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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, 1997
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)
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
Registrant's telephone number, including area code (703) 876-3000
--------------
Securities registered pursuant to Section 12(b) of the Act:
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
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 $4,725,449,330 at March 9, 1998, calculated in accordance
with the Securities and Exchange Commission rules as to beneficial ownership.
126,236,874 shares of the registrant's common stock were outstanding at
March 9, 1998 (adjusted for two-for-one stock split effected in the form of a
100 percent stock dividend declared on March 4, 1998 and payable on April 2,
1998 to shareholders of record on March 13, 1998).
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, 1997 (1997 Shareholder Report).
Part III incorporates information from certain portions of the
registrant's definitive Proxy Statement for the 1998 annual meeting of
shareholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year.
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<PAGE> 2
GENERAL DYNAMICS CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I PAGE
----
<S> <C> <C>
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 8
PART II
Item 5. Market for the Company's Common Equity and
Related Shareholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners
and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE> 3
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 international
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 operating units of Lockheed
Martin Corporation. On October 1, 1997, the company acquired the assets of
Advanced Technology Systems, formerly an operating unit of Lucent Technologies.
On December 31, 1997, the company acquired the assets of Computing Devices
International, formerly a division of Ceridian Corporation. During the period
1992 through 1994, the company divested its tactical military aircraft, missile
systems and space launch systems businesses.
The company currently operates in the following business segments: Marine,
Combat Systems, Information Systems and Technology, and Other. Marine includes
Electric Boat Corporation (Electric Boat), Bath Iron Works Corporation (BIW),
and American Overseas Marine Corporation (AMSEA). Combat Systems includes
General Dynamics Land Systems Inc. (Land Systems), General Dynamics Defense
Systems, Inc. (Defense Systems), and General Dynamics Armament Systems, Inc.
(Armament Systems). Information Systems and Technology includes General Dynamics
Advanced Technology Systems, Inc. (ATS) and three operating units which
comprised Computing Devices International: General Dynamics Information Systems,
Inc. (GDIS), Computing Devices Canada, Ltd., and Computing Devices Company Ltd.
in the United Kingdom. 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 business segments is included in Note R to the Consolidated
Financial Statements on page 38 of the 1997 Shareholder Report, filed as
Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31,
1997, 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
<TABLE>
<CAPTION>
Net Sales (in millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Nuclear Submarines $1,321 $1,443 $1,567
Surface Combatants 839 791 246
Other 151 98 71
------ ------ ------
$2,311 $2,332 $1,884
====== ====== ======
</TABLE>
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 last two Seawolf class attack submarines. Electric Boat
entered into a Team Agreement with Newport News Shipbuilding and Drydock
Company, providing that Electric Boat will be the prime contractor on
construction contracts for the NSSN. 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.
BIW has contracts for the construction of 21 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 awarded a contract to design and build the
Navy's new class of amphibious transport ships (LPD 17), and is a member of a
three-contractor team recently formed to compete for the development, design,
construction and life-cycle support of the U.S. Navy's next generation surface
combatant ships (DD 21).
1
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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 last 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
<TABLE>
<CAPTION>
Net Sales (in millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Armored Vehicles $ 960 $ 889 $ 933
Ordnance 265 - -
Other 284 137 117
------ ------ ------
$1,509 $1,026 $1,050
====== ====== ======
</TABLE>
Land Systems designs and manufactures the M1 Series Abrams Main Battle
Tank for the U.S. Army and various foreign governments. Land Systems also
performs engineering and upgrade work, and provides support for existing armored
vehicles. Production of the M1A2, the latest version of the M1, was initiated in
1992. Land Systems is currently in its second year of its five year multiyear
contract with the U.S. Army to upgrade 120 tanks per year from the M1 to the
M1A2 version.
Land Systems is also under contract for the development of several other
major armored vehicle programs. The first is the Advanced Amphibious Assault
Vehicle program for which Land Systems was recently awarded a development
contract, including prototype design and construction. Two prototypes are
currently under contract with an option for a third. The second is the Heavy
Assault Bridge program which is currently under development and is expected to
enter production late in this decade. The third is the Crusader Self-Propelled
Howitzer development program of which the company's share is approximately 25
percent.
Land Systems will complete production of the Single Channel Ground and
Airborne Radio System in late 1998 under a contract with the U.S. Army.
Armament Systems designs, develops and produces advanced gun and
ammunition handling systems based on the Gatling principal for applications on
various platforms. Armament Systems is also a leader in the production of
ammunition products and operates the Milan Army Ammunition Plant in Milan,
Tennessee, for the U.S. Army.
Defense Systems builds light armored vehicles, and turrets and
transmissions for armored vehicles for both the U.S. Army and foreign
governments. As part of a restructuring plan being implemented in 1998, these
product lines are being transferred to Land Systems. The remaining business of
Defense Systems, the design and manufacture of missile guidance and fire control
systems for the U.S. Navy, will be reported in the Marine segment beginning in
1998.
INFORMATION SYSTEMS AND TECHNOLOGY
This segment was formed effective January 1, 1998, following the
acquisitions of ATS and Computing Devices International. The net sales of ATS
for the fourth quarter of 1997 were reported in the Marine segment.
ATS provides both fixed and mobile undersea fiber-optic surveillance
systems as well as special purpose signal and information processors for the
U.S. Navy. ATS also provides vibration reduction technologies for the
elimination of radiant noise and engine fatigue on various platforms. ATS
designs command, communications, control and intelligence systems and network
architecture solutions for the NSSN and the LPD 17. ATS also builds power feed
and terminal transmission equipment for the commercial undersea fiber-optic
market.
GDIS provides world class information processing systems for airborne,
land-based, seaborne, and space-based platforms, as well as information
management services for the U.S. government and a number of allied nations. The
company also provides contract manufacturing services for a number of defense
and commercial electronics contractors. Computing Devices Canada, Ltd. is the
systems integrator on the Iris program, whose objective is to modernize and
fully digitize the tactical command, control and communications systems of the
Canadian land forces. In addition, it provides advanced systems products in the
areas of maritime surveillance, land based vectronics and display systems.
Computing Devices Company Ltd. in the United Kingdom provides and supports
electronics technology for airborne, ground and naval systems, and has the
second largest share of the European Fighter Aircraft.
2
<PAGE> 5
OTHER
<TABLE>
<CAPTION>
Net Sales (in millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Aggregates $ 110 $ 87 $ -
Coal Mining 107 111 116
Other 25 25 17
------ ------ ------
$ 242 $ 223 $ 133
====== ====== ======
</TABLE>
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.
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.
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 contracts to more than one company in order to ensure
competition on subsequent contracts.
In recent years, because of reduced defense spending, the industry has
consolidated through mergers and acquisitions to maintain critical mass
resulting in fewer and larger competitors. With fewer but more complex programs
in competition, companies frequently have formed strategic alliances to pursue
these programs. The Department of Defense 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 23 of the 1997 Shareholder Report, filed as
Exhibit 13 to this Annual Report on Form 10-K and incorporated herein by
reference.
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.
Historically, 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 (dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Domestic $3,485 $3,051 $2,422
FMS 166 261 476
------ ------ ------
Total U.S. government $3,651 $3,312 $2,898
====== ====== ======
Percent of net sales 90% 92% 94%
</TABLE>
3
<PAGE> 6
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. On February 23, 1998, a
final judgment was entered in favor of the contractors for $1,200 million plus
interest. The U.S. government has filed a notice of appeal. For further
discussion, see Note O to the Consolidated Financial Statements on page 34 of
the 1997 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 had
no substantial operations in foreign countries until the acquisition of
Computing Devices Canada, Ltd. and Computing Devices Company Ltd. Direct
foreign sales were $132 million, $38 million and $29 million in 1997, 1996 and
1995, respectively.
SUPPLIES
Many items of equipment and components used in the production of the
company's products are purchased from other manufacturers. The company is
dependent upon suppliers and subcontractors for a large number of components and
the ability of its suppliers and subcontractors to meet performance and quality
specifications and delivery schedules. In some cases the company is dependent on
one or a few sources, either because of the specialized nature of a particular
item or because of domestic preference requirements pursuant to which it
operates on a given project.
All of the company's operations are dependent upon adequate supplies of
certain raw materials, such as aluminum and steel, and on adequate supplies of
fuel. Fuel or raw material shortages could also have an adverse effect on the
company's suppliers, thus impairing their ability to honor their contractual
commitments to the company. The company has not experienced serious shortages in
any of the raw materials or fuel supplies that are necessary for its production
programs.
RESEARCH AND DEVELOPMENT
Research and development activities in Marine and Combat Systems
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.
Beginning 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 (dollars
in millions):
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Company-sponsored $ 55 $ 38 $ 25
Customer-sponsored 58 89 178
---- ---- ----
$113 $127 $203
==== ==== ====
</TABLE>
4
<PAGE> 7
BACKLOG
Summary backlog information for each business segment follows:
<TABLE>
<CAPTION>
December 31 1997 Backlog
------------------- Not Filled
1997 1996 in 1998
------- ------- ------------
<S> <C> <C> <C>
Marine $ 5,864 $ 7,566 $ 4,088
Combat Systems 2,323 2,057 968
Information Systems and Technology 805 - 268
Other 607 727 542
------- ------- -------
Total Backlog $ 9,599 $10,350 $ 5,866
======= ======= =======
Funded Backlog $ 6,796 $ 6,161 $ 3,342
======= ======= =======
</TABLE>
Total backlog represents the estimated remaining sales value of work to be
performed under firm 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 23 of the 1997
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 N to the
Consolidated Financial Statements on page 33 of the 1997 Shareholder Report,
filed as Exhibit 13 to this Annual Report on Form 10-K, and is incorporated
herein by reference.
PATENTS
Numerous patents and patent applications are owned by the company and
utilized in its development activities and manufacturing operations. In many
cases, however, the U.S. government has an irrevocable, non-exclusive,
royalty-free license, pursuant to which the government may use or authorize
others to use the inventions covered by the patents. Pursuant to similar
arrangements, the government may consent to the company's use of inventions
covered by patents. 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, 1997, the company had approximately 29,000 employees
(excluding contract labor), of whom 47 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 (MTC) of New London, Connecticut, the United Auto Workers Union,
the Office and Professional Employees International Union and the United Mine
Workers of America. Several agreements are due to expire during 1998, the most
significant of which is the MTC.
5
<PAGE> 8
ITEM 2. PROPERTIES
A summary of floor space at the main facilities of the Marine, Combat
Systems, and Information Systems and Technology segments follows (square feet in
millions):
<TABLE>
<CAPTION>
COMPANY GOVERNMENT
OWNED LEASED FURNISHED
FACILITIES FACILITIES FACILITIES TOTAL
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
MARINE:
Electric Boat
Groton, Connecticut 2.6 .2 2.8
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 5.1 1.4 0.0 6.5
========== ========== =========== ========
COMBAT SYSTEMS:
Land Systems
Lima, Ohio 1.6 1.6
Muskegon, Michigan 1.0 0.1 1.1
Scranton, Pennsylvania 0.3 0.3
Woodbridge, Virginia 0.1 0.1
Tallahassee, Florida 0.1 0.1
Sterling Heights, Michigan 0.6 0.6
Anniston, Alabama 0.1 0.1
Imperial, California 0.1 0.1
Chesterfield, Michigan 0.1 0.1
Armament Systems
Burlington, Vermont 0.6 0.6
Milan, Tennessee 3.9 3.9
Defense Systems
Pittsfield, Massachusetts 0.1 0.8 0.9
---------- ---------- ----------- --------
TOTAL COMBAT SYSTEMS 2.4 0.7 6.4 9.5
========== ========== =========== ========
INFORMATION SYSTEMS AND
TECHNOLOGY:
GDIS
Bloomington, Minnesota 0.5 0.5
Computing Devices Canada, Ltd.
Ottawa, Ontario 0.2 0.1 0.3
Calgary, Alberta 0.2 0.2
ATS
Greensboro, North Carolina 0.1 0.1 0.2
---------- ---------- ----------- --------
TOTAL INFORMATION
SYSTEMS AND TECHNOLOGY 0.5 0.7 0.0 1.2
========== ========== =========== ========
</TABLE>
6
<PAGE> 9
BIW began in 1997 a $200 million project to construct a fifteen acre land
level transfer facility and manufacturing support center, and a 750-foot
dry-dock in Bath, Maine to improve productivity.
OTHER. Freeman Energy operates two underground mines and one surface mine
in Illinois. 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 and marketing efforts which are intended to maximize the market value
of these properties. The remaining properties include 232 acres in Kearny Mesa
and 2,420 acres in Sycamore Canyon, both of which are in San Diego, California;
and 308 acres in Rancho Cucamonga, California. Most of this property is
undeveloped. The company owns 10,000 square feet of building space at Rancho
Cucamonga and 200,000 square feet of building space at Sycamore Canyon. Most of
the buildings at Kearny Mesa were demolished in 1997 in preparation for
development activity. In 1997, two buildings and 55 acres in Rancho Cucamonga
were sold.
ITEM 3. LEGAL PROCEEDINGS
The information under the captions "Litigation" and "Environmental" in
Note N and the information in Note O to the Consolidated Financial Statements
appearing on pages 33 through 34 of the 1997 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, 1997.
7
<PAGE> 10
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 1997
------------------------- -----------
<S> <C>
David D. Baier -- Vice President Taxes since August 1995; Staff Vice President Taxes 43
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 55
Aerospace Programs and Field Offices July 1991 -- April 1993
Edward C. Bruntrager -- Vice President and General Counsel since March 1994; Assistant General 50
Counsel January 1987 -- March 1994
Allan C. Cameron -- Vice President of the company and President of Bath Iron Works since 51
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 since March 1997; 60
President - Lockheed Fort Worth March 1993 - March 1995; Executive Vice President
of the company and President - Aircraft Systems of the Fort Worth Division
August 1992 -- March 1993
James I. Finley -Vice President of the company and President General Dynamics Information 51
Systems since January 1998; Vice President of Government Information Systems November 1995 -
December 1997; Vice President Programs and Engineering, Westinghouse/United
Technologies 1990 - October 1995
David H. Fogg -- Vice President and Treasurer since March 1998; Staff Vice President and Treasurer 42
November 1994 -- March 1998; Staff Vice President and Assistant Treasurer May 1994 -- November 1994;
Corporate Director of Finance and Assistant Treasurer January 1994 -- May 1994; Corporate Director
of Risk Management November 1991 -- January 1994
Paul A. Hesse -- Vice President Communications and Secretary since February 1996; Vice President 56
Communications May 1991 -- February 1996
Kenneth A. Hill - Vice President Information Technology since April 1997; Staff Vice President 48
Personnel Relations November 1994 - April 1997; Director Salaried Compensation
March 1989 - November 1994
Raymond E. Kozen -- Vice President Planning and Analysis since March 1997; Staff Vice President 56
for Special Projects December 1987 -- March 1997
Kenneth J. Leenstra -- Vice President of the company and President of Armament Systems 60
since February 1997; President of Armament Systems - Lockheed Martin January 1990 --
January 1997
Michael J. Mancuso -- Senior Vice President and Chief Financial Officer 55
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 July 1992 -- September 1993
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31
NAME, POSITION AND OFFICE 1997
------------------------- -----------
<S> <C>
Charles E. McQueary - Vice President of the company and President of Advanced Technology 58
Systems since October 1997; President - Advanced Technology Systems, AT&T/Lucent
Technologies January 1994 - September 1997; Vice President Federal Systems Advanced
Technologies, AT&T October 1987 - December 1993
David A. Savner -- Senior Vice President Law effective April 1998; Senior Partner 54
of Jenner & Block May 1987 -- March 1998
Daniel P. Schmutte -- Vice President of the company and President of Defense Systems 47
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 -- Vice President and Controller since March 1998; 41
Staff Vice President and Controller November 1994 -- March 1998; Corporate Director
of Accounting July 1992 -- November 1994
David E. Scott - Vice President of the company and President of Computing Devices 52
Canada since February 1998; President Computing Devices Canada June 1997 -
January 1998; Vice President Communications Division November 1990 - May 1997
James E. Turner, Jr. - President and Chief Operating Officer since June 1997; 63
Executive Vice President of the Marine Group October 1995 - June 1997;
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 51
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
John K. Welch -- Vice President of the company and President of Electric Boat since 47
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; 58
Group Vice President - Hughes Missile Systems Company August 1992 -- December 1994;
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 Development 53
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
</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.
9
<PAGE> 12
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 S to the Consolidated Financial Statements appearing
on page 38 of the 1997 Shareholder Report, included in this Annual Report on
Form 10-K as Exhibit 13, and are incorporated herein by reference.
There were 21,046 common shareholders of record of the company's common
stock at December 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing on page 40 of the 1997 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 23 of the 1997 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 24 through 40 of the 1997 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.
10
<PAGE> 13
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth herein is included under the
captions "Employment Agreements and Other Agreements" and "Transactions
Involving Directors and Others" in the company's definitive Proxy Statement
which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Report of Independent Public Accountants and Consolidated Financial
Statements appearing in the 1997 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
1997
Shareholder
Report
------
<S> <C>
Report of Independent Public Accountants 39
Consolidated Financial Statements:
Consolidated Statement of Earnings 24
Consolidated Balance Sheet 25
Consolidated Statement of Cash Flows 26
Consolidated Statement of Shareholders' Equity 27
Notes to Consolidated Financial Statements (A to S) 28-38
</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 13 and 14 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 1997.
11
<PAGE> 14
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
Vice President and Controller
March 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 18, 1998, by the following persons on
behalf of the Registrant and in the capacities indicated, including a majority
of the directors.
<TABLE>
<S> <C>
/s/ Nicholas D. Chabraja Chairman, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Nicholas D. Chabraja
/s/ James E. Turner, Jr. President and Chief Operating Officer
- ------------------------
James E. Turner, Jr.
/s/ Michael J. Mancuso Senior Vice President and Chief Financial Officer
- ---------------------- (Principal Financial Officer)
Michael J. Mancuso
/s/ John W. Schwartz Vice President and Controller
- -------------------- (Principal Accounting Officer)
John W. Schwartz
Julius W. Becton, Jr.* Director
James S. Crown* Director
Lester Crown* Director
Charles H. Goodman* Director
George A. Joulwan* Director
Paul G. Kaminski* Director
James R. Mellor* Director
Gordon R. Sullivan* Director
Carlisle A. H. Trost* Director
</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
12
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C> <C>
(5) 3-1A --Restated Certificate of Incorporation, effective May 21, 1991
3-2D --Bylaws as amended effective October 1, 1997
(11) 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
(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
(11) 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
(11) 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
(10) 10-28 --Asset Purchase and Sale Agreement, dated November 6, 1996, as amended December 20, 1996,
between the company and Lockheed Martin Corporation
(11) 10-29 --Employment agreement between the company and Nicholas D. Chabraja dated
November 12, 1996
(11) 10-30 --General Dynamics Corporation Incentive Compensation Plan adopted February 5, 1997,
approved by shareholders on May 7, 1997
10-31 --Retirement Benefit Agreement between the company and Gordon R. England dated
February 14, 1997
10-32 --Credit Enhancement Agreement between Bath Iron Works Corporation and the City of Bath,
Maine dated September 19, 1997, relating to the development program of facilities in Bath,
Maine
10-33 --Retirement Benefit Agreement between the company and Michael J. Mancuso dated
March 6, 1998
10-34 --Consulting agreement between the company and Paul G. Kaminski dated August 18, 1997
10-35 --Salary and benefit continuation agreement between the company and Michael W. Wynne dated
February 7, 1997
</TABLE>
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C> <C>
13 --1997 Shareholder Report (pages 18 through 40)
21 --Subsidiaries
23 --Consent of Independent Public Accountants
24 --Power of Attorney of the Board of Directors
27 --Financial Data Schedule
27A --Restated Financial Data Schedule for the nine months ended September 28, 1997
27B --Restated Financial Data Schedule for the six months ended June 29, 1997
27C --Restated Financial Data Schedule for the three months ended March 30, 1997
27D --Restated Financial Data Schedule for the year ended December 31, 1996
27E --Amended and Restated Financial Data Schedule for the nine months ended September 29, 1996
27F --Restated Financial Data Schedule for the six months ended June 30, 1996
27G --Restated Financial Data Schedule for the three months ended March 31, 1996
27H --Restated Financial Data Schedule for the year ended December 31, 1995
</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) Not used.
