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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3671
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-1673581
- -------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
- ------------------------------------------------ ----------
Address of principal executive offices Zip Code
</TABLE>
Registrant's telephone number, including area code (703) 876-3000
--------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- -----------------------------
Common Stock, Par Value $1 Per Share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. _
The aggregate market value of the voting common equity held by
nonaffiliates of the registrant was $6,935,120,447 at March 6, 2000.
201,281,676 shares of the registrant's common stock were outstanding at March
6, 2000.
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, 1999 (the 1999 Annual Report).
Part III incorporates information from certain portions of the
registrant's definitive Proxy Statement for the 2000 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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Certain sections of this Annual Report on Form 10-K contain
forward-looking statements that are based on management's expectations,
estimates, projections and assumptions. Words such as "expects," "anticipates,"
"plans," "believes," "scheduled," "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, aircraft production and deliveries, cash flows, contract awards,
and aircraft backlog stability. 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 and/or regulatory proceedings; the status or outcome of labor
negotiations; changing customer demand or preferences for business aircraft;
changes from the company's expectations with respect to its customers' exercise
of business aircraft options; 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.
PART I
ITEM 1. BUSINESS
INTRODUCTION
The primary businesses of General Dynamics Corporation (the company)
focus on business aviation, information systems, shipbuilding, marine systems,
and land and amphibious combat systems. The company is a Delaware corporation
formed in 1952 as successor to the Electric Boat Company. One of the company's
primary operating units, General Dynamics Land Systems Inc. (Land Systems), was
acquired in 1982. During the early 1990's, while the defense industry was
consolidating through mergers and acquisitions, the company divested of its
tactical military aircraft, missile systems and space launch systems
businesses, as well as its Cessna aircraft operations. In the mid 1990's, the
company began a series of acquisitions that primarily focused on defense and
either directly related to its core businesses or provided opportunities within
its core competencies. The company currently operates in the following
business groups: Aerospace, Information Systems and Technology, Marine Systems,
Combat Systems and Other.
The Aerospace business group consists of Gulfstream Aerospace
Corporation (Gulfstream), acquired on July 30, 1999.
Information Systems and Technology includes General Dynamics Defense
Systems, Inc. (Defense Systems), acquired on January 1, 1997, from Lockheed
Martin Corporation; General Dynamics Advanced Technology Systems, Inc. (ATS),
acquired on October 1, 1997, from Lucent Technologies; General Dynamics
Information Systems, Inc. (GDIS), Computing Devices Canada Ltd., and Computing
Devices Company Limited in the United Kingdom, acquired on December 31, 1997,
from Ceridian Corporation; Computer Systems & Communications Corporation
(CSCC), acquired on June 30, 1998; and General Dynamics Government Systems
Corporation consisting of: Communication Systems (CS), Electronic Systems (ES),
and Worldwide Telecommunication Systems (WTS), acquired on September 1, 1999,
from GTE Corporation.
Marine Systems includes Electric Boat Corporation (Electric Boat);
Bath Iron Works Corporation (BIW), acquired on September 13, 1995; American
Overseas Marine Corporation (AMSEA); and National Steel and Shipbuilding
Company (NASSCO), acquired on November 10, 1998.
Combat Systems includes Land Systems and General Dynamics Armament
Systems, Inc. (Armament Systems), acquired on January 1, 1997, from Lockheed
Martin Corporation.
The Other business group includes Freeman Energy Corporation (Freeman
Energy), Material Service Corporation (Material Service), and Patriot I, II and
IV Shipping Corporations (Patriots).
For more information regarding the company's business combinations
during 1999, 1998 and 1997, see Note B to the Consolidated Financial Statements
on pages 43 and 44 of the 1999 Annual Report, filed as Exhibit 13 to this
Annual Report on Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference. Information on revenues, operating profit
and identifiable assets attributable to each of the company's reportable
business groups is included in Note S to the Consolidated
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Financial Statements on page 57 of the 1999 Annual Report, filed as Exhibit 13
to this Annual Report on Form 10-K for the year ended December 31, 1999, and is
incorporated herein by reference. A description of the company's products and
services, competition, and other related information follows.
PRODUCTS AND SERVICES
AEROSPACE
<TABLE>
<CAPTION>
Net Sales (in millions) 1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
New aircraft $ 2,251 $ 1,909 $ 1,492
Other 658 519 412
--------- -------- ---------
$ 2,909 $ 2,428 $ 1,904
========= ======== =========
</TABLE>
Gulfstream is a leading designer, developer, manufacturer and marketer
of technologically advanced intercontinental business jet aircraft. The
company's primary aircraft products are the Gulfstream V, which serves the
ultra-long range market, and the Gulfstream IV-SP, which serves the large-cabin
business jet aircraft market. Gulfstream has received a total of 135 orders
plus 20 options for the Gulfstream V, and has manufactured and delivered 92 of
these aircraft through December 1999. Gulfstream has received a total of 435
orders plus 17 options for the Gulfstream IV/IV-SP, and has manufactured and
delivered 398 of these aircraft through December 1999. See "Backlog" for a
description of Gulfstream options.
The Gulfstream V has a maximum operating speed of Mach .885. It can
accommodate up to 19 passengers and has a range of up to 6,500 nautical miles.
These capabilities permit routine intercontinental travel at cruising speeds
comparable to commercial airline cruising speeds, while operating efficiently
at altitudes as high as 51,000 feet, flying above commercial airline traffic
and most adverse weather. The Gulfstream V is versatile enough to fly
long-range missions, such as New York to Tokyo in approximately 14 hours, as
well as high-speed missions, such as New York to London, in approximately six
hours. To date, the Gulfstream V has set 65 world and national records. As
confirmation of the product's innovative design and outstanding performance,
the Gulfstream V received the 1997 Robert J. Collier Trophy for aeronautical
achievement and was selected by the United States Air Force to provide
intercontinental transportation for senior government officials and
dignitaries.
The Gulfstream IV-SP can accommodate up to 19 passengers, has a range
of up to 4,220 nautical miles and a cruising speed of up to Mach .85. These
capabilities permit routine intercontinental travel at cruising speeds
comparable to commercial airline cruising speeds, while operating efficiently
at altitudes as high as 45,000 feet, flying above commercial airline traffic
and most adverse weather. The company believes that the Gulfstream IV-SP
offers the best combination of large cabin size, long range, fast cruising
speed and technologically advanced avionics of any large business jet aircraft
in its market segment.
In conjunction with Executive Jet (EJ), Gulfstream offers fractional
ownership of Gulfstream IV-SP and Gulfstream V aircraft through its Gulfstream
Shares(R) program. EJ purchases aircraft from the company and then sells
ownership interests generally in one-eighth or one-quarter increments for which
the customer receives 100 or 200 hours respectively of flying time per year.
Through year-end 1999, Gulfstream had contracted to deliver to Executive Jet 56
aircraft plus options for an additional 22 aircraft in connection with its
North American Gulfstream Shares program. Of these 78 aircraft, as of December
31, 1999, 26 were in service, with the remaining 52 aircraft expected to be
delivered through 2008. During 1998, Gulfstream expanded its shares program
into the Middle East, with a 12-aircraft contract with a group of Middle East
investors, of which the first two aircraft are in service.
Gulfstream also provides worldwide aircraft maintenance services and
technical support for both Gulfstream and other business aircraft by
integrating a network of company-owned service centers, three levels of
authorized third-party service providers, worldwide parts depots, worldwide
service representatives and 24 hour-a-day technical/aircraft on the ground
support. There are currently almost 1,000 Gulfstream aircraft in service.
On August 19, 1998, Gulfstream acquired K-C Aviation, Inc., previously
a provider of business aviation services and the largest independent completion
center for business aircraft in North America. This acquisition increased
Gulfstream's capacity to accelerate its completion deliveries and its ability
to provide aftermarket maintenance services, spare parts engine overhaul and
auxiliary power unit service and overhaul for both Gulfstream and other
business jets. As a result of the K-C Aviation acquisition, Gulfstream now
offers services for Challenger, Hawker, Falcon and other aircraft types at
their Appleton, WI; Dallas, TX; and Westfield, MA locations.
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In 1998, Gulfstream announced Gulfstream Lease, a venture between
Gulfstream and GATX Capital. This program provides an important vehicle for
new Gulfstream aircraft sales, by introducing customers with less initial
capital to Gulfstream's product offerings. Gulfstream markets short-term
(generally 3-5 years) operating leases, while GATX Capital provides account
management services. Gulfstream also offers charter and aircraft management
services, training, and through its subsidiary, Gulfstream Financial Services
Corporation, aircraft financing which is provided through private label
relationships with other financing institutions.
INFORMATION SYSTEMS AND TECHNOLOGY
Net sales (in millions) for this segment were $1,422, $933 and $185
for 1999, 1998 and 1997, respectively.
Defense Systems is the lead provider of Trident Fire Control Systems
and also provides complete life cycle management of complex electronic systems
for the U.S. and U.K. Navies. Defense Systems' TechSight business unit provides
automated maintenance and diagnostics systems for the automotive, aircraft and
manufacturing industries, and web-based training and certification in the
medical, financial, legal and educational fields.
ATS provides undersea surveillance systems for the U.S. Navy as well
as command communications, control and intelligence systems and network
architecture solutions for the DD 21 and LPD 17 class of ships. ATS also
designs and builds power feed and terminal transmissions equipment for the
commercial undersea fiber-optic communications market and cable installation
services for those systems through its subsidiary, Caldwell Cable Ventures,
which was acquired in August 1998. ATS also does research and development for
classified U.S. government customers in the area of optical transmission
systems.
GDIS provides information processing systems for airborne, land-based,
seaborne, and space-based platforms, as well as information management services
for the U.S. government.
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 vetronics and display systems.
Computing Devices Company Limited in the United Kingdom provides and
supports electronics technology for airborne, ground and naval systems, and has
the second largest U.K. share of the European Fighter Aircraft avionics
equipment market.
CSCC provides systems integration and communication services for the
U.S. Department of Defense and other NATO countries.
CS provides secure communications, computers and peripherals, and
information solutions that integrate custom developed and commercial
off-the-shelf products for the U.S. military, commercial, and select
international markets. CS designs, integrates, and supports strategic and
tactical battlefield communication systems world-wide, including the U.S.
Army's Mobile Subscriber Equipment and TRI-TAC switching programs.
ES provides systems solutions to the Department of Defense and U.S.
intelligence organizations. With major facilities in California, Maryland, and
Virginia, the unit has broad software and systems engineering expertise, and
proven capabilities in signals intelligence, information operations,
information assurance, imagery dissemination and exploitation, weather analysis
systems, virtual collaboration systems and products, and other intelligence and
support systems. The unit also maintains extensive field operations at
government sites around the world, providing both operational and maintenance
support.
WTS engineers, furnishes and installs communications and data systems
for U.S. and foreign governments and corporations. WTS specializes in
asynchronous transfer mode networks, large digital switches, computer systems,
satellite communications, and cellular and personal communications system
networks. WTS provides worldwide life-cycle support, including operations,
maintenance, logistics, managed network services, and desktop support and is
also installing the Aboveground Telecommunications Backbone, a high-speed
voice, video and data communications network for the Pentagon.
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MARINE SYSTEMS
<TABLE>
<CAPTION>
Net Sales (in millions) 1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Nuclear submarines and related $ 1,460 $ 1,381 $ 1,321
services
Naval surface ships and related 1,424 999 839
services
Other 204 149 88
--------- -------- -------
$ 3,088 $ 2,529 $ 2,248
========= ======== =========
</TABLE>
Electric Boat designs, builds and supports nuclear submarines for the
U.S. Navy, having contracts for the construction of the final Seawolf-class
attack submarine and for the first four ships of the Virginia-class submarine.
Construction work on the Virginia-class will be shared equally between Electric
Boat as the prime contractor and Newport News Shipbuilding Inc. as
subcontractor. In addition to nuclear submarine design and construction,
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 for the operating fleet. Electric
Boat also serves as ship integrator for certain components and subassemblies of
the submarines, such as electronic equipment.
To date, BIW has been awarded contracts for the construction of 27
Arleigh Burke class destroyers (DDG 51) and plays a lead role in providing
design, engineering, and ongoing life cycle support services for these ships.
BIW is a member of a three-contractor team which was awarded a contract in 1996
to design and build the Navy's new class of amphibious assault ships (LPD 17).
In February 2000, a contract was awarded to BIW for the construction of the
third ship, LPD 19. BIW is a member, along with Ingalls Shipbuilding, a
division of Litton Industries, Inc., of the DD 21 Shipbuilder Alliance, which
has been awarded contracts to date for the first two phases of system concept
design work for the next generation surface combatant (DD 21). BIW will serve
as the Alliance prime contractor for the first phases of the DD 21 program, is
leading one of the Alliance's two competing design teams and is expected to
share equally with Ingalls Shipbuilding in the production of the DD 21.
AMSEA provides ship management services for five of the U.S. Navy's
Maritime Prepositioning Ships (MPS) and eleven of the U.S. Maritime
Administration's Ready Reserve Force (RRF) ships. The MPS are under five-year
contracts, which are renewable through the year 2011. The RRF ships are
currently operating under an extension of their original five-year contract.
The MPS vessels operate worldwide and the RRF vessels are normally located on
the east, gulf and west coasts of the United States, with one vessel stationed
in the Persian Gulf.
NASSCO designs, builds and repairs ships for the U.S. Navy and
commercial customers. Existing contracts consist of the design and
construction of five sealift ships for the U.S. Navy and two roll-on/roll-off
ships for a commercial customer.
COMBAT SYSTEMS
<TABLE>
<CAPTION>
Net Sales (in millions) 1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Armored combat vehicles and $ 860 $ 809 $ 791
related services
Other 430 463 596
--------- -------- ---------
$ 1,290 $ 1,272 $ 1,387
========= ======== =========
</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 was initiated in 1992 and the M1A2
SEP, the latest version of the M1, in 1999. Land Systems has two remaining
production years on a multiyear contract with the U.S. Army to upgrade
approximately 600 tanks from the M1 to the M1A2 and M1A2 SEP configurations.
Land Systems is also under contract for the development of several
other major armored vehicle systems and components, including wheeled weapons
stations, engines and turret drive systems. The U.S. Marine Corps selected and
awarded Land Systems a development contract for the Advanced Amphibious Assault
Vehicle (AAAV), including prototype design and construction. Three prototypes
are currently under contract. Land Systems also continues work on the Army's
Crusader Self-Propelled Howitzer
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development program of which the company's share of the program approximates 25
percent. In addition to these programs, Land Systems, through existing
capabilities and teaming arrangements, is able to offer a wide array of
vehicles to fill the U.S. Army's emerging requirements for medium armored
vehicles.
