<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 4, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-3671
GENERAL DYNAMICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-1673581
--------------------------------------------- ----------
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
3190 FAIRVIEW PARK DRIVE, FALLS CHURCH, VIRGINIA 22042-4523
- ------------------------------------------------ ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(703) 876-3000
--------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO .
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK, $1 PAR VALUE - JULY 29, 1999 127,613,202
---------------------
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<PAGE> 2
GENERAL DYNAMICS CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Earnings (Three Months) 3
Consolidated Statement of Earnings (Six Months) 4
Consolidated Statement of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis 15
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings 22
Item 4 - Submission of Matters to a Vote of Security Holders 22
Item 6 - Exhibits and Reports on Form 8-K 24
SIGNATURE 25
- ---------
</TABLE>
1
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PART I
ITEM 1. FINANCIAL STATEMENTS
GENERAL DYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
July 4 December 31
1999 1998
---------- -----------
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 260 $ 127
Marketable securities 133 93
---------- -----------
393 220
Accounts receivable 312 316
Contracts in process 1,168 952
Other current assets 387 385
---------- -----------
Total Current Assets 2,260 1,873
---------- -----------
NONCURRENT ASSETS:
Leases receivable - finance operations 175 181
Real estate held for development 63 65
Property, plant and equipment, net 731 698
Intangible assets 1,527 1,525
Other assets 235 230
---------- -----------
Total Noncurrent Assets 2,731 2,699
---------- -----------
$ 4,991 $ 4,572
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 2
Short-term debt - finance operations 18 58
Accounts payable 189 295
Other current liabilities 1,173 1,106
---------- -----------
Total Current Liabilities 1,380 1,461
---------- -----------
NONCURRENT LIABILITIES:
Long-term debt 169 167
Long-term debt - finance operations 73 82
Other liabilities 794 643
Commitments and contingencies (See Note J) ---------- -----------
Total Noncurrent Liabilities 1,036 892
---------- -----------
SHAREHOLDERS' EQUITY:
Common stock, including surplus (shares issued 168,774,672) 322 285
Retained earnings 2,950 2,640
Treasury stock (shares held 1999, 41,168,947; 1998, 42,081,130) (694) (706)
Accumulated other comprehensive loss (3) -
---------- -----------
Total Shareholders' Equity 2,575 2,219
---------- -----------
$ 4,991 $ 4,572
========== ===========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of this statement.
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GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
July 4 June 28
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 1,379 $ 1,178
OPERATING COSTS AND EXPENSES 1,216 1,043
----------- -----------
OPERATING EARNINGS 163 135
Interest income, net 1 -
Other (expense) income, net (4) 4
------------ -----------
EARNINGS BEFORE INCOME TAXES 160 139
Provision for income taxes 55 47
----------- -----------
NET EARNINGS $ 105 $ 92
=========== ===========
NET EARNINGS PER SHARE:
Basic $ 0.82 $ 0.73
=========== ===========
Diluted $ 0.81 $ 0.72
=========== ===========
DIVIDENDS PER SHARE $ 0.24 $ 0.22
=========== ===========
SUPPLEMENTAL INFORMATION:
General and administrative expenses included in
operating costs and expenses $ 104 $ 90
=========== ===========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of this statement.
3
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GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
July 4 June 28
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 2,756 $ 2,332
OPERATING COSTS AND EXPENSES 2,450 2,073
----------- ----------
OPERATING EARNINGS 306 259
Interest income, net - 1
Other income, net 5 3
----------- ----------
EARNINGS BEFORE INCOME TAXES 311 263
(BENEFIT)/PROVISION FOR INCOME TAXES
R&E Tax Credit (165) -
Provision 106 89
----------- ----------
(59) 89
----------- ----------
NET EARNINGS $ 370 $ 174
=========== ==========
NET EARNINGS PER SHARE:
Basic $ 2.91 $ 1.38
=========== ==========
Diluted $ 2.87 $ 1.37
=========== ==========
DIVIDENDS PER SHARE $ 0.48 $ 0.44
=========== ==========
SUPPLEMENTAL INFORMATION:
General and administrative expenses included in
operating costs and expenses $ 200 $ 182
=========== ==========
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of this statement.
4
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GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
July 4 June 28
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 370 $ 174
Adjustments to reconcile net earnings to net
cash provided by continuing operations -
Depreciation, depletion and amortization 72 61
Decrease (Increase) in -
Marketable securities (88) (31)
Accounts receivable 4 3
Contracts in process (16) (115)
Other current assets (20) 2
Increase (Decrease) in -
Accounts payable and other current liabilities (177) (53)
Current income taxes 183 (3)
Deferred income taxes 29 31
Other, net (43) (12)
---------- -----------
Net cash provided by continuing operations 314 57
Net cash used by discontinued operations (3) (4)
---------- -----------
Net Cash Provided by Operating Activities 311 53
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions (71) 12
Purchases of available-for-sale securities (24) (132)
Sales/maturities of available-for-sale securities 73 85
Capital expenditures (69) (65)
Proceeds from sale of assets 13 15
Other - (3)
---------- -----------
Net Cash Used by Investing Activities (78) (88)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt, net (5) (109)
Repayments of debt - finance operations (49) (9)
Dividends paid (58) (53)
Purchase of common stock (1) -
Other 13 8
---------- -----------
Net Cash Used by Financing Activities (100) (163)
---------- -----------
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS 133 (198)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 127 336
---------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 260 $ 138
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Income taxes $ 82 $ 49
Interest (including finance operations) $ 10 $ 11
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of this statement.