(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.
(11) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1996, and filed with the Commission March 21,
1997, and incorporated herein by reference.
14
<PAGE> 1
Exhibit 3-2D
================================================================================
GENERAL DYNAMICS CORPORATION
By-Laws
As Amended effective 1 October 1997
================================================================================
<PAGE> 2
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 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
1
<PAGE> 3
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 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.
2
<PAGE> 4
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 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.
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 cash
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 the Section.
3
<PAGE> 5
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 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-third 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. The Board of Directors shall elect a Chairman of
the Board from among the directors. This individual need not be an employee 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.
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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 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
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<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 "ex-officio" 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 Chief Executive Officer, one or more Vice
Presidents, a Controller, a Secretary, and a Treasurer. The Board of Directors
may choose such other officers as it may from time to time determine. The Chief
Executive Officer 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. Filling a vacancy in any office for the unexpired
portion of the term, because of death, resignation, removal or any other cause,
shall be approved 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.
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.
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<PAGE> 8
ARTICLE VI
CAPITAL STOCK
SECTION 1. 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 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 the 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.
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(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 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 .
---------------------------------------
(CORPORATE SEAL) Secretary
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Exhibit 10-31 Enclosure (3)
RETIREMENT BENEFIT AGREEMENT
AGREEMENT dated as of February 14, 1997, between General Dynamics Corporation,
a Delaware Corporation (the "Corporation"), and Gordon R. England (the
"Employee").
WHEREAS, the Employee, following his employment by the Corporation, will accrue
retirement benefits under 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 non-qualified 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 certain additional retirement benefits to
be paid on the Employee's retirement.
NOW, THEREFORE, in consideration for the employee's acceptance of employment by
the Corporation, and the services to be rendered to the Corporation by the
Employee, the Corporation and the Employee agree as follows:
1. MEMBERSHIP IN GENERAL DYNAMICS RETIREMENT PLAN. The Employee will become
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 Employee's termination of employment with the Corporation,
the Employee may receive a retirement benefit (the "Supplemental
Retirement Benefit") pursuant to this Agreement in an amount
determined in accordance with Section 3(c) or (d) below, as
applicable, and subject to adjustment pursuant to Section 4 below.
Any benefit payable under this Agreement shall be reduced by all
amounts payable under the Corporation's Retirement Program.
(b) Notwithstanding anything in this Agreement to the contrary, no
Supplemental Retirement Benefit shall be paid hereunder if, in the
sole opinion of the Compensation Committee, the Employee is
discharged for causing harm to the Corporation (financial, reputation,
or product), through: (i) an act or acts of
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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 prior Compensation Committee approval.
(c) If the Employee ceases rendering services to the Corporation during his
first three years of Service, the Supplemental Retirement Benefit, if
any, shall equal an amount as specified below:
(i) If the Employee voluntarily terminates employment, no Supplemental
Retirement Benefit shall be paid other than that accrued under the
"Retirement Program."
(ii) In the event of Employee's illness or disability such that he is
unable, in the sole opinion of the Compensation Committee, to
adequately perform the tasks of his position, $100,000 per year for
his life.
(iii) If the Corporation shall substantially downgrade the Employee's
responsibilities or if the Corporation shall involuntarily
terminate his employment other than for cause, $100,000 per year
for his life.
(d) If the Employee ceases rendering services to the Corporation following
completion of at least three full years of Service, the Supplemental
Retirement Benefit shall equal $100,000 per year, plus an additional
$4,166.67 for each full month of Service that is in excess of 36 months,
subject to a maximum Supplemental Retirement Benefit from the Corporation
of $200,000 per year for his life.
(e) For the purpose of Paragraphs (c) and (d) above, "Service" shall mean
employment with the Corporation subsequent to the date of this Agreement.
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 mutually agreeable to the parties.
The applicable single-life annual benefit provided hereunder 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 after the date of this Agreement but prior to commencement of
benefits, and at the time of his death he is otherwise entitled to a
Supplemental Retirement Benefit under this Agreement, then his spouse shall
be entitled to receive a "Pre-Retirement Surviving Spouse Annuity" as
provided in the Retirement Plan (currently defined as a 50% Contingent
Annuity) for her life,
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commencing on the Employee's death. The amount of the Pre-Retirement
Surviving Spouse Annuity payable under this Agreement shall equal (1) the
amount that would have been paid to the Employee under this Agreement as a
single-life annuity, assuming he was involuntarily terminated immediately
prior to his date of death, less (2) the Retirement Plan's actuarial
adjustments necessary to express the single-life annuity as a 50%
contingent annuity option.
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 the form of an actuarial equivalent value mutually agreeable
to the parties.
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 Supplemental
Retirement Benefit 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 Supplemental
Retirement Benefit. 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
Supplemental Retirement Benefit 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 Supplemental
Retirement Benefit or post-retirement benefits described above, the
Corporation shall remain liable for their payment unless otherwise
agreed to by the parties of this Agreement.
9. This Agreement shall be governed by the laws of the State of Delaware.
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.
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ATTEST: GENERAL DYNAMICS CORPORATION
/s/ Paul A. Hesse By: /s/ W.P. Wylie
- --------------------------------- ----------------------------------
Secretary W.P. Wylie
Corporate Vice President -
Human Resources and Administration
/s/ Gladys M. Bucklew /s/ Gordon R. England
- --------------------------------- ----------------------------------
Witness Gordon R. England
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<PAGE> 1
Exhibit 10.32
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT ENHANCEMENT AGREEMENT
between
CITY OF BATH, MAINE
and
BATH IRON WORKS CORPORATION
Dated as of September 19, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I ............................................................ 1
Section 1.1. Definitions ........................................ 1
Section 1.2. Interpretation and Construction .................... 4
Section 1.3. Development Program ................................ 5
Section 1.4. Completion ......................................... 5
Section 1.5. City Costs ......................................... 5
Section 1.6. Agreement Controls ................................. 6
ARTICLE II ........................................................... 6
Section 2.1. Creation of Development Program Fund ............... 6
Section 2.2. Liens .............................................. 6
Section 2.3. Deposits into Development Program Fund ............. 6
Section 2.4. Monies Held in Trust ............................... 6
ARTICLE III .......................................................... 7
Section 3.1. Credit Enhancement Payments ........................ 9
Section 3.2. Failure to Make Payment ............................ 9
Section 3.3. Manner of Payments ................................. 9
Section 3.4. Obligations Unconditional .......................... 9
Section 3.5. Limited Obligation ................................. 10
Section 3.6. Calculation of Retained Tax Increment .............. 10
Section 3.7. Revaluation ........................................ 10
ARTICLE IV ........................................................... 10
Section 4.1. Pledge of Project Cost Account ..................... 10
Section 4.2. Perfection of Interest ............................. 11
Section 4.3. Further Instruments ................................ 11
Section 4.4. No Disposition of Developer Subaccount ............. 11
Section 4.5. Access to Books and Records ........................ 11
ARTICLE V ............................................................ 11
Section 5.1. Events of Default .................................. 11
Section 5.2. Remedies on Default ................................ 12
Section 5.3. Remedies Cumulative ................................ 12
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<TABLE>
<S> <C>
Section 5.4. Agreement to Pay Attorneys' Fees and Expenses..... 13
Section 5.5. Tax Laws.......................................... 13
ARTICLE VI........................................................... 13
Section 6.1. Effective Date and Term........................... 13
Section 6.2. Cancellation and Expiration of Term............... 13
ARTICLE VII.......................................................... 13
Section 7.1. Consent to Pledge and/or Assignment............... 13
Section 7.2. Pledge, Assignment or Security Interest........... 14
Section 7.3. Assignment........................................ 14
ARTICLE VIII......................................................... 14
Section 8.1. Successors........................................ 14
Section 8.2. Parties in Interest............................... 14
Section 8.3. Severability...................................... 14
Section 8.4. No Personal Liability of Officials of the City.... 14
Section 8.5. Counterparts...................................... 14
Section 8.6. Governing Law..................................... 15
Section 8.7. Notices........................................... 15
Section 8.8. Amendments........................................ 15
Section 8.9. Net Agreement..................................... 15
Section 8.10. Benefit of Assignee or Pledges.................... 15
Section 8.11. Integration....................................... 15
Section 8.12. Disputes.......................................... 15
Section 8.13. Arbitration....................................... 16
</TABLE>
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<PAGE> 4
THIS CREDIT ENHANCEMENT AGREEMENT dated as of Sept. 19, 1997, between the
City of Bath, Maine (the "City"), a municipal body corporate and politic and a
political subdivision of the State of Maine, and Bath Iron Works Corporation
(the "Developer"), a Maine corporation with a place of business in Bath, Maine,
WITNESSETH THAT
WHEREAS, the City designated The Bath Iron Works Municipal Development and
Tax Increment Financing District #1 and The Bath Iron Works Municipal
Development and Tax Increment Financing District #2 (the "Districts") pursuant
to Chapter 207 of Title 30-A of the Maine Revised Statutes, as amended, by
action of the City Council at a City Council Meeting held on April 8, 1997 (the
"Vote") and pursuant to the same Vote adopted a development program and
financial plan for the Districts (the "Development Program"); and
WHEREAS, the Maine Department of Economic and Community Development has
reviewed and accepted the District and the Development Program effective April
, 1997; and
WHEREAS, the Development Program contemplates the execution and delivery
of a credit enhancement agreement between the City and the Developer; and
WHEREAS, the City and the Developer desire and intend that this Credit
Enhancement Agreement be and constitute the credit enhancement agreement
contemplated by and described in the Development Program;
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual promises and covenants set forth herein, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS: INTERPRETATIONS
SECTION 1.1. DEFINITIONS. The terms defined in this Article I shall, for
all purposes of this Agreement, have the meanings herein specified, unless the
context clearly requires otherwise:
"Agreement" shall mean this Credit Enhancement Agreement between the City
and the Developer.
"Captured Assessed Value" shall mean the valuation amount by which the
then current assessed value of the Districts exceeds the Original Assessed
Value of the Districts.
"City" means the City of Bath, Maine, a municipality duly organized and
existing under the laws of the State of Maine.
"City Share" means (a) all of the Retained Tax Increment Revenues other
than the Developer Share thereof plus (b) all interest and earnings on all of
the Retained Tax Increment Revenues, except as provided in Section 3.1(e)
hereof.
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"Developer" means Bath Iron Works Corporation, a Maine corporation with a
place of business in Bath, Maine.
"Development Program" means the development program for the District as
adopted by the Bath City Council at a Meeting held on April 8, 1997.
"Development Program Fund" means the development program fund described in
the Financial Plan section of the Development Program and established and
maintained pursuant to Article II hereof.
"Developer Share" means (a) 100% of the Real Property Increment with
respect to the Land Level Facility and 50% of the Real Property Increment with
respect to the Existing Facility and 50% of the Personal Property Increment
with respect to the Land Level Facility and 50% of the Personal Property
Increment with respect to the Existing Facility, for each of the twenty-five
years of the term of this Agreement (commencing with the year 1999 Tax Year) of
the Retained Tax Increment Revenues, provided, however, that such percentages
shall be reduced to the following amounts at such time that the aggregate
amount of payments by the City to the Developer during the term of this
Agreement and pursuant to this Agreement equal $85,000,000; 100% of the Real
Property Increment with respect to the Land Level Facility with respect to
assessed value equal to the assessed value of Land Level Facility (District #1)
real property as of April 1, 2002; 35% of the Real Property Increment with
respect to the Land Level Facility with respect to assessed value of real
property in excess of the assessed value of Land Level Facility (District #1)
real property as of April 1, 2002; 35% of the Personal Property Increment with
respect to the Land Level Facility; 35% of the Real Property Increment with
respect to the Existing Facility; and 35% of the Personal Property Increment
with respect to the Existing Facility.
In the event that the Tax Shift Formulas are changed and as a result the
City's Tax Shift amount is decreased by reason of inclusion in the City's
valuation for purposes of the Tax Shift Formulas of any portion of the Captured
Assessed Value with respect to which the Developer's Share is determined
hereunder, then, commencing with the later of (a) the 2009 Fiscal Year or (b)
the Fiscal Year in which the Tax Shift Formulas are changed, the Developer Share
shall be reduced by an amount equal to 50% of the difference, calculated solely
with respect to the Developer Share of the Retained Tax Increment, between (a)
the Tax Shift as determined using the method set forth in the current Tax Shift
Formulas and (b) the Tax Shift as properly determined using the then effective
State laws relating to state aid to education, revenue sharing and county tax;
any reduction under this paragraph shall be calculated annually and applied to
reduce the payments of the Developer Share on the next scheduled payment date
herein following such calculation.
A change in the Tax Shift resulting other than from including Captured
Assessed Value in the City's valuation shall not result in a reduction of the
Developer's Share.
Anything in this Agreement to the contrary notwithstanding, for purposes
of calculating the Developer's Share, the platform for the Land Level Transfer
System (the concrete pad, filled
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land and pilings supporting the structures thereon) shall be included within
the real property increment of the Land Level Facility.
"District(s)" means the Bath Iron Works Corporation Municipal Development
and Tax Increment Financing District #1 ("District #1") and The Bath Iron Works
Municipal Development and Tax Increment Financing District #2 ("District #2")
designated by the City pursuant to Chapter 207 of Title 30-A of the Maine
Revised Statutes, as amended, by vote at City Council Meeting held on April 8,
1997, which Districts shall include the Existing Facility and the Land Level
Facility.
"Effective Date" means Sept. 19, 1997.
"Existing Facility" means the Property consisting of the existing
shipbuilding facility of the Developer, located on the parcel shown on Tax Map
27 as Parcel 142 within District #2, including all land, buildings, and all
personal property located on such parcel as of April 1 each year subject to
City ad valorem taxes together with all improvements or additions thereto
within the existing geographic boundaries of such facility, all as currently
depicted on Exhibit A hereto.
"Financial Plan" means the financial plan described in the "Financial
Plan" Section of the Development Program.
"Fiscal Year" means July 1 to June 30 of each year or such other fiscal
year as the City may from time to time establish; for purposes of this
Agreement, the Fiscal Year 1999 means the Fiscal Year commencing July 1, 1999
and ending June 30, 2000 and the Fiscal Year 2023 means the Fiscal Year
commencing July 1, 2023 and ending June 30, 2024.
"Land Level Facility" means the land level facility to be constructed in
District #1 by the Developer adjacent to the Existing Facility, together with
all land, buildings, personal property located on such adjacent land as of
April 1 of each year subject to City ad valorem taxes together with all
improvements or additions thereto as depicted on Exhibit B hereto.
"Original Assessed Value" means $128,011,800, the assessed value of the
Districts as of March 31, 1997 as the same may be adjusted from time to time in
accordance with Section 3.7 hereof.
"Personal Property Increment" means that portion of the Tax Increment
attributable to increases in personal property valuations with respect to
personal property located in the Districts.
"Project" means the design, planning, development, acquisition,
construction and operation of the Land Level Facility and other Bath Iron Works
Corporation improvements within the Districts as described in the Development
Program.
"Project Cost Account" means the project cost account described in the
Financial Plan Section of the Development Program consisting of the City
Subaccount and the Developer
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Subaccount and established and maintained pursuant to Article II hereof and to
provisions of 30-A M.R.S.A. Section 5254(3)(A)(2).
"Project Costs" means "project costs" as defined in 30-A M.R.S.A.
Section 5152(8).
"Property" means all real property and all personal property now or
hereafter located in the Districts.
"Property Taxes" means any and all ad valorem property taxes levied,
charged or assessed against real or personal property in the Districts by the
City, or on its behalf.
"Real Property Increment" means that portion of the Tax Increment
attributable to increases in real estate valuations with respect to real estate
located in the Districts.
"Retained Tax Increment Revenues" means that portion of the Tax Increment
to be retained by the City and deposited into the Development Program Fund
pursuant to the terms of the Development Program and this Agreement.
"Tax Increment" means the real and personal property taxes exclusive of
any state, country or special district tax, assessed by the City on the
captured assessed value of property within the Districts, which Tax Increment
shall consist of the Real Property Increment and the Personal Property
Increment.
"Tax Payment Date" means the date(s) on which property taxes levied by the
City are due and payable from owners of property located within the City.
"Tax Shift" means the decrease in county tax payable by the City and the
increases in State aid for education and revenue sharing in all three cases
resulting from the exclusion of Captured Assessed Value from the City's
valuation in calculating such amounts of county tax, State aid to education and
revenue sharing under the current Tax Shift Formulas.
"Tax Shift Formulas" mean the formulas currently utilized by the State of
Maine in calculating (a) the county tax payable in accordance with 30-A M.R.S.A.
Section 706 and 36 M.R.S.A. Sections 305(1), 381; (b) the municipal revenue
sharing distribution of the Local Government Fund in accordance with 30-A
M.R.S.A. Section 5681; and (c) State aid to education, including aid for
total operating costs, total program cost allocation (taking into account the
maximum local share or circuit breaker) and total debt service cost allocation
(taking into account the maximum local share or circuit breaker), all as
computed in accordance with Maine Department of Education Form ED 261.
SECTION 1.2. INTERPRETATION AND CONSTRUCTION. In this Agreement, unless
the context otherwise requires:
a) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any
similar terms, as used in this Agreement, refer to this Agreement, and the term
"hereafter" means after, and the term "heretofore" means before, the date of
delivery of this Agreement.
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(b) Words importing a particular gender mean and include correlative
words of every other gender and words importing the singular number mean
and include the plural number and vice versa.
(c) Words importing persons mean and include firms, associations,
partnerships (including limited partnerships), trusts, corporations and
other legal entities, including public or governmental bodies, as well as
any natural persons.
(d) Any headings preceding the texts of the several Articles and
Sections of this Agreement, and any table of contents or marginal notes
appended to copies hereof, shall be solely for convenience of reference and
shall not constitute a part of this Agreement, nor shall they affect its
meaning, construction or effect.
(e) Except as otherwise provided herein, all approvals, consents and
acceptances required to be given or made pursuant to this Agreement by any
signatory hereto shall not be withheld unreasonably, provided, that this
paragraph shall not apply to approvals, consents and acceptances under
applicable laws, ordinances and codes, including, without limitation, land
use ordinances.
(f) All notices to be given hereunder shall be given in writing and,
unless a certain number of days is specified, within a reasonable time.
(g) If any clause, provision or Section of this Agreement shall be
ruled invalid by any court of competent jurisdiction, the invalidity of
such clause, provision or Section shall not affect any of the remaining
provisions hereof except as otherwise provided in Section 3.4 hereof.
SECTION 1.3. DEVELOPMENT PROGRAM. Neither this Agreement nor the
Development Program obligate the Developer to construct the Land Level Facility
or to make any other improvements to its facility.