Armament Systems designs, develops and produces advanced gun and
ammunition handling systems for applications on various land, sea and air
platforms. Armament Systems is also a leader in the production of ammunition
products. Armament Systems is the sole producer of the Hydra-70 2.75"
air-to-ground rocket, having produced over 600,000 to date. In November 1998,
Armament Systems formed a joint venture with another company that consolidated
two of the U.S. Army's largest ammunition production facilities. Previously a
consolidated subsidiary, the company's Milan Army Ammunition Plant is now part
of the unconsolidated joint venture, American Ordnance L.L.C.
OTHER
<TABLE>
<CAPTION>
Net Sales (in millions) 1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Aggregates $ 125 $ 123 $ 110
Coal mining 100 88 107
Other 25 25 25
--------- -------- ---------
$ 250 $ 236 $ 242
========= ======== =========
</TABLE>
Material Service is engaged in the mining and sale of aggregates
(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 as well as Indiana.
This business is cyclical and seasonal in nature.
Freeman Energy mines coal, producing approximately 4-5 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
BUSINESS AIRCRAFT
The business aircraft market generally is divided into four segments of
aircraft - light, medium, large and ultra-long range - either designed or
converted for business use. The Gulfstream IV-SP competes in the large cabin
business aircraft market segment with the Bombardier Challenger, the Dassault
Falcon 900EX and 900C, and the recently announced Fairchild Envoy 7. The
Gulfstream V competes in the ultra-long range business aircraft market segment
against the Boeing Business Jet, Bombardier Global Express and the Airbus
A-319CJ. The company believes that it competes favorably in its markets on the
basis of the performance characteristics of its aircraft, the quality and
timeliness of the service it provides as well as its innovative marketing
techniques. In addition, the company was able to certify the Gulfstream V
significantly in advance of its competition and obtain a substantial market
lead. The company believes its aircraft's operating costs are comparable to or
lower than those of its competitors and that its products are competitively
priced.
U.S. GOVERNMENT DEFENSE CONTRACTS
Historically, competition for U.S. government defense contracts was
characterized by a number of major companies competing for a variety of
contracts. The customer's procurement policy generally required competitive
bids based on strict specifications. In addition, the customer often awarded
contracts to more than one company in order to ensure competition on subsequent
contracts.
During the last decade, because of reduced defense spending, the defense
industry 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 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 determining funding levels and priorities. As
a result, the defense procurement policy is evolving and will be affected by
these various and sometimes conflicting factors.
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A discussion of competition on individual defense programs is included in
Management's Discussion and Analysis of the Results of Operations and Financial
Condition on pages 25 through 37 of the 1999 Annual Report, filed as Exhibit 13
to this Annual Report on Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference.
CUSTOMERS
COMMERCIAL
Thirty-one percent of the company's sales are to commercial customers
and primarily include sales of Gulfstream aircraft to national and
multinational corporations. The aircraft are operated by customers in a wide
spectrum of industries and customer groups including: pharmaceuticals, consumer
goods, high technology, energy, industrial manufacturing, finance, insurance,
real estate, mining, transportation, communications, public utilities, the
retail trade and individuals.
U.S. GOVERNMENT
The company's defense businesses represent the majority of its U.S.
government sales. Net sales to the U.S. government include Foreign Military
Sales (FMS), which 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 were 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
--------------------------------------
1999 1998 1997
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<S> <C> <C> <C>
Domestic $5,104 $4,121 $3,544
FMS 99 175 166
------ ------ ------
Total U.S. government $5,203 $4,296 $3,710
====== ====== ======
Percent of net sales 58% 58% 62%
</TABLE>
All U.S. government contracts related to the company's defense
businesses 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.
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.
INTERNATIONAL
The majority of the company's sales for the past three years were
derived from operations in the United States. At the end of 1997, the company
expanded its geographic presence through the acquisition of Computing Devices
Canada Ltd. and Computing Devices Company Limited in the United Kingdom.
Direct foreign sales, including international operations, were $966 million,
$1,111 million and $633 million in 1999, 1998 and 1997, respectively, and were
primarily related to the export of business aircraft. For the year ended
December 31, 1999, sales and operating earnings from international operations
were 3.2% and 2.8% of consolidated sales and operating earnings, respectively.
Identifiable assets of operations domiciled outside the U.S. were 5.5%, 7.3%
and 7.8% of total identifiable assets at December 31, 1999, 1998 and 1997,
respectively, and consisted primarily of goodwill and intangible assets. For
information regarding sales by geographic region, see Note S to the
Consolidated Financial Statements on page 58 of the 1999 Annual Report, filed
as Exhibit 13 to this Annual Report on Form 10-K for the year ended December
31, 1999, and incorporated herein by reference.
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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 the Aerospace group are
primarily internally funded product enhancement and product development
programs for Gulfstream aircraft. Research and development activities in the
Information Systems and Technology, Marine Systems and Combat Systems groups
are conducted principally under U.S. government contracts. These research
efforts have been and continue to be concerned with developing products for
large systems development programs or performing work under research and
development technology contracts. Each of the company's defense businesses also
engages in independent research and development, of which a significant portion
is recovered through overhead charges to U.S. government contracts.
Company-sponsored research and development began increasing in 1998 due
primarily to the growth in business through acquisitions in the Information
Systems and Technology group. This group conducts research and development
primarily under classified programs.
Research and development expenditures (in millions) by type follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Company-sponsored $ 103 $ 103 $ 66
Customer-sponsored 116 114 58
---- ---- -----
$ 219 $ 217 $ 124
===== ====== ======
</TABLE>
BACKLOG
Summary backlog information (in millions) for each business group follows:
<TABLE>
<CAPTION>
1999 Total
December 31 Backlog Not
------------------------------------------------------------------------ Expected to Be
1999 1998 Filled in 2000
--------------------------------- ---------------------------------- ----------------
Firm Firm
Contracts Options Total Contracts Options Total
--------- ------- ----- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Aerospace $ 2,574 $ 1,179 $ 3,753 $ 3,302 $ 1,000 $ 4,302 $ 1,961
========= ========= ========= ========= ======== ======== =========
</TABLE>
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<TABLE>
<CAPTION>
1999 Total
December 31 Backlog Not
----------------------------------------------------------------------------------- Expected to Be
1999 1998 Filled in 2000
------------------------------------------ ------------------------------------ ---------------
Funded Unfunded Total Funded Unfunded Total
------ -------- ----- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Information Systems
and Technology $ 1,952 $ 48 $ 2,000 $ 816 $ 76 $ 892 $ 578
Marine Systems 5,529 6,079 11,608 5,071 6,494 11,565 8,553
Combat Systems 1,116 480 1,596 843 736 1,579 751
Other 494 29 523 533 29 562 494
--------- ----------- ---------- -------- ---------- --------- -----------
Total defense
and other backlog $ 9,091 $ 6,636 $ 15,727 $ 7,263 $ 7,335 $ 14,598 $ 10,376
======== =========== ========== ========= ========= ========== ==========
</TABLE>
Total backlog represents the estimated remaining sales value of work
to be performed under firm contracts or aircraft to be delivered, options for
the purchase of additional aircraft and amounts for long-term coal contracts.
Aircraft backlog under firm contracts includes orders for which the company has
entered into a definitive purchase contract with no significant contingencies
and has received a significant non-refundable deposit from the customer.
Aircraft options primarily include agreements with customers in connection with
the company's fractional ownership and operating lease programs to grant them
the option to subsequently purchase additional aircraft upon defined terms and
conditions. Funded backlog for government programs 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. For further discussion, see Management's Discussion and Analysis
of the Results of Operations and Financial Condition on pages 25 through 37 of
the 1999 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K
for the year ended December 31, 1999, and incorporated herein by reference.
REGULATORY CONTROLS - BUSINESS AIRCRAFT
In order for an aircraft model to be manufactured for sale, the
Federal Aviation Administration (FAA) must issue a Type Certificate and a
Production Certificate for the aircraft model and, in order for an individual
aircraft to be operated, an Airworthiness Certificate. Type Certificates are
issued by the FAA when an aircraft model is determined to meet certain
performance, environmental, safety and other technical criteria. The
Production Certificate ensures that the aircraft is built to specifications
approved under the Type Certificate. An Airworthiness Certificate is issued
for a particular aircraft when it is certified to have been built in accordance
with specifications approved under the Type Certificate for that particular
model aircraft. Gulfstream has never had a Type Certificate or a Production
Certificate suspended, nor had any jet aircraft grounded as the result of
regulatory action.
All of the company's aircraft models comply with all currently
applicable federal laws and regulations pertaining to aircraft noise and engine
emissions. Due to their weight (under 75,000 pounds) all Gulfstream II, III,
IV, and IV-SP aircraft are currently exempt from the FAA Stage 3 (most
stringent) noise requirements. Notwithstanding federal requirements, foreign
and local jurisdictions and airport authorities may establish more stringent
restrictions pertaining to aircraft noise. Such local and foreign regulations
in several locations currently restrict the operation of certain jet aircraft,
including the Gulfstream II, IIB, and III, and certain of their competitors
from landing or taking off during late evening and early morning hours. Each
of the Gulfstream IV, IV-SP, and V aircraft produce noise levels below the
FAA's Stage 3 and International Civil Aviation Organization's most stringent
noise ceilings.
ENVIRONMENTAL CONTROLS
The 1990 Clean Air Act (the 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,
8
<PAGE> 10
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 O to the Consolidated Financial Statements
on page 51 of the 1999 Annual Report, filed as Exhibit 13 to this Annual Report
on Form 10-K for the year ended December 31, 1999, and incorporated herein by
reference.
PATENTS
Numerous patents and patent applications are owned by the company and
utilized in its defense business 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 owned by other persons. Patents and licenses are
important in the operation of the company's defense businesses, as one of
management's key objectives is developing and providing its customers with
advanced technological solutions.
EMPLOYEES
At December 31, 1999, the company had 43,400 employees (excluding
contract labor), of whom 30 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 Marine
Draftsmen's Association, the Metal Trades Council of New London, Connecticut
and the United Auto Workers Union. Several agreements are due to expire during
2000, the most significant of which is the International Association of
Machinists and Aerospace Workers.
ITEM 2. PROPERTIES
PRINCIPAL BUSINESS GROUPS. A summary of floor space at the main
facilities of the Aerospace, Information Systems and Technology, Marine Systems
and Combat Systems business groups follows (square feet in millions):
<TABLE>
<CAPTION>
COMPANY GOVERNMENT
OWNED LEASED FURNISHED
FACILITIES FACILITIES FACILITIES TOTAL
AEROSPACE: ---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Gulfstream
Savannah, GA (Factory/Office) 1.5 1.5
Brunswick, GA (Service/Completion Center) 0.1 0.1
Long Beach, CA (Service/Completion Center) 0.3 0.1 0.4
Dallas, TX (Service/Completion Center) 0.2 0.1 0.3
Appleton, WI (Service/Completion Center) 0.1 0.1
Westfield, MA (Service Center) 0.1 0.1
Oklahoma City, OK (Factory) 0.5 0.5
Mexicali, Mexico (Factory) 0.1 0.1
---------- ---------- ---------- --------
TOTAL AEROSPACE 2.2 0.9 0.0 3.1
========== ========== ========== ========
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
COMPANY GOVERNMENT
OWNED LEASED FURNISHED
FACILITIES FACILITIES FACILITIES TOTAL
INFORMATION SYSTEMS AND TECHNOLOGY: ---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Defense Systems
Pittsfield, MA (Labs) 0.9 0.9
Advanced Technology Systems
Greensboro, NC (Factory) 0.1 0.3 0.4
Whippany, NJ (Office/Labs) 0.2 0.2
General Dynamics Information Systems
Bloomington, MN (Office) 0.5 0.5
Computing Devices Canada, Ltd.
Ottawa, Ontario (Office/Plant) 0.2 0.1 0.3
Calgary, Alberta (Office) 0.2 0.2
Communication Systems
Needham Heights, MA (Office) 0.3 0.1 0.4
Taunton, MA (Office/Factory) 0.1 0.3 0.4
Electronic Systems
Mountain View, CA (Office/Factory) 0.2 0.4 0.6
Worldwide Telecommunication Systems
Needham Heights, MA (Office) 0.1 0.1
Chantillly, VA (Office) 0.1 0.1
Colorado Springs, CO (Office/Lab) 0.1 0.1
Ft. Gordon, GA (Office/Lab) 0.2 0.2
---------- ---------- ---------- --------
TOTAL INFORMATION SYSTEMS AND TECHNOLOGY 1.3 2.0 1.1 4.4
========== ========== ========== ========
MARINE SYSTEMS:
Electric Boat
Groton, CT (Shipyard) 2.8 0.1 2.9
Quonset Point, RI (Plant/Warehouse) 0.4 1.1 1.5
Avenel, NJ (Land/Plant) 0.4 0.4
Bath Iron Works
Bath, ME (Shipyard) 1.1 1.1
East Brunswick, ME (Warehouse) 0.6 0.6
Portland, ME (Shipyard) 0.1 0.1
National Steel and Shipbuilding Company
San Diego, CA (Shipyard) 0.2 6.0 6.2
---------- ---------- ---------- --------
TOTAL MARINE SYSTEMS 5.5 7.3 0.0 12.8
========== ========== ========== ========
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
COMPANY GOVERNMENT
OWNED LEASED FURNISHED
FACILITIES FACILITIES FACILITIES TOTAL
---------- ---------- ---------- -----
COMBAT SYSTEMS:
<S> <C> <C> <C> <C>
Land Systems
Lima, OH (Plant) 1.6 1.6
Muskegon, MI (Plant) 1.0 0.1 1.1
Scranton, PA (Plant) 0.3 0.3
Woodbridge, VA (Office) 0.1 0.1
Tallahassee, FL (Plant/Office) 0.1 0.1
Sterling Heights, MI (Warehouse) 0.6 0.6
Anniston, AL (Plant/Warehouse) 0.1 0.1
Imperial, CA (Plant/Warehouse) 0.1 0.1
Shelby Township, MI (Plant) 0.1 0.1
Armament Systems
Burlington, VT (Plant/Office) 0.6 0.6
---------- ---------- ---------- --------
TOTAL COMBAT SYSTEMS 2.4 0.6 1.7 4.7
========== ========== ========== ========
</TABLE>
In 1997, BIW began a project to construct a fifteen acre land level
transfer facility and manufacturing support center, and a 750-foot dry-dock in
Bath, Maine to modernize its facility. The company plans to invest over $200
million through 2000 on this project.