5
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GENERAL DYNAMICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in millions, except per share amounts)
(A) Basis of Preparation
The unaudited consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Although certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, the company believes that the disclosures included herein are
adequate to make the information presented not misleading. Operating results for
the three- and six-month periods ended July 4, 1999, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. These unaudited consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
company's Annual Report on Form 10-K for the year ended December 31, 1998.
In the opinion of the company, the unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair statement of the results for the three- and
six-month periods ended July 4, 1999 and June 28, 1998.
(B) Subsequent Events
Stockholder Approvals
On July 30, 1999, the company's stockholders approved (1) an amendment to
its Certificate of Incorporation to increase the number of authorized shares of
common stock from 200 million shares to 300 million shares, and (2) the issuance
by the company of its common stock to stockholders of Gulfstream Aerospace
Corporation (Gulfstream) in connection with the acquisition discussed below.
Gulfstream Acquisition
On July 30, 1999, the company acquired Gulfstream through a merger of a
subsidiary of the company into Gulfstream. As a result, the holders of
Gulfstream common stock became entitled to receive one share of the company's
common stock for each Gulfstream share. The common stock of Gulfstream was
traded on the New York Stock Exchange through the close of business on July 30,
1999, at which time there were 72,165,645 shares of Gulfstream common stock
outstanding. An additional 4.1 million shares have been reserved for issuance
upon the exercise of stock options which, prior to the acquisition, had been
options to purchase Gulfstream common stock. Gulfstream is a leading designer,
developer, manufacturer and marketer of advanced business jet aircraft. The
acquisition will be accounted for as a pooling of interests.
6
<PAGE> 8
Also on July 30, 1999, the company repaid from its available funds
approximately $270 of Gulfstream's debt instruments. In connection therewith,
the company will record in the third quarter of 1999 a one-time non-cash charge
of approximately $7 for the unamortized debt costs associated with these
instruments. The company will also record in the third quarter a charge to
earnings of approximately $33 for direct acquisition transaction costs,
consisting of investment banking, legal, bank fees, accounting, printing and
regulatory filing fees.
In connection with the acquisition, General Dynamics will merge the two
company's commercial pension plans. As a result of the merger of these plans,
the company expects to recognize previously deferred gains on General Dynamics
commercial pension plan, amounting to approximately $125 (before tax), in income
in the third quarter of 1999.
The following unaudited pro forma data summarizes the combined operating
results of the company and Gulfstream as if the acquisition had occurred at the
beginning of the periods presented. The unaudited pro forma combined information
has been included for illustrative purposes only and is not necessarily
indicative of the actual or future results of operations that would have
occurred or will occur upon consummation of the acquisition.
<TABLE>
<CAPTION>
Three months ended July 4, 1999 Six months ended July 4, 1999
------------------------------- -----------------------------
General Pro Forma General Pro Forma
Dynamics Gulfstream Combined Dynamics Gulfstream Combined
---------------- ---------- -------- ---------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,379 $708 $2,087 $2,756 $1,333 $4,089
Net earnings 105 70 175 370 128 498
Earnings per share:
Basic 0.82 0.97 0.88 2.91* 1.78 2.50
Diluted 0.81 0.95 0.86 2.87* 1.74 2.46
Weighted average shares
(in thousands):
Basic 127,554 71,645 199,199 127,281 72,048 199,329
Diluted 129,159 73,157 202,316 128,738 73,536 202,274
</TABLE>
*Includes impact of R&E tax credit discussed in Note I.
7
<PAGE> 9
(C) Comprehensive Income
Comprehensive income was $102 and $92 for the three-month period and $367
and $173 for the six-month period ended July 4, 1999 and June 28, 1998,
respectively.
(D) Translation of Foreign Currencies
Local currencies have been determined to be functional currencies for the
company's international operations. Foreign currency balance sheets are
translated at the end-of-period exchange rates and earnings statements at the
average exchange rates for each period. The resulting foreign currency
translation adjustments are included in the calculation of other comprehensive
income and included in the equity section on the Consolidated Balance Sheet.
(E) Acquisitions
On June 21, 1999, the company entered into a definitive agreement to
acquire GTE Government Systems Corporation, a subsidiary of GTE Corporation, for
$1.05 billion in cash. GTE Government Systems Corporation is a leader in the
advancement of command, control, communications and intelligence systems;
electronic defense systems; communication switching; and information systems for
defense, government and industry in the United States and abroad. The
acquisition will be accounted for under the purchase method of accounting and is
expected to close at the end of August 1999.