SECTION 1.4. COMPLETION. The Developer shall have completed as much of the
Development Program as will qualify for financial assistance hereunder within
five (5) years after the Effective Date. If none of the Development Program is
completed within five (5) years after the Effective Date, then this Agreement
(except Section 1.5 pertaining to costs) and the District shall terminate at
the end of five (5) years after the Effective Date. Notwithstanding any other
provision hereof, no payments shall be made or be payable by the City to the
Developer under this Agreement unless such payments are used to pay or
reimburse the Developer for Project Costs incurred within five (5) years of the
Effective Date pursuant to proper documentation thereof provided by the
Developer pursuant to Section 3.1(d) hereof.
SECTION 1.5. CITY COSTS. The Developer shall pay or reimburse the City for
all reasonable fees, expenses and other charges of the City and its
consultants, including the City's attorneys, accountants and overtime of the
City's appraiser, tax assessor and other City staff, in connection with the
review, negotiation, approval, execution, administration, enforcement and
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carrying out of this Agreement and the review, negotiation, approval,
administration, enforcement and carrying out of the Development Program.
Notwithstanding any of the provision of this Agreement, this section shall
survive any termination of this Agreement.
SECTION 1.6. AGREEMENT CONTROLS. In the event of any inconsistency between
this Agreement and the Development Program, the terms and provisions of this
Agreement shall take precedence, to the extent permitted by law, over the
inconsistent provisions of the Development Program.
ARTICLE II
PROJECT COST ACCOUNT AND FUNDING REQUIREMENTS
SECTION 2.1. CREATION OF DEVELOPMENT PROGRAM FUND. The City hereby
confirms the creation and establishment of a segregated fund in the name of the
City designated as the "Bath Iron Works Corporation Municipal Development Tax
Increment Financing District Program Fund" (the "Development Program Fund")
pursuant to, and in accordance with the terms and conditions of, the
Development Program. The Development Program Fund shall consist of the Project
Cost Account. The Project Cost Account shall consist of the City Subaccount and
the Developer Subaccount.
SECTION 2.2 LIENS. The City shall not create any liens, encumbrances or
other interests of any nature whatsoever, nor shall it hypothecate the Developer
Subaccount of the Project Cost Account of the Development Program Fund or any
funds therein or revenues resulting from investment of funds therein, other
than the interest of the Developer granted under this Agreement in and to the
amounts on deposit in the Developer Subaccount, provided, however, nothing
herein shall prohibit creation of real and personal property tax liens on the
Developer's property in accordance with, and entitled to the priority provided
under, Maine law.
SECTION 2.3. DEPOSITS INTO DEVELOPMENT PROGRAM FUND. The City shall
deposit into the Developer Subaccount of the Project Cost Account within
fifteen (15) days after the City's receipt thereof, an amount equal to the
Developer Share of the Retained Tax Increment Revenues for the period to which
the payment relates. All amounts deposited in or transferred to the Developer
Subaccount of the Project Cost Account shall be paid to the Developer in
accordance with Article III of this Agreement. All interest and earnings on the
Retained Tax Increment Revenues prior to and after deposit thereof into the
Project Cost Account shall be the sole property of the City and shall be free
and clear of any interest of the Developer under this Agreement.
SECTION 2.4. MONIES HELD IN TRUST. Except as otherwise permitted in this
Agreement, all monies required to be deposited with or paid into the Developer
Subaccount of the Project Cost Account to fund payments to Developer under the
provisions hereof and the provisions of the Development Program, shall be held
by the City, in trust, for the benefit of the Developer in accordance with the
provisions of this Agreement.
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All funds in the City Subaccount of the Project Cost Account shall be the
sole and exclusive property of the City and shall not be subject in any way to
the terms or provisions of this Agreement.
ARTICLE III
PAYMENT OBLIGATIONS
SECTION 3.1. CREDIT ENHANCEMENT PAYMENTS. (a) The City shall retain and
deposit, within fifteen (15) days following each Tax Payment Date or the date
payment is actually received by the City with respect to Property in the
Districts, whichever is later, in the Developer Subaccount of the Project Cost
Account, the Developer Share of the Tax Increment in each year commencing with
the City's Fiscal Year 1999 and continuing thereafter through and including the
Fiscal Year 2023.
Notwithstanding the foregoing, if at any time the assessed value of the
Existing Facility is less than the Original Assessed Value, then the amount
payable with respect to the Land Level Facility shall be reduced by an amount
equal to the difference between the Property Taxes that would be then payable
on an amount equal to Original Assessed Value and the Property Taxes payable on
the then assessed value of the Existing Facility.
(b) Subject to the provisions of this Agreement, the City agrees to pay
Developer, within fifteen (15) days following each Tax Payment Date or the date
payment is actually received by the City, whichever is later, the Developer
Share of the Retained Tax Increment Revenues resulting from the Property Tax
payments due on such Tax Payment Date and actually received by the City with
respect to Property in the Districts.
(c) If, with respect to any Tax Payment Date, Developer fails to pay any
portion of the Property Taxes assessed by the City, because of a valuation
dispute or otherwise, the property taxes actually paid by Developer with
respect to such Tax Payment Date shall, first, be applied to taxes due on
account of Original Assessed Value and, second, shall constitute Retained Tax
Increment Revenues.
(d) The Developer agrees that all payments made will be used and applied
to either pay debt service on indebtedness incurred to finance "Project Costs"
as that term is defined under Act and described in the Development Program or
used to pay directly, amortize or reimburse Developer for payment of, qualified
Project Costs. The City shall be required to make payments under this
Agreement only upon receipt of satisfactory documentation that the amounts are
being paid for Project Costs pursuant to Section 1.4 hereof, which
documentation shall be in the form of properly completed certificates, executed
by the Developer in the form attached hereto as Exhibit A.
In addition, notwithstanding any other provisions of this Agreement,
including, without limitation, the provisions of Section 3.1(a)-(b), the City
shall not be obligated to make any payments to the Developer unless the
Developer provides such documentation evidencing that Developer has incurred
Project Costs after the date of this Agreement equal to or greater than
$65,000,000 by December 31, 1999 and $120,000,000 by December 31, 2000 relating
to
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construction and equipping of the Land Level Facility and/or the Existing
Facility. Developer shall repay to City any payments made hereunder if Developer
fails to meet its obligation set forth above.
(e) The Developer (and its successors and assigns, as owners of property
in the District) shall pay to the City, when due, all Property Taxes and
assessments with respect to property of the Developer in the City of Bath. If
such Property Taxes and assessments are not paid when due, the City may
withhold and suspend all payments under this Agreement until such Property
Taxes and assessments and all interest thereon and other costs relating thereto
are paid in full. In addition, if the Developer institutes any tax abatement
proceeding with respect to any Property in the District, the City may withhold
and suspend all payments of the Developer Share of the Tax Increment with
respect to the items of Property subject to the abatement proceeding, and shall
deposit the withheld amount into a separate interest bearing escrow account.
Upon final action and completion of such abatement proceeding, the proper
amount (based on the results of the abatement proceedings plus an allocable
share of the interest accrued thereon) held in escrow account shall be paid to
the Developer.
(f) Developer covenants and agrees that (i) in the event any part of the
Property now or hereafter located in the District should be valued at less than
its full value or is now exempt from payment of Property Tax for any reason or
for any reason hereafter becomes exempt from payment of Property Tax,
including, but not limited to, any portion of the Land Level Facility being
located on submerged land or if any of the Property is now or hereafter leased
by Developer from any person or entity including, without limitation, any
submerged or intertidal lands lease from the State of Maine and any lease from
any private land owner or (ii) in the event that title to any property in the
District is hereafter transferred to any entity exempt from the payment of
Property Taxes, including, without limitation, the State of Maine or any agency
or authority thereof, or (iii) in the event that any submerged lands lease
expires or is transferred to another party, then Developer, its successors and
assigns, as owner, lessee or user of real estate in the District and as a
covenant running with the land shall be obligated to pay to the City each year
during and after the expiration or termination of this Agreement, an amount
equal to (a) 100% of the Property Taxes that would be assessed by the City on
such Property, as if and under the assumption that all such Property were fully
taxable and owned in fee by Developer and not exempt from Property Taxes less
(b) solely during the twenty-five (25) year term of this Agreement, the portion
of the amounts described in the preceding clause (a) that would have been
payable to the Developer, or its successors and assigns, under Section 3.1(a)
if such Property were taxable. The covenants in this paragraph shall survive
expiration or termination of this Agreement. Notwithstanding the foregoing, the
provisions of this paragraph 3.1(f) shall not apply to property taken by
eminent domain or conveyed to any governmental entity under a bona fide threat
of condemnation, except for such period of time, if any, as Developer, its
successors or assigns, continues to operate any business on the Property
following such condemnation or deed in lieu of condemnation.
(g) Developer agrees that for purposes of this Agreement and for purposes
of the assessment of Property Tax, the following shall constitute personal
property: (a) dry docks (but excluding landing grids consisting of the large
cement blocks located under the dry dock area); (b) cranes; (c) rail systems
for cranes and ships; (d) portable staging and welding equipment; (e)
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personnel lifts; (f) modular or mobile equipment and work stations; (g) support
equipment; (h) outfit support terminals; (i) ship transfer systems; (j) process
piping; (k) manufacturing process wiring; (l) fire suppression systems; (m)
fender bumper systems; and (n) all property that is personal property under
applicable law.
When an issue arises as to whether an item is considered real or personal
property, the determining factor is whether the item in question primarily
supports the manufacturing process, in which case it shall be considered
personal property, or supports a building or structure or constitutes an
improvement to the land, in which case it shall be considered real property.
SECTION 3.2 FAILURE TO MAKE PAYMENT. In the event the City should fail
to, or be unable to, make any of the payments required under the foregoing
provisions of this Article III, the item or installment so unpaid shall
continue as a limited obligation of the City, under the terms and conditions
hereinafter set forth, until the amount unpaid shall have been fully paid.
Developer shall be entitled to initiate an action against the City to
specifically enforce its obligations hereunder, including without limitation
the city's obligation to establish and maintain the Development Program Fund,
deposit all Retained Tax Increment Revenues into the Developer Subaccount of
the Project Cost Account established thereunder and make required payments to
Developer.
SECTION 3.3 MANNER OF PAYMENTS. The payments provided for in this
Article III shall be paid directly to the Developer in the manner provided
hereinabove for its own use and benefit by check drawn on the City.
SECTION 3.4 OBLIGATIONS UNCONDITIONAL. Except as otherwise provided in
this Agreement or as required by applicable law, the obligations of the City to
make the payments described in this Agreement in accordance with the terms
hereof shall be absolute and unconditional, and the City shall not suspend or
discontinue any payment hereunder or terminate this Agreement for any cause,
irrespective of any defense or any rights of setoff, recoupment or counterclaim
it might otherwise have against the Developer, other than by reason of and to
the extent provided in a final judgment by a court of competent jurisdiction.
Notwithstanding the foregoing, the City reserves the right to terminate
this Agreement upon receipt of a final judgment by a court of competent
jurisdiction to the effect that this Agreement or the Development Program (or
the designation of the Districts) adopted in connection herewith or any payment
made thereunder or hereunder is or would be illegal or invalid or not properly
authorized. Such termination shall not, however, affect the Developer's
obligation to defend and indemnify the City, which obligations shall survive
any such termination. In addition, the City may setoff any amount found by the
court of competent jurisdiction to be due to the City from the Developer or
from the owner of any property in the District.
The Developer agrees to defend, indemnify, pay, reimburse and hold the
City, its councilors, officers, agents and employees, harmless from any and all
claims, suits, liabilities, actions, proceedings and expenses, including,
without limitation, attorneys fees and expenses and accountant's fees and
expenses, arising out of this Agreement, the Development Program or any
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claim of illegality or invalidity of this Agreement or the Development Program
or the City's approval of the District, this Agreement or the Development
Program or out of the City's preparation and participation in this Agreement or
the Development Program.
SECTION 3.5. LIMITED OBLIGATION. The City's obligations under this
Agreement, including the City's obligations of payment hereunder shall be
limited obligations of the City payable solely from the Developer Share of the
Retained Tax Increment Revenues actually paid by the Developer and/or other
taxpayers with respect to Property in the Districts and actually received by
the City and pledged therefor under this Agreement. The City's obligations
hereunder shall not constitute a general debt or a general obligation or charge
against or pledge of the faith and credit or taxing power of the City, the
State of Maine, or of any municipality or political subdivision thereof, but
shall be payable solely from such Developer Share of the Retained Tax Increment
Revenues actually paid by the Developer and/or other taxpayers with respect to
Property in the Districts and actually received by the City. This Agreement
shall not directly or indirectly or contingently obligate the City, the State
of Maine, or any other municipality or political subdivision to levy or to
pledge any form of taxation whatever therefor or to make any appropriation for
their payment, excepting the pledge of the Developer Share of the Retained Tax
Increment Revenues established under this Agreement.
SECTION 3.6. CALCULATION OF RETAINED TAX INCREMENT. The City and the
Developer shall maintain records which are adequate to calculate the Retained
Tax Increment, the Developer Share and the City Share and shall cooperate with
each other in making such calculations. Annually, within 30 days of mailing of
the City's tax bill, the City shall calculate and submit to Developer its
calculations of the amount of Retained Tax Increment and the Developer Share
and City Share thereof for that year. If the Developer does not object to such
calculations within 30 days of receipt thereof, the calculations shall be final
and binding on all parties. If there is a dispute as to the calculations and
the parties are unable to agree, the dispute shall be determined in the manner
provided in Section 8.13 hereof.
SECTION 3.7. REVALUATION. In the event there is a City-wide revaluation
of taxable property within the City, the Original Assessed Value shall be
increased in proportion to the City-wide increase in property values resulting
from such revaluation.
ARTICLE IV
PLEDGE AND SECURITY INTEREST
SECTION 4.1. PLEDGE OF PROJECT COST ACCOUNT. In consideration of this
Agreement and other valuable consideration and for the purpose of securing
payment of the amounts provided for hereunder to the Developer by the City,
according to the terms and conditions contained herein, and in order to secure
the performance and observance of all of the City's covenants and agreements
contained herein, the City does hereby grant a security interest in and pledge
to the Developer the Developer Subaccount and all sums of money and other
securities and investments therein. This pledge and the provisions of Section
2.4 hereof shall not apply to any interest and earnings on the Project Cost
Account, including the Developer Subaccount thereof, all of which shall be the
absolute property of the City, free and clear of any interest of the Developer.
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SECTION 4.2. PERFECTION OF INTEREST. The City shall cooperate with the
Developer in causing appropriate financing statements and continuation
statements naming the Developer as pledgee of all such amounts from time to time
on deposit in the Developer Subaccount of the Project Cost Account to be duly
filed and recorded in the appropriate state offices as required by and permitted
under the provisions of the Maine Uniform Commercial Code or other similar law
as adopted in the State of Maine and any other applicable jurisdiction, as from
time to time amended, in order to perfect and maintain the security interests
created hereunder. To the extent reasonably deemed necessary by the Developer,
the City will at such time and from time to time as requested by Developer
establish the Developer Subaccount of the Project Cost Account Fund described in
Section 2.3(b)(i) hereof as a segregated fund under the control of an escrow
agent, trustee or other fiduciary so as to perfect Developer's interest therein
on terms reasonably satisfactory to the City.
SECTION 4.3 FURTHER INSTRUMENTS. The City shall, upon the reasonable
request of the Developer, from time to time execute and deliver such further
instruments and take such further action as may be reasonable and as may be
required to carry out the provisions of this Agreement; provided, however, that
no such instruments or actions shall pledge the credit of the City or require
any payment or expense by the City (unless paid by Developer) or discharge
either party or change any provision of this Agreement.
SECTION 4.4 NO DISPOSITION OF DEVELOPER SUBACCOUNT. Except as permitted
hereunder, the City shall not sell, lease, pledge, assign or otherwise dispose,
encumber or hypothecate any interest in the Developer Subaccount of the Project
Cost Account and will promptly pay or cause to be discharged or make adequate
provision to discharge any lien, charge or encumbrance on any part thereof not
permitted hereby.
SECTION 4.5 ACCESS TO BOOKS AND RECORDS. All books, records and documents
in the possession of the City relating to the District, the Development Program,
the Agreement and the monies, revenues and receipts on deposit or required to be
deposited into the Development Program Fund and the Developer Subaccount of the
Project Cost Account shall at all reasonable times be open to inspection by the
Developer, its agents and employees. All books, records and documents of the
Developer reasonably necessary to the verification of Project Costs shall at all
reasonable times be open to inspection by the City, its agents and employees,
provided, however, that any information reasonably designated by Developer as
proprietary shall be inspected in a manner so as to preserve the confidential
nature of such information.
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.1. EVENTS OF DEFAULT. Each of the following events shall
constitute and be referred to in this Agreement as an "Event of Default":
(a) Any failure by the City or the Developer to pay any amounts due
hereunder when the same shall become due and payable;
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(b) Any failure by the City to make deposits into the Developer
Subaccount of the Project Cost Account as and when due;
(c) Any failure by the City or the Developer to observe and perform in
all material respects any covenant, condition, agreement or provision
contained herein on the part of the City or Developer to be observed or
performed, which failure is not cured within thirty (30) days following
written notice thereof; provided, however, that this subsection (c) shall
not be construed to include Developer's failure to pay property taxes for
any reason as an Event of Default hereunder;
(d) If a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises of the appointment of a conservator or
receiver or liquidator of, any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings, or for the winding up or
liquidation of the City's or Developer's affairs shall have been entered
against the City or the Developer, the City or the Developer shall have
consented to the appointment of a conservator or receiver or liquidator in
any such proceedings of or relating to the City or the Developer or of or
relating to all or substantially all of its property, including without
limitation the filing of a voluntary petition in bankruptcy by the City or
the Developer or the failure by the City or the Developer to have an
involuntary petition in bankruptcy dismissed within a period of 90
consecutive days following its filing or in the event an order for release
has been entered under the Bankruptcy Code with respect to the City or the
Developer.
SECTION 5.2. REMEDIES ON DEFAULT. Whenever any Event of Default described
in Section 5.1 hereof shall have occurred and be continuing, the nondefaulting
party may take any one or more of the following remedial steps following any
applicable cure period:
(a) The nondefaulting party may take whatever action at law in at
equity as may appear necessary or desirable to collect the amount then due
and thereafter to become due, to specifically enforce the performance or
observance of any obligations, agreements or covenants of the nondefaulting
party under this Agreement and any documents, instruments and agreements
contemplated hereby or to enforce any rights or remedies available
hereunder or under applicable law; and
(b) The Developer shall also have the right to exercise any rights or
remedies available to a secured party under the laws of the State of Maine.
SECTION 5.3 REMEDIES CUMULATIVE. No remedy herein conferred upon or
reserved to any party is intended to be exclusive of any other available remedy
or remedies but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law, in equity or by statute. Delay or omission to exercise any
right or power accruing upon any Events of Default to insist upon the strict
performance of any of the covenants and agreements herein set forth or to
exercise any rights or remedies upon the occurrence of an Event of Default
shall not impair any such right or power or be considered or taken as a waiver
or relinquishment for the future of the right to insist upon and to enforce,
from time to time and as often as may be deemed expedient, by injunction
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or other appropriate legal or equitable remedy, strict compliance by the
parties hereto with all of the covenants and conditions hereof, or of the
rights to exercise any such rights or remedies, if such Events of Default be
continued or repeated.
SECTION 5.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. Subject to
the provisions of this Agreement, in the event the City or the Developer should
default under any of the provisions of this Agreement, and the nondefaulting
party shall require and employ attorneys or incur other expenses or costs for
the collection of payments due or to become due or for the enforcement of
performance or observance of any obligation or agreement on the part of the
City or the Developer herein contained, the defaulting party shall, on demand
therefor, pay to the nondefaulting party the reasonable fees of such attorneys
and such other reasonable costs and expenses so incurred by the Developer.
