SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to section 13 or 15(d) of the
Securities Exchange Act
of 1934
Date of Report (Date of earliest event reported)
20 February 1998
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-3671 13-1673581
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
3190 Fairview Park Drive, 22042-4523
Falls Church, Virginia (Zip Code)
Address of principal
executive offices)
(703) 876-3000
Registrant's telephone number, including area code
<PAGE>
Item 5. Other Events
The Court of Federal Claims has awarded General
Dynamics and The Boeing Company, net of amounts already paid,
$1.2 billion in damages stemming from the Pentagon's improper
default termination in 1991 of the contract to build the A-12
attack aircraft for the U.S. Navy. In addition to the $1.2
billion for costs spent in performance of that contract, the
ruling also entitles the contractors to interest costs, now
calculated at $538 million. The government has filed its notice
of appeal. The press release issued in this regard is attached as
Exhibit 99.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
99 - Press Release
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
GENERAL DYNAMICS CORPORATION
(Registrant)
By /s/ John W. Schwartz
John W. Schwartz
Staff Vice President and Controller
(Principal Accounting Officer)
3 March 1998
<PAGE>
PRESS RELEASE
CONTACT: Norine Lyons FOR IMMEDIATE RELEASE
(703) 876-3190 February 20, 1998
FEDERAL COURT AWARDS A NET $1.2 BILLION PLUS INTEREST
TO GENERAL DYNAMICS AND BOEING IN A-12 SUIT
FALLS CHURCH, VA - General Dynamics (NYSE: GD) confirmed today that
the Court of Federal Claims has awarded General Dynamics and The
Boeing Company, net of amounts already paid, $1.2 billion in
damages stemming from the Pentagon's improper default termination in
1991 of the contract to build the A-12 attack aircraft for the U.S.
Navy. In addition to the $1.2 billion for costs spent in performance
of that contract, today's ruling also entitles the contractors to
interest costs, now calculated at $538 million.
Boeing acquired McDonnell Douglas in 1997; McDonnell Douglas
was General Dynamics' teammate on the A-12 program.
General Dynamics Chairman and CEO Nicholas D. Chabraja said,
"We were confident from the beginning that when all the facts in
this extraordinarily complicated case were known, we would prevail.
However, there are no real winners in this case, which has been one
of the most regrettable events in the history of the U.S. defense
industry. Today's ruling will only partially offset our loss on
this program, which we recorded in 1990. "
The Navy had awarded the A-12 contract to the General Dynamics-
McDonnell Douglas team in January 1988. In October 1990, after
almost three years of work by the contractors to overcome numerous
challenges associated with advanced stealth technologies, the design
of the A-12 was formally accepted by the Navy at the conclusion of
the Critical Design Review. The Navy's design review chairman
stated that the performance of the aircraft was fully
satisfactory, and, indeed, ".outstanding in most areas."
Further, in a briefing to the acting Undersecretary of Defense
for Acquisition on January 3, 1991, the Navy's A-12 program manager
stated that the A-12 met operational requirements, and reaffirmed
that the Navy wanted the aircraft. Despite the Navy's ongoing
confidence in the program, the Undersecretary announced on January
6, 1991, that DoD would no longer provide funding or support for the
program. As a result, the A-12 contract was terminated for default
the following day. Accordingly, the government demanded that the
contractors return more than $1.3 billion already spent on the A-12,
and forced them to bear more than $1 billion in additional
unreimbursed expenses.
On June 7, 1991, General Dynamics and McDonnell Douglas filed a
19-count complaint in the U.S. Court of Federal Claims, claiming
that the termination for default was illegal. Over the course of
four trials in seven years, the contractors' claim has been
vindicated.
In December 1994, the court ruled that the government had acted
improperly when it terminated the A-12 for contractor default.
However, the court did not immediately convert the contract to a
termination for convenience. Instead, the judge agreed to the
government's request for an opportunity to prove at trial that the
contractors' performance was so egregious that ".conversion to
termination for convenience would create an unconscionable
windfall." Following three weeks of trial on that issue in December
1995, Judge Robert H. Hodges, Jr., found that there had been an
".utter failure of proof in the central theory of its [the
government's] case." In his ruling, Judge Hodges stated, "No
credible evidence in the record permits us to infer any support
whatsoever for defendant's case."
In an April 1996 opinion, the court further concluded: "The A-
12 contract was not terminated because of contractor default. The
contract was terminated because the Office of Secretary of Defense
withdrew support and funding from the A-12. Prior to that, the Navy
did not believe that the contractors' performance justified
termination for default."
In August 1997, the parties concluded litigation on those
contractor costs which would be reimbursed by the government.
"Should the government elect to appeal today's decision, we are
confident that we would prevail," said Edward C. Bruntrager, General
Dynamics vice president and general counsel. "But in the meantime,
taxpayer-funded interest is continuing to accrue to the contractors
at more than $200,000 per day."
General Dynamics, headquartered in Falls Church, Virginia,
provides sophisticated defense systems to the U.S. and its allies.
The company's aircraft business, General Dynamics Fort Worth
Division in Texas, was sold to Lockheed Corporation in 1993 and is
today a unit of Lockheed Martin Corporation.
General Dynamics employs approximately 30,000 people and has
annualized sales of approximately $5 billion.
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