On November 10, 1998, the company acquired control of NASSCO Holdings
Incorporated (NASSCO) for $369 in cash plus the obligation to discharge $46 in
debt. NASSCO's wholly owned subsidiaries include National Steel and Shipbuilding
Company, which is in the business of ship design, engineering, construction and
repair for the United States military and various commercial customers, and
NASSCO Funding Corporation, a finance subsidiary. The transaction has been
accounted for under the purchase method of accounting. Operating results of
NASSCO are included with those of the company from the closing date. The excess
of the purchase price over the estimated fair value of the net tangible assets
acquired, approximately $270, has been allocated to goodwill and contracts and
programs acquired. This allocation is based on preliminary estimates and will be
finalized within one year from the date of acquisition.
(F) Earnings Per Share
Basic and diluted weighted average shares outstanding are as follows (in
thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
July 4 June 28 July 4 June 28
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic 127,554 126,406 127,281 126,169
Diluted 129,159 127,531 128,738 127,275
</TABLE>
8
<PAGE> 10
The sum of the earnings per share for the first two quarters of 1999
differs from the earnings per share for the six months ended July 4, 1999, due
to the required method of computing the weighted average number of shares
independently for the three- and six-month periods.
(G) Intangible Assets
Intangible assets resulting from the company's acquisitions consist of
the following:
<TABLE>
<CAPTION>
July 4 December 31
1999 1998
-------------- --------------
<S> <C> <C>
Goodwill $ 1,058 $ 1,109
Contracts and programs acquired 469 416
-------------- --------------
$ 1,527 $ 1,525
============== ==============
</TABLE>
Intangible assets are shown net of accumulated amortization of $99 and
$74 at July 4, 1999 and December 31, 1998, respectively. Goodwill is amortized
on a straight-line basis over 40 years. Contracts and programs acquired are
amortized on a straight-line basis over periods ranging from 8 to 30 years.
(H) Liabilities
A summary of significant liabilities, by balance sheet caption, follows:
<TABLE>
<CAPTION>
July 4 December 31
1999 1998
----------- -----------
<S> <C> <C>
Workers' compensation $ 480 $ 340
Retirement benefits 214 196
Salaries and wages 86 84
Customer deposits 116 139
Other 277 347
----------- -----------
Other Current Liabilities $ 1,173 $ 1,106
=========== ===========
Accrued costs on disposed businesses $ 171 $ 177
Retirement benefits 161 183
Coal mining related liabilities 68 73
Other 394 210
----------- -----------
Other Liabilities $ 794 $ 643
=========== ===========
</TABLE>
(I) Income Taxes
The company had a net deferred tax asset of $276 and $287 at July 4, 1999
and December 31, 1998, respectively, the current portion of which was $311 for
both periods, and was included in other current assets on the Consolidated
Balance Sheet. Based on the level of projected earnings and current backlog, no
material valuation allowance was required for the company's net deferred tax
assets at July 4, 1999 and December 31, 1998.
9
<PAGE> 11
During the first quarter of 1999, the company and the U.S. Internal
Revenue Service settled refund claims for research and experimentation tax
credits for the years 1981 through 1989 for approximately $334 (including
before-tax interest). The company recognized a benefit during the first quarter
of $165 (net of amounts previously recorded in 1991 and 1992), or $1.29 per
diluted share, as a result of this settlement. In April 1999, the company
received the $334 cash refund from the IRS related to this settlement.
The IRS has completed its examination of the company's 1990 through 1993
consolidated federal income tax returns. Unresolved matters for these years have
been protested to the IRS Appeals Division. A refund claim by the company for
$78 (plus interest) for research and experimentation credits for the year 1990
will also be considered by the IRS Appeals Division. The IRS is currently
examining the company's 1994 and 1995 consolidated federal income tax returns.
The company has recorded liabilities for tax contingencies, therefore,
resolution of open matters for these years is not expected to have a materially
unfavorable impact on the company's results of operations or financial
condition.
(J) Commitments and Contingencies
Litigation
Claims made by and against the company regarding the development of the
Navy's A-12 aircraft are discussed in Note K.
On April 19, 1995, 101 then-current and former employees of General
Dynamics' Convair Division in San Diego, California filed a six-count complaint
in the Superior Court of California, County of San Diego, titled Argo, et al. v.
General Dynamics, et al. In addition to General Dynamics, four of Convair's
then-current or former managers were also named as defendants. The plaintiffs
alleged that the company interfered with their right to join an earlier class
action lawsuit by, among other things, concealing its plans to close the Convair
Division. On May 1, 1997, a jury rendered a verdict of $101 against the company
and one of the defendants in favor of 97 of the plaintiffs. The jury awarded the
plaintiffs a total of $1.8 in actual damages and $99 in punitive damages. The
company and one of the defendants have appealed the judgment to the Court of
Appeals of the State of California, Fourth Appellate District, Division One. On
appeal, the company is seeking to have the judgment overturned in its entirety
or, alternatively, a substantial reduction in the jury's punitive damage award.