SECTION 5.5. TAX LAWS. Except as provided in Section 3.1 hereof, the
parties acknowledge that all laws of the State now in effect or hereafter
enacted with respect to taxation of property shall be applicable and that the
City, by entering into this Agreement, is not excusing any non-payment of taxes
by Developer. Without limiting the foregoing, the City and the Developer shall
always be entitled to exercise all rights and remedies regarding assessment,
collection and payment of taxes assessed on Developer's property.
ARTICLE VI
EFFECTIVE DATE, TERM AND TERMINATION
SECTION 6.1. EFFECTIVE DATE AND TERM. This Agreement shall become
effective upon its execution and delivery by the parties hereto and shall
remain in full force from the date hereof and shall expire upon the performance
of all obligations on the part of the City and the Developer hereunder.
SECTION 6.2. CANCELLATION AND EXPIRATION OF TERM. At the termination or
other expiration of this Agreement in accordance with the provisions of this
Agreement, the City and the Developer shall each execute and deliver such
documents and take or cause to be taken such actions as may be necessary to
evidence the termination of this Agreement.
ARTICLE VII
ASSIGNMENT AND PLEDGE OF DEVELOPER'S INTEREST
SECTION 7.1. CONSENT TO PLEDGE AND/OR ASSIGNMENT. The City hereby
acknowledges that it is the intent of the Developer to pledge and assign its
right, title and interest in, to and under this Agreement as collateral for
financing for the Project, although no obligation is hereby imposed on the
Developer to make such assignment or pledge. Recognizing this intention, the
City does hereby consent and agree to the pledge and assignment of all the
Developer's right, title and interest in, to and under this Agreement and in,
and to the payments to be made to Developer hereunder, to third parties as
collateral or security for financing the Development Program, on one or more
occasions during the term hereof.
13
<PAGE> 17
SECTION 7.2. PLEDGE, ASSIGNMENT OR SECURITY INTEREST. The City hereby
consents to the pledge, assignment or granting of a security interest by the
Developer of its right, title and interest in, to and under this Agreement as
collateral for financing of the Project. The City agrees to execute and deliver
any assignments, pledge assignments, consents or other confirmations on terms
reasonably satisfactory to the City required by the prospective pledgee or
assignee, including without limitation recognition of the pledgee or assignee as
the holder of all right, title and interest herein and as the payee of amounts
due and payable hereunder and any and all such other documentation as shall
confirm to such pledge or assignee the position of such assignee or pledgee and
the irrevocable and binding nature of this Agreement and provide to the pledgee
or assignee such rights and/or remedies as the parties may reasonably deem
necessary for the establishing, perfection and protection of its interest
herein.
SECTION 7.3. ASSIGNMENT. Except to the extent provided in Section 7.1 and
Section 7.2, the Developer shall not have the right to transfer and assign all
or any portion of its rights in, to and under this Agreement, except to the
owners of the Property in the District and this Agreement shall run with the
land and bind and inure to the benefit of such owners, their successors and
assigns.
ARTICLE XIII
MISCELLANEOUS
SECTION 8.1. SUCCESSORS. In the event of the dissolution of the City or the
Developer, the covenants, stipulations, promises and agreements set forth
herein, by or on behalf of or for the benefit of such party shall bind or inure
to the benefit of the successors and assigns thereof time to time and any
entity, officer, board, commission, agency or instrumentality to whom or to
which any power or duty of such party shall be transferred.
SECTION 8.2. PARTIES IN INTEREST. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended or shall be
construed to confer upon any person, firm or corporation other than the City and
the Developer any right, remedy or claim under or by the reason of this
Agreement, it being intended that this Agreement shall be for the sole and
exclusive benefit of the City and the Developer.
SECTION 8.3. SEVERABILITY. In case any one or more of the provisions of
this Agreement shall, for any reason, be held to be illegal and invalid, such
illegality or invalidity shall not affect any other provision of this Agreement
and this Agreement shall be construed and enforced as if such illegal or invalid
provision had not been contained herein.
SECTION 8.4. NO PERSONAL LIABILITY OF OFFICIALS OF THE CITY. No covenant,
stipulation, obligation or agreement of the City contained herein shall be
deemed to be a covenant, stipulation or obligation of any present or future
elected or appointed official, officer, agent, servant or employee of the City
in his individual capacity and neither the members of the City Council of the
City nor any official, officer, employee or agent of the City shall be liable
personally with respect to this Agreement or be subject to any personal
liability or accountability by reason hereof.
14
<PAGE> 18
SECTION 8.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be an
original, but such counterparts shall together constitute but one and the same
Agreement.
SECTION 8.6. GOVERNING LAW. The laws of the State of Maine shall govern the
construction and enforcement of this Agreement.
SECTION 8.7. NOTICES. All notices, certificates, requests, requisitions or
other communication by the City or the Developer pursuant to this Agreement
shall be in writing and shall be sufficiently given and shall be deemed given
when mailed by first class mail, postage prepaid, addressed as follows:
If to the City:
City Manager
Bath City Hall
55 Front Street
Bath, ME 04530-2588
If to the Developer:
Bath Iron Works Corporation
700 Washington Street
Bath, ME 04530
Either of the parties may, by notice given to the other, designate any further
or different addresses to which subsequent notices, certificates, requests or
other communications shall be sent hereunder.
SECTION 8.8. AMENDMENTS. This Agreement may be amended only with the
concurring written consent of both of the parties hereto.
SECTION 8.9. NET AGREEMENT. Subject only to the provisions of Sections 3.1,
3.4, 3.5 and 5.2 hereof, this Agreement shall be deemed and construed to be a
"net agreement," and the City shall pay absolutely net during the term hereof
all payments required hereunder, free of any deductions, and without
abatement, deductions or setoffs.
SECTION 8.10. BENEFIT OF ASSIGNEES OR PLEDGEES. The City agrees that this
Agreement is executed in part to assist the Developer in obtaining financing
for the Project and accordingly all covenants and agreements on the part of the
City as to the amounts payable hereunder are hereby declared to be for the
benefit of any such assignee or pledgee from time to time of the Developer's
right, title and interest herein.
SECTION 8.11. INTEGRATION. This Agreement completely and fully supersedes
all other prior or contemporaneous understandings or agreements, both written
and oral, between the City
15
<PAGE> 19
and the Developer relating to the specific subject matter of this Agreement and
the transactions contemplated hereby.
SECTION 8.12. DISPUTES. The Developer and the City waive any right which
either may have to contest, and shall not take any action to challenge, the
other's authority to enter into, perform or enforce the Agreement or to carry
out the Development Program or the validity or enforceability of this Agreement,
the District or the Development Program. Subject to the provisions of Sections
1.5, 3.4 and 5.4 hereof, the City and the Developer shall each utilize their
respective best efforts to uphold the District, the Development Program, this
Agreement and the City's authority to enter into this Agreement and the validity
and enforceability of the Districts, the Development Program and this Agreement,
including without limitation opposing, to the extent permitted by law, any
litigation or proceeding challenging such authority, validity or enforceability.
The City and the Developer both covenant and agree that (except as provided in
Section 3.1 hereof) the assumptions, analyses and results set forth in this
Agreement shall in no way prejudice the rights of either party or be used, in
any way, by either party in either presenting evidence or making argument in any
dispute which may arise in connection with valuation of the Existing Property or
the Land Level Facility.
SECTION 8.13. ARBITRATION. Any dispute arising under this Agreement or
under the Development Program shall be resolved by arbitration. The parties
shall use best efforts to agree on an arbitrator and rules of arbitration. If
agreement is not reached within forty-five (45) days, the dispute shall be
resolved by arbitration in accordance with the rules of the American Arbitration
Association.
IN WITNESS WHEREOF, the City and the Developer have caused this Agreement to be
executed in their respective corporate names and their respective corporate
seals to be hereunto affixed and attested by the duly authorized officers, all
as of the date first above written.
WITNESS: CITY OF BATH
/s/ Roger R. Havendilt By: /s/ John Bubier
- -------------------------- -----------------------------------
John Bubier
City Manager
/s/ Roger R. Havendilt By: /s/ John Hall
- --------------------------- ----------------------------------
John Hall, Chairman
City Council
WITNESS: BATH IRON WORKS CORPORATION
By: /s/ Kevin P. Gildart
- ---------------------------- ----------------------------------
Kevin P. Gildart
Assistant to the President
16
<PAGE> 20
EXHIBIT A
REQUEST FOR PAYMENT
The undersigned (the "Developer") does hereby request payment in the
amount of $ from the City of Bath out of the Developer Subaccount of the
Project Cost Account established under the Development Program of The Bath Iron
Works Municipal Development District and Tax Increment Financing District #1
and The Bath Iron Works Municipal Development District and Tax Increment
Financing District #2 and does hereby certify to the City of Bath that the
amount requested will be used to pay Project Costs as that term is defined in
Chapter 207 of Title 30-A of the Maine Revised Statutes, as follows: [check
applicable provisions]
/ / Direct payment of Project Costs in the amount of $________; and/or
/ / Reimbursement to the Developer for Project Costs previously incurred,
in the amount of $________
There are attached hereto invoices showing the incurring by the undersigned of
Project Costs in the amount of $_______. None of these invoices have been the
subject of a previous request for payment from the Project Cost Account.
The Developer further certifies that all of such Project Costs constitute
Project Costs as defined in the Credit Enhancement Agreement, dated September
__, 1997 between the City of Bath and the undersigned, and that the Developer
has complied with all terms, conditions and covenants of such Agreement and
that no default or event of default exists under said Agreement.
Dated:_____________
BATH IRONS WORKS CORPORATION
_________________________________ By:__________________________________
Its
Duly Authorized
17
<PAGE> 1
EXHIBIT 10-33
RETIREMENT BENEFIT AGREEMENT
AGREEMENT DATED AS OF 6th March, 1998 between General Dynamics Corporation, a
Delaware corporation ("the Corporation"), and Michael J. Mancuso ("the
Executive").
WHEREAS, the Executive has accrued retirement benefits under 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 provisions), 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 certain additional retirement benefits to
be paid following the Executive's termination of employment or retirement.
NOW, THEREFORE, in consideration for the Executive's future services to be
rendered to the Corporation by the Executive, the Corporation and the Executive
agree as follows:
1. MEMBERSHIP IN GENERAL DYNAMICS RETIREMENT PLAN.
The Executive will maintain his membership in the General Dynamics
Retirement Program, a copy of which has been furnished to him.
2. RETIREMENT PROGRAM BENEFIT.
Upon the Executive's retirement from the Corporation, the Executive
shall be entitled to such annual retirement benefits, if any, as of
the date of the Executive'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
Executive elects pursuant to the terms of the Retirement Plan.
3. AMOUNT OF SUPPLEMENTAL RETIREMENT BENEFIT.
Upon termination of the Executive's employment with the Corporation
under the conditions specified in Sections 4 and 5 below, the
Executive's Supplemental Retirement Benefit shall equal an annual
payment of One-Hundred Thousand Dollars and no cents ($100,000.00)
times the Executive's "Vested Percentage". The Supplemental Benefit
Amount shall be paid monthly and shall be in addition to any amount
that may be payable under the Retirement Program. The Supplemental
Retirement Benefit shall be equal to a single-life annuity form of
payment and shall be adjusted in accordance with the election of any
optional form of payment which the Executive may elect under the
Retirement Program.
Payment of Supplemental Retirement Benefits shall commence to the
Executive on the first day of the month following his attainment of
age fifty-seven (57) or following his date of termination of
employment or retirement, if later.
Page 1 of 4
<PAGE> 2
4. ELIGIBILITY FOR SUPPLEMENTAL RETIREMENT BENEFITS.
If the Executive voluntarily terminates employment with the
Corporation prior to October 1, 1999, no Supplemental Retirement
Benefit shall be payable under the terms of this Retirement Benefit
Agreement. This restriction shall not apply to any retirement
benefits that may be payable under the Retirement Program. Subject to
the restrictions enumerated in Section 5 below, if the Executive
terminates employment on or after October 1, 1999, he shall receive a
"Vested Percentage" of his Supplemental Retirement Benefit equal to
twenty percent (20%), plus an additional twenty percent (20%) for each
year of employment completed after September 30, 1999, until October
1, 2003, when the Executive's Vested Percentage shall equal
one-hundred percent (100%). The Executive shall not receive credit
for a partial year of employment towards his Vested Percentage.
Alternatively, if the Executive shall terminate his employment with
the Corporation other than Termination for Cause at anytime after
signing this Agreement under either of the conditions specified in
paragraphs (a) or (b) below, the Executive shall be deemed to have a
"Vested Percentage" equal to one-hundred percent (100%) and shall be
entitled to the Supplemental Retirement Benefit specified in Section 3
above.
(a) In the event of the Executive's illness or disability such
that he is unable, in the sole opinion of the Compensation
Committee, to adequately perform the tasks of his position; or
(b) If the Corporation shall substantially downgrade the
Executive's responsibilities or if the Corporation shall
involuntarily terminate his employment other than Termination
for Cause as defined below.
5. REDUCTIONS AND FORFEITURES OF PAYMENT.
Notwithstanding anything in this Agreement to the contrary:
(a) Termination for Cause: No Supplemental Retirement Benefit
shall be paid in any amount hereunder (and any Supplemental
Retirement Benefit currently being paid to the Executive shall
be permanently forfeited) if, in the sole opinion of the
Compensation Committee, the Executive is discharged for
causing harm to the Corporation ("Termination for Cause"),
including, but not limited to: (1) 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, or (iv) individually
filing, assisting or participating in a lawsuit against the
Corporation or it's officers in their official capacity.
(b) Re-employment: The Executive specifically agrees that this
Supplemental Retirement Benefit is for his enjoyment in
retirement. Therefore, if the Executive's employment with the
Corporation terminates other than Termination for Cause prior
to October 1, 2003, and the Executive is subsequently employed
at anytime by any other employer either as an employee or an
independent contractor (other than as a director on the board
of directors for a charitable organization) without prior
Compensation Committee approval, which approval shall not be
unreasonably withheld, the Executive's Vested Percentage shall
be deemed to be zero percent (0.0%) and he shall not receive
any Supplemental Retirement Benefit at all (and such benefit
shall be permanently discontinued if the Executive is in pay
status). If Executive's employment with the Corporation
terminates other than Termination for Cause on or after
October 1, 2003, and the Executive is subsequently employed at
anytime by any other employer as either an employee or an
independent contractor (other than as a director on the board
of directors for a charitable organization)
Page 2 of 4
<PAGE> 3
without prior Compensation Committee approval, which approval
shall not be unreasonably withheld, the Executive's "Vested
Percentage" shall be deemed to be fifty percent (50%) and his
Supplemental Retirement Benefit shall be computed with such
Vested Percentage and no greater (and such benefit shall be
permanently reduced to reflect this Vested Percentage if the
Executive is in pay status at the time of his re-employment
without consent). For purposes of this Section 5(b)
"reemployment" means employment, including as a member of the
board of directors, with an organization otherwise
unaffiliated with the Corporation.
6. ALTERNATE FORM OF BENEFIT.
The Executive 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
Executive's retirement benefit is to commence.
7. SURVIVOR BENEFIT IN CASE OF DEATH PRIOR TO COMMENCEMENT OF BENEFITS.
If the Executive dies after the date of this Agreement but prior to
commencement of benefits, and at the time of his death he would have
been entitled to a Supplemental Retirement Benefit under this
Agreement in the event of his involuntary termination (other than
Termination for Cause), then his spouse shall be entitled to receive a
"Pre-Retirement Surviving Spouse Annuity" as provided in the
Retirement Plan (currently defined as a 50% Contingent Annuity) for
her life. The amount of the Pre-Retirement Surviving Spouse Annuity
payable under this Agreement shall equal the amount that would have
been paid to the Executive under this Agreement as a single-life
annuity, assuming he was involuntarily terminated (other than
Termination for Cause) immediately prior to his date of death, reduced
by the Retirement Plan's actuarial adjustments necessary to express
the single-life annuity as a 50% contingent annuity option. Payment of
this benefit shall commence on the date the Supplemental Retirement
would have commenced to the Executive if he had involuntarily
terminated (other than Termination for Cause) immediately prior to his
death.
8. PAYMENT.
All annual retirement benefits for the life of the Executive (or
alternate form of benefit) or other amounts payable as provided in
this Agreement shall be paid as provided in the Executive's benefit
election under the Retirement Plan. Any retirement benefits to which
the Executive 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 the form of
an actuarial equivalent value mutually agreeable to the parties.
9. 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.
Page 3 of 4
<PAGE> 4
10. PAYMENT FROM GENERAL ASSETS.
Unless otherwise determined by the Corporation, the Supplemental
Retirement Benefit 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 Supplemental
Retirement Benefit. Further, the Executive shall have no claim
whatsoever to any specific assets or group of assets of the
Corporation.
The Corporation may, in its discretion, designate that the
Supplemental Retirement Benefit 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 Supplemental
Retirement Benefit described above, the Corporation shall remain
liable for their payment unless otherwise agreed to by the parties of
this Agreement.
11. TAXATION.
The Executive and the Corporation agree that all payments hereunder
shall be treated as "wages" for federal and state income tax and
employment tax purposes at such time and in such manner as shall be
prescribed by law. Each party to this Agreement shall be responsible
for the payment of any such taxes as shall be legally required of such
party.
12. This Agreement shall be governed by the laws of the State of Delaware.
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
Executive has executed this Agreement as of the date first above written.
ATTEST: GENERAL DYNAMICS CORPORATION
/s/ PAUL A. HESSE By: /s/ W. P. WYLIE
- ------------------------------ -------------------------------------
Secretary W. P. Wylie
Corporate Vice President - Human
Resources and Administration
/s/ HENRY C. EICKELBERG /s/ MICHAEL J. MANCUSO
- ------------------------------ -------------------------------------
Witness Michael J. Mancuso
Page 4 of 4
<PAGE> 1
EXHIBIT 10-34
GENERAL DYNAMICS
3190 Fairview Park Drive
Falls Church, Virginia 22042-4523
Nicholas D. Chabraja August 18, 1997 703-876-3251
Chairman of the Board Fax: 703-876-3043
and Chief Executive Officer
Mr. Paul G. Kaminski
Technovation, Inc.
6691 Rutledge Drive
Fairfax Station, VA 22039
Dear Paul:
This letter will confirm the consulting agreement between us as follows:
1. SERVICES TO BE RENDERED
We retain you to render, and you agree to render to us upon request, your
services as an independent contractor for General Dynamics Corporation and its
subsidiaries. Such services shall be requested from time to time by the Chief
Executive Officer, or his designee. The services shall include:
a. Acquisitions and divestitures -- Assist as requested with
assessment of opportunities for acquisitions and divestitures,
and advise on the competitive impact of proposed transactions
under the Department of Defense's (DOD's) merger policies;
b. Restructuring and reengineering -- Assist as requested with
the Company's restructuring and reengineering initiatives;
c. International cooperation -- Assist as requested with
international programs, and teaming, partnership and joint
venture arrangements;
d. Technology strategy -- Review internal research and
development plans in the context of an integrated investment
strategy. Consider internal and external sources of
technology;
e. Congress -- Provide assistance as requested in communicating
with the Congress on key issues of interest to the Company;
and
f. Other services -- Consult on other matters on which we
mutually agree.
<PAGE> 2
Mr. Paul G. Kaminski
August 18, 1997
Page 2
2. TERM OF AGREEMENT
Agreement shall be for one year beginning September 1, 1997 and ending August
31, 1998, and may be extended from year to year upon the agreement of the
parties. Your obligations pursuant to paragraph 6 shall survive any
termination of this agreement.