OTHER. Freeman Energy operates two underground coal mines and one
surface coal 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 and Indiana areas for its aggregates business.
REAL ESTATE HELD FOR DEVELOPMENT. As part of the divestiture of
certain of the company's businesses during 1992 to 1994, specific properties
were retained by the company. The company developed plans and marketing
efforts which are intended to maximize the market value of these properties. In
1997, two buildings and 55 acres in Rancho Cucamonga, California were sold. In
1998, a 232-acre site in the Kearny Mesa section of San Diego was sold. The
remaining properties include approximately 2,200 acres in Sycamore Canyon, San
Diego, California and 308 acres in Rancho Cucamonga, California. Most of this
property is undeveloped. The company owns approximately 20,000 square feet of
building space at Rancho Cucamonga and approximately 200,000 square feet of
building space at Sycamore Canyon.
GENERAL. The company believes that its main facilities are adequate
for the present needs of the company and its subsidiaries and, as supplemented
by planned improvements and construction, are expected to remain adequate for
the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The information under the captions "Litigation" and "Environmental" in
Note O and the information in Note P to the Consolidated Financial Statements
appearing on pages 50 through 52 of the 1999 Annual Report, included in this
Annual Report on Form 10-K for the year ended December 31, 1999, 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, 1999.
11
<PAGE> 13
SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
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 1999
------------------------- ---------------
<S> <C>
David D. Baier -- Vice President Taxes since August 1995; Staff Vice President Taxes 45
March 1994 -- August 1995
G. Kent Bankus -- Vice President Government Relations since April 1993 57
W.W. Boisture, Jr. -- Executive Vice President since July 1999; President and Chief Operating 55
Officer, Gulfstream Aerospace Corporation since December 1998, Executive Vice President,
Gulfstream Aerospace Corporation February 1994 -- December 1998
Allan C. Cameron -- Vice President of the company and President of Bath Iron Works since 53
March 1996; Executive Vice President and Chief Operating Officer of Bath Iron Works
July 1994 -- March 1996
Michael E. Chandler -- Vice President of the company and President of General Dynamics Worldwide 55
Telecommunication Systems since February 2000; President, Worldwide Telecommunication
Systems September 1999 -- February 2000; Vice President and General Manager, GTE Government
Systems Worldwide Telecommunication Systems Division November 1997 -- September 1999;
Vice President and General Manager, GTE Government Systems Electronic Systems Division
October 1995 -- November 1997
Chris A. Davis -- Vice President of the company since July 1999; Executive Vice President and 49
Chief Financial and Administrative Officer, Gulfstream Aerospace Corporation since July
1993
Gerard J. DeMuro -- Vice President of the company and President of General Dynamics Communication 44
Systems since February 2000; President of General Dynamics Communication Systems September
1999 -- February 2000; Vice President and General Manager, GTE Government Systems
Communications Systems Division October 1997 -- September 1999; Vice President and General
Manager -- MSE/TRITAC GTE Government Systems--Communication Systems Division October
1994 -- October 1997
Gordon R. England -- Executive Vice President since March 1997; President, Lockheed Martin 62
Corporation Fort Worth March 1993 -- March 1995
James I. Finley -- Vice President of the company and President of General Dynamics Information 53
Systems since January 1998; Vice President, 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 44
Treasurer November 1994 -- March 1998
Charles M. Hall -- Vice President of the company and President of Land Systems since September 48
1999; Vice President, Production and Delivery March 1997 -- September 1999; Vice President
and General Manager, Domestic Operations January 1994 -- March 1997
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31
NAME, POSITION AND OFFICE 1999
------------------------- ---------------
<S> <C>
David K. Heebner -- Vice President Strategic Planning since January 2000; Lieutenant General and 54
and Assistant Vice Chief of Staff, U.S. Army, July 1997 -- November 1999; Director of
Program Analysis and Evaluation, Office of the Chief of Staff, U.S. Army, August 1994 --
July 1997
Kenneth A. Hill -- Vice President Information Technology since April 1997; Staff Vice President 50
Personnel Relations November 1994 -- April 1997
Linda P. Hudson -- Vice President of the company and President of Armament Systems 49
since May 1999; Staff Vice President Business Development August 1997 -- May 1999;
President, Ordnance Systems January 1997 -- August 1997; President Martin Marietta/
Lockheed Martin Ordnance Systems January 1994 -- January 1997
Raymond E. Kozen -- Vice President Special Projects since January 2000: Vice President Planning 58
and Analysis March 1997 -- January 2000; Staff Vice President for Special Projects
December 1987 -- March 1997
Michael J. Mancuso -- Senior Vice President and Chief Financial Officer since March 1997; 57
Vice President and Chief Financial Officer November 1994 - March 1997
Charles E. McQueary -- Vice President of the company and President of Advanced Technology 60
Systems since October 1997; President, Advanced Technology Systems, AT&T/Lucent
Technologies January 1994 -- September 1997
Kendell Pease -- Vice President Communications since May 1998; Rear Admiral and Chief 54
Information Officer, U.S. Navy, August 1992 -- May 1998
David A. Savner -- Senior Vice President and General Counsel, Secretary since May 1999; Senior 55
Vice President - Law and Secretary April 1998 -- May 1999; Senior Partner of Jenner & Block
May 1987 -- April 1998
Daniel P. Schmutte -- Vice President of the company and President of Defense Systems since 49
February 1997; Vice President Operations August 1995 -- February 1997; Staff Vice
President and Assistant to the President/Chief Executive Officer June 1993 -- August 1995
John W. Schwartz -- Vice President and Controller since March 1998; Staff Vice President 43
and Controller November 1994 -- March 1998
David E. Scott -- Vice President of the company and President of Computing Devices 54
Canada since February 1998; President Computing Devices Canada June 1997 --
January 1998; Vice President Communications Division November 1990 -- May 1997
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31
NAME, POSITION AND OFFICE 1999
------------------------- ---------------
<S> <C>
John F. Stewart -- Vice President of the company and President of General Dynamics Electronic 55
Systems since February 2000; President of General Dynamics Electronic Systems September 1999 --
February 2000; Vice President and General Manager, GTE Government Systems, Electronic
Systems Division November 1997 -- September 1999; Vice President and General Manager,
GTE Government Systems, Information Operations December 1995 -- November 1997; Vice
President and General Manager, Battle Command and Intelligence, Cubic Applications Corp.,
December 1994 -- December 1995
Michael W. Toner -- Vice President of the company and President of Electric Boat since January 56
2000, Senior Vice President Electric Boat June 1998 -- January 2000; Vice President- Innovation
October 1995 -- June 1998
James E. Turner, Jr. -- Retired January 2000; President and Chief Operating Officer June 1997 -- 65
January 2000; 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
Arthur J. Veitch -- Senior Vice President since September 1999; Vice President of the company 53
and President of Land Systems February 1997--September 1999; Vice President of the
company and Senior Operating Officer of Land Systems August 1995 -- February 1997;
Division Vice President and General Manager of the company's Convair Division
August 1992 -- August 1995
Richard H. Vortmann -- Vice President of the company and President of NASSCO since 55
February 1999; President, Chief Executive Officer and Chairman of the Board of NASSCO
April 1989 -- February 1999
John K. Welch -- Senior Vice President since January 2000; Vice President of the company and President 49
of Electric Boat October 1995 - January 2000
W. Peter Wylie -- Vice President Human Resources and Administration since August 1995 60
</TABLE>
All executive officers of the company are elected annually. No executive
officer of the company was selected pursuant to any arrangement or
understanding between the officer and any other person.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The company's common stock is listed on the New York Stock Exchange,
Chicago Stock Exchange and Pacific Stock Exchange.
On October 25, 1999, the company issued 15,424 shares of common stock
to James D. Caldwell in connection with the company's acquisition of Caldwell's
Diving Company, Inc. and Cable Ventures Inc. (now known as Caldwell Cable
Ventures, Inc.). In connection with this share issuance, the company claims
exemption from registration under Section 4(2) of the Securities Act of 1933,
as amended, based on the fact that the transaction did not involve any public
offering of securities.
The high and low sales price of the company's common stock and the
cash dividends declared with respect to the company's common stock for each
quarterly period during the two most recent fiscal years are included in Note T
to the Consolidated Financial Statements appearing on page 58 of the 1999
Annual Report, included in this Annual Report on Form 10-K for the year ended
December 31, 1999, as Exhibit 13, and are incorporated herein by reference.
There were 19,379 holders of record of the company's common stock at
December 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The "Selected Financial Data" appearing on page 60 of the 1999 Annual
Report, included in this Annual Report on Form 10-K for the year ended December
31, 1999, 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 "Management's Discussion and Analysis of the Results of Operations
and Financial Condition" appearing on pages 25 through 37 of the 1999 Annual
Report, included in this Annual Report on Form 10-K for the year ended December
31, 1999, as Exhibit 13, is incorporated herein by reference in response to
this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
The information appearing under the caption "Market Risk" on page 34
of the 1999 Annual Report, included in this Annual Report on Form 10-K for the
year ended December 31, 1999, as Exhibit 13, is incorporated herein by
reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Notes to the Consolidated
Financial Statements and Report of Independent Public Accountants appearing on
pages 38 through 60 of the 1999 Annual Report, included in this Annual Report
on Form 10-K for the year ended December 31, 1999, as Exhibit 13, are
incorporated herein by reference in response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
15
<PAGE> 17
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 in the sections entitled "Board of Directors of the
Company" and "Other Information - Section 16(a) Beneficial Ownership Reporting
Compliance" in the company's definitive Proxy Statement, which sections are
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be set forth herein is included in the
sections entitled "Board of Directors of the Company" and "Executive
Compensation" in the company's definitive Proxy Statement, which sections are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be set forth herein is included in the
section entitled "Ownership of Common Stock by the Principal Shareholders and
Management" in the company's definitive Proxy Statement, which section is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth herein is included in the
section entitled "Board of Directors of the Company -Transactions Involving
Directors and the Company" in the company's definitive Proxy Statement, which
section is incorporated herein by reference.
16
<PAGE> 18
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 1999 Annual Report on the pages listed in
the following index are included in this Annual Report on Form 10-K for the
year ended December 31, 1999, as Exhibit 13, and are incorporated herein by
reference.
<TABLE>
<CAPTION>
Page of
1999
Annual
Report
------------
<S> <C>
Report of Independent Public Accountants 59
Consolidated Financial Statements:
Consolidated Statement of Earnings 38
Consolidated Balance Sheet 39
Consolidated Statement of Cash Flows 40
Consolidated Statement of Shareholders' Equity 41
Notes to Consolidated Financial Statements (A to T) 42-58
</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
Consolidated Financial Statements or the Notes thereto.
3. Exhibits--See Index on pages 19 through 22 of this Annual
Report on Form 10-K.
(b) Reports on Form 8-K
None.
17
<PAGE> 19
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.
<TABLE>
<S> <C>
GENERAL DYNAMICS CORPORATION
By: /s/ John W. Schwartz
--------------------
John W. Schwartz
Vice President and Controller
March 27, 2000
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 27, 2000, 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
- ------------------------
Nicholas D. Chabraja (Principal Executive Officer)
/s/ Michael J. Mancuso Senior Vice President and Chief Financial Officer
- ----------------------
Michael J. Mancuso (Principal Financial Officer)
/s/ John W. Schwartz Vice President and Controller
- --------------------
John W. Schwartz (Principal Accounting Officer)
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
Carl E. Mundy, Jr.* Director
Carlisle A.H. Trost* Director
</TABLE>
*By David A. Savner 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/ David A. Savner
-------------------
David A. Savner
Secretary
18
<PAGE> 20
INDEX TO EXHIBITS - GENERAL DYNAMICS CORPORATION
COMMISSION FILE NO. 1-3671
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C> <C>
(18) 3-1B --Restated Certificate of Incorporation, effective August 2, 1999
(12) 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
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
(11) 10-14A --Lease Agreement dated December 20, 1996, between Electric Boat Corporation and the Rhode Island
Economic Development 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
*(12) 10-31 --Retirement Benefit Agreement between the company and Gordon R. England dated February 14, 1997
(12) 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
*(12) 10-33 --Retirement Benefit Agreement between the company and Michael J. Mancuso dated March 6, 1998
*(12) 10-34 --Consulting agreement between the company and Paul G. Kaminski dated August 18, 1997
(13) 10-36 --Stock Purchase Agreement dated as of October 8, 1998, between the company and NASSCO Holdings
Incorporated and the stockholders of NASSCO Holdings Incorporated
*(14) 10-37 --Retirement Benefit Agreement between the company and David A. Savner dated March 4, 1998
</TABLE>
19
<PAGE> 21
INDEX TO EXHIBITS - GENERAL DYNAMICS CORPORATION
COMMISSION FILE NO. 1-3671
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C>
(14) 10-38 --Lease Agreement dated January 1, 1991, between National Steel and Shipbuilding Company and the San
Diego Unified Port District, relating to facilities in the San Diego, California harbor
(14) 10-38A --Amendment of Lease Agreement between National Steel and Shipbuilding Company and the San Diego
Unified Port District, dated December 6, 1994
(14) 10-39 --Capital Construction Fund Agreement, dated September 13, 1988, between National Steel and
Shipbuilding Company and the United States of America, represented by the Maritime Administrator,
Department of Transportation
(14) 10-39A --Capital Construction Fund Agreement-Addendum No. 1, dated September 13, 1988, between National Steel
and Shipbuilding Company and the United States of America, represented by the Maritime
Administrator, Department of Transportation
(14) 10-39B --Capital Construction Fund Agreement-Addendum No. 2, dated October 29, 1992, between National Steel
and Shipbuilding Company and the United States of America, represented by the Maritime
Administrator, Department of Transportation
(14) 10-39C --Capital Construction Fund Agreement-Addendum No. 3, dated August 27, 1993, between National Steel
and Shipbuilding Company and the United States of America, represented by the Maritime
Administrator, Department of Transportation
(14) 10-39D --Capital Construction Fund Agreement-Addendum No. 4, dated August 28, 1997, between National Steel
and Shipbuilding Company and the United States of America, represented by the Maritime
Administrator, Department of Transportation
(14) 10-39E --Capital Construction Fund Agreement-Addendum No. 5, dated October 29, 1997, between National Steel
and Shipbuilding Company and the United States of America, represented by the Maritime
Administrator, Department of Transportation
10-39F --Capital Construction Fund Agreement-Addendum No. 6, dated August 16, 1999, between National Steel
and Shipbuilding Company and the United States of America, represented by the Maritime
Administrator, Department of Transportation
(16) 10-40 --Agreement and Plan of Merger dated May 16, 1999, between General Dynamics Corporation, Tara
Acquisition Corporation and Gulfstream Aerospace Corporation
(16) 10-41 --Voting Agreement dated May 16, 1999, between General Dynamics Corporation and certain stockholders
of Gulfstream Aerospace Corporation
(17) 10-42 --Stock Purchase Agreement (without Schedules and Exhibits) dated as of June 21, 1999, between
General Dynamics, Contel Federal Systems, Inc. and GTE Corporation
(18) 10-43 --Registration Agreement dated as of July 30, 1999, between General Dynamics Corporation and certain
stockholders of Gulfstream Aerospace Corporation
* 10-44 --Consulting Agreement between the company and James E. Turner, Jr., dated January 12, 2000
13 --1999 Annual Report (pages 25 through 60)
21 --Subsidiaries
23 --Consent of Arthur Andersen LLP
23-A --Consent of Deloitte & Touche LLP
24 --Power of Attorney of the Board of Directors
27 --Financial Data Schedule
27-A --Restated Financial Data Schedule for the six months ended July 4, 1999
27-B --Restated Financial Data Schedule for the three months ended April 4, 1999
27-C --Restated Financial Data Schedule for the year ended December 31, 1998
27-D --Restated Financial Data Schedule for the nine months ended September 27, 1998
27-E --Restated Financial Data Schedule for the six months ended June 28, 1998
27-F --Restated Financial Data Schedule for the three months ended March 29, 1998
99 --Independent Auditors' Report- Deloitte & Touche LLP
</TABLE>
* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
20
<PAGE> 22
NOTES TO EXHIBITS - GENERAL DYNAMICS CORPORATION
COMMISSION FILE NO. 1-3671
(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) Not used.