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.
On July 13, 1995, General Dynamics Corporation was named as a defendant
in a complaint filed in the Circuit Court of St. Louis County, Missouri, titled
Hunt, et al. v. General Dynamics Corporation, et al. The complaint also names
two insurance brokers, Lloyd Thompson, Ltd. and Willis Corroon Corporation of
Missouri, as defendants. The plaintiffs are members of certain Lloyds' of London
syndicates and British insurance companies who sold the company excess loss
insurance policies covering the company's self-insured workers' compensation
program at Electric Boat for four policy years, from July 1, 1988 to June 30,
1992. The plaintiffs allege that when procuring the policies the company and its
brokers made misrepresentations to the plaintiffs and failed to disclose facts
which were material to the
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risk. The plaintiffs also allege that the company has been negligent in its
administration of workers' compensation claims. The plaintiffs seek rescission
of the policies, a declaratory judgment that the policies are void, and
compensatory damages in an unspecified amount. 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, actual damages, and payment of a penalty
under a Missouri statute for the plaintiffs' vexatious and unreasonable failure
to pay claims. The company does not expect that this case will have a material
impact on the company's results of operations or financial condition.
On August 16, 1996, plaintiffs HE Holdings, Inc., and Hughes Missile
Systems Company filed an action against General Dynamics Corporation in the
Superior Court for the State of California for the County of Los Angeles. In
June 1998, plaintiffs filed a sixth amended complaint in which plaintiffs were
redesignated as HE Holdings, Inc., now known as Raytheon Company, and Hughes
Missile Systems Company, now known as Raytheon Missile Systems Company
("plaintiffs"). On September 8, 1998, plaintiffs filed a seventh amended
complaint which is now pending. The seventh amended complaint alleges breach of
contract, tortious interference with contract, conversion, fraud, and breach of
the implied covenant of good faith and fair dealing, all with respect to the
Asset Purchase Agreement dated May 8, 1992, for the sale of the company's
missile business, various related leases and other alleged agreements. The
seventh amended complaint seeks approximately $25 in compensatory damages, as
well as punitive damages and declaratory relief. The company does not expect
that the lawsuit will have a material impact on the company's results of
operations or financial condition.
The company is either a named defendant or a third-party defendant in
certain multi-plaintiff tort cases pending in state or federal court in Arizona,
captioned: Cordova, et al. v. Hughes Aircraft Co.; Lanier, et al. v. Hughes
Aircraft Co., et al.; Yslava, et al. v. Hughes Aircraft Co.; and Arellano, et
al. v. Hughes Aircraft Co. In these cases the plaintiffs allege that they
suffered personal injuries and/or property damage from chronic exposure to
drinking water alleged to be contaminated with trace amounts of the industrial
solvent trichloroethylene. The alleged source of the contamination was
industrial facilities in and around the site now occupied by the Tucson
International Airport (TIA) and U.S. Air Force Plant #44. In addition to the
company, defendants are Hughes Aircraft Co. (now Raytheon), the Tucson Airport
authority (TAA), the City of Tucson, (the City) and McDonnell Douglas Corp.
(MDC). In Cordova, the company negotiated a settlement with all but four
defendants, who have appealed the summary judgement entered against them. The
company has reached an agreement to settle all the remaining cases and is
negotiating the final terms of the settlement agreements. Court approval is
required for the settlement of these cases. The company does not believe that
these lawsuits will have a material impact on the company's results of
operations or financial condition.
In other litigation concerning the Tucson site, the company is a
defendant in two cases brought in federal district court in Arizona by TAA and
the City under the Comprehensive Environmental Response Compensation and
Liability Act (CERCLA). Plaintiffs seek reimbursement of CERCLA response costs
and a declaration of the company's alleged liability with respect to soil and
groundwater contamination at portions of the Tucson site. On September 30, 1998,
the U.S. Environmental Protection Agency (U.S. EPA) issued a Special Notice
Letter notifying the company that it was a potentially responsible party (PRP)
with respect to contamination of soil and shallow groundwater on and near
property currently occupied by the TIA. Other PRPs receiving a similar notice
were the U.S. Air Force, TAA, MDC and the City. The company has reached an
agreement to settle the litigation brought by TAA and the City and is
11
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awaiting court approval of a consent decree negotiated with the U.S. EPA in
response to the Special Notice Letter. The company does not believe that these
lawsuits or the pending consent decree 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 PRP by the U.S. EPA 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 its liability at any individual site is not material. The company is
also involved in the investigation, cleanup and remediation of various
conditions at sites it currently or formerly owned or operated.
The company measures its environmental exposure based on enacted laws and
existing regulations and on the technology expected to be approved to complete
the remediation effort. The estimated cost to perform each of the elements of
the remediation effort is based on when those elements are expected to be
performed. Where a reasonable basis for apportionment exists with other PRPs,
the company estimates only its allowable share of the joint and several
remediation liability for a site, taking into consideration the solvency of
other participating PRPs. Based on a site by site analysis, the company believes
it has adequate accruals for any liability it may incur arising from sites
currently or formerly owned or operated at which there is a known environmental
condition, or Superfund sites at which the company is a PRP.