3. FEES
We shall pay you a fee of Two Hundred Thousand Dollars ($200,000) for the
one-year term of this agreement (the "Annual Fee"), for which you will render
up to forty (40) days of service. The Annual Fee shall be paid in four
quarterly installments of Fifty Thousand Dollars ($50,000) each, with the first
installment due upon execution of the agreement and subsequent installments due
upon commencement of the consulting quarter.
In the event that you provide more than forty (40) days of service during the
term of this agreement, we will pay you Five Thousand Dollars ($5,000) per day
(the "Daily Fee") for each additional day of service rendered. In addition, we
shall accelerate payment of any unpaid amount of your Annual Fee.
We shall also reimburse you for all reasonable travel expenses actually and
necessarily incurred by you on our behalf in the rendering of services
hereunder. Expense receipts and other documentation in support of expenses
will be retained by you and be available for our review at our office upon
request. Air travel will be in business class, or first class if no business
class is available.
You shall submit to us at the end of each quarter an invoice showing the
quarterly installment, the daily fee, if any, the number of days of service,
and a breakdown of travel and other expenses.
4. ACTIVITY REPORTS
You shall submit periodic activity reports in the manner, at the times, and to
the extent required by the Chief Executive Officer. You shall from time to
time at our request and, in any event, upon termination of this agreement,
deliver to us all working papers, plant or engineering data, and other
documents and materials that have been prepared or developed by you or made
available to you in connection with your performance of services under this
agreement.
<PAGE> 3
Mr. Paul G. Kaminski
August 18, 1997
Page 3
5. SERVICES FOR OTHERS
During the term of this agreement or any extension thereof, you may render
services to others as an employee or a consultant, provided that without the
express written permission of General Dynamics, you may not serve any major
competitors, or engage in any business on your own behalf which sponsors,
produces or sells goods or services which compete or conflict with ours. You
agree to provide General Dynamics with a list of your current clients and to
notify General Dynamics whenever you add new clients.
6. CONFIDENTIAL NATURE OF WORK
You will not, during or after the term of this agreement, divulge to anyone, or
except in the performance of this agreement, make use of information or
knowledge which you shall have obtained during the term of this agreement and
which shall not be generally known or recognized.
7. INVENTIONS AND INTELLECTUAL PROPERTY RIGHTS
The provisions governing inventions and intellectual property rights shall be
as follows:
(a) All inventions, discoveries, improvements, devices, designs,
apparatus, practices, processes, methods, or products
(hereinafter individually or collectively called
"inventions"), whether patentable or not, trade secrets,
technical and other data, and all copyrightable material made,
developed, perfected, devices, conceived or first reduced to
practice by you, either solely or jointly with others, or your
employees (if any) during the term of this agreement and in
the course of your work for us shall be our sole and exclusive
property, except as may otherwise be required as provided in
subparagraph (b) below.
(b) You understand that we have entered into, or from time to time
in the future may enter into, agreements with agencies of the
United States Government (including, but not limited to the
Department of Defense) and that we may be subject to laws and
regulations which impose obligations, restrictions and
limitations on us with respect to inventions and patents which
may be acquired by us or which may be conceived or developed
by consultants, employees and others rendering services to us.
You agree to be bound by all such obligations, restrictions
and limitations on us with respect to
<PAGE> 4
Mr. Paul G. Kaminski
August 18, 1997
Page 4
inventions and patents which may be acquired by us or which
may be conceived or developed by consultants, employees and
others rendering services to us. You agree to be bound by
all such obligations, restrictions and limitations applicable
to inventions conceived or developed by you in the course of,
or in any way connected with your work under this agreement,
and to take any and all further action which may be required
to discharge such obligations and to comply with such
restrictions and limitations.
8. NATURE OF RELATIONSHIP
It is understood that in performing any services pursuant to this agreement,
you are acting as an independent contractor and not as an employee, agent or
representative of ours. You shall not act as our agent or enter into any
agreements or incur any obligations on our behalf, or commit us in any other
manner, without our prior written consent. You will be responsible for
reporting and paying any federal and state taxes owing on the consulting income
received.
You have been provided with a copy of the General Dynamics Standards of
Business Ethics and Conduct. You have also been provided with copies of the
General Dynamics policies and procedures relating to accounting and expense
reporting and travel. You agree to conduct your performance under this
consultant agreement in accordance with these Standards and policies.
You understand that there are restrictions established by federal law on
certain Retired Military Officers and former U.S. Government employees. While
there are many restrictions, they can be briefly summarized into two
categories. First, on particular matters in which the Company was a party, you
may not make any communications with, or appearances before, the government on
behalf of the Company at any time. Second, you may not lobby the DOD for five
years after leaving DOD. "Lobby" in this context means to communicate with, or
appear before, the DOD with intent to influence official action. You further
understand that General Dynamics requires that you comply with these
restrictions, and expects you to decline any assignment which may cause you to
violate the restrictions or policy.
9. SECURITY
You shall abide by all applicable security laws and regulations of the United
States of America and our organization and shall take or refrain from taking
any action which may be required for compliance therewith.
<PAGE> 5
Mr. Paul G. Kaminski
August 18, 1997
Page 5
It is understood that a security clearance up to the level of Top Secret shall
be required to perform services requested under this agreement. You will be
contacted by our Security Department concerning the execution of a "Consultant
Security Certification" and further guided in submitting appropriate government
clearance forms to the Defense Investigative Service Clearance Office.
10. ENTIRE AGREEMENT
This instrument contains the entire agreement between the parties with respect
to the consulting services to be rendered by you to us, and supersedes all
prior agreements, arrangements, and/or understandings between the parties
regarding the subject matter hereof.
If the foregoing clearly sets forth our understanding, will you please sign and
return to us the enclosed duplicate copy of this letter, which shall thereupon
constitute an agreement between us.
Very truly yours,
GENERAL DYNAMICS CORPORATION
/s/ NICHOLAS D. CHABRAJA
Nicholas D. Chabraja
Chairman and Chief Executive Officer
CONSULTANT APPROVAL:
Confirmed and accepted as of _____________________________, 1997 by:
/s/ PAUL G. KAMINSKI
- ------------------------------------ ---------------------------------
Paul G. Kaminski Social Security Number or
Employer Identification Number
<PAGE> 1
EXHIBIT 10.35
AGREEMENT
AGREEMENT DATED AS OF 7 February, 1997 between General Dynamics Corporation, a
Delaware corporation ("the Corporation"), and Michael W. Wynne ("the
Executive").
In consideration for the Executive's future services to be rendered to the
Corporation by the Executive, the Corporation and the Executive agree as
follows:
1. SALARY AND BENEFIT CONTINUATION
In the event that the Executive's employment with the Corporation is
involuntarily terminated, other than for cause, during the first two years of
the Executive's employment, the Executive's salary and benefits will
continue for a period of one year.
2. TAXATION
The Executive and the Corporation agree that all payments hereunder shall be
treated as "wages" for federal and state income tax and employment tax
purposes as such time and in such manner as shall be prescribed by law. Each
party to this Agreement shall be responsible for the payment of any such
taxes as shall be legally required of such party.
3. This Agreement shall be governed by the State of Delaware.
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
Executive has executed this Agreement as of the date first above written.
ATTEST: GENERAL DYNAMICS CORPORATION
/S/ PAUL A. HESSE By: /S/ W.P. WYLIE
- ------------------------ -----------------------------------------
Secretary W.P. Wylie
Corporate Vice President - Human
Resources and Administration
/S/ DAVID R. BREEN /S/ MICHAEL W. WYNNE
- ------------------------ -----------------------------------------
Witness Michael W. Wynne
Page 1 of 1
<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 these words and
similar expressions are intended to identify forward-looking statements which
include but are not limited to projections of revenues, earnings, segment
performance, cash flows and contract awards. Forward-looking statements are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements are not guarantees of future
performance and involve certain risks and uncertainties which are difficult to
predict. Therefore, actual future results and trends may differ materially
from what is forecast in forward-looking statements due to a variety of
factors, including: the company's successful execution of internal performance
plans; performance issues with key suppliers and subcontractors; legal
proceedings; 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, due to
a decline in the U.S. defense budgets, participants in the defense industry
began a process of contraction and consolidation. The company participated in
this shift by changing its focus to strengthen certain core businesses through
both internal and external means. Management continues to focus on developing
advanced technological solutions to meet its customers' operational
requirements, while continually improving its cost structure. These efforts
have created highly efficient businesses that are positioned to capture new
programs and contracts. 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 invested approximately $1.6 billion in cash for the net assets of eight
businesses that have strengthened the company's core operations and expanded
its capabilities to include full systems integration, data management and open
network platform systems integration. Those acquisitions which were reflected
in the 1997 results were immediately accretive to earnings. All acquisitions
completed to date are expected to be accretive to earnings in 1998.
Management will continue to implement its strategy to strengthen the
company through continued improvement to operations; positioning itself to
capture new programs and contracts; and pursuing acquisitions that bring real
value to its shareholders and affordability to its customers.
For its potential acquisitions, the company looks to those that address
all or some of 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.
With approximately $400 million in funds on hand after the most recent
acquisition and the capacity for additional long-term borrowing, the company has
the financial capability to take advantage of potential opportunities.
<TABLE>
<CAPTION>
EARNINGS FROM
CONTINUING OPERATIONS
<S> <C>
1995 $247
1996 $270
1997 $316
<CAPTION>
OPERATING CASH FLOWS
<S> <C>
1995 $349
1996 $415
1997 $528
</TABLE>
BUSINESS SEGMENTS
Until recently, the company had two primary business segments, Marine and
Combat Systems. Marine designs and builds nuclear submarines and surface
combatants for the U.S. Navy as well as provides ship management services for
the U.S. government on prepositioning and ready reserve ships.
Combat Systems designs and manufactures armored vehicles, components of
other combat vehicles and advanced gun, ammunition handling and air defense
systems for the U.S. armed forces and international customers. It also is a
leader in the production of ammunition and ordnance products.
18 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 2
During the fourth quarter, the company acquired the Computing Devices
International business of Ceridian Corporation and the Advanced Technology
Systems division of Lucent Technologies. Computing Devices International is a
defense electronics and systems integration business for primarily the U.S.,
Canadian and U.K. governments. Advanced Technology Systems is a leading supplier
of undersea surveillance systems, signal processing and vibration control
systems and related technologies primarily for the U.S. Navy. With these
acquisitions, the company plans to form in 1998 a third primary business
segment, Information Systems and Technology. For a discussion of the accounting
for these transactions and related information, see Note B to the Consolidated
Financial Statements.
The company also has several miscellaneous businesses including coal
mining and aggregates operations in the Midwest, and a leasing operation for
liquefied natural gas tankers which are classified as "Other."
A discussion of each business segment's backlog position (the estimated
remaining sales value of work to be performed under firm contracts), anticipated
programs, operating results and outlook follows. As noted earlier, the
anticipated defense programs of the company are subject to, among other events,
changing priorities or reductions in the U.S. government defense budget.
However, the company's programs continue to receive support in the defense
budget consistent with the company's expectations. For a summary of business
segment information, see Note R to the Consolidated Financial Statements which
is incorporated herein by reference.
MARINE
BACKLOG
Firm Backlog
1995 $5,686
1996 $7,566
1997 $5,864
Anticipated Awards
1997 $7,000
Year-end firm backlog includes contracts for the construction of the final two
Seawolf-class attack submarines with final delivery scheduled for 2001 and nine
Arleigh Burke class destroyers (DDG 51) with final delivery scheduled for 2003,
and for the continued design of the next generation submarine, the New Attack
Submarine (NSSN).
The backlog chart also depicts the impact of certain contracts not yet
awarded to the company as of year end. In March 1998, the Navy awarded a
contract to the company for the construction of six additional DDG 51s for
approximately $2 billion. The company anticipates an award later in 1998 for the
continued design and construction of the first four NSSNs for approximately $5
billion.
In February 1997, the company entered into a Team Agreement with Newport
News Shipbuilding and Drydock Company (Newport News) for the NSSN program. The
Team Agreement provides that the company will be the prime contractor on
construction contracts for the NSSNs, and that construction and assembly work
will be equally shared with Newport News through a subcontracting arrangement.
The company will retain the lead design role. The FY98 Department of Defense
Appropriations Act includes a provision that authorizes the Secretary of the
Navy to enter into a contract or contracts for the construction of the first
four NSSNs under the terms of the Team Agreement. Current Department of Defense
plans call for 30 ships in the NSSN program.
The company is also a member of a three-contractor team which was awarded
a contract 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, the
company has agreed with its partners that it will construct four ships.
The company and two other contractors have formed a team to compete for
the development, design, construction and life-cycle support of the U.S. Navy's
next-generation surface combatant ships (DD 21). The DD 21 program is estimated
at $20 billion and includes the construction of more than 30 ships during the
first quarter of the next century. The company will serve as the leader through
the initial study, technology development and initial system design phases of
the program. Should the company's team win the competition, program lead will
shift to another team member for detail design and ship construction. It is
anticipated that ship design and construction will be shared evenly between the
company and the other shipbuilder.
RESULTS OF OPERATIONS AND OUTLOOK
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Net Sales $2,311 $2,332 $1,884
Operating Earnings 234 216 194
- -----------------------------------------------------------
</TABLE>
Net sales decreased $21 in 1997 due to lower submarine construction activity as
a result of the delivery of the final Trident and the first Seawolf submarines.
This decrease was partially offset by increased engineering and design work on
the NSSN.
GENERAL DYNAMICS 1997 ANNUAL REPORT 19
<PAGE> 3
Operating earnings increased $18 due to earnings rate increases on the
DDG 51 program in the fourth quarter and on the Seawolf program in the third
quarter. The DDG 51 program is realizing the benefits of reengineering efforts
which are reducing costs and increasing margins. The Seawolf program is
benefiting from diminishing operating risks as the program matures and
performance improves, and as the business base stabilizes from the NSSN program.
Net sales and operating earnings increased $448 and $22, respectively, in
1996 due primarily to the acquisition of Bath Iron Works. For a discussion of
the accounting for this transaction and related information, see Note B to the
Consolidated Financial Statements. The operating results of Bath Iron Works have
been included with those of the company from the closing date, September 13,
1995.
Excluding the results of Bath Iron Works, net sales decreased
approximately five 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.
Looking forward, while submarine construction revenues are expected to
continue to decline, the decrease will partially be offset by an increase in
engineering revenues primarily from the NSSN program. Despite the shift in the
product mix, operating margins are expected to approximate those reported in
1997.
COMBAT SYSTEMS
BACKLOG
1995 $1,103
1996 $2,057
1997 $2,323
The company is in the second year of its $1.3 billion five-year multiyear
contract for the upgrade of 600 M1 Abrams tanks to the M1A2 configuration. This
contract is part of a U.S. Army procurement program to upgrade at least 1,150 of
these vehicles by the year 2003. Based on the U.S. Army's current plan, the
company anticipates that its existing multiyear contract will be followed by
contracts to complete the current upgrade program.
The company is under contract for the development of several other major
systems including the design and development of the Advanced Amphibious Assault
Vehicle (AAAV) and construction of at least three prototypes. The Marine Corps
plans to procure more than 1,000 vehicles in the next decade, a production
program worth as much as $4 billion. The Crusader Self-Propelled Howitzer
program remains the Army's largest single research and development program; the
company's share is approximately 25 percent. The U.S. Army plans to build over
800 Crusader systems, a production program that could be worth as much as $13
billion. Another program is the Heavy Assault Bridge which is expected to enter
production in early 1998.
Other mature production programs in Combat Systems backlog include
several major components of the Bradley combat vehicle and its derivatives;
Hydra Rocket; diesel engines; and a four-year program to upgrade Fox Nuclear,
Biological and Chemical Reconnaissance System vehicles.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS AND OUTLOOK
- ----------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,509 $1,026 $1,050
Operating Earnings 187 140 140
- ----------------------------------------------------------
</TABLE>
Net sales increased $483 and operating earnings increased $47 during 1997 due
primarily to the acquisition of Defense Systems and Armament Systems from
Lockheed Martin Corporation on January 1, 1997. For a discussion of the
accounting for this transaction and related information, see Note B to the
Consolidated Financial Statements. Excluding the results of the acquisitions,
net sales decreased five percent due primarily to decreased tank kit production
resulting from delivery of the last 48 kits to Egypt as part of the
co-production program in early 1997. This decrease was partially offset by
increased activity on the AAAV program.
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 the year. This decrease was partially offset by
increased activity on the domestic upgrade program and the impact of the
acquisition of Teledyne Vehicle Systems (Muskegon Operations) in March 1996.
Operating earnings were unchanged in 1996 due to slightly higher volume
on the Single Channel Ground and Airborne Radio System (SINCGARS) program and
the impact of the Muskegon Operations acquisition, which offset the
aforementioned decrease in M1 production.
In April, the Army selected the company's competitor to be the sole
source provider of SINCGARS for the final years of the program. The company is
currently scheduled to complete production in late 1998.
20 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 4
The company continues to seek improvements in operating margins in Combat
Systems through efforts to reduce costs. During the first quarter of 1997, the
company reached an early agreement with its employees represented by the United
Auto Workers Union on a new collective bargaining contract. The company believes
the terms of the contract, which extends to October 2000, will provide it with
cost savings and therefore an improved competitive position. The company also
initiated actions during the second half of 1997 to transfer light vehicles,
turrets and transmission production of Defense Systems to other facilities
within Combat Systems, and to transition the ballistic missile fire control
business to the Marine segment beginning in 1998. The company expects these
actions to provide further cost reductions and improvements to its competitive
position. Net sales for the ballistic missile fire control business were
approximately $120 in 1997.
INFORMATION SYSTEMS
AND TECHNOLOGY
The acquisitions of Computing Devices International and Advanced Technology
Systems add four new businesses to the company. General Dynamics Information
Systems provides the company with broader and deeper capabilities in electronics
and systems integration and information management. Computing Devices Canada,
Ltd. is Canada's premier defense electronics contractor with extensive
experience in the management of complex projects involving large scale systems
integration. They are the systems integrator on the Iris program, whose
objective is to modernize and fully digitize the tactical command, control and
communications systems of the Canadian land forces. Computing Devices Company
Ltd. in the United Kingdom opens new markets in highly sophisticated defense
electronics. Advanced Technology Systems is a leading supplier of undersea
surveillance systems, signal processing systems, vibration control systems, and
related technologies for a wide range of applications. Management believes these
businesses will further permit the company to seek new programs and contracts
and to strengthen the company's role as prime contractor with a full complement
of systems integration, data management and battlefield digitization skills.
Year-end backlog for these businesses totaled approximately $800 million.
The operating results of Computing Devices International will be included
with those of the company beginning in the first quarter of 1998. Advanced
Technology Systems' operating results were included with those of the company
beginning in the fourth quarter of 1997 and reported in Marine. Their results
for 1998, however, will be reported in Information Systems and Technology.
Revenues for the operating segment are expected to approach $900 million in
1998.
<TABLE>
<CAPTION>
OTHER
- --------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Net Sales $242 $223 $133
Operating Earnings 25 (3) (19)
- --------------------------------------------------------
</TABLE>
Operating earnings increased $28 during 1997 due primarily to the suspension of
coal mining activity at an unprofitable location in early 1997.
Net sales increased $90 and operating losses decreased $16 during 1996
due to the reclassification of the aggregates business to continuing operations
in the second quarter of the year, and to the extension of the leases held by
the ship financing business.