(6) Not used.
(7) Not used.
(8) Not used.
(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.
(12) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1997, and filed with the Commission March
18, 1998, and incorporated herein by reference.
(13) Filed as an exhibit to the company's current report on Form 8-K filed
with the Commission November 25, 1998, and incorporated herein by
reference.
(14) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1998, and filed with the Commission March
18, 1999, and incorporated herein by reference.
(15) Not used.
(16) Filed as an exhibit to the company's quarterly report on Form 10-Q for
the quarterly period ended April 4, 1999, and filed with the
Commission May 18, 1999, and incorporated herein by reference.
(17) Filed as an exhibit to the company's current report on Form 8-K filed
with the Commission June 24, 1999, and incorporated herein by
reference.
(18) Filed as an exhibit to the company's current report on Form 8-K filed
with the Commission August 11, 1999, and incorporated herein by
reference.
21
<PAGE> 23
INDEX TO EXHIBITS - GULFSTREAM AEROSPACE CORPORATION
COMMISSION FILE NO. 1-8461*
The following exhibits are included in this Annual Report on Form 10-K of
General Dynamics Corporation, but were filed by Gulfsteam Aerospace Corporation
prior to the acquisition of Gulfstream by General Dynamics Corporation.
<TABLE>
<CAPTION>
Note Exhibit
Number Number Description
- ------ ------ -----------
<S> <C> <C>
**(1) 10.2 --Gulfstream Aerospace Corporation Supplemental Executive Retirement Plan, effective as of April 1,
1991
**(1) 10.3 --Gulfstream Aerospace Corporation November 1, 1991 Supplemental Executive Retirement Plan
(1) 10.4 --Form of Indemnification Agreement between Gulfstream Aerospace Corporation and its directors and
executive officers
**(1) 10.5 --Form of Gulfstream Aerospace Corporation Outside Director Stock Option Agreement
**(1) 10.6 --Form of Gulfstream Aerospace Corporation Outside Director Stockholder's Agreement
**(2) 10.9 --Form of Gulfstream Aerospace Corporation Employee Stock Option Agreement
**(2) 10.10 --Form of Gulfstream Aerospace Corporation Employee Stockholder's Agreement
**(3) 10.27 --Amended and Restated Gulfstream Aerospace Corporation 1990 Stock Option Plan, as further
amended through July 30, 1997
(4) 10.28 --Agreement of Purchase and Sale, dated as of July 23, 1998, by and between Kimberly-Clark
Corporation and Gulfstream Aerospace
Corporation
(2) 10.29 --Agreement dated December 24, 1997, between Gulfstream Aerospace Corporation and its wholly owned
subsidiaries, Gulfstream Delaware Corporation, Gulfstream Aerospace Corporation, a Georgia
Corporation and the Pension Benefit Guaranty Corporation
**(5) 10.42 --Amendment dated December 2, 1998, to the Amended and Restated Gulfstream Aerospace Corporation 1990
Stock Option Plan
**(5) 10.43 --Form of Gulfstream Aerospace Corporation Stock Option Agreement effective December 1998
**(5) 10.44 --Form of Gulfstream Aerospace Corporation Stock Option Agreement for partners or employees of FLC
Partnership effective December 1998
</TABLE>
* The common stock of Gulfstream was traded on the New York Stock
Exchange through the close of business on July 30, 1999.
** Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
NOTES
(1) Filed as an exhibit to the company's Registration Statement on Form
S-1, No. 333-09897, and filed with the Commission August 9, 1996, and
incorporated herein by reference.
(2) Filed as an exhibit to the company's annual report on Form 10-K for
the year ending December 31, 1996, and filed with the Commission March
28, 1997, and incorporated herein by reference.
(3) Filed as an exhibit to the company's quarterly report on Form 10-Q for
the quarterly period ended June 30, 1997, and filed with the
Commission August 12, 1997, and incorporated herein by reference.
(4) Filed as an exhibit to the company's quarterly report on Form 10-Q for
the quarterly period ended June 30, 1998, and filed with the
Commission July 24, 1998, 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, 1998, and filed with the Commission March
29, 1999, and incorporated herein by reference.
22
<PAGE> 1
Exhibit 10.39F
Addendum No. 6
Contract No. MA/CCF-478
ADDENDUM TO
MARITIME ADMINISTRATION
CAPITAL CONSTRUCTION FUND AGREEMENT
WITH
NATIONAL STEEL AND SHIPBUILDING COMPANY
THIS AGREEMENT is made by and between the MARITIME ADMINISTRATOR (the
"Administrator"), and NATIONAL STEEL AND SHIPBUILDING COMPANY, a citizen of the
United States (the "Contractor"), as an addendum to that certain Capital
Construction Fund ("CCF") Agreement Contract No. MA/CCF-478 (the "Agreement").
WHEREAS:
1. The Administrator and the Contractor entered into the Agreement on
September 13, 1988, under Section 607 of the Merchant Marine Act, 1936, as
amended (the "Act"); and
2. The Contractor and its parent company NASSCO Holdings, Incorporated
("NHI") have been acquired by General Dynamics Corporation ("General Dynamics")
and are now wholly-owned subsidiaries of General Dynamics.
3. The parties hereto desire to amend the Agreement as set forth in
this Addendum.
NOW, THEREFORE, in consideration of the premises, the Administrator and
the Contractor agree as follows:
I. The Agreement will now become a consolidated Agreement with General
Dynamics as the new Contractor and shall include only those parties listed under
Attachment I. The defined term "Party" shall mean any or all of National Steel
and Shipbuilding Company, NHI, Bath Iron Works, or American Overseas, as the
case may be.
<PAGE> 2
2
II. The Agreement is amended by terminating the approval of the
Contractor's commercial paper program and deleting it from the Agreement.
III. Section 7(A) of the Agreement, including any referenced documents
therein, is hereby deleted and replaced with the following, including any
referenced documents herein:
"(A) The Party, at its discretion, may invest fund assets in third
party receivables of General Dynamics Corporation, or of its other
affiliates, assigned to the Party for that purpose, from progress
payment billings contracts, and under other contracts, with the
collection of such receivables to be guaranteed by the General
Dynamics Corporation if necessary to cause such receivables to be
"qualified investments," and in other investments which are "qualified
investments" under Maritime Administration rules and regulations, as
they exist at the present time or as they may be amended. Investments
in third party receivables of General Dynamics Corporation and its
affiliates shall be made pursuant to the terms and procedures of the
form of the Receivables Purchase and Sale Agreement and included
Exhibits, attached hereto as Appendix I."
IV. The existing Schedule B to the Agreement is replaced by the
attached revised Schedule B which: (A) deletes the construction of two 500
passenger cruise vessels; (B) increases the estimated vessel cost of the two
Roll-on/Roll-off Trailer Vessels from $135 million each to $175 million each;
and (C) adds the construction of four high speed Roll-on/Roll-off container
ships and four container ships as qualified program objectives.
V. The existing Schedule C to the Agreement is replaced by the
attached revised Schedule C which updates the list of qualified depositories
under the Agreement.
VI. Except as herein otherwise expressly provided, the Agreement, as
heretofore amended, shall remain in full force and effect.
<PAGE> 3
3
IN WITNESS WHEREOF, the parties have executed this Addendum No. 6 in
four counterparts, effective as of the 16th day of August, 1999.
(SEAL) UNITED STATES OF AMERICA
SECRETARY OF TRANSPORTATION
MARITIME ADMINISTRATOR
ATTEST
By: [SIG] By: [SIG]
--------------------------- ---------------------------
Secretary Contracting Officer
(SEAL) NATIONAL STEEL AND SHIPBUILDING
COMPANY
ATTEST
By: /s/ E. A. Murray By: /s/ R. H. Vortmann
--------------------------- ---------------------------
Name: E. A. Murray Name: R. H. Vortmann
--------------------------- ---------------------------
(print or type) (print or type)
Title: Assistant Secretary Title: President
--------------------------- ---------------------------
(print or type) (print or type)
<PAGE> 4
4
<TABLE>
<CAPTION>
(SEAL) GENERAL DYNAMICS CORPORATION
ATTEST
<S> <C>
By: /s/ Margaret N. House By: /s/ L. Hugh Redd
--------------------------- ---------------------------
Name: Margaret N. House Name: L. Hugh Redd
--------------------------- ---------------------------
(print or type) (print or type)
Title: Asst. Secretary Title: Staff Vice President and Assistant Treasurer
--------------------------- ---------------------------
(print or type) (print or type)
Approved as to form:
By: [SIG]
---------------------------
Assistant Chief Counsel
Maritime Administration
</TABLE>
<PAGE> 5
ATTACHMENT I
GENERAL DYNAMICS CORPORATION
CONSOLIDATED COMPANIES
National Steel and Shipbuilding Company
NASSCO Holdings, Incorporated
Bath Iron Works
American Overseas Marine
<PAGE> 6
Revised Schedule B
MA/CCF-478
SCHEDULE B
PROGRAM OBJECTIVES
ACQUISITION OR CONSTRUCTION OF VESSELS
<TABLE>
<CAPTION>
Amount to
Vessel be Approx. Approx. Anticipated
Program Name Withdrawn Date Date Area
Objective and General Vessel from Fund of of of
Number Number Characteristics Cost (Approx.) (Approx.) Contract Delivery Operation
- ----------- ---------- ------------------------------------- --------------- ----------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Unknown Three 140,000 DWT Product Tankers $200 million $80 1st qtr Non-Contiguous
each million 2000 2002 Trade
2 Unknown Two Roll-on Roll-off Trailer Vessels $175 million $80 3rd qtr Non-Contiguous
each million 1999 2002 Trade
3 Unknown Four High Speed Roll-on Roll-off $300 million $80 3rd qtr Non-Contiguous
Container Ships each million 1999 2002 Trade
4 Unknown Four Container Ships $100 million $80 4th qtr Non-Contiguous
each million 1999 2001 Trade and
Puerto Rico
</TABLE>
<PAGE> 7
Revised Schedule C
MA/CCF-478
SCHEDULE C
DEPOSITORIES
<TABLE>
<CAPTION>
NAME AND ADDRESS(1) ACCOUNTS
- ----------------------------------------------------------------------------
<S> <C>
Bank of America Investment Account
1000 South Tryon St. established pursuant to
Charlotte, NC 28255 46 C.F.R. Section 390.7
Bank One Investment Account
One First National Plaza established pursuant to
Chicago, IL 60670 46 C.F.R. Section 390.7
Citibank N.A. Investment Account
153 E. 53rd Street established pursuant to
New York, NY 10043 46 C.F.R. Section 390.7
Mellon Bank N.A. Investment Account
4 Mellon Bank Ctr. established pursuant to
Pittsburgh, PA 15259 46 C.F.R. Section 390.7
The Bank of New York Investment Account
One Wall Street established pursuant to
New York, NY 10286 46 C.F.R. Section 390.7
The Northern Trust Company Investment Account
50 South LaSalle Street established pursuant to
Chicago, IL 60675 46 C.F.R. Section 390.7
First Union National Bank Investment Account
One First Union Center established pursuant to
Charlotte, NC 28288 46 C.F.R. Section 390.7
Wachovia Bank N.A. Investment Account
100 North Main Street established pursuant to
Winston-Salem, NC 27150 46 C.F.R. Section 390.7
</TABLE>
- -------------------------
1 The addresses set forth below represent the main office of each
depository. The actual branch office used for deposits may vary.
<PAGE> 8
[EXECUTION FORM) APPENDIX I
RECEIVABLES PURCHASE AND
SALE AGREEMENT BETWEEN
GENERAL DYNAMICS CORPORATION
AND
(QUALIFIED AFFILIATE)
THIS AGREEMENT made on ___________, 19____, by and between GENERAL
DYNAMICS CORPORATION, a corporation organized and existing under the laws of the
State of Delaware ("General Dynamics") and (Qualified Affiliate).
WITNESSETH:
WHEREAS:
1. General Dynamics is engaged directly, and through subsidiary and
affiliated corporations (collectively such subsidiary and affiliated
corporations being referred to herein as "Affiliates"), in the businesses of
building ships for the U.S. Government and privately and publicly held
corporations.
2. The monies earned from these activities are received by General
Dynamics, and/or its Affiliates, under various forms of contracts for the most
part involving progress payments, dependent upon the state of completion of the
projects, the proceeds of which are generally subject to assignment.
3. General Dynamics maintains a consolidated capital construction fund
(the "Fund") within the meaning of Section 607 of the Merchant Marine Act, 1936,
as amended (the "Act") pursuant to the terms of an original agreement between
NASSCO and the Maritime Administration, Department of Transportation, dated as
of September 14, 1988, as amended (the "Agreement"), and desires to invest and
reinvest certain monies or the proceeds of property deposited and to be
deposited, from time to time, into the Fund in an undivided interest in Eligible
Receivables held by General Dynamics or any Qualified Affiliate, as such terms
are defined below.