(K) 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, now owned by the Boeing
Company, (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' challenge to 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 process used in terminating the contract
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
further proceedings, the court issued an order converting the termination
12
<PAGE> 14
for default to a termination for convenience. On March 31, 1998, a final
judgment was entered in favor of the contractors for $1,200 plus interest.
The U.S. government filed an appeal from the trial court's ruling in the
U.S. Court of Appeals for the Federal Circuit. On July 1, 1999, the Court of
Appeals found that the trial court erred in converting the termination for
default to a termination for convenience without first determining whether a
default existed. The Court of Appeals remanded the case for determination of
whether the government's default termination was justified. The Court of Appeals
stated that it was expressing no view on that issue, and it left the parties the
opportunity to fully litigate that issue on remand.
The company continues to believe that the government's default
termination was improper, both as to process (the basis relied upon by the trial
court) and because the contractors were not in default. The company continues to
believe that at a full trial it will be able to demonstrate that the default
termination was not justified and that the termination for default will be
converted to a termination for convenience. If the company is successful in such
a new trial, it could result in the same, a lesser or a greater award to the
contractors.
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 and remand proceedings. In the event that
the contractors are ultimately found to have been in default under 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. The company believes the possibility of this result is remote.
13
<PAGE> 15
(L) Business Segment Information
The company's primary business is supplying sophisticated defense systems
to the United States and its allies. Management has chosen to organize its
business segments in accordance with several factors, including a combination of
the nature of products and services offered, the nature of the production
processes and the class of customer for the company's products. Operating
segments are aggregated for reporting purposes consistent with these criteria.
Management measures its segments' profit based primarily on operating earnings.
As such, net interest and other income items have not been allocated to the
company's segments. For a further 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>
Three Months Ended
------------------
Net Sales Operating Earnings
--------- ------------------
July 4 June 28 July 4 June 28
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Marine Systems* $764 $586 $ 88 $ 68
Combat Systems 306 298 34 38
Information Systems
& Technology* 243 228 24 16
Other 66 66 17 13
-- -- -- --
$1,379 $1,178 $163 $135
====== ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
----------------
Net Sales Operating Earnings
--------- ------------------
July 4 June 28 July 4 June 28
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Marine Systems* $1,572 $1,141 $ 176 $ 132
Combat Systems 596 633 69 81
Information Systems
& Technology* 476 446 44 30
Other 112 112 17 16
--- --- -- --
$2,756 $2,332 $306 $259
====== ====== ==== ====
</TABLE>
*As of January 1, 1999, management moved its Defense Systems operating unit from
the Marine Systems segment to the Information Systems and Technology segment.
Data for prior periods has been restated to give recognition to the current
composition of reportable segments.
14
<PAGE> 16
GENERAL DYNAMICS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
July 4, 1999
(Dollars in millions, except per share amounts)
Forward-Looking Statements
Management's Discussion and Analysis of the Results of Operations and
Financial Condition contains forward-looking statements that are based on
management's expectations, estimates, projections and assumptions. Words such as
"expects," "anticipates," "plans," "believes," "estimates," variations of 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, contract awards and the company's
expectations regarding the upcoming year 2000. 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,
without limitation: the company's successful execution of internal performance
plans; performance issues with key suppliers and subcontractors; the status or
outcome of legal proceedings; the status or outcome of labor negotiations;
changing priorities or reductions in the U.S. government defense budget;
termination of government contracts due to unilateral government action; and the
timing and occurrence (or non-occurrence) of circumstances beyond the company's
control.
Business Segments
For the first half of 1999, the company operated in three primary
business segments: Marine Systems, Combat Systems and Information Systems and
Technology. The company will add a fourth primary business segment, Aerospace,
as a result of the acquisition of Gulfstream Aerospace Corporation (Gulfstream)
discussed under "Investing Activities". The company also owns coal mining and
aggregates operations in the Midwest, and a leasing operation for liquefied
natural gas tankers, which are classified as Other. The following table sets
forth the net sales and operating earnings by business segment for the three-
and six-month periods ended July 4, 1999, and June 28, 1998:
15
<PAGE> 17
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three-Month Period Ended Six-Month Period Ended
- -------------------------------------------------------------------------------------------------------------------
July 4 June 28 Increase/ July 4 June 28 Increase/
1999 1998 (Decrease) 1999 1998 (Decrease)
- -------------------------------------------------------------------------------------------------------------------
NET SALES:
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marine Systems $ 764 $ 586 $ 178 $1,572 $1,141 $ 431
Combat Systems 306 298 8 596 633 (37)
Information Systems and
Technology 243 228 15 476 446 30
Other 66 66 - 112 112 -
- -------------------------------------------------------------------------------------------------------------------
$1,379 $1,178 $ 201 $2,756 $2,332 $ 424
- -------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS:
- -------------------------------------------------------------------------------------------------------------------
Marine Systems $ 88 $ 68 $ 20 $ 176 $ 132 $ 44
Combat Systems 34 38 (4) 69 81 (12)
Information Systems and
Technology 24 16 8 44 30 14
Other 17 13 4 17 16 1
- -------------------------------------------------------------------------------------------------------------------
$ 163 $ 135 $ 28 $ 306 $ 259 $ 47
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Marine Systems
Results of Operations
Net sales increased during the three- and six-month periods due primarily
to the acquisition of NASSCO Holdings Incorporated (NASSCO), whose wholly owned
subsidiaries include National Steel and Shipbuilding Company, on November 10,
1998, as well as increased activity on the Virginia-class submarine and DD 21
program. Operating earnings increased during the three- and six-month periods
due primarily to the aforementioned acquisition and to an earnings rate increase
on the Arleigh Burke class destroyer (DDG 51) program in the fourth quarter of
1998.