ADDITIONAL FINANCIAL INFORMATION
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased during 1997 due primarily to business acquisitions. As a percentage of
net sales, however, general and administrative expenses have remained consistent
with 1996 and 1995.
INTEREST, NET. Interest income was $40 in 1997, down from $59 in 1996 and
1995 due primarily to a decline in the average cash balance resulting from the
previously discussed business acquisitions. Interest income is expected to
decrease significantly in 1998 due to a decline in the average cash balance
resulting from acquisitions in the fourth quarter of 1997. Interest expense is
expected to increase in 1998 as a result of borrowings made at the end of the
year to effect the acquisition of Computing Devices International.
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 reached a favorable agreement
with the Internal Revenue Service, subject to approval by the Joint Committee on
Taxation, with respect to its claim for additional research and experimentation
tax credits. For further discussion of this and other tax matters, 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. In early 1996, the company's commercial
aircraft subcontracting business ceased operations after the delivery of its
final shipset, and the company's aggregate business was reclassified to
continuing operations following the sale of certain of its product lines. There
are no businesses classified as discontinued operations as of December 31, 1997.
For additional discussion, see Note C to the Consolidated Financial Statements.
GENERAL DYNAMICS 1997 ANNUAL REPORT 21
<PAGE> 5
EARNINGS PER SHARE. On March 4, 1998, the company's board of directors
authorized a two-for-one stock split effected in the form of a 100 percent stock
dividend. Accordingly, earnings per share data has been restated to give
retroactive recognition to the stock split for all periods presented.
The company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share," which requires the presentation
of earnings per share on both a basic and diluted basis for all periods
presented. There are no differences between basic earnings per share and the
historical earnings per share reported by the company.
ENVIRONMENTAL MATTERS. The company adopted the provisions of Statement of
Position (SOP) 96-1, "Environmental Remediation Liabilities," as of January 1,
1997. SOP 96-1 provides authoritative guidance regarding the recognition,
measurement, display and disclosure of environmental remediation liabilities
resulting from Superfund or analogous laws and regulations. The adoption of SOP
96-1 had no material impact on the company's results of operations or financial
condition. For a discussion of environmental matters and other contingencies,
see Note N to the Consolidated Financial Statements. The company's liability, in
the aggregate, with respect to these matters is not deemed to be material to the
company's results of operations or financial condition.
YEAR 2000. The company will be required to modify significant portions of
its computer software and related technologies throughout its businesses so that
they will function properly in the year 2000 and beyond. The company's operating
units are assessing the impact of the Year 2000 issue on their operations,
including the development of cost estimates, and the extent of programming
changes required to address this issue. As most of these costs are expected to
be allowable under the company's contracts with U.S. government, they are not
expected to have a significant impact on the company's results of operations or
financial condition.
MARKET RISK. The company's investment securities and debt instruments
carry fixed rates of interest over their respective maturity terms. The company
does not use derivative instruments to alter the interest characteristics of
these instruments. The aggregate fair value of the company's financial
instruments approximates the carrying value at December 31, 1997.
The company's foreign operations attempt to minimize the effects of
currency risk by borrowing externally in the local currency and by hedging their
limited purchases made in foreign currencies when practical. As a matter of
policy, the company does not engage in currency speculation.
With the acquisition of Computing Devices International, the company is
exposed to the effect of foreign currency fluctuations on the U.S. dollar value
of earnings of Computing Devices Canada and Computing Devices Company in the
U.K. The company does not expect the impact of foreign currency fluctuations to
be material to the company's results of operations or financial condition.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board issued
SFAS 130, "Reporting Comprehensive Income" in June 1997. SFAS 130 requires a
company to report comprehensive income and its components in a full set of
general-purpose financial statements beginning in the first quarter of 1998.
There will be no material difference between comprehensive income and historical
net earnings reported by the company.
The Accounting Standards Executive Committee issued SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments," in
December 1997. SOP 97-3 provides guidance to aid in the determination of when
liabilities should be recognized for guaranty-fund and other insurance-related
assessments, as well as requirements for the measurement of the liability and
related recoverable asset. The company is required to adopt the provisions of
SOP 97-3 in 1999 and expects that it 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 1997 even
after the use of $1,230 for the acquisition of six businesses during the year.
The company ended the year with $441 of cash and equivalents and marketable
securities. A discussion of the company's financial condition in terms of its
operating, investing and financing activities as defined in the Consolidated
Statement of Cash Flows follows.
OPERATING ACTIVITIES--CONTINUING. The net cash provided by continuing
operations as reported on the Consolidated Statement of Cash Flows is summarized
by type as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations $ 581 $ 520 $ 405
Allocated federal income
tax payments (115) (127) (89)
Other 62 22 33
- --------------------------------------------------------------------------------
Operating cash flows 528 415 349
Decrease (increase) in
marketable securities, net 62 742 (203)
- --------------------------------------------------------------------------------
Net cash provided by
continuing operations $ 590 $1,157 $ 146
- --------------------------------------------------------------------------------
</TABLE>
22 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 6
The four types of cash flows are described as follows:
- - Operations represent the pretax cash flows generated by the company's business
segments. Due to the final deliveries of two maturing submarine programs, cash
flows from operations exceeded operating earnings plus depreciation and
amortization for each of the three years in the period ended December 31, 1997.
While this trend is not expected to continue in 1998, the company expects to
generate funds from operations in excess of its short- and long-term liquidity
needs.
- - 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.
- - In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the purchases, sales and maturities of marketable
securities classified as trading are reflected as cash flows from operating
activities. The decrease in 1996 was due to the company altering its investment
portfolio to include more available-for-sale securities which are included in
investing activities. This strategy was continued in 1997.
OPERATING ACTIVITIES--DISCONTINUED. Cash flows from discontinued
operations improved during 1997 due primarily to lower allocated federal income
tax payments and a decrease in payments for disposition related liabilities.
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. For discussion of the A-12 program litigation, see Note O to the
Consolidated Financial Statements.
INVESTING ACTIVITIES. As previously discussed, the company acquired six
businesses in 1997. For further discussion of each acquisition, see Note B to
the Consolidated Financial Statements. The company liquidated substantially all
of its available-for-sale investment portfolio in order to acquire these
businesses.
The company commenced a project to modernize the facilities and to
improve productivity at its Bath Iron Works' shipyard in late 1997. The company
anticipates investing approximately $200 over a period of three years.
As part of the sale of discontinued operations in 1995, the company
retained certain properties located in southern California. These properties
have been segregated on the Consolidated Balance Sheet as real estate held for
development. The company began development work on certain of the properties in
1994 in order to maximize the value the company receives from the sales of these
properties. In 1997, the company received $23 of proceeds from the sale of
certain assets related to these properties.
[PHOTO]
Michael J. Mancuso, Senior Vice President
and Chief Financial Officer
FINANCING ACTIVITIES. To effect the acquisition of Computing Devices
International on December 31, 1997, the company borrowed $220 from a Canadian
bank. The company expects to repay $70 of this note and refinance the balance
under a long-term arrangement during the second quarter of 1998.
The company has elected to exercise its option to call for the early
redemption of all of its outstanding 9.95% Debentures due April 1, 2018. The
company will repay the balance for a premium, in addition to its regular
quarterly interest payment, on April 1, 1998, for a total of approximately $40.
On March 4, 1998, the company's board of directors declared an increased
regular quarterly dividend of $.22 per share, adjusted for the previously
discussed stock split, 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 $.205 per share, also adjusted for the
stock split, in March 1996.
In 1994, the board of directors reconfirmed management's authority to
repurchase, at its discretion, up to six million shares of the company's common
stock, adjusted for the previously discussed stock split. During 1997 and 1996,
the company repurchased approximately 1.8 million and 780,000 shares,
respectively, of its stock on the open market for a total of $60 and $23,
respectively. As of December 31, 1997, the company had repurchased approximately
3.7 million shares.
The Title XI Bonds issued by the ship financing business were retired in
1996. This retirement was financed by the private placement of new nonrecourse
bonds that are callable under certain conditions. The refinancing had no
material impact on the company's results of operations or financial condition.
The company has the capacity for long-term borrowings and currently has a
committed, $400 line of credit expiring in December 1998 and a committed,
five-year $400 line of credit.
GENERAL DYNAMICS 1997 ANNUAL REPORT 23
<PAGE> 7
CONSOLIDATED STATEMENT OF EARNINGS
Restated (See Note K)
<TABLE>
<CAPTION>
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $4,062 $3,581 $3,067
OPERATING COSTS AND EXPENSES 3,616 3,228 2,752
- ------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS 446 353 315
Interest, net 36 55 55
Other income, net (3) 1 5
- ------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 479 409 375
Provision for income taxes 163 139 128
- ------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 316 270 247
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Earnings from operations - - 55
Gain on disposal - - 19
- ------------------------------------------------------------------------------------------------------------
- - 74
- ------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 316 $ 270 $ 321
============================================================================================================
BASIC EARNINGS PER SHARE:
Continuing Operations $ 2.51 $ 2.14 $ 1.96
Net Earnings 2.51 2.14 2.55
DILUTED EARNINGS PER SHARE:
Continuing Operations $ 2.50 $ 2.13 $ 1.95
Net Earnings 2.50 2.13 2.54
- ------------------------------------------------------------------------------------------------------------
(Shares in thousands)
- ------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 125,674 126,343 125,985
Assumed exercise of options 712 517 454
Contingently issuable shares 194 60 58
- ------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 126,580 126,920 126,497
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
24 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 8
CONSOLIDATED BALANCE SHEET
Restated (See Note K)
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1997 1996
- ---------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 336 $ 516
Marketable securities 105 378
- ---------------------------------------------------------------------------------------------
441 894
Accounts receivable 234 97
Contracts in process 702 558
Other current assets 312 309
- ---------------------------------------------------------------------------------------------
Total Current Assets 1,689 1,858
- ---------------------------------------------------------------------------------------------
NONCURRENT ASSETS:
Marketable securities - 261
Leases receivable--finance operations 193 204
Real estate held for development 128 147
Property, plant and equipment, net 592 441
Intangible assets 1,204 165
Other assets 285 223
- ---------------------------------------------------------------------------------------------
Total Noncurrent Assets 2,402 1,441
- ---------------------------------------------------------------------------------------------
$4,091 $3,299
- ---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 108 $ -
Accounts payable 255 182
Other current liabilities 928 651
- ---------------------------------------------------------------------------------------------
Total Current Liabilities 1,291 833
- ---------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
- ---------------------------------------------------------------------------------------------
Long-term debt 157 38
Long-term debt--finance operations 100 118
Other liabilities 628 596
Commitments and contingencies (See Note N)
- ---------------------------------------------------------------------------------------------
Total Noncurrent Liabilities 885 752
- ---------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, including surplus (shares issued 168,774,672) 220 191
Retained earnings 2,386 2,172
Treasury stock (shares held 1997, 42,989,118; 1996, 42,570,314) (691) (650)
Unrealized gain on investments - 1
- ---------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,915 1,714
- ---------------------------------------------------------------------------------------------
$4,091 $3,299
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
GENERAL DYNAMICS 1997 ANNUAL REPORT 25
<PAGE> 9
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
- --------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 316 $ 270 $ 321
Adjustments to reconcile net earnings to net cash provided by
continuing operations --
Discontinued operations - - (74)
Depreciation, depletion and amortization 91 67 38
Decrease (Increase) in assets, net of effects of business acquisitions --
Marketable securities 62 742 (203)
Accounts receivable (6) 25 21
Contracts in process 86 41 6
Leases receivable--finance operations 10 8 14
Other current assets 18 - 21
Increase (Decrease) in liabilities, net of effects of business acquisitions --
Accounts payable and other current liabilities (35) 2 (22)
Current income taxes 66 76 3
Deferred income taxes (15) (61) 36
Other, net (3) (13) (15)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 590 1,157 146
Net cash provided (used) by discontinued operations (33) (121) 84
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 557 1,036 230
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired (1,230) (59) (292)
Purchases of available-for-sale securities (440) (986) -
Sales/maturities of available-for-sale securities 916 484 7
Capital expenditures (83) (75) (32)
Proceeds from sale of assets 34 41 30
Other (5) (10) (5)
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (808) (605) (292)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 220 - -
Proceeds from issuance of debt--finance operations - 150 -
Repayment of debt--finance operations (17) (158) (15)
Dividends paid (102) (101) (92)
Purchase of common stock (60) (23) -
Proceeds from option exercises 30 8 4
Other - (6) (2)
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 71 (130) (105)
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (180) 301 (167)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 516 215 382
- --------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 336 $ 516 $ 215
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
26 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 10
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Restated (See Note K)
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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, 1994 168,774,672 $169 $ - $1,778 42,783,094 $631 $ -
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 321
Cash dividends declared
($.75 per share) (94)
Shares issued under Incentive
Compensation Plan 11 (499,172) (6)
Unrealized gain on
available-for-sale securities 7
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 168,774,672 169 11 2,005 42,283,922 625 7
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 270
Cash dividends declared
($.82 per share) (103)
Shares purchased 783,800 23
Shares issued under Incentive
Compensation Plan 11 (497,408) 2
Change in unrealized gain on
available-for-sale securities (6)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 168,774,672 169 22 2,172 42,570,314 650 1
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 316
Cash dividends declared
($.82 per share) (102)
Shares purchased 1,832,500 60
Shares issued under Incentive
Compensation Plan 29 (1,413,696) (19)
Change in unrealized gain on
available-for-sale securities (1)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 168,774,672 $169 $51 $2,386 42,989,118 $691 $ -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
GENERAL DYNAMICS 1997 ANNUAL REPORT 27
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restated (See Note K)
(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
were $334, $275 and $234 in 1997, 1996 and 1995, respectively, and are included
in operating costs and expenses on the Consolidated Statement of Earnings.
INTEREST, NET. Interest income was $40, $59 and $59 in 1997, 1996 and
1995, respectively. Interest expense incurred by the company's finance
operations totaled $9, $10 and $13 in 1997, 1996 and 1995, respectively, and is
classified as operating costs and expenses. Interest payments for the company
were $12, $14 and $18 in 1997, 1996 and 1995, respectively.
NET EARNINGS PER SHARE. The company has adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which requires the presentation of earnings per share on both a basic
and diluted basis for all periods presented.
CASH AND EQUIVALENTS AND MARKETABLE SECURITIES. The company classifies
its securities based on the remaining maturity at the time of purchase. The
company considers securities with a maturity of three months or less to be cash
equivalents. The company adjusts all marketable securities to fair value. In
general, market adjustments to those securities with maturities less than one
year are recognized in earnings and recognized as a separate component of
shareholders' equity for securities with maturities greater than one year. At
December 31, 1997, marketable securities consist primarily of corporate and
municipal debt securities.
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 receivables), are included in contracts in process.
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. Depreciation expense was $70, $59
and $38 in 1997, 1996 and 1995, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets, identifiable
intangibles and goodwill are 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 of the asset. If the asset
is held for sale, the company reviews its fair value less cost to sell.
ENVIRONMENTAL LIABILITIES. The company accrues environmental costs when
it is probable that a liability has been incurred and the amount can be
reasonably estimated. Cleanup and other environmental exit costs related to sold
businesses were recorded at the time of disposal. Recorded liabilities have not
been discounted. To the extent the U.S. government has specifically agreed to
pay the ongoing maintenance and monitoring costs at sites currently used in the
conduct of the company's government contracting business, these costs are
treated as contract costs and recognized as paid.
STOCK-BASED COMPENSATION. The company measures compensation cost for
stock options as the excess, if any, of the quoted market price of the company's
stock at the measurement date over the exercise price. Stock awards are recorded
at fair value at the date of award.
28 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 12
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 December 31, 1997, the company purchased the assets of Computing
Devices International, formerly a division of Ceridian Corporation, for
approximately $500, net of cash acquired of $100. The company borrowed $220 to
effect the acquisition. See Note I for details on the terms of the debt.
Computing Devices International is a defense electronics and systems integration
business with presence in the U.S., Canadian and U.K. defense electronics
markets.
Effective October 1, 1997, the company purchased the assets of Advanced
Technology Systems, formerly an operating unit of Lucent Technologies, for $267,
net of purchase price adjustment of $17 received in January 1998. Advanced
Technology Systems is a leading supplier of undersea surveillance systems,
signal processing and vibration control systems and related technologies for a
wide range of applications.
Effective January 1, 1997, the company purchased the assets of Defense
Systems and Armament Systems, formerly operating units of Lockheed Martin
Corporation, for $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.
Effective March 29, 1996, the company purchased the assets of Teledyne
Vehicle Systems (Muskegon Operations), formerly an operating unit of Teledyne
Inc., for $55 in cash. Muskegon Operations specializes in combat vehicles as
well as mobility systems, suspension technology and diesel engines for armored
vehicle markets worldwide.
Effective September 13, 1995, the company purchased the stock of Bath
Iron Works Corporation for $300 in cash. Bath Iron Works builds surface
combatants for the U.S. Navy.
Each of these acquisitions has been accounted for under the purchase
method of accounting. The purchase prices have been allocated to the estimated
fair values of net tangible assets acquired, with any excess recorded as
intangible assets (see Note G). Certain of the estimates related to the
acquisitions of Computing Devices International and Advanced Technology Systems
are still preliminary at December 31, 1997, but will be finalized within one
year from their respective date of acquisition. The operating results of the
acquired businesses are included with those of the company from their respective
closing dates.
C. DISCONTINUED OPERATIONS
In 1994, the company and McDonnell Douglas Corporation (McDonnell Douglas),
acquired by The Boeing Company in 1997, 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.
Also in early 1996, the aggregates operations of the company's Material
Service business were reclassified to continuing operations following the sale
of its lime, brick, concrete pipe and ready-mix operations.
Net sales from discontinued operations were $28 and $467 in 1996 and
1995, respectively. Net earnings were $55, net of income taxes of $29, in 1995.
Included in the results of 1995 is a portion of the company's deferred gain from
a prior disposal as a result of the favorable resolution of a contingency.
D. INCOME TAXES
The provision for federal income taxes for continuing operations is summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ----------------------------------------------
1997 1996 1995
- ----------------------------------------------
<S> <C> <C> <C>
Current $ 178 $ 200 $ 92
Deferred (15) (61) 36
- ----------------------------------------------
$ 163 $ 139 $ 128
- ----------------------------------------------
</TABLE>
The provision for state and local income taxes, which is allocable to
U.S. government contracts, is included in operating costs and expenses.
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
- -------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 35.0%
Other (1.0) (1.0) (.9)
- -------------------------------------------------------------------
Effective income tax rate 34.0% 34.0% 34.1%
- -------------------------------------------------------------------
</TABLE>
GENERAL DYNAMICS 1997 ANNUAL REPORT 29
<PAGE> 13
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
- ------------------------------------------------------------
1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Long-term contract costing methods $ 98 $117
A-12 termination 95 91
Accrued costs on disposed businesses 74 90
Coal mining liabilities 27 27
Postretirement liabilities 43 14
Other 121 111
- ------------------------------------------------------------
Deferred Assets $458 $450
- ------------------------------------------------------------
Lease income $ 70 $ 74
Commercial pension asset 48 43
Intangible assets 38 33
Other 17 30
- ------------------------------------------------------------
Deferred Liabilities $173 $180
- ------------------------------------------------------------
Net Deferred Asset $285 $270
- ------------------------------------------------------------
</TABLE>
No valuation allowance was required for the company's deferred tax assets
at December 31, 1997 and 1996. The current portion of the net deferred tax asset
is $223 and $231 at December 31, 1997 and 1996, respectively, and is included in
other current assets on the Consolidated Balance Sheet.
The company made federal income tax payments of $97, $199 and $83 in
1997, 1996 and 1995, respectively.