4. (General Dynamics or Qualified Affiliate) proposes to sell and
General Dynamics proposes to purchase, for the account of the Fund, an undivided
interest in Eligible Receivables arising from time to time and held by (General
Dynamics or Qualified Affiliate).
NOW THEREFORE, in consideration of the premises and the mutual
promises, and subject to the terms and conditions hereinafter set forth, it is
hereby agreed:
1. ELIGIBLE RECEIVABLES. Subject to the limitations of paragraph 2
(investment, share, percentage), General Dynamics may purchase from time to time
from any itself or any Qualified Affiliate for the account of the Fund an
undivided interest in Eligible Receivables. An "Eligible Receivable" shall be an
evidence of indebtedness of the United States of America, or any instrumentality
or agency thereof, or of any party organized under the laws of the United States
or a state thereof, unrelated to General Dynamics or any of its Affiliates,
payable in
<PAGE> 9
United States dollars and acquired by General Dynamics or any Qualified
Affiliate in the ordinary course of business. Notwithstanding the foregoing, an
Affiliate shall qualify to sell evidences of indebtedness to General Dynamics
for the account of the Fund under this Agreement ("Qualified Affiliate") only
upon delivery of a written instrument agreeing to (i) authorize General Dynamics
to act on its behalf where appropriate or required hereunder, (ii) perform any
of the acts that General Dynamics has agreed hereunder to cause such Affiliate
to perform, and (iii) otherwise bound by the terms of this Agreement.
2. INVESTMENT, SHARE AND PERCENTAGE. The cumulative dollar amount paid
or consideration given by General Dynamics hereunder for the purchase of an
undivided interest in Eligible Receivables from General Dynamics ("General
Dynamics Receivables") or from any Qualified Affiliate ("Affiliate Receivables")
less, in each case,-the proceeds received by the Fund upon any sale of such
undivided interest as described in paragraph 13 (REPURCHASE) is hereinafter
referred to as "General Dynamics Investment" or "Affiliate Investment,"
respectively, (collectively "Investment"). The Fund's undivided interest,
expressed as a dollar amount, in General Dynamics Receivables or Affiliate
Receivables is hereinafter referred to individually as "General Dynamics Share"
or "Affiliate Share", respectively (collectively "share"), and in each case
shall at any time be equal to General Dynamics Investment or Affiliate
Investment, as the case may be, multiplied by the sum of one plus the Discount
Factor (as defined below) applicable thereto. The Fund's undivided interest,
expressed as a percentage, in General Dynamics Receivables or Affiliate
Receivables, is hereinafter referred to as "General Dynamics Percentage" or
"Affiliate Percentage", respectively, and in each case shall at any time be
equal to General Dynamics Share or an Affiliate Share, as the case may be,
divided by the face value of General Dynamics Receivables or the applicable
Affiliate Receivables, respectively.
3. ELECTION AND ASSIGNMENT. If General Dynamics elects to purchase
Eligible Receivables initially or from time to time, on behalf of the Fund, it
shall execute and deliver an instrument of election ("Election") in the form set
forth in Exhibit A to General Dynamics or the applicable Qualified Affiliate, as
the case may be, not less than two business days prior to the requested
effective date thereof. Pursuant to the Election, General Dynamics will sell,
transfer, and assign to NASSCO, in the case of General Dynamics Receivables, and
will cause the applicable Qualified Affiliate to sell, transfer and assign to
General Dynamics, in the case of Affiliate Receivables, in each case on behalf
of the Fund, an undivided interest in such Eligible Receivables. The sale,
transfer and assignment shall be evidenced by execution of an instrument of
assignment ("Assignment") in the form set forth in Exhibit B. A copy of each
Assignment shall be delivered to the Fund depository as evidence of the Fund's
investment in accordance with Section 607(c) of the Merchant Marine Act, 1936,
as amended. The initial or any change in the level of either General Dynamics
Investment or Affiliate Investment, respectively, shall be distinguished from
the periodic reinvestment of any General Dynamics Share or Affiliate Share as
described in paragraph 9 (ONGOING REINVESTMENT), which shall require no Election
or Assignment
4. TITLE. From the time of General Dynamics' initial purchase of Share
through any adjustment in such Share from time to time, such Share shall be and
become the exclusive property of the Fund.
2
<PAGE> 10
5. AGENCY.
(a) Possession and Records. With respect to all Eligible Receivables
in which the Fund owns an undivided interest from time to time,
General Dynamics shall, in the case of General
Dynamics-Receivables, and shall cause the applicable Qualified
Affiliate, in the case of Affiliate Receivables, in each acting as
agent on behalf of General Dynamics and the Fund, to maintain
physical possession of the Eligible Receivables and all records
pertaining thereto, which records shall indicate in writing that
the Fund has an undivided interest in the Eligible Receivables and
shall be sufficient to distinguish the Fund's interest therein
from General Dynamics's or such Qualified Affiliate's remaining
interest.
(b) Collection. Subject to the exercise of reasonable business
judgment, General Dynamics shall, in the case of General Dynamics
Receivables, and shall cause the applicable Qualified Affiliate,
in the case of Affiliate Receivables, to use reasonable efforts to
process and collect Eligible Receivables in the same manner and
with the same diligence as it or such Qualified Affiliate
processes and collects its other receivables. In addition General
Dynamics shall in its own name, in the case of General Dynamics
Receivables, and shall cause the applicable Qualified Affiliate,
in the case of Affiliate Receivables, to (i) endeavor to collect,
or cause to be collected, from its customers or those of the
applicable Qualified Affiliate as and when due any and all amounts
owing under or on account of Eligible Receivables, and (ii) take,
or cause to be taken, such action to enforce rights under any such
Eligible Receivables as it or such Qualified Affiliate deems
reasonably proper.
(c) Collection Agencies: Compliance with Law. General Dynamics or any
Qualified Affiliate may employ collection agencies or others to
collect defaulted Eligible Receivables. In acting with respect to
Eligible Receivables, General Dynamics will and will cause each
Qualified Affiliate to comply with all laws, official rulings and
regulations and will indemnify and hold the Fund harmless from and
against any and all penalties or losses which might be incurred by
the Fund as the result of General Dynamics's or any Qualified
Affiliate's negligence or failure to comply therewith.
(d) Enforcement by the Fund. The Fund will take any action to collect
Eligible Receivables or to otherwise enforce the Fund's legal
interest therein, unless General Dynamics has made a determination
not to or is unable to, or does not cause the applicable Qualified
Affiliate to or such Qualified Affiliate is unable to proceed for
collection and does not otherwise hold the Fund harmless through
the operation of paragraph 12 (UNCOLLECTIBLE RECEIVABLES). In no
event shall the Fund take any action to collect any Eligible
Receivables of the United States of America or any agency or
instrumentality thereof which have not been assigned in accordance
with the Assignment of Claims Act
(e) Servicing Costs. General Dynamics will reimburse each Qualified
Affiliate, as appropriate, on a monthly basis, but not from the
Fund, for the performance of
3
<PAGE> 11
services required by this paragraph in an amount equal to the
actual costs incurred in connection with such services as
determined from time to time (i) for the General Dynamics
Receivables by multiplying such costs by the General Dynamics
Percentage of the General Dynamics Receivables owned by the Fund,
and (ii) for each Affiliate's Receivables by multiplying such
costs by such Affiliate's Percentage of such Affiliate Receivables
owned by the Fund. General Dynamics shall, in the case of General
Dynamics Receivables, and shall cause the applicable Qualified
Affiliate, in the case of Affiliate Receivables, to keep records
reasonably required to allow NASSCO to verify any amounts charged
hereunder.
(f) Power of Attorney. General Dynamics, on behalf of itself and the
Fund, hereby grants to each Qualified Affiliate, as appropriate,
an exclusive power of attorney to process and collect the interest
of the Fund in Eligible Receivables, which shall be revocable only
if such Qualified Affiliate is unable to proceed for collection
and does not otherwise hold the Fund harmless through the
operation of paragraph 12 (UNCOLLECTIBLE RECEIVABLES).
6. Audit. General Dynamics shall, in the case of General Dynamics
Receivables, and shall cause the applicable Qualified Affiliate,
in the case of Affiliate Receivables, to (a) maintain such
documents in accordance with its regular practice as may be
required for the collection of Eligible Receivables; (b) maintain
such accounts and other records as will enable it to determine
upon request the status of the Fund's General Dynamics Share or
Affiliate Share; (c) permit, on reasonable notice and during
normal business hours, the inspection, auditing, checking and
making abstracts from General Dynamics's and such Qualified
Affiliate's accounts, records, correspondence and other papers
pertaining to Eligible Receivables; and (d) deliver, upon request
copies of any of such accounts, records, correspondence and other
papers as it may reasonably deem essential with respect to
Eligible Receivables.
7. ACCOUNT1NG MONTH. This Agreement shall be administered on the
basis of NASSCO's accounting month. The last business day of each
accounting month shall constitute an "Account Clearing Date."
General Dynamics shall, in the case of General Dynamics
Receivables, and shall cause the applicable Qualified Affiliate,
in the case of Affiliate Receivables, to develop data, analyses
and reports in accordance with paragraph 8 (DISCOUNT) as of each
Account Clearing Date. These data, analyses and reports shall be
provided no later than the Account Clearing Date for the
subsequent month. If any change in the level of Investment occurs
on a day other than an Account Clearing Date, then for purposes of
all calculations, sales, collections and expenses shall be deemed
to have occurred ratably over the month.
8. DISCOUNT. Purchases for the account of the Fund with respect to
each of the General Dynamics Receivables or any Affiliate
Receivables, as the case may be, shall be for a consideration
equal to an amount which is lower than the applicable General
Dynamics Share or Affiliate Share by the amount of a
4
<PAGE> 12
"Discount" (as defined below), which reflects the expected days to
collect such General Dynamics Receivables or Affiliate Receivables
("Contract Collection Days") and the "Rate" (as defined below).
The Discount with respect to each of the General Dynamics
Receivables and any Affiliate Receivables, as the case may be,
shall be separately determined in the following manner
(a) Contract Collection Days shall initially be set at 45 days,
which is the current estimate of the average of the actual
collection days for the Eligible Receivables. For each year
after 1988, the Contract Collection Days shall be the
average of actual experience with Eligible Receivables for
the immediately preceding year or as otherwise mutually
agreed.
(b) Actual Collection Days are calculated for each month by
multiplying the month-end Eligible Receivables balance by
the number of days in the month and dividing that value by
the aggregate amounts invoiced during the month for the
customer accounts which generate Eligible Receivables.
(c) The initial discount rate for each purchase shall be ten
percent (10%) per annum, which rate shall be adjusted from
time to time by General Dynamics to reflect current market
conditions.
(d) The Discount Factor for each purchase equals the Rate
multiplied by Contract Collection Days.
(e) The Fund's General Dynamics Share or Affiliate Share shall
equal the General Dynamics Investment or Affiliate
Investment, respectively, multiplied by the sum of one plus
the Discount Factor applicable thereto.
(f) The Discount with respect to General Dynamics Receivables
equals General Dynamics Investment multiplied by the
applicable Discount Factor, and the Discount with respect to
any Affiliate Receivables equals such Affiliate Investment
multiplied by the applicable Discount Factor.
(g) Discount Income equals the product of days in such month
multiplied by the Discount for such month and divided by the
Contract Collection Days for such month.
9. ONGOING REINVESTMENT. The make-up of the Eligible Receivables will
change continuously as individual evidences of indebtedness are collected and
new evidences of indebtedness are generated in the normal course of General
Dynamics's and each Qualified Affiliate's businesses. Collections with respect
to Eligible Receivables included in General Dynamics Share or Affiliate Share
shall be routinely and immediately reinvested in other Eligible Receivables. All
credits under paragraph 10 (MONTHLY ESTIMATED CREDITS) and annual adjustments
under paragraph 11 (ANNUAL ADJUSTMENT FOR ACTUAL COLLECTIONS) shall be deemed to
be immediately reinvested in other Eligible Receivables unless General
5
<PAGE> 13
Dynamics or a Qualified Affiliate, as the case may be, elects to make payment in
cash to the Fund.
10. MONTHLY ESTIMATED PAYMENTS. General Dynamics shall, in the case of
General Dynamics Receivables, and shall cause the applicable Qualified
Affiliate, in the case of Affiliate Receivables, in each case, as of the end of
each Account Clearing Date and before the next following Account Clearing Date
to make calculations as shown by example in the applicable Exhibit D (note, each
selling entity will have a separate Exhibit D) and, credit the Fund, for the net
of the following items:
(a) The Fund's Discount Income for such General Dynamics Receivables
or the applicable Affiliate Receivables, as the case may be, for
the month, plus
(b) The General Dynamics Percentage and each Affiliate Percentage, as
the case may be, of finance revenue, if any, for such General
Dynamics Receivables or Affiliate Receivables, respectively,
(i.e., interest charges collected on Eligible Receivables during
the month).
For each monthly period, General Dynamics each Qualified Affiliate, as
appropriate, the monthly costs as described in paragraph 5(e) (AGENCY -
SERVICING COSTS).
11. ANNUAL ADJUSTMENT FOR ACTUAL COLLECTIONS. After the end of each
calendar year, adjustments shall be made between General Dynamics and each
Qualified Affiliate, as applicable, and the Fund to reflect the Actual
Collection Days for such General Dynamics Receivables and Affiliate Receivables,
as the case may be, as experienced for each month of the expired year. As
described in Exhibit D (in which certain terms used hereinafter in this
paragraph are defined), an Adjusted Daily Income for the General Dynamics
Receivables and the applicable Affiliate Receivables shall be calculated based
on Actual Collection Days for such General Dynamics Receivables or Affiliate
Receivables, as appropriate, and an adjustment for the General Dynamics
Receivables and the applicable Affiliate Receivables shall be calculated by
multiplying the number of days in each month times the difference between Daily
Income and Adjusted Daily Income. The adjustments for each of the 12 months
shall be added, and a net credit or charge for the year shall be settled,
between General Dynamics or the applicable Qualified Affiliate and the Fund, on
or before the second Account Clearing Date of the new year.
12. UNCOLLECTIBLE RECEIVABLES. General Dynamics undertakes to hold the
Fund harmless from any risk of loss due to uncollectibility of General Dynamics
Receivables or Affiliate Receivables. Should any General Dynamics Receivables or
Affiliate Receivables be determined in accordance with General Dynamics's or
such Qualified Affiliate's normal business practices to be uncollectible, such
receivable shall no longer be deemed to be an Eligible Receivable, and
accordingly, the General Dynamics Percentage or the Affiliate Percentage in the
remaining General Dynamics Receivables or such Affiliate Receivables, as
appropriate, shall be increased in compensation therefor.