As of January 1, 1999, in order to align the company's information
technology resources, management moved its Defense Systems operating unit from
the Marine Systems segment to the Information Systems and Technology segment.
Data for the three- and six-month periods ended June 28, 1998, has been restated
to give recognition to the current composition of reportable segments.
Combat Systems
Results of Operations
Net sales increased and operating earnings decreased slightly during the
three-month period due to the contrast in maturity of programs year over year.
Net sales and operating earnings decreased during the six-month period due
primarily to the completion of production on the Single Channel Ground and
Airborne Radio System for the U.S. Army and to the treatment of the results of
the company's
16
<PAGE> 18
ammunition production facility. Previously a consolidated subsidiary, the
company's Milan Army Ammunition Plant is now part of an unconsolidated joint
venture, American Ordnance LLC.
Information Systems and Technology
Results of Operations
Net sales increased during the three- and six-month periods due primarily
to increased volume for commercial undersea fiber-optic communications
equipment. Operating earnings increased during the three- and six-month periods
due primarily to the aforementioned increase in volume, as well as a result of
higher margins obtained from cost reduction efforts employed during the first
year of acquisition of the segment's businesses.
In the first quarter of 1999, as previously mentioned, management
transitioned the Defense Systems' business to the Information Systems and
Technology segment from the Marine Systems segment. Data for the three- and
six-month periods ended June 28, 1998, has been restated to give recognition to
the current composition of reportable segments.
Backlog
The following table details the backlog of each business segment as
calculated at July 4, 1999, and December 31, 1998:
<TABLE>
<CAPTION>
July 4 December 31
1999 1998
-------------- -------------
<S> <C> <C>
Marine Systems $ 11,190 $ 11,565
Combat Systems 1,465 1,579
Information Systems and Technology 915 892
Other 528 562
-------------- -------------
Total Backlog $ 14,098 $ 14,598
============== =============
Funded Backlog $ 7,559 $ 7,292
============== =============
</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. As previously
mentioned, data at December 31, 1998, has been restated to give recognition to
the current composition of reportable segments.
17
<PAGE> 19
Additional Financial Information
Provision for Income Taxes
During the first quarter of 1999, the company and the U.S. Internal
Revenue Service settled refund claims for research and experimentation tax
credits for the years 1981 through 1989 for approximately $334 (including
before-tax interest). The company recognized a benefit during the first quarter
of $165 (net of amounts previously recorded in 1991 and 1992), or $1.29 per
diluted share, as a result of this settlement. In April 1999, the company
received the $334 cash refund from the IRS related to this settlement. Tax on
the interest totaling approximately $65 will be paid during 1999 with the
company's regular quarterly tax payments. For further discussion of this and
other tax matters, as well as a discussion of the net deferred tax asset, see
Note I to the Consolidated Financial Statements.
Environmental Matters and Other Contingencies
For a discussion of environmental matters and other contingencies, see
Notes J and K to the Consolidated Financial Statements. The company's liability,
in the aggregate, with respect to these matters, is not expected to be material
to the company's results of operations or financial condition.
Year 2000
The company has developed an internal Year 2000 compliance program (Y2K
Project), which is focusing on three major areas of assessment, project planning
and remediation with respect to Year 2000 issues (the inability of
date-sensitive software and equipment to properly recognize dates beyond 1999):
(1) information technology systems; (2) deliverable software (alone or as a
component of another product); and (3) facilities and embedded processors. The
company is working with its full-time information technology systems partner on
the project. The assessment, project planning and remediation phases of the Y2K
Project are substantially complete. Validation testing occurs as systems are
remediated and is expected to be finished in the third quarter of 1999. The
company generally develops its deliverable software to conform with customer
specifications. The company has completed the review of most of its customer
contracts and specifications to determine whether any Year 2000 issues exist.
Remediation efforts have been undertaken where requested, required and/or funded
by the customer. Management believes the company will complete the Y2K Project
on schedule and that the costs to implement will not materially impact results
of operations or financial condition, as most of these costs are expected to be
allowable under the company's U.S. government contracts. The company believes
its total Y2K Project costs will not exceed $40.