Certain issues related to the Internal Revenue Service's (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, the IRS issued
the company a Statutory Notice of Deficiency which the company contested in the
U.S. Tax Court. All issues raised by the IRS in the Notice were litigated and
the Court found in favor of the company for substantially all of the amount in
dispute. The IRS has the right to appeal the Court's decision; however, in the
event of an appeal, the company believes the decision will be upheld.
In addition, the company had filed refund claims totaling $355 (plus
interest) for additional research and experimentation tax credits for the years
1981 through 1990. On October 16, 1997, as part of the Tax Court litigation, the
company and the IRS reached a tentative agreement that settled the tax claims
for the years 1981 through 1986 for $132 (plus interest). This agreement is
subject to approval by the Joint Committee on Taxation. Remaining claims
totaling $176 (plus interest) for the years 1987 through 1990 are still being
contested at the IRS administrative level and are not covered by the settlement
agreement.
The exact amount and timing of the net refund associated with the Tax
Court litigation and related settlement is not known. However, the company
expects the net refund will exceed the amounts previously recorded and,
therefore, will result in the recognition of additional tax benefits when
realization is assured.
The IRS has completed its examination of the company's consolidated
federal income tax returns for the years 1987 through 1989. Certain issues
related to these years have been protested to the IRS Appeals Division. The IRS
is also currently examining the company's consolidated returns for the years
1990 through 1995. Since 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.
E. CONTRACTS IN PROCESS
Contracts in process consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Contract costs and estimated profits $6,382 $6,076
Other costs 410 352
- ---------------------------------------------------------------
6,792 6,428
Less advances and progress payments 6,090 5,870
- ---------------------------------------------------------------
$ 702 $ 558
- ---------------------------------------------------------------
</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
- ----------------------------------------------------------
1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Land and improvements $ 82 $ 78
Mineral reserves 87 93
Buildings and improvements 329 250
Machinery and equipment 1,194 974
- ----------------------------------------------------------
1,692 1,395
Less accumulated depreciation,
depletion and amortization 1,100 954
- ----------------------------------------------------------
$ 592 $ 441
- ----------------------------------------------------------
</TABLE>
30 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 14
Certain of the company's plant facilities are provided by the U.S.
government and therefore not included above.
G. INTANGIBLE ASSETS
Intangible assets resulting from the company's acquisitions discussed in
Note B consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
- ----------------------------------------------------------
1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Contracts and programs acquired $ 376 $ 149
Goodwill 828 16
- ----------------------------------------------------------
$1,204 $ 165
- ----------------------------------------------------------
</TABLE>
Intangible assets are shown net of accumulated amortization of $31 and
$10 at December 31, 1997 and 1996, respectively. Intangible assets are amortized
on a straight-line basis over periods ranging from 8 to 40 years.
H. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
- -----------------------------------------------
1997 1996
- -----------------------------------------------
<S> <C> <C>
Workers' compensation $242 $239
Retirement benefits 221 179
Salaries and wages 93 68
Customer deposits 114 2
Other 258 163
- -----------------------------------------------
$928 $651
- -----------------------------------------------
</TABLE>
The increase in total other current liabilities is primarily attributable
to the acquisitions during 1997 discussed in Note B.
I. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
- -----------------------------------------------
1997 1996
- -----------------------------------------------
<S> <C> <C>
Note payable $220 $ -
Debentures 38 38
Other 7 -
- -----------------------------------------------
265 38
Less current portion 108 -
- -----------------------------------------------
$157 $ 38
- -----------------------------------------------
</TABLE>
On December 31, 1997, the company borrowed $220 from a Canadian bank to
effect the acquisition of Computing Devices International at a rate of 5.17
percent due in March 1998. The company expects to repay $70 of this debt and
refinance the balance under a long-term arrangement.
The company has elected to exercise its option to call for the early
redemption of all of its outstanding 9.95 percent Debentures due April 1, 2018.
The redemption date is April 1, 1998.
The company has the capacity to borrow up to $800 under its committed
lines of credit. Of this amount, $400 is available under a short-term line of
credit and $400 is available under a five-year line of credit. There were no
borrowings under the lines of credit during 1997 or under similar facilities
during 1996.
J. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
- -----------------------------------------------------------
1997 1996
- -----------------------------------------------------------
<S> <C> <C>
Accrued costs on disposed businesses $211 $256
Retirement benefits 154 111
Coal mining related liabilities 78 77
Other 185 152
- -----------------------------------------------------------
$628 $596
- -----------------------------------------------------------
</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 which are specific to the coal mining
industry, including workers' compensation and reclamation. The company is
subject to the Federal Coal Mine Health & Safety Act of 1969, as amended, and
the related workers' compensation laws in the states in which it 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, 1997 and 1996. 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.
The increase in total other liabilities is primarily attributable to the
acquisitions during 1997 discussed in Note B.
K. SHAREHOLDERS' EQUITY
STOCK SPLIT. On March 4, 1998, the company's board of directors authorized a
two-for-one stock split effected in the form of a 100 percent stock dividend to
be distributed on April 2, 1998 to shareholders of record on March 13, 1998.
Shareholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from retained earnings
and surplus to common stock the par value of the additional shares arising from
the split. In addition, all references in the financial statements to number of
shares, per share amounts, stock option data, and market prices of the
company's common stock have been restated.
AUTHORIZED STOCK. The authorized capital stock of the company consists of
200 million shares of $1 par value common stock and 50 million shares of $1 par
value preferred stock issuable in series, with the rights, preferences and
limitations of each series to be determined by the board of directors.
GENERAL DYNAMICS 1997 ANNUAL REPORT 31
<PAGE> 15
L. FINANCE OPERATIONS
The company owns three liquefied natural gas (LNG) tankers which 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 1996 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
- -----------------------------------------------------------
1997 1996
- -----------------------------------------------------------
<S> <C> <C>
ASSETS
Leases receivable $204 $214
Due from parent 52 64
- -----------------------------------------------------------
$256 $278
- -----------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt $118 $135
Income taxes 70 74
Shareholder's equity 68 69
- -----------------------------------------------------------
$256 $278
- -----------------------------------------------------------
</TABLE>
EARNINGS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ----------------------------------------------------
1997 1996 1995
- ----------------------------------------------------
<S> <C> <C> <C>
Interest income $21 $23 $17
Interest expense and
income taxes 12 17 14
- ----------------------------------------------------
Net earnings $ 9 $ 6 $ 3
- ----------------------------------------------------
</TABLE>
On October 1, 1995, the leases were extended from 2004 through 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
- ----------------------------------------------------
1997 1996
- ----------------------------------------------------
<S> <C> <C>
Aggregate future minimum
lease payments $318 $349
Unguaranteed residual value 38 38
Less unearned interest income 152 173
- ----------------------------------------------------
$204 $214
- ----------------------------------------------------
</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 $18 in 1998, $19
in 1999, $19 in 2000, $21 in 2001 and $22 in 2002.
M. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The estimated fair values of the company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents and
marketable securities $441 $441 $1,155 $1,155
Other available-for-sale
investments 46 46 51 51
Short- and long-term debt 265 268 38 41
Short- and long-term debt -
finance operations 118 120 135 137
- -----------------------------------------------------------------------------
</TABLE>
Fair value is based on quoted market prices, except for privately placed
debt where fair value is based on risk-adjusted discount rates.
Marketable securities classified as available-for-sale were $30 and $501
at December 31, 1997 and 1996, respectively, and included primarily corporate
debt securities. Other available-for-sale investments represent U.S. government
debt obligations restricted for payment of worker's compensation benefits under
an agreement with the State of Maine. Amortized cost for available-for-sale
marketable securities and other investments approximated fair value at December
31, 1997 and 1996.
The proceeds from the sale of available-for-sale securities were $612,
$228 and $7 in 1997, 1996 and 1995, respectively. For debt securities and
obligations classified as available-for-sale at December 31, 1997, $38 mature
within one year, $28 between one and five years, and $10 between five and ten
years.
The company was contingently liable for debt and lease guarantees and
other arrangements aggregating up to a maximum of approximately $59 at December
31, 1997. The company knows of no event of default which would require it to
satisfy these guarantees and, therefore, the fair value of these contingent
liabilities is considered immaterial.
32 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 16
N. COMMITMENTS AND CONTINGENCIES
LITIGATION. Claims made by and against the company regarding its consolidated
federal income tax returns are discussed in Note D. Claims made by and against
the company regarding the development of the Navy's A-12 aircraft are discussed
in Note O.
On May 1, 1997, a jury in San Diego County rendered a verdict of $101
against the company in favor of 97 former Convair employees. In this lawsuit,
Argo, et al. v. General Dynamics, the plaintiffs alleged that the company
interfered with their right to join an earlier class action lawsuit and
concealed its plans to close its Convair division. The jury awarded the
plaintiffs a total of $1.8 in actual damages, and $99 in punitive damages. The
company is appealing the judgment. The company believes it has substantial legal
defenses, but in any case, it believes the punitive damage award is excessive as
a matter of law. Management currently believes the ultimate outcome will not
have a material impact on the company's results of operations or financial
condition.
General Dynamics Corporation was served with a complaint filed in the
Circuit Court of St. Louis County, Missouri, titled Hunt, et al. v. General
Dynamics and Lloyd Thompson, seeking a declaratory judgment and rescission of
certain excess loss insurance contracts covering the company's self-insured
workers' compensation program at its Electric Boat division for the period July
1, 1988, to June 30, 1992. The insurance contracts cover losses of up to $30 in
excess of a $40 attachment point in each of the four policy years. General
Dynamics has counterclaimed, alleging that the plaintiffs have breached their
insurance contracts by failing to pay claims. General Dynamics seeks a
declaratory judgment that the policies are valid, seeks actual damages, and
payment of a penalty under a Missouri statute, on the ground that the
plaintiffs' failure to pay is vexatious and unreasonable. The named plaintiffs
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.
HE Holdings, Inc. and Hughes Missile Systems Company (HMSC) have filed a
fifth amended complaint against the company alleging breach of contract, fraud,
and conversion with respect to 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 $38 in compensatory damages as well as
punitive 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. General Dynamics, 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, 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 in cases brought under the Comprehensive
Environmental Response, Compensation and Liability Act. 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. Although the
company is unable to estimate its share of any liability arising from these
claims, the company does not believe the litigation will have a material impact
on the company's results of operations or financial condition.
The company is also a defendant in other lawsuits and claims and in other
investigations of varying nature. The company believes its liabilities in these
proceedings, in the aggregate, are not material to the company's results of
operations or financial condition.
ENVIRONMENTAL. The company is directly or indirectly involved in certain
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.
GENERAL DYNAMICS 1997 ANNUAL REPORT 33
<PAGE> 17
The company measures its environmental exposure based on enacted laws and
existing regulations, and on the technology expected to be approved to complete
the remediation effort. The estimated cost to perform each of the elements of
the remediation effort is based on when those elements are expected to be
performed. Where a reasonable basis for apportionment exists with other PRPs,
the company estimates only its allowable share of the joint and several
remediation liability for a site, taking into consideration the solvency of
other participating PRPs. Based on a site by site analysis, the company believes
it has adequate accruals for any liability it may incur arising from the sites.
OTHER. In the ordinary course of business, the company has entered into
letter of credit arrangements and other arrangements with financial institutions
and insurance carriers aggregating approximately $415 at December 31, 1997. For
discussion of other financial guarantees, see Note M. The company's rental
commitments under existing leases at December 31, 1997, are not significant.
O. TERMINATION OF A-12 PROGRAM
The A-12 contract was a fixed-price incentive contract for the full-scale
development and initial production of the Navy's new carrier-based Advanced
Tactical Aircraft. The Navy terminated the company's A-12 aircraft contract for
default. Both the company and McDonnell Douglas (the contractors) were parties
to the contract with the Navy, each had full responsibility to the Navy for
performance under the contract, and both are jointly and severally liable for
potential liabilities arising from the termination. As a consequence of the
termination for default, the Navy demanded that the contractors repay $1,352 in
unliquidated progress payments, but agreed to defer collection of the amount
pending a decision by the U.S. Court of Federal Claims on the contractors'
appeal of the termination for default, or a negotiated settlement.
The contractors filed a complaint on June 7,1991, in the U.S. Court of
Federal Claims contesting the default termination. The suit, in effect, seeks to
convert the termination for default to a termination for convenience of the U.S.
government and seeks other legal relief. A trial on Count XVII of the complaint,
which relates to the propriety of the termination for default, was concluded in
October 1993. In December 1994, the court issued an order vacating the
termination for default. On December 19, 1995, following a trial on the merits,
the court issued an order converting the termination for default to a
termination for convenience.
On February 23, 1998, a final judgment was entered in favor of the
contractors for $1,200 plus interest. The U.S. government has filed a notice of
appeal. Final resolution of the A-12 litigation will depend on the outcome of
expected appeal or negotiation with the government. The company has not
recognized any claim revenue from the Navy.
The company has fully reserved the contracts in process balance
associated with the A-12 program and has accrued the company's estimated
termination liabilities, and the liability associated with pursuing the
litigation through the appeals process. 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.
P. INCENTIVE COMPENSATION PLAN
Under the 1997 Incentive Compensation Plan, the company may grant awards in
combination of cash, common stock, stock options and restricted stock. The plan
complies with the Securities and Exchange Commission's Rule 16b-3 and with the
Internal Revenue Code Section 162(m).
In October 1993, the company introduced a long-term incentive program
which granted stock options and restricted stock. The stock options are
exercisable at the fair market value of the common stock on the date of grant
generally with 50 percent of the stock options vesting on the one year
anniversary of their grant and the remaining 50 percent vesting on the two year
anniversary of their 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. Prior to
October 1993, stock options granted under the company's incentive compensation
plans were awarded for a maximum term of ten years and were exercisable in their
entirety beginning 18 months after the date of award.
34 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 18
There were 345,860, 91,546 and 398,790 shares of restricted stock awarded
in 1997, 1996 and 1995, respectively. There were 982,002 shares of restricted
stock outstanding at December 31, 1997. Information with respect to stock
options is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES
UNDER STOCK OPTIONS:
Outstanding at
beginning of year 3,653,704 4,605,446 3,641,774
Granted 1,344,252 137,600 1,439,300
Exercised (1,272,382) (990,010) (342,528)
Canceled (148,266) (99,332) (133,100)
- ------------------------------------------------------------------------------
Outstanding at end
of year 3,577,308 3,653,704 4,605,446
- ------------------------------------------------------------------------------
EXERCISABLE AT END OF YEAR 1,602,766 2,858,744 1,958,622
==============================================================================
WEIGHTED AVERAGE
EXERCISE PRICE:
Outstanding at
beginning of year $25.74 $22.84 $18.90
Granted 33.17 30.40 30.12
Exercised 24.55 12.60 11.21
Canceled 30.45 29.02 23.45
Outstanding at end of year 28.76 25.74 22.84
Exercisable at end of year 24.53 24.49 17.16
- ------------------------------------------------------------------------------
</TABLE>
Information with respect to stock options outstanding and stock options
exercisable at December 31, 1997, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------
Number Weighted Weighted
Range of Outstanding Average Remaining Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
$ 3.60 - 11.37 67,984 3.6 years $ 7.96
19.91 - 23.50 1,107,170 1.0 23.35
29.06 - 33.38 2,391,054 3.6 31.81
36.50 - 41.02 11,100 4.5 39.09
- ----------------------------------------------------------------------------
3,577,308
============================================================================
<CAPTION>
OPTIONS EXERCISABLE
------------------------------------------------------
Number Weighted Weighted
Range of Outstanding Average Remaining Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
3.60 - 11.37 67,984 3.6 years $ 7.96
19.91 - 23.50 1,107,170 1.0 23.35
29.06 - 33.38 427,612 2.9 30.22
- ----------------------------------------------------------------------------
1,602,766
============================================================================
</TABLE>
At December 31, 1997, 7,458,980 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.
Had compensation cost for stock options been determined based on the fair
value at the grant dates for awards under the company's incentive compensation
plans, the company's net earnings and net earnings per share would have been
reduced to the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Earnings: As Reported $ 316 $ 270 $ 321
Pro Forma 312 268 321
Net Earnings Per
Share--Basic: As Reported $2.51 $2.14 $2.55
Pro Forma 2.49 2.12 2.55
Net Earnings Per
Share--Diluted: As Reported $2.50 $2.13 $2.54
Pro Forma 2.47 2.11 2.54
- ------------------------------------------------------------------------------
Weighted average fair
value of options granted $5.42 $3.77 $3.69
- ------------------------------------------------------------------------------
</TABLE>
The compensation cost calculated under the fair value approach is
recognized over the vesting period of the stock options.
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:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.5% 2.3% 2.5%
Expected volatility 18% 20% 20%
Risk-free interest rate 6.4% 5.7% 5.6%
Expected lives after
vesting period 18 months 4 months 4 months
- ------------------------------------------------------------------------------
</TABLE>
Q. RETIREMENT PLANS
PENSION. The company has 17 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.
GENERAL DYNAMICS 1997 ANNUAL REPORT 35
<PAGE> 19
Net periodic pension cost for the total company included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned
during period $ 52 $ 50 $ 47
Interest cost on projected
benefit obligation 210 182 158
Actual gain on plan assets (741) (12) (933)
Net amortization and deferral 478 (212) 737
- ------------------------------------------------------------------------------
$ (1) $ 8 $ 9
- ------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
DECEMBER 31
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $(3,074) $(2,405)
==============================================================================
Accumulated benefit obligation $(3,093) $(2,450)
==============================================================================
Projected benefit obligation $(3,339) $(2,597)
Plans' assets at fair value 4,491 3,356
- ------------------------------------------------------------------------------
Plans' assets in excess of
projected benefit obligation 1,152 759
Unrecognized net gain (919) (550)
Unrecognized prior service cost 253 240
Unrecognized net asset at
January 1, 1986 (35) (39)
- ------------------------------------------------------------------------------
Prepaid pension cost $ 451 $ 410
- ------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7%
Varying rates of increase in
compensation levels
based on age 4.5-10% 4.5-10% 4.5-10%
Expected long-term rate of
return on assets 8% 8% 8%
- ------------------------------------------------------------------------------
</TABLE>
Under SFAS No. 87, "Employers' Accounting for Pensions," the company is
required to assume a discount rate at which the obligation could be currently
settled. Reflecting the movement in interest rates, the company decreased its
discount rate assumption from 7.5 percent to 7.25 percent at December 31, 1997,
which increased the projected benefit obligation $95. Also, due to the business
acquisitions in 1997 discussed in Note B, the projected benefit obligation
increased $563 and the plans' assets increased $598.
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 $136 and $124 at December 31, 1997 and 1996, 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, 1997, approximately 38 percent of the plans' assets are
invested in securities of the U.S. government or its agencies, 27 percent in
diversified U.S. common stocks, 18 percent in mortgage-backed securities and 17
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 are eligible to participate upon
commencement of employment with the company. Under most plans, the employee may
contribute to various investment alternatives, including investment in the
company's common stock. In certain of the plans, the company matches a portion
of the employees' contributions with contributions to a fund which invests in
the company's common stock. The company's contributions amounted to $27, $22 and
$25 in 1997, 1996 and 1995, respectively. Approximately 6 million shares of the
company's common stock were held by the plans at both December 31, 1997 and
1996.