6
<PAGE> 14
13. REPURCHASE. General Dynamics may, in the case of General Dynamics
Receivables, and may require the applicable Qualified Affiliate, in the case of
Affiliate Receivables, to repurchase all or any portion of General Dynamics
Share or Affiliate Share, as applicable, from time to time, provided, however,
that such a repurchase may be required only if necessary to provide funds for
withdrawals from the Fund pursuant to Section 607(g)(4) of the Merchant Marine
Act, 1936, as amended. Such repurchase shall be made in accordance with the
provisions of paragraph 3 (ELECTION AND ASSIGNMENT). An election shall be
executed and delivered by General Dynamics, and the repurchase shall be
evidenced by the execution and delivery of an instrument of repurchase in the
form set forth in Exhibit C.
14. REPRESENTATIONS AND WARRANTIES BY General Dynamics AND EACH
QUALIFIED AFFILIATE. General Dynamics hereby represents and warrants and shall
cause each Qualified Affiliate to represent and warrant, in both cases to NASSCO
and the Fund as follows:
(a) the figures set forth in statements or documents which are
required to be delivered by General Dynamics or such
Qualified Affiliate hereunder will be true and correct as of
the time made;
(b) at the time of the assignment of an undivided interest in
Eligible Receivables, General Dynamics or such Qualified
Affiliate will have good and valid title to the undivided
interest to be assigned to the Fund and such Eligible
Receivables will represent valid and legally enforceable
obligations of customers in connection with sales of
products or services;
(c) at the time of assignment, beneficial ownership in the
undivided interest to be assigned to the Fund will not have
been conveyed or assigned to any other person, firm or
corporation;
(d) each instrument of assignment executed and delivered to the
Fund Depository hereunder will vest in the Fund an undivided
interest in all of General Dynamics's or such Qualified
Affiliate's right and interest in and to the Eligible
Receivables covered by such instrument and the proceeds of
collection thereof, in each case free and clear from claims
of any third parties;
(e) at the time of assignment of an undivided interest in
Eligible Receivables (i) such interest will be free and
clear of all liens and encumbrances whatsoever; (ii) the
Eligible Receivables will conform to any and all applicable
laws and regulations; and (iii) all obligations to be
performed by General Dynamics or such Qualified Affiliate or
by any other person or persons under or in connection with
Eligible Receivables (except payment thereof), including
obligations with respect to the products, merchandise or
services, the sale or performance of which gave rise to any
of
7
<PAGE> 15
such Eligible Receivables, will have been, or will promptly
be, fulfilled; and
(f) General Dynamic's exclusive remedy, on behalf of the Fund,
for breach of the representations and warranties contained
in paragraph 14 shall be limited to the remedy with respect
to an uncollectible receivable contained in paragraph 12
(UNCOLLECTIBLE RECEIVABLES), provided that in no event shall
the Fund incur an economic loss as a result of any such
breach.
15. WAIVERS. Each party hereby waives any failure or delay on the part
of the other party in asserting or enforcing any rights or in making any claims
or demands.
16. SUCCESSORS. The covenants, representations, warranties and
agreements herein set forth shall be mutually binding upon, and inure to the
mutual benefit of General Dynamics and, where applicable, any Qualified
Affiliate, on the one hand, and NASSCO, on the other hand and upon approval of
the Maritime Administration shall inure to their respective successors and
assigns.
17. DURATION AND TERMINATION. The term of this Agreement shall commence
on the date of its execution and shall terminate on September ___, 2013. Either
party has the right to terminate this Agreement at any time with immediate
effect (a) for breach of a material provision of this Agreement by the other
party, (b) if circumstances occur (i) which significantly affect the economic or
legal effects of this Agreement and (ii) which circumstances have not been
anticipated in this Agreement and (iii) the parties are unable to agree on a
reasonable means to continue operating under this Agreement in the context of
the changed circumstances, or (c) if either of the parties experience business
or structural changes which make it unreasonable for such party to continue to
adhere to this Agreement.
18. FURTHER ASSURANCES. General Dynamics shall, and shall cause each
Qualified Affiliate to do, make, execute and deliver all additional and further
acts, things and documents as the other may reasonably require to more
completely vest in and assure to the Fund its undivided interest and rights
hereunder and to otherwise carry out the intention of this Agreement.
19. GOVERNING LAW. This Agreement shall in all respects be governed by,
and construed in accordance with, the laws of the State of Delaware.
20. ASSIGNMENT AND AMENDMENT: This Agreement may not be assigned by
either party without the prior written consent of the other party and the
approval of the Maritime Administration. This Agreement may not be amended
without the prior written consent of the Maritime Administration.
8
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
GENERAL DYNAMICS CORPORATION
By:
- --------------------------- ---------------------------
Attest
Authorized Signatory
Date:
---------------------------
(Qualified Affiliate)
By:
- --------------------------- ---------------------------
Attest
Authorized Signatory
Date:
---------------------------
9
<PAGE> 17
EXHIBIT A
, 1988
------------------
Pursuant to the Receivables Purchase and Sale Agreement dated as of
__________, 19__, General Dynamics and [and the Qualified Affiliate Instrument,
dated _____________], General Dynamics hereby elects to increase the Fund's
Investment by purchasing an additional undivided interest in certain accounts
receivable of [General Dynamics] [Qualified Affiliate], which accounts
receivable are more fully described in said Agreement.
Election is as follows:
New [General Dynamics] [Affiliate] Investment $
-------------------
Change from prior Election
---------------------------
Effective date requested
---------------------------
General Dynamics Corporation
By:
-------------------------
Authorized Signatory
10
<PAGE> 18
EXHIBIT B
ASSIGNMENT OF UNDIVIDED INTEREST IN ACCOUNTS RECEIVABLE
Pursuant to the Receivables Purchase and Sale Agreement dated as of
____________, 19__, between General Dynamics [and the Qualified Affiliate
Instrument, dated __________], and for the consideration expressed therein,
[General Dynamics] [Qualified Affiliate] hereby sells, transfers, and assigns to
the Fund all of its rights, title and interest in and to an undivided interest
in Eligible Receivables (as defined in such Agreement), in an amount
constituting [General Dynamics] [Affiliate] Investment (as so defined) as set
forth below:
$
-----------------------
[General Dynamics] [Qualified Affiliate] agree that the sale of an
undivided interest in Eligible Receivables shall be governed by the
above-referenced Agreement[s] which [is] [are] incorporated herein by reference.
AGREED TO as of .
-----------------------------
GENERAL DYNAMICS CORPORATION (Qualified Affiliate)
By: By:
--------------------------- ---------------------------
Authorized Signatory Authorized Signatory
RECEIVED ON , 19 .
------------------ ----
[FUND DEPOSITORY]
By:
---------------------------
Authorized Signatory
11
<PAGE> 19
EXHIBIT C
REPURCHASE OF UNDIVIDED INTEREST IN ACCOUNTS RECEIVABLE
Pursuant to the Receivables Purchase and Sale Agreement dated as of
__________, 19___, between General Dynamics and [and the Qualified Affiliate
Instrument dated __________], and for the consideration expressed therein, the
Fund hereby sells, transfers, and assigns to [General Dynamics] [Qualified
Affiliate] all of the Fund's right title and interest in and to an undivided
interest in Eligible Receivables (as defined in such Agreement), in an amount
constituting [General Dynamics] [Qualified Affiliate] Investment (as so defined)
as set forth below:
$
-----------------------
[General Dynamics] [Qualified Affiliate]agree that the sale of an
undivided interest in Eligible Receivables shall be governed by the
above-referenced Agreement[s] which [is] [are] incorporated herein by reference.
AGREED TO as of .
-----------------------------
GENERAL DYNAMICS CORPORATION [GENERAL DYNAMICS CORPORATION]
[Qualified Affiliate Name]
By: By:
--------------------------- ---------------------------
Authorized Signatory Authorized Signatory
RECEIVED ON , 19
------------------ ----
[FUND DEPOSITORY]
By:
---------------------------
Authorized Signatory
12
<PAGE> 20
EXHIBIT D APPENDIX I
EXAMPLE CACULATIONS
FOR [SPECIFY General Dynamics OR QUALIFIED AFFILIATE AS APPROPRIATE]
(Not purported to reflect actual or expected rates or balances)
<TABLE>
<CAPTION>
Item Name Calculation Symbol Month 1 Month 2
--------- ----------- ------ ------- -------
<S> <C> <C> <C> <C>
MONTHLY
Ending Eligible
Receivables Balance B 100,000,000 75,000,000
Amounts Invoiced
for Month MI 75,000,000 80,000,000
Finance Revenue FR 3,000 4,000
Bad Debt Provision BD 200,000 150,000
Days in Month MD 30 31
Contract Collection Days CCD 32 32
Actual Collection Days (B * MD / MI) ACD 40 29.1
Interest Rate, Annual IA .10 .10
Interest Rate, Daily (IA / 365) ID .0002740 .0002740
Discount Factor (ID * CCD) DF .0087671 .0087671
Assignment Increase AI 30,000,000 247,478
Investment (Prior INV + AI) INV 30,000,000 30,247,478
Discount (INV * DF) D 263,013 265,183
Share (INV * (1 + DF)) S 30,263,013 30,512,661
Share Daily Income (D / CCD) DI 8,219 8,287
Share Finance Revenue (FR * S / B) SFR 908 1,627
Share Bad Debt Provision (Paragraph 13) SBD 0 0
Share Monthly Income ((DI * MD) + SFR) SMI 247,478 258,524
YEAR-END ADJUSTMENT
Adjusted Daily Income (D / ACD) ADI 6,575 9,113
Adjustment (MD * (ADI - DI)) ADJ -49,320 25,60
</TABLE>
13
<PAGE> 1
EXHIBIT 10.44
GENERAL DYNAMICS
January 12, 2000
Mr. James E. Turner, Jr.
9119 River Crescent
Suffolk, VA. 23433
Dear Mr. Turner:
This letter will confirm the consulting agreement between General Dynamics
Corporation and Mr. James Turner, Jr. 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 providing technical guidance, advice,
consultation and assistance in the following areas:
- - Consulting services regarding the Marine Group;
- - Participation in succession planning; and
- - Providing government/customer interface as required.
Such services will be requested from time to time by Nick Chabraja, Chairman and
CEO, John Welch, Senior Vice President, or W. Pete Wylie, Vice President, or
their designee.
2. PLACE OF WORK
You shall render services hereunder at such times and at such place or places as
are mutually agreeable. You shall provide all needed supplies and equipment.
3. TERM OF AGREEMENT
This agreement shall be effective as of March 13, 2000 and shall terminate on
March 12, 2001, provided that either party may terminate this agreement, in
whole or in part, at an earlier date by giving the other party at least 30 days
prior written notice thereof. Your obligations pursuant to paragraph 6 shall
survive any termination of this agreement.
3190 Fairview Park Drive
Falls Church, VA 22042-4523
Tel 703 876 3000
Fax 703 876 3125 General Dynamics Private Information
<PAGE> 2
January 12, 2000
Page 2
4. FEE AND EXPENSES
In accordance with the agreement, we shall pay you a compensation of $3,250 per
day for the services you render hereunder, with a guarantee of $100,000 for the
term of this agreement.
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. First class travel is authorized. In addition, you will be reimbursed
for out-of-pocket expenses only as they are directly and necessarily incurred on
behalf of General Dynamics. All expenses will be approved by Nick Chabraja, John
Welch, W. Pete Wylie (as appropriate) or their designee..
You shall submit to us at the end of each month in which you render services
hereunder an invoice showing dates of service, the nature and scope of services
provided, and a breakdown of expenses for travel, transportation and
out-of-pocket expenses. Expense receipts of over $75 are required to be
submitted with the invoice. All payments of fees and expenses hereunder shall be
made only on the written approval of Nick Chabraja, John Welch, W. Pete Wylie
(as appropriate) or their designee.
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 business
or organization 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 full and complete list of your current
clients and the names of your principal contacts with your clients and to notify
General Dynamics, in writing, whenever you add new clients, delete clients, or
change principal contact with your clients. General Dynamics may terminate this
agreement immediately in the event of any breach by you of this covenant.
6. CONFIDENTIAL NATURE OF WORK
You will not, during or after the term of this agreement, divulge, without
General Dynamics approval, any information or knowledge relating (i) to any
project on which we shall have worked or shall be working, or (ii) to our
business or to that of our subsidiaries or suppliers, which you shall have
obtained during the term of this agreement and which shall not be generally
known or recognized.
<PAGE> 3
January 12, 2000
Page 3
7. ACTIVITY REPORTS
On a monthly basis, if any activity was expended, you shall submit written
reports to either Nick Chabraja, John Welch, or W. Pete Wylie (as appropriate),
making full disclosure of all services performed pursuant to this agreement and
the results thereof. This shall normally include a written statement of the
nature and scope of the service and an invoice for services rendered. 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.
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 will be responsible for reporting and paying any
federal and state taxes owing on the consulting income received.
In the performance of your responsibilities as a consultant under this contract,
we expect you to exercise reasonable care. We agree, however, that you will not
be responsible to us for the heightened care expected of a professional which
might otherwise be covered by professional liability insurance.
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 shall indemnify and hold us harmless from any liability, loss or damage
whatsoever for injuries (including death) to you or any of your assistants,
representatives and employees rising out of performance under this agreement or
otherwise.
You have been provided 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. In accordance with
DoD policy, you understand that you will be subject to random testing for
substance abuse at any time while on General Dynamics premises.
You understand that Federal law places restrictions on obtaining and handling
competition sensitive, proprietary and source selection information and you
agree to comply with it.
Prior to accepting this engagement, you have disclosed any potential
organizational conflict of interest and have determined that your performance
under this agreement would not provide the Company with an unfair competitive
advantage. Further, should you discover subsequent to the execution of this
agreement that a conflict of interest or unfair competition advantage situation
exists, you agree to promptly disclose to the Company the facts relating to the
situation.
<PAGE> 4
January 12, 2000
Page 4
The Federal Government has placed restrictions on the allowability of costs
incurred in certain lobbying and consulting activities. These restrictions apply
to you and are found in the "Byrd Amendment" (31 U.S.C. 1352) and place
restrictions on the allowability of certain costs incurred while lobbying
Congress or contacting executive agencies in connection with Federal contracts.
This consultant agreement may be terminated by General Dynamics in the event of
any breach by you of Federal law or the General Dynamics policies covered in
this paragraph.
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.