The company has made inquiries of substantially all third parties with
whom it has material business relationships to determine if they have Year 2000
issues. To date, the company has not been made aware of any Year 2000 issues
with respect to these third parties that would be expected to materially and
adversely affect the company. There can be no assurance, however, that these
third parties have been or will be successful in identifying or addressing their
Year 2000 issues.
18
<PAGE> 20
The implementation schedule, projected costs and beliefs regarding the
company's Year 2000 issues detailed above are based on management's best
estimates utilizing assumptions as to future events. There can be no assurance
that these expectations will be realized. Based on the status of the Y2K Project
and third-party surveys, however, the company does not believe there are any
material risks to the company related to Year 2000 issues. The company believes
its worst case Year 2000 scenario, if realized, would involve a brief slowdown
or cessation of production at one or more business units which would not be
expected to have a material adverse effect on financial condition or results of
operations. The company engages in project reviews and internal audit activities
designed to ensure Year 2000 readiness. The company is well into the development
of business continuity plans for Year 2000 and expects to complete them during
the third quarter of 1999.
New Accounting Standards
Effective January 1, 1999, the company adopted the provisions of
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments." 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. As these costs are recoverable
under the company's contracts and existing backlog, the adoption of the SOP did
not have a material impact on the company's results of operations or financial
condition.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 137
issued in June 1999 deferred the effective date of SFAS 133 by one year. As
such, the company is now required to adopt the provisions of the standard during
the first quarter of 2001. Because of the company's minimal use of derivatives,
the company does not expect that the adoption of the new standard will have a
material impact on the results of operations or financial condition.
Financial Condition
Operating Activities
Cash flows from continuing operations increased this year over last year
due to the cash refund the company received from the IRS related to the
settlement discussed above in "Provision for Income Taxes". Excluding the cash
refund and taxes paid on the interest component of the refund, cash flows from
continuing operations decreased this year over last year due primarily to the
timing of payments for working capital investments.
The company expects to continue to generate funds from operations in
excess of its short- and long-term liquidity needs.
19
<PAGE> 21
Investing Activities
On July 30, 1999, the company acquired Gulfstream through a merger of a
subsidiary of the company into Gulfstream. As a result, the holders of
Gulfstream common stock became entitled to receive one share of the company's
common stock for each Gulfstream share. The common stock of Gulfstream was
traded on the New York Stock Exchange through the close of business on July 30,
1999, at which time there were 72,165,645 shares of Gulfstream common stock
outstanding. An additional 4.1 million shares have been reserved for issuance
upon the exercise of stock options which, prior to the merger, had been options
to purchase Gulfstream common stock. Gulfstream is a leading designer,
developer, manufacturer and marketer of advanced business jet aircraft. The
merger will be accounted for as a pooling of interests.
On June 21, 1999, the company entered into a definitive agreement to
acquire GTE Government Systems Corporation, a subsidiary of GTE Corporation, for
$1.05 billion in cash. GTE Government Systems Corporation is a leader in the
advancement of command, control, communications and intelligence systems;
electronic defense systems; communication switching; and information systems for
defense, government and industry in the United States and abroad. GTE Government
Systems Corporation will become part of the Information Systems and Technology
segment. The acquisition will be accounted for under the purchase method of
accounting and is expected to close at the end of August 1999. The company will
finance the purchase consideration through its commercial paper program. On July
27, 1999, the company began issuing commercial paper in anticipation of the
acquisition. As of August 10, 1999, the company had issued approximately $250 at
an average yield of 5.22% with an average term of 40 days and had approximately
$325 invested in cash equivalents at an average yield of 5.2%.
On May 3, 1999, the company paid from available funds the remaining fixed
purchase consideration of $51 in cash for three individual stockholders' share
of NASSCO common stock.
The company began construction on its facility modernization project at
its Bath Iron Works shipyard in late 1998. The company anticipates investing a
total of approximately $200 through 2000, with approximately $120 expected to be
expended during 1999.
20
<PAGE> 22
Financing Activities
Immediately following consummation of the acquisition of Gulfstream,
the company repaid from its available funds approximately $270 of Gulfstream's
debt instruments. In connection therewith, the company will record in the third
quarter of 1999 a one-time non-cash charge of approximately $7 for the
unamortized debt costs associated with these instruments. The company will also
record in the third quarter a charge to earnings of approximately $33 for direct
acquisition transaction costs, consisting of investment banking, legal, bank
fees, accounting, printing and regulatory filing fees.
On June 23, 1999, the company's board of directors formally rescinded
management's authority to repurchase shares of the company's common stock on the
open market.
On March 3, 1999, the company's board of directors declared an increased
regular quarterly dividend of $.24 per share.
The company has available a $1 billion committed line of credit expiring
in May 2002 and an available $400 committed line of credit expiring in December
2002. These credit facilities contain minimum net worth requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes with respect to this item from the
disclosure included in the company's Annual Report on Form 10-K for the year
ended December 31, 1998.
