0 62.6 61.8
Weighted average shares outstanding
(in millions)(d) 63.2 63.0 63.1 62.2 75.6
Common shareholders of record
at December 31 22,129 22,930 23,935 24,496 26,158
Active employees at December 31:
Total company 23,100 27,700 24,200 30,500 56,800
Excluding discontinued operations 23,100 26,800 21,300 23,100 26,500
=================================================================================================================
</TABLE>
(a) Includes a $95 gain ($1.26 per share) from the recognition of research
and experimentation and investment tax credits.
(b) Excludes BIW, which was acquired on September 13, 1995. See Note B.
(c) Includes pro forma results of BIW as if owned by the company for the
entire year.
(d) Simple earnings per share is presented for 1993-1996, fully diluted
earnings per share is presented for 1992.
39
<PAGE> 1
EXHIBIT 21, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
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
Quincy Maritime Corporation I.....................................Delaware........................100
Quincy Maritime Corporation II....................................Delaware........................100
Water Transportation Alternatives, Inc............................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
Electric Boat Groton Engineering, Inc.............................Delaware........................100
Electric Boat Groton Operations, Inc..............................Delaware........................100
Electric Boat Newport Engineering, Inc............................Delaware........................100
Electric Boat Quonset Point Operations, Inc.......................Delaware........................100
Electrocom, Inc. ......................................................Delaware........................100
General Dynamics Armament Systems, Inc.................................Delaware........................100
General Dynamics Ordnance Systems, Inc............................Delaware........................100
General Dynamics (C.I.) Limited........................................Cayman Islands..................100
General Dynamics Commercial Launch Services, Inc. .....................Delaware........................100
General Dynamics Defense Systems, Inc..................................Delaware........................100
AV Technology, LLC ...............................................Maryland........................ 80
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 Marine Services, Inc..................................Delaware........................100
General Dynamics Properties, Inc.......................................Delaware........................100
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Subsidiaries of General Dynamics Place of Percent of
Corporation (Parent and Registrant) Incorporation Voting Power
- ----------------------------------- ------------- ------------
<S> <C> <C>
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
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
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, 1996
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, 1996, 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 33-42799.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Washington, D.C.,
March 21, 1997
<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
5 day of February, 1997.
/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 the General
Dynamics Corporation Consolidated Balance Sheet as of December 31, 1996, and the
related Consolidated Statement of Earnings for the year ended December 31, 1996
and is qualified in its entirety to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 516
<SECURITIES> 378
<RECEIVABLES> 97
<ALLOWANCES> 0
<INVENTORY> 558
<CURRENT-ASSETS> 1858
<PP&E> 1395
<DEPRECIATION> 954
<TOTAL-ASSETS> 3299
<CURRENT-LIABILITIES> 833
<BONDS> 38
0
0
<COMMON> 109
<OTHER-SE> 1605
<TOTAL-LIABILITY-AND-EQUITY> 3299
<SALES> 3581
<TOTAL-REVENUES> 3581
<CGS> 3228
<TOTAL-COSTS> 3228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 409
<INCOME-TAX> 139
<INCOME-CONTINUING> 270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270
<EPS-PRIMARY> 4.26
<EPS-DILUTED> 4.25
</TABLE>