It is understood that a security clearance up to the level of Secret may 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. SUCCESSORS
This agreement shall inure to the benefit of and be binding upon (a) our
successors and assigns and (b) your heirs, executors and administrators.
<PAGE> 5
January 12, 2000
Page 5
11. 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\ W. P. Wylie
W. P. Wylie
Vice President, Human Resources &
Administration
\s\ D. A. Savner
D. A. Savner
Sr. Vice President and General Counsel
CONSULTANT APPROVAL:
Confirmed and accepted as of January 14, 2000 by:
/s/ James E. Turner, Jr. ###-##-####
- ---------------------------------------------------------------------------
James E. Turner, Jr. Social Security Number or
Employer Identification Number
<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 contains forward-looking statements that are based on management's
expectations, estimates, projections and assumptions. Words such as "expects,"
"anticipates," "plans," "believes," "scheduled," "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, aircraft production and deliveries, cash flows,
contract awards, and aircraft backlog stability. 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 and/or regulatory proceedings; the status or outcome of labor
negotiations; changing customer demand or preferences for business aircraft;
changes from the company's expectations with respect to its customers' exercise
of business aircraft options; 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 OVERVIEW
1999 SALES BY CUSTOMER BASE
[PIE CHART]
<TABLE>
<S> <C>
U.S. Government 57%
Commercial 38%
International Defense 5%
</TABLE>
The company's primary businesses focus on business aviation, information
systems, shipbuilding, marine systems, and land and amphibious combat systems.
Each of these businesses involves design, manufacturing and program management
expertise, advanced technology, strong governmental relationships and a complex
systems integration capability. The primary customers for the company's
businesses are a diverse base of corporate and industrial buyers, the United
States military, the armed forces of allied nations and other government
organizations.
The company has been growing its business through both internal and
external means, including profitable organic growth from all operating units;
continuous process improvements in operations; and disciplined capital
deployment, including internal investment and accretive acquisitions. In all of
its acquisitions, both defense and commercial, the company seeks to apply its
broad expertise in creating efficient manufacturing operations to further
enhance financial performance and competitive market
General Dynamics 1999 Annual Report 25
<PAGE> 2
positions. In identifying acquisitions, management has primarily focused on
defense and employed the following strategy:
- - aggressively pursue targets directly related to our core businesses, and
- - opportunistically consider acquisitions related to core competencies.
The company's core competencies include the computerized design and
production of complex products involving advanced electro-mechanical, electronic
and aerospace systems; the integration of information and technology systems,
including secured communications, data processing and data management systems;
the marketing of advanced products and systems to domestic and international
customers, including government agencies; and the production and assembly of
high precision products.
In this regard, on July 30, 1999, the company completed the acquisition
of Gulfstream Aerospace Corporation (Gulfstream) in a one-for-one stock exchange
involving approximately 72.2 million shares. Gulfstream designs, develops,
manufactures and markets advanced large cabin and ultra-long range business jet
aircraft and represents the majority of the company's commercial sales. The
Gulfstream IV-SP aircraft has approximately 40 percent market share
(1999 deliveries) of the large cabin business aircraft market where it competes
with the Bombardier Challenger and the Dassault Falcon 900. The Gulfstream V
was the first to market in the ultra-long range business aircraft segment; it
competes with the Bombardier Global Express, the Boeing Business Jet and the
Airbus A-319CJ. The Gulfstream V has 30 percent market share (1999 deliveries)
in this highly competitive market and accounts for over 50 percent of the orders
placed in this segment since its introduction. Strategically, the acquisition
expanded the company's product portfolio and customer mix and was immediately
accretive to earnings.
Since September 1995, the company has invested approximately $3 billion
in cash for the acquisition of 14 defense businesses. Management believes these
acquisitions have strengthened the company's core operations, further improved
its capabilities regarding full systems integration and data management for its
defense platforms, and extended its reach both technologically and in product
mix. As a result of these acquisitions, the company has substantially increased
its addressable markets within each of its business groups.
The company's defense businesses represent the preponderance of its U.S.
government sales. After stabilizing in 1997, U.S. defense procurement has
increased from $45 billion in 1998 to $60 billion in the President's fiscal year
2001 budget request - its highest point in eight years. Defense procurement is
projected to continue to increase each year to $71 billion in 2005, or a 46
percent increase in real growth terms since 1997, and carries strong
Congressional support. The company expects to benefit from this growth in
procurement spending as it has experienced a 16-fold increase since 1995 in the
number of programs in which it participates.
The company's major programs included in the 2001 budget request are
well-funded and are characterized by stable, long-term initiatives with highly
likely follow-on work. The company's major development programs are under cost
reimbursable type contracts. Shipbuilding programs are primarily fixed price
incentive fee or cost reimbursable type contracts. The company's only
significant firm fixed price production program is the M1A2 multiyear tank
upgrade contract with the U.S. Army, whose pricing is based on several hundred
M1A2 tank deliveries since the early 1990s. These major programs represent
approximately 85 percent of the company's defense backlog at December 31, 1999.
[BAR CHART]
<TABLE>
<CAPTION>
NET EARNINGS
<S> <C>
1997 $559
1998 $589
1999 $880
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
OPERATING CASH FLOWS
<S> <C>
1997 $640
1998 $541
1999 $978
</TABLE>
26 General Dynamics 1999 Annual Report
<PAGE> 3
BUSINESS GROUPS
The company operates in four primary business groups: Aerospace, Information
Systems and Technology, Marine Systems and Combat Systems.
Aerospace is the leading designer, developer, manufacturer and marketer of
technologically advanced intercontinental business jet aircraft. Gulfstream has
produced approximately 1,160 aircraft for customers around the world since 1958
and offers a full range of aircraft products and services, including the
Gulfstream IV-SP and the ultra-long range Gulfstream V. Net sales of new
aircraft were $2,251, $1,909 and $1,492 in 1999, 1998 and 1997, respectively.
The Information Systems and Technology group provides telecommunications
and data management services, such as C4ISR systems for sea, air and land
defense. It has established a global presence in specialized data acquisition
and processing, creating products for use on the ocean floor and in outer space,
in advanced electronics for aircraft of all kinds, and in the total battlespace
information management systems that are key to military superiority in the 21st
century. It also provides telecommunications solutions and data management
services for the commercial market.
Marine Systems has experience in shipbuilding, fleet management and
repair; it has the broadest range of integration, design, engineering and
production skills in naval shipbuilding. Marine Systems is the U.S. Navy's
leading supplier of combat vessels, including nuclear submarines, surface
combatants and auxiliary ships. The group also manages ready-reserve and
prepositioning ships and builds commercial vessels. Net sales of nuclear
submarines and related services were $1,460, $1,381 and $1,321 in 1999, 1998 and
1997, respectively. Net sales of naval surface ships, including surface
combatants and auxiliary ships, and related services were $1,424, $999 and $839
in 1999, 1998 and 1997, respectively.
Combat Systems is a leading supplier of land and amphibious combat system
development, production and support. Its product line includes a full spectrum
of armored vehicles, light wheeled reconnaissance vehicles, suspensions,
engines, transmissions, guns and ammunition handling systems, turrets and turret
drive systems, and reactive armor and ordnance. Net sales of armored combat
vehicles and related services were $860, $809 and $791 in 1999, 1998 and 1997,
respectively.
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."
During 1999, management realigned the company's information technology
businesses, resulting in a different composition of reportable groups. Data for
all prior periods presented has been restated to give recognition to the 1999
composition of the company's businesses. For a summary of business group
financial information, see Note S to the Consolidated Financial Statements.
A discussion of each business group's backlog position (the estimated
remaining sales value of work to be performed under firm contracts, or aircraft
to be delivered), anticipated programs, operating results and outlook follow.
Aircraft backlog under firm contracts includes orders for which the company has
entered into a definitive purchase contract with no significant contingencies
and has received a significant non-refundable deposit from the customer.
Aircraft options primarily include agreements with customers in connection with
the company's fractional ownership and operating lease programs to grant them
the option to subsequently purchase additional aircraft upon defined terms and
conditions. Funded backlog for government programs represents the portion of
total backlog that has been appropriated by Congress and funded by the procuring
agency.
General Dynamics 1999 Annual Report 27
<PAGE> 4
AEROSPACE
Aerospace was formed as a result of the acquisition of Gulfstream on July 30,
1999. For a discussion of the accounting for this transaction and related
information, see Note B to the Consolidated Financial Statements.
BACKLOG
[BAR GRAPH]
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Firm Contracts $2,782 $3,302 $2,574
Options -- $1,000 $1,179
</TABLE>
Aircraft ordered under firm contracts were 44, 79 and 46 during the years
ended December 31, 1999, 1998 and 1997, respectively. Aircraft units in backlog,
including options, at the end of each respective period were 117, 135 and 88.
Through year-end 1999, the company had contracted to deliver 56 aircraft
plus options for an additional 22 aircraft in connection with its North American
fractional ownership program. As of December 31, 1999, 49 of these aircraft
remain in backlog, with deliveries expected through 2008. Total backlog also
includes nine aircraft under a contract related to the company's Middle East
fractional ownership program, with deliveries expected through 2003.
RESULTS OF OPERATIONS AND OUTLOOK
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Net Sales $2,909 $2,428 $1,904
Operating Earnings 482 373 229
Operating Margin 16.6% 15.4% 12.0%
- --------------------------------------------------------------------------------
</TABLE>
New aircraft contracts are segmented between the manufacture of the
"green" aircraft (i.e., before exterior painting and installation of
customer-selected interiors and optional avionics) and its completion. Sales of
green aircraft are recorded when the aircraft is delivered to and accepted by
the customer. Completion revenues are recorded when the customer accepts
delivery of the outfitted aircraft. Aircraft deliveries can vary significantly
from period to period depending upon the timing of contract execution and final
customer acceptance.
Net sales increased $481 in 1999 due primarily to an increase in green
aircraft deliveries to 70 in 1999 from 61 in 1998. In addition, 1999 completion
deliveries increased by 21, a 39 percent growth rate over 1998 deliveries.
Operating earnings increased $109 in 1999 due to continued improvement in
operating margins principally attributable to improved engineering and design
processes, cycle time reductions in completions and lean manufacturing
initiatives.
Net sales increased $524 in 1998 due primarily to an increase in green
aircraft deliveries to 61 in 1998 from 51 in 1997. The company's 1998 results of
operations include revenues of K-C Aviation, Inc. from the date of acquisition,
totaling $85. Operating earnings increased $144 in 1998 due primarily to
increased volume from both green aircraft and completion deliveries, along with
reductions in new aircraft production costs.
Looking forward, Aerospace expects to continue to improve margin
performance through productivity and process improvements in all facets of its
business. While operating margins can vary from quarter to quarter, the company
expects full-year 2000 operating margins to exceed those reported in 1999.
28 General Dynamics 1999 Annual Report
<PAGE> 5
INFORMATION SYSTEMS AND TECHNOLOGY
GROUP OVERVIEW
Beginning with the acquisition of Advanced Technology Systems in the fall of
1997 and continuing through the most recent Government Systems acquisition, the
company has formed a group of complementary technology businesses which serve
all U.S. military services, government agencies, international military services
and commercial customers. The group provides the company with broad capabilities
in electronics, systems integration and information management; extends the
company's presence geographically; augments the company's platform businesses;
and strengthens the company's position as a full-scale information technology
provider. Management believes these acquisitions have positioned the company to
be the prime contractor on many large communications and technology programs.
The group's primary lines of business consist of the following:
[PIE GRAPH]
<TABLE>
<S> <C>
Networks & Communication Systems 37%
Life Cycle Management 18%
Computing Hardware 14%
Intelligence Systems 13%
Command & Control Systems 12%
Other 6%
</TABLE>
As the chart depicts, the company's Information Systems and Technology
group has obtained critical mass in such areas as tactical networking, signal
intelligence, and command and control. Networks and communication systems
include the design, manufacture, integration and test of such systems. Life
cycle management represents maintenance, training and logistics support for
communication and data systems, as well as fire control and guidance systems.
Computing hardware encompasses equipment incorporated into larger systems,
including space and tactical avionic processors, airborne data management
displays and control systems, and electronic fire control systems for combat
vehicles. Command and control systems include solutions for air force systems,
the IRIS integrated communications system for Canadian land forces, and
development and production of strategic missile fire control systems.
BACKLOG
[BAR GRAPH]
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Total Backlog $ 938 $ 892 $2,000
Funded Backlog $ 831 $ 816 $1,952
</TABLE>
The company's Information Systems and Technology backlog more than doubled
during 1999 due to the acquisition of three business units formerly part of GTE
Government Systems Corporation (renamed, General Dynamics Government Systems
Corporation, and referred to herein as "Government Systems") on September 1,
1999. These businesses are leaders 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. Government Systems added approximately
$950 to the company's backlog.
General Dynamics 1999 Annual Report 29
<PAGE> 6
RESULTS OF OPERATIONS AND OUTLOOK
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,422 $ 933 $ 185
Operating Earnings 127 69 15
Operating Margin 8.9% 7.4% 8.1%
- --------------------------------------------------------------------------------
</TABLE>
Net sales increased $489 and operating earnings increased $58 in 1999 due
primarily to the acquisition of Government Systems. Annualized pro forma 1999
sales for the three business units of Government Systems approximates $1.3
billion. Operating results have been included with those of the company from the
acquisition closing date, September 1, 1999.
Net sales increased $748 and operating earnings increased $54 in 1998 due
primarily to the acquisition of four new businesses in late 1997: Advanced
Technology Systems, Information Systems, Computing Devices Canada and Computing
Devices Company in the United Kingdom. Operating results of these businesses
have been included with those of the company from their respective closing
dates.
For a discussion of the accounting for these acquisitions and related
information, see Note B to the Consolidated Financial Statements.
Looking forward, while the company continues to integrate the new
acquisitions into the group, it pursues opportunities to improve operating
margins through reengineering and efforts to capitalize on synergies that exist
across the company's business groups. The Information Systems and Technology
group is also pursuing new opportunities in networks and communication systems,
including the Navy/Marine Corps intranet program and similar programs with other
government agencies, as well as selected opportunities in the commercial market.
The company expects Information Systems and Technology full-year 2000 operating
margins to be consistent with those reported in 1999.
MARINE SYSTEMS
[BAR GRAPH]
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Total Backlog $5,864 $11,565 $11,608
Funded Backlog $4,172 $ 5,071 $ 5,529
</TABLE>
The company's Marine Systems backlog has nearly doubled since 1997 due to
several major awards and the acquisition of National Steel and Shipbuilding
Company (NASSCO) in late 1998.