36 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 20
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. 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
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during period $ 4 $ 7 $ 8
Interest cost on projected
benefit obligation 44 46 51
Actual gain on plan assets (43) (17) (32)
Amortization of unrecognized
transition obligation 24 29 35
Net amortization and deferral 26 4 20
- ------------------------------------------------------------------------------
$ 55 $ 69 $ 82
- ------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
DECEMBER 31
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $464 $459
Other fully eligible participants 43 32
Other active participants 113 137
- ------------------------------------------------------------------------------
620 628
Less plans' assets at fair value 241 203
- ------------------------------------------------------------------------------
Obligation in excess of plans' assets 379 425
Unrecognized transition obligation (130) (217)
Unrecognized net gain 76 56
Unrecognized prior service cost (3) (3)
- ------------------------------------------------------------------------------
Accrued postretirement benefit obligation $322 $261
- ------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7%
Expected long-term rate of
return on assets 8% 8% 8%
Assumed health care cost
trend rate for next year:
Post-65 claim groups 5% 6% 7%
Pre-65 claim groups 7.5% 8.5% 9.5-13%
- ------------------------------------------------------------------------------
</TABLE>
As stated above, the company decreased its discount rate assumption from
7.5 percent to 7.25 percent at December 31, 1997, which increased the
accumulated postretirement benefit obligation $15. Also, due to the business
acquisitions in 1997 discussed in Note B, the accumulated postretirement benefit
obligation increased $65, partially offset by a reduction due to contract
negotiations with the United Auto Workers Union.
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 2002 and thereafter over the projected payout period of the benefits.
The effect of a one percent increase each year in the health care cost
trend rate used would result in an increase of $42 in the accumulated
postretirement benefit obligation at December 31, 1997, and an increase of $4 in
the aggregate of the service and interest cost components of the 1997 net
periodic cost.
At December 31, 1997, approximately 52 percent of the trusts' assets were
invested in diversified U.S. common stocks, 18 percent in mortgage-backed
securities, 24 percent in securities of the U.S. government and its agencies and
6 percent in diversified U.S. corporate debt securities.
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 exceeds the
company's cost currently allocable to contracts. To the extent the company has
contracts in backlog sufficient to recover the excess cost, the company is
deferring the charge in contracts in process until such time that the cost is
allocable to contracts.
GENERAL DYNAMICS 1997 ANNUAL REPORT 37
<PAGE> 21
R. 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
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 segments follows:
<TABLE>
<CAPTION>
NET SALES OPERATING EARNINGS SALES TO U.S. GOVERNMENT
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine $ 2,311 $ 2,332 $ 1,884 $ 234 $ 216 $ 194 $ 2,280 $ 2,316 $ 1,869
Combat Systems 1,509 1,026 1,050 187 140 140 1,371 996 1,029
Other 242 223 133 25 (3) (19) - - -
- -------------------------------------------------------------------------------------------------------------------------------
$ 4,062 $ 3,581 $ 3,067 $ 446 $ 353 $ 315 $ 3,651 $ 3,312 $ 2,898
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DEPRECIATION, DEPLETION
IDENTIFIABLE ASSETS CAPITAL EXPENDITURES AND AMORTIZATION
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marine $ 706 $ 806 $ 935 $ 28 $ 18 $ 8 $ 34 $ 40 $ 23
Combat Systems 974 336 237 17 14 8 36 12 9
Other 371 388 317 19 12 3 17 12 5
Corporate* 2,040 1,769 1,675 19 31 13 4 3 1
- -------------------------------------------------------------------------------------------------------------------------------
$4,091 $3,299 $3,164 $ 83 $ 75 $ 32 $ 91 $ 67 $ 38
- -------------------------------------------------------------------------------------------------------------------------------
</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. Corporate identifiable
assets also include $1,075 of identifiable assets of Advanced Technology
Systems and Computing Devices International acquired in the fourth quarter
of 1997, which will become part of the company's new Information Systems and
Technology segment in 1998. See Management's Discussion and Analysis of the
Results of Operations and Financial Condition for further description of
this new segment.
S. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock(a)
-------------------------------------------
Net Earnings Market Price
Per Share (a) Range
Net Operating Net ------------------- --------------------- Dividends
Sales Earnings Earnings Basic Diluted High Low Declared
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
4th Quarter $1,101 $ 117 $ 83 $ .66 $ .65 $44 7/16 $37 31/32 $ .205
3rd Quarter 988 113 82 .65 .65 45 3/4 37 .205
2nd Quarter 1,032 114 80 .64 .64 38 15/16 31 9/16 .205
1st Quarter 941 102 71 .56 .56 36 1/8 32 13/16 .205
- --------------------------------------------------------------------------------------------------------------------------
1996
4th Quarter $ 896 $ 92 $ 70 $ .56 $ .55 $37 3/4 $33 3/8 $ .205
3rd Quarter 862 89 68 .54 .54 34 13/16 28 3/4 .205
2nd Quarter 930 89 67 .53 .53 32 5/8 28 1/2 .205
1st Quarter 893 83 65 .51 .51 31 7/16 28 13/16 .205
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Quarterly data is based on a 13 week period.
(a) Data has been restated to give retroactive recognition to the company's
announced two-for-one stock split. See Note K.
38 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 22
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, 1997
and 1996, and the related Consolidated Statements of Earnings, Shareholders'
Equity and Cash Flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Washington, D.C.
January 26, 1998 (except with respect to the stock split
discussed in Note K, as to which the date is March 4, 1998,
and to the matter discussed in Note O, as to which the date
is February 23, 1998)
GENERAL DYNAMICS 1997 ANNUAL REPORT 39
<PAGE> 23
SELECTED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AND PER EMPLOYEE AMOUNTS) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $ 4,062 $ 3,581 $ 3,067 $ 3,058 $ 3,187
Operating costs and expenses 3,616 3,228 2,752 2,737 2,878
Interest, net 36 55 55 22 36
Provision for income taxes 163 139 128 120 143
Earnings from continuing operations 316 270 247 223 270
Earnings per share from
continuing operations--basic(d) 2.51 2.14 1.96 1.77 2.17
Earnings per share from
continuing operations--diluted(d) 2.50 2.13 1.95 1.76 2.13
Cash dividends on common stock(d) .82 .82 .75 .70 .50
Sales per employee 160,000(c) 155,500 138,200(b) 143,900(a) 138,100(a)
===================================================================================================================================
Financial Position at December 31
Cash and equivalents and marketable securities $ 441 $ 1,155 $ 1,095 $ 1,059 $ 585
Property, plant and equipment, net 592 441 398 264 302
Total assets 4,091 3,299 3,164 2,673 2,635
Long-term debt (including current portion) 265 38 38 40 38
Long-term debt-finance operations
(including current portion) 118 135 146 161 175
Shareholders' equity 1,915 1,714 1,567 1,316 1,177
Per share(d) 15.22 13.58 12.39 10.45 9.41
===================================================================================================================================
Other Information
Funded backlog $ 6,796 $ 6,161 $ 5,227 $ 4,562 $ 5,487
Total backlog 9,599 10,350 7,386 6,006 7,015
Shares outstanding at December 31
(in millions)(d) 125.8 126.2 126.5 126.0 125.1
Weighted average shares outstanding--
basic (in millions)(d) 125.7 126.3 126.0 126.1 124.4
Weighted average shares outstanding--
diluted (in millions)(d) 126.6 126.9 126.5 126.9 126.5
Common shareholders of record at
December 31 21,046 22,129 22,930 23,935 24,496
Active employees at December 31:
Total company 29,000 23,100 27,700 24,200 30,500
Excluding discontinued operations 29,000 23,100 26,800 21,300 23,100
===================================================================================================================================
</TABLE>
(a) Excludes Bath Iron Works, which was acquired on September 13, 1995.
See Note B.
(b) Includes pro forma results of Bath Iron Works as if owned by the company for
the entire year.
(c) Excludes Advanced Technology Systems, which was acquired on October 1, 1997,
and Computing Devices International, which was acquired on
December 31, 1997. See Note B.
(d) Data has been restated to give retroactive recognition to the company's
announced two-for-one stock split. See Note K.
40 GENERAL DYNAMICS 1997 ANNUAL REPORT
<PAGE> 1
EXHIBIT 21, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
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
Quincy Maritime Corporation III . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Water Transportation Alternatives, Inc. . . . . . . . . . . Delaware . . . . . . . . . . 100
Bath Iron Works Corporation . . . . . . . . . . . . . . . . . . Maine . . . . . . . . . . . . 100
BIW Acquisition Corporation . . . . . . . . . . . . . . . . . . Maine . . . . . . . . . . . . 100
CD Plus S.A.R.L. . . . . . . . . . . . . . . . . . . . . . . . . France . . . . . . . . . . . 100
CDI Acquisition Company Limited . . . . . . . . . . . . . . . . . Canada . . . . . . . . . . . 100
Computing Devices Canada, Ltd. . . . . . . . . . . . . . . . Canada . . . . . . . . . . . 100
Computing Devices Company Ltd. . . . . . . . . . . . . . United Kingdom . . . . . . . 100
Computing Devices Hastings Ltd. . . . . . . . . . . England . . . . . . . . . . . 100
Computing Devices Eastbourne Ltd. . . . . . . . . . England . . . . . . . . . . . 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
Electro Dynamic Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Power Technology, Inc. . . . . . . . . . . Delaware . . . . . . . . . . 100
Electrocom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Advanced Technology Systems, 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 Defense Systems, Inc. . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
AV Technology, LLC . . . . . . . . . . . . . . . . . . . . . Maryland . . . . . . . . . . 80
General Dynamics Foreign Sales Corporation . . . . . . . . . . . Virgin Islands . . . . . . . 100
General Dynamics Information Systems, Inc. . . . . . . . . . . . Delaware . . . . . . . . . . 100
Computing Devices International Employment, Inc. . . . . . . Delaware . . . . . . . . . . 100
Paragon Imaging, Inc. . . . . . . . . . . . . . . . . . . . Florida . . . . . . . . . . . 100
General Dynamics International Corporation . . . . . . . . . . . Delaware . . . . . . . . . . 100
</TABLE>
<PAGE> 2
EXHIBIT 21, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
PAGE 2
GENERAL DYNAMICS CORPORATION
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiaries of General Dynamics Place of Percent of
Corporation (Parent and Registrant) Incorporation Voting Power
- ---------------------------------- ------------- ------------
<S> <C> <C>
General Dynamics Land Systems Inc. . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Amphibious Systems, Inc. . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Land Systems International, Inc. . . . . . Delaware . . . . . . . . . . 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 Land Systems Tallahassee Operations, Inc. Delaware . . . . . . . . . . 100
G.T. Devices, Inc. . . . . . . . . . . . . . . . . . . . . . Maryland . . . . . . . . . . 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
General Dynamics Shared Resources, Inc. . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Material Service Resources Company . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Century Mineral Resources, Inc. . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Material Service Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
EPSP, Inc. . . . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . 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 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, 1997
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, 1997, 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 18, 1998
<PAGE> 1
GENERAL DYNAMICS CORPORATION EXHIBIT 24
COMMISSION FILE NUMBER 1-3671 POWER OF ATTORNEY
IRS NO. 13-1673581 REPORTS ON FORM
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 4
day of February 1998.
/s/ Julius W. Becton, Jr. /s/ George A. Joulwan
- ----------------------------------- -----------------------------------
Julius W. Becton, Jr. George A. Joulwan
/s/ Nicholas D. Chabraja /s/ Paul G. Kaminski
- ----------------------------------- -----------------------------------
Nicholas D. Chabraja Paul G. Kaminski
/s/ James S. Crown /s/ James R. Mellor
- ----------------------------------- -----------------------------------
James S. Crown James R. Mellor
/s/ Lester Crown /s/ Gordon R. Sullivan
- ----------------------------------- -----------------------------------
Lester Crown Gordon R. Sullivan
/s/ Charles H. Goodman /s/ Carlisle A.H. Trost
- ----------------------------------- -----------------------------------
Charles H. Goodman 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, 1997, and the
related Consolidated Statement of Earnings for the year ended December 31, 1997
and is qualified in its entirety to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 336
<SECURITIES> 105
<RECEIVABLES> 234
<ALLOWANCES> 0
<INVENTORY> 702
<CURRENT-ASSETS> 1689
<PP&E> 1692
<DEPRECIATION> 1100
<TOTAL-ASSETS> 4091
<CURRENT-LIABILITIES> 1253
<BONDS> 38
0
0
<COMMON> 220<F1>
<OTHER-SE> 1695<F1>
<TOTAL-LIABILITY-AND-EQUITY> 4091
<SALES> 4062
<TOTAL-REVENUES> 4062
<CGS> 3616
<TOTAL-COSTS> 3616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 479
<INCOME-TAX> 163
<INCOME-CONTINUING> 316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316
<EPS-PRIMARY> 2.51<F1>
<EPS-DILUTED> 2.50<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the General Dynamics
Corporation Consolidated Balance Sheet as of September 28, 1997, and the related
consolidated Statement of Earnings for the nine months ended September 28, 1997
and is qualified in its entirety to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-28-1997
<CASH> 202
<SECURITIES> 643
<RECEIVABLES> 170
<ALLOWANCES> 0
<INVENTORY> 583
<CURRENT-ASSETS> 1,888
<PP&E> 1,618
<DEPRECIATION> 1,110
<TOTAL-ASSETS> 3,492
<CURRENT-LIABILITIES> 887
<BONDS> 40
0
0
<COMMON> 220<F1>
<OTHER-SE> 1,636<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,492
<SALES> 2,961
<TOTAL-REVENUES> 2,961
<CGS> 2,632
<TOTAL-COSTS> 2,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 353
<INCOME-TAX> 120
<INCOME-CONTINUING> 233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233
<EPS-PRIMARY> 1.85<F1>
<EPS-DILUTED> 1.84<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the General Dynamics
Corporation Consolidated Balance Sheet as of June 29, 1997, and the related
consolidated Statement of Earnings for the six months ended June 29, 1997 and is
qualified in its entirety to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 205
<SECURITIES> 450
<RECEIVABLES> 172
<ALLOWANCES> 0
<INVENTORY> 561
<CURRENT-ASSETS> 1,674
<PP&E> 1,633
<DEPRECIATION> 1,113
<TOTAL-ASSETS> 3,391
<CURRENT-LIABILITIES> 879
<BONDS> 40
0
0
<COMMON> 214<F1>
<OTHER-SE> 1,578<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,391
<SALES> 1,973
<TOTAL-REVENUES> 1,973
<CGS> 1,757
<TOTAL-COSTS> 1,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 230
<INCOME-TAX> 79
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> 1.20<F1>
<EPS-DILUTED> 1.20<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the General Dynamics
Corporation Consolidated Balance Sheet as of March 30, 1997, and the related
consolidated Statement of Earnings for the three months ended March 30, 1997 and
is qualified in its entirety to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-30-1997
<CASH> 65
<SECURITIES> 304
<RECEIVABLES> 144
<ALLOWANCES> 0
<INVENTORY> 726
<CURRENT-ASSETS> 1,540
<PP&E> 1,624
<DEPRECIATION> 1,107
<TOTAL-ASSETS> 3,444
<CURRENT-LIABILITIES> 917
<BONDS> 40
0
0
<COMMON> 200<F1>
<OTHER-SE> 1,544<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,444
<SALES> 941
<TOTAL-REVENUES> 941
<CGS> 839
<TOTAL-COSTS> 839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 108
<INCOME-TAX> 37
<INCOME-CONTINUING> 71
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71
<EPS-PRIMARY> 0.56<F1>
<EPS-DILUTED> 0.56<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
<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> 1,858
<PP&E> 1,395
<DEPRECIATION> 954
<TOTAL-ASSETS> 3,299
<CURRENT-LIABILITIES> 833
<BONDS> 38
0
0
<COMMON> 191<F1>
<OTHER-SE> 1,523<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,299
<SALES> 3,581
<TOTAL-REVENUES> 3,581
<CGS> 3,228
<TOTAL-COSTS> 3,228
<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> 2.14<F1>
<EPS-DILUTED> 2.13<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
General Dynamics Corporation Consolidated Balance Sheet as of September 29,
1996, and the related Consolidated Statement of Earnings for the nine months
ended September 29, 1996 and is qualified in its entirety to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-29-1996
<CASH> 9
<SECURITIES> 835
<RECEIVABLES> 152
<ALLOWANCES> 0
<INVENTORY> 495
<CURRENT-ASSETS> 1,814
<PP&E> 1,427
<DEPRECIATION> 968
<TOTAL-ASSETS> 3,265
<CURRENT-LIABILITIES> 838
<BONDS> 38
0
0
<COMMON> 188<F1>
<OTHER-SE> 1,477<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,265
<SALES> 2,685
<TOTAL-REVENUES> 2,685
<CGS> 2,424
<TOTAL-COSTS> 2,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 303
<INCOME-TAX> 103
<INCOME-CONTINUING> 200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200
<EPS-PRIMARY> 1.58<F1>
<EPS-DILUTED> 1.58<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the General Dynamics
Corporation Consolidated Balance Sheet as of June 30, 1996, and the related
consolidated Statement of Earnings for the six months ended June 30, 1996 and is
qualified in its entirety to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 131
<SECURITIES> 641
<RECEIVABLES> 143
<ALLOWANCES> 0
<INVENTORY> 494
<CURRENT-ASSETS> 1,741
<PP&E> 1,409
<DEPRECIATION> 939
<TOTAL-ASSETS> 3,258
<CURRENT-LIABILITIES> 863
<BONDS> 38
0
0
<COMMON> 187<F1>
<OTHER-SE> 1,454<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,258
<SALES> 1,823
<TOTAL-REVENUES> 1,823
<CGS> 1,651
<TOTAL-COSTS> 1,651
<OTHER-EXPENSES> (2)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 200
<INCOME-TAX> 68
<INCOME-CONTINUING> 132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132
<EPS-PRIMARY> 1.04<F1>
<EPS-DILUTED> 1.04<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the General Dynamics
Corporation Consolidated Balance Sheet as of March 31, 1996, and the related
consolidated Statement of Earnings for the three months ended March 31, 1996
and is qualified in its entirety to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 205
<SECURITIES> 825
<RECEIVABLES> 148
<ALLOWANCES> 0
<INVENTORY> 561
<CURRENT-ASSETS> 2,099
<PP&E> 1,223
<DEPRECIATION> 823
<TOTAL-ASSETS> 3,222
<CURRENT-LIABILITIES> 869
<BONDS> 38
0
0
<COMMON> 184<F1>
<OTHER-SE> 1,417<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,222
<SALES> 893
<TOTAL-REVENUES> 893
<CGS> 810
<TOTAL-COSTS> 810
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 98
<INCOME-TAX> 33
<INCOME-CONTINUING> 65
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65
<EPS-PRIMARY> 0.51<F1>
<EPS-DILUTED> 0.51<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from General
Dynamics Corporation Consolidated Balance Sheet as of December 31, 1995, and the
related Consolidated Statement of Earnings for the year ended December 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 215
<SECURITIES> 880
<RECEIVABLES> 105
<ALLOWANCES> 0
<INVENTORY> 567
<CURRENT-ASSETS> 2,013
<PP&E> 1,208
<DEPRECIATION> 810
<TOTAL-ASSETS> 3,164
<CURRENT-LIABILITIES> 859
<BONDS> 38
0
0
<COMMON> 180<F1>
<OTHER-SE> 1,387<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3,164
<SALES> 3,067
<TOTAL-REVENUES> 3,067
<CGS> 2,752
<TOTAL-COSTS> 2,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 375
<INCOME-TAX> 128
<INCOME-CONTINUING> 247
<DISCONTINUED> 74
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 321
<EPS-PRIMARY> 2.55<F1>
<EPS-DILUTED> 2.54<F1>
<FN>
<F1>Data has been restated to give retroactive recognition to the company's
two-for-one stock split authorized on March 4, 1998 by the board of directors.
</FN>
</TABLE>