21
<PAGE> 23
PART II
GENERAL DYNAMICS CORPORATION
OTHER INFORMATION
July 4, 1999
Item 1. Legal Proceedings
Reference is made to Note J, Commitments and Contingencies, to the
Consolidated Financial Statements in Part I, for statements relevant to
activities in the quarter covering certain litigation to which the company is a
party.
Item 4. Submission of Matters to a Vote of Security Holders
(a) A Special Meeting of Shareholders of the company, for which
proxies were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, was held on July 30, 1999.
The Annual Meeting of Shareholders of the company, for which
proxies were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, was held on May 5, 1999.
(b) & (c) A brief discussion of each matter voted upon at the Special
Meeting and the number of votes cast is as follows:
<TABLE>
<CAPTION>
Matter Votes Cast
------------------------------------------------------------------------------------------------
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Amendment to Charter Increasing No. of
Authorized Shares of Common Stock to
300,000,000 107,896,147 1,053,497 333,287
Issuance of Shares Pursuant to Agreement
and Plan of Merger 107,623,501 1,195,525 463,905
</TABLE>
22
<PAGE> 24
A brief discussion of each matter voted upon at the Annual Meeting
and the number of votes cast is as follows:
<TABLE>
<CAPTION>
Matter Votes Cast
--------------------------------------------------------------------------------------------------------------------
For Withheld
--- --------
<S> <C> <C>
Election of Directors:
Becton, J.W., Jr. 111,608,972 1,498,988
Chabraja, N.D. 111,937,409 1,170,551
Crown, J.S. 111,063,289 2,044,671
Crown, L. 111,124,522 1,983,438
Goodman, C.H. 111,105,374 2,002,586
Joulwan, G.A. 111,461,720 1,646,240
Kaminski, P.G. 110,675,567 2,432,393
Mellor, J.R. 111,058,461 2,049,499
Mundy, C.E., Jr. 112,083,391 1,024,569
Trost, C.A.H. 112,087,972 1,020,207
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
Approval of Arthur
Andersen LLP as
Independent Auditors 112,349,194 386,315 372,451
Shareholder Proposal
Regarding Foreign
Military Sales 2,265,459 99,022,973 5,433,812 6,385,716
</TABLE>
23
<PAGE> 25
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
On August 11, 1999, the company reported to the Securities and
Exchange Commission under Item 2, Acquisition or Disposition of
Assets, that on July 30, 1999, the company acquired Gulfstream
Aerospace Corporation (Gulfstream) through a merger of a
subsidiary of the company into Gulfstream. Included in the filing
under Item 7, Financial Statements and Exhibits, were the
following financial statements: (a) Unaudited Supplemental
Consolidated Financial Statements of General Dynamics Corporation
for the period ended April 4, 1999 (as restated to reflect the
acquisition of Gulfstream on July 30, 1999) and (b) Audited
Supplemental Consolidated Financial Statements of General Dynamics
Corporation for the fiscal year ended December 31, 1998 (as
restated to reflect the acquisition of Gulfstream on July 30,
1999).
On June 24, 1999, the company reported to the Securities and
Exchange Commission under Item 2, Acquisition or Disposition of
Assets, that on June 21, 1999, the company entered into a
definitive agreement to acquire GTE Government Systems
Corporation, a subsidiary of GTE Corporation, for $1.05 billion in
cash. Included in the filing under Item 7, Financial Statements
and Exhibits, were the following financial statements: (a) GTE
Government Systems Corporation audited combined financial
statements as of December 31, 1998 and unaudited combined
financial statements as of March 31, 1999 and (b) unaudited pro
forma combined financial statements as of and for the periods
ended April 4, 1999 and December 31, 1998.
24
<PAGE> 26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL DYNAMICS CORPORATION
by /s/John W. Schwartz
--------------------------------
John W. Schwartz
Vice President and Controller
(Authorized Officer and Chief Accounting Officer)
Dated: August 12, 1999
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GENERAL
DYNAMICS CORPORATION CONSOLIDATED BALANCE SHEET AS OF JULY 4, 1999, AND THE
RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JULY 4, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-04-1999
<CASH> 260
<SECURITIES> 133
<RECEIVABLES> 312
<ALLOWANCES> 0
<INVENTORY> 1,168
<CURRENT-ASSETS> 2,260
<PP&E> 1,786
<DEPRECIATION> 1,055
<TOTAL-ASSETS> 4,991
<CURRENT-LIABILITIES> 1,380
<BONDS> 169
0
0
<COMMON> 322
<OTHER-SE> 2,253
<TOTAL-LIABILITY-AND-EQUITY> 4,991
<SALES> 2,756
<TOTAL-REVENUES> 2,756
<CGS> 2,450
<TOTAL-COSTS> 2,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 311
<INCOME-TAX> (59)
<INCOME-CONTINUING> 370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 370
<EPS-BASIC> 2.91
<EPS-DILUTED> 2.87
</TABLE>