Year-end 1999 backlog includes contracts for the construction of the first
four ships of the Virginia-class submarine, 11 Arleigh Burke class destroyers
(DDG 51), four strategic sealift ships, two commercial cargo ships and the final
Seawolf-class attack submarine. Other major programs in year-end backlog include
contracts for submarine logistics support services on delivered ships,
Virginia-class design services, as well as contracts for ship management
services of five of the Navy's Maritime Prepositioning Ships.
In December 1999, the Navy awarded an $887 modification contract to the
company for the third and final Seawolf. The modification extends the company's
delivery date of the final boat to 2004. Also in December 1999, Totem Ocean
Trailer Express, Inc. (TOTE) awarded a contract for approximately $300 to the
company to build two roll-on, roll-off ships for TOTE's cargo steamship service
from Tacoma, Washington to Anchorage, Alaska. Deliveries are scheduled for 2002.
In November 1999, the Navy awarded a $238 contract to the DD 21
Shipbuilder Alliance, composed of the company and Ingalls Shipbuilding, a
division of Litton Industries, Inc., for implementation of the second phase of
the design and development of the next generation surface combatant (DD 21).
The
30 General Dynamics 1999 Annual Report
<PAGE> 7
company will serve as the Alliance's prime contractor for the first phases
of the DD 21 program and leads one of the Alliance's two competing design teams.
During 1998, the Alliance was awarded a $68.5 contract for the first phase of
system concept design work for the ship. Based on the Navy's plans, the
development, design and construction of the DD 21 is estimated at $25 billion
and includes the construction of 32 ships over 25 years, beginning in 2005. At
present, it is the Navy's plan to split ship production evenly between the
company and the other shipbuilder.
In September 1998, the Navy awarded a $4.2 billion contract to the company
for the first four ships of the Virginia-class submarine. The company is
scheduled to deliver the lead ship of the class in 2004. Construction work will
be shared equally between the company as prime contractor and Newport News
Shipbuilding Inc. (Newport News) as subcontractor, in accordance with the terms
of the Team Agreement entered into in February 1997 between the company and
Newport News. Current Department of Defense plans call for 30 ships in the
Virginia-class submarine program.
In March 1998, the Navy awarded a multiyear contract to the company for
the construction of six additional DDG 51s for $2.1 billion. This award extends
the company's deliveries to 2006.
Marine Systems added approximately $1.2 billion to its backlog in 1998
with the acquisition of NASSCO. The acquired backlog included contracts for the
construction of the U.S. Navy's strategic sealift ships, five of the initial
seven-ship award. As of December 31, 1999, the company had delivered three of
these ships. Delivery of ships four through seven extends through 2001. In
February 2000, the Navy awarded a $230 contract to the company for the
construction of the eighth strategic sealift ship, with delivery scheduled for
2002. Acquired backlog also included a seven-year contract with the U.S. Navy
for the phased maintenance of six LHA- and LHD-class ships for approximately
$500.
The company is a member of a three-contractor team that in December 1996
was awarded a cost reimbursable contract to design and build the Navy's new
class of amphibious assault ships (LPD 17). The Navy anticipates this to be a
12-ship program. The company has agreed with its partners that it will construct
a total of four ships. Congressional funding has been approved for the design
and construction of the first four LPD 17 class of ships. In February 2000, the
company was awarded a $435 contract for the construction of the third ship, LPD
19.
RESULTS OF OPERATIONS AND OUTLOOK
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $3,088 $2,529 $2,248
Operating Earnings 328 276 227
Operating Margin 10.6% 10.9% 10.1%
- --------------------------------------------------------------------------------
</TABLE>
Net sales increased $559 in 1999 due primarily to the acquisition of
NASSCO in late 1998 and to increased work on the Virginia-class submarine,
partially offset by decreased volume on the Seawolf submarine. Operating
earnings increased $52 in 1999 due to the results of NASSCO being included for a
full year in 1999 and to an earnings rate increase on the DDG 51 program in the
fourth quarter of 1998. Operating results of NASSCO have been included with
those of the company from the acquisition closing date, November 10, 1998. For a
discussion of the accounting for this transaction and related information, see
Note B to the Consolidated Financial Statements.
Net sales increased $281 in 1998 due primarily to the acquisition of
NASSCO and to earnings rate increases on the DDG 51 program in the fourth
quarter of 1998 and on the Seawolf program in the first quarter of 1998.
Operating earnings increased $49 in 1998 due to the aforementioned earnings rate
increases, partially offset by a decline in submarine construction activity due
to the delivery of the final Trident during late 1997. The DDG 51 program
earnings rate was increased in 1998 due to diminishing operating risks as the
business base stabilized from the March 1998 six-ship multiyear award. The
Seawolf program earnings rate was increased in 1998 as a result of continued
diminishing operating risks due to the maturity of the program, as well as to
the stabilization of the business base from the September 1998 four-ship
Virginia-class award.
Looking forward, due to increased volume on start-up programs, including
the Virginia-class, DD 21 and TOTE contracts, Marine Systems operating margins
are expected to slightly decline in 2000.
General Dynamics 1999 Annual Report 31
<PAGE> 8
COMBAT SYSTEMS
[BAR GRAPH]
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Total Backlog $2,190 $1,579 $1,596
Funded Backlog $1,186 $ 843 $1,116
</TABLE>
Year-end 1999 backlog includes contracts for the remaining 192 M1 Abrams
tanks to be upgraded to the M1A2 SEP (Systems Enhancement Package) version, 100
M1A1 Abrams tank hardware kits for the Egyptian tank co-production program, and
400 diesel engines for an international customer. Year-end backlog also includes
contracts for other major development and production programs, including the
Advanced Amphibious Assault Vehicle (AAAV), a four-year program to upgrade Fox
Nuclear, Biological and Chemical Reconnaissance System vehicles, and the
Hydra-70 rocket. Other mature programs in backlog include several major
components of the Bradley combat vehicle and its derivatives, multi-barrel gun
systems and ordnance products.
In December 1999, the company finalized a $258 production contract with an
international customer for 400 diesel engines. The engines and accessories will
be co-produced with a European partner. Delivery of the engines begins in 2001
and continues through 2005. Also in December, the U.S. Army awarded the company
a $156 contract for 100 M1A1 Abrams tank hardware kits for the Egyptian tank
co-production program. Delivery of the tank hardware kits begins in January 2001
and continues through 2003. In June 1999, the U.S. Army awarded the company a
sole source contract for Hydra-70 rockets with a potential value of $1.26
billion over six years.
The company has two remaining production years on its 1996 $1.3 billion
multiyear contract to upgrade approximately 600 M1 Abrams tanks to the M1A2 or
M1A2 SEP configurations. The company expects that the U.S. Army will continue
with its procurement program to upgrade a total of approximately 1,170 of the M1
Abrams tanks, with production anticipated through 2006.
The company is under contract for the development of several other major
systems, including a three-year $300 contract for the design and development of
the AAAV and construction of three prototypes. The Marine Corps plans to procure
more than 1,000 vehicles in this decade. The production program, including
anticipated international sales, is valued at over $5 billion.
The U.S. Army is currently working on a transformation initiative
requiring production and delivery of a family of medium-weight armored combat
vehicles to initially equip five new brigade teams with approximately 300 to 400
vehicles each, beginning in March 2001. Through existing capabilities and
teaming arrangements, the company is able to offer a wide array of vehicles to
fill the Army's program requirement. Contract award for this vehicle program
could be announced as early as June 2000. To fund this procurement, the
President's fiscal year 2001 budget request eliminated additional funds for the
Wolverine Heavy Assault Bridge program and restructured the Crusader program to
reduce the production to 480 systems, for a total development and production
program now worth $10 billion. The company's share of the Crusader program
continues to approximate 25 percent.
RESULTS OF OPERATIONS AND OUTLOOK
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,290 $1,272 $1,387
Operating Earnings 155 166 179
Operating Margin 12.0% 13.1% 12.9%
- --------------------------------------------------------------------------------
</TABLE>
Net sales in 1999 remained consistent with 1998 as the volume lost from
the final production of the Single Channel Ground and Airborne Radio System
(SINCGARS) was replaced with increased work on other new programs. Operating
earnings decreased $11 due primarily to the product maturity mix in 1999 as
compared to the prior year.
32 General Dynamics 1999 Annual Report
<PAGE> 9
Net sales decreased $115 in 1998 due primarily to the completion of
SINCGARS production and to the timing of land combat program deliveries.
Operating earnings decreased $13 in 1998 due to the aforementioned declines in
sales, partially offset by higher margins realized on the SINCGARS program as
production was completed.
In November 1998, the company's Armament Systems operating unit formed a
joint venture with another company that consolidated two of the U.S. Army's
ammunition production facilities. Previously a consolidated subsidiary, the
company's Milan Army Ammunition Plant is now part of the unconsolidated joint
venture, American Ordnance LLC.
Looking forward, the company continues to seek improvements in operating
margins in the Combat Systems group through efforts to reduce costs and pursuit
of international sales, including sales of tanks to Egypt, Greece, Turkey and
Saudi Arabia. Excluding the impact of international business in 2000, the
company expects Combat Systems full-year 2000 operating margins to approximate
those reported in 1999. Combat Systems operating margins are subject to
quarter-to-quarter variations.
OTHER
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $250 $236 $242
Operating Earnings 111 34 26
- --------------------------------------------------------------------------------
</TABLE>
Operating earnings increased $77 in 1999 due primarily to several
non-recurring events during the year. In connection with the acquisition of
Gulfstream, General Dynamics merged the two companies' commercial pension plans.
As a result of the merger of these plans, the company recognized previously
deferred gains on General Dynamics commercial pension plan, totaling $126
(before-tax). Additionally, management concluded not to make additional
investments in its undeveloped high sulfur coal reserves given the current coal
industry environment. As such, the company revalued these coal reserves and
related assets, resulting in a non-cash charge to earnings of approximately $60
(before-tax).
In 1997, Freeman United Coal Mining Company (Freeman) elected to withdraw
from the Bituminous Coal Operators' Association (BCOA) and negotiate future
contracts independently with the United Mine Workers of America union (UMWA).
Freeman's labor contract as part of the BCOA expired on August 1, 1998. On
September 11, 1998, the union work force, representing approximately 70 percent
of Freeman's total work force, went on strike. On December 21, 1998, the strike
ended and the company reached a new collective bargaining agreement with its
UMWA represented employees. The company believes the terms of the contract,
which extend to February 2003, will provide it with cost savings.
Despite the impact of the strike at Freeman, operating earnings increased
$8 in 1998. This was due primarily to improved performance of the aggregates
business as a result of reductions in cost and increased shipments due to
favorable weather conditions, as well as cost reductions at the coal mining
operations.
General Dynamics 1999 Annual Report 33
<PAGE> 10
ADDITIONAL FINANCIAL INFORMATION
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased during 1999 and 1998 due primarily to the growth in the company's
business through acquisitions. As a percentage of net sales, however, general
and administrative expenses have remained consistent for all three periods.
INTEREST (EXPENSE) INCOME, NET. Interest expense was $53 in 1999, up from
$40 in 1998 due primarily to increased debt associated with the company's
commercial paper program, partially offset by a reduction in interest related to
Gulfstream's debt facilities. Interest expense for 1998 was up from 1997 expense
of $35 as a result of borrowings made in connection with the acquisition of
Information Systems, Computing Devices Canada and U.K. at the end of 1997,
partially offset by a decrease in average borrowings on Gulfstream's credit
facilities. Interest income was $19 in 1999, down from $23 in 1998 and $51 in
1997 due primarily to a decline in the average cash balances resulting from the
use of $1.8 billion for business acquisitions during the three-year period ended
in 1999.
OTHER (EXPENSE) INCOME, NET. In connection with the acquisition of
Gulfstream in 1999, the company recorded a charge to earnings of $36
(before-tax) for related costs, consisting of investment banking, legal, bank
fees, accounting, printing and regulatory filing fees. Additionally, in
connection with the repayment of certain of Gulfstream's debt instruments
immediately following the acquisition, the company recorded a one-time non-cash
charge of $7 (before-tax) for the unamortized debt costs associated with these
instruments.
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 of $165
(net of amounts previously recorded in 1991 and 1992), or $.82 per diluted
share, as a result of this settlement. 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.
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 in prior periods.
YEAR 2000. The company transitioned into the new millennium with no
significant systems or other year 2000 problems, including interaction with
third parties. The company's total costs to implement its year 2000 compliance
program were within the original cost projection of approximately $40. As most
of these costs are allowable under the company's U.S. government contracts, the
costs to implement the program did not materially affect the company's results
of operations or financial condition.
MARKET RISK. The company's investment securities 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, 1999.
In September 1998, the company refinanced the debt incurred for the
acquisition of Information Systems, Computing Devices Canada and U.K. under a
long-term financing arrangement. In connection therewith, the company entered
into an agreement to reduce the exposure to interest rate and foreign currency
rate fluctuations. The company does not expect these transactions to have a
material effect on the company's results of operations or financial condition.
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 Canada and U.K., the company is
exposed to the effect of foreign currency fluctuations on the U.S. dollar value
of earnings from those subsidiaries. The company does not expect the impact of
foreign currency fluctuations to be material to the company's results of
operations or financial condition.
34 General Dynamics 1999 Annual Report
<PAGE> 11
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, 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,
it 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
After spending $1.1 billion for acquisitions during 1999, the company ended the
year with $270 of cash and equivalents, a modest debt-to-capital ratio of 24
percent and the financial capacity for additional long-term borrowings. The
company expects to continue to generate funds from operations in excess of its
short-and long-term liquidity needs. With adequate funds on hand and the
capacity for additional long-term borrowings, management believes it has the
financial capability to execute its operating and financial strategy.
A discussion of the company's financial condition in terms of its
operating, investing and financing activities as identified on the Consolidated
Statement of Cash Flows follows.
OPERATING ACTIVITIES--CONTINUING. The net cash provided by continuing
operations is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations $ 990 $ 657 $ 729
Allocated federal income
tax payments (294) (114) (118)
Research and experimentation
tax credit 334 - -
Other (52) (2) 29
- --------------------------------------------------------------------------------
Operating cash flows 978 541 640
Decrease in marketable
securities, net 45 30 62
- --------------------------------------------------------------------------------
Net cash provided by
continuing operations $ 1,023 $ 571 $ 702
- --------------------------------------------------------------------------------
</TABLE>
Operating Cash Flows
- - Cash flows from operations represent the pretax cash flows generated by
the company's business groups. The increase in 1999 over 1998 is
attributable to the growth in the business through acquisitions, including
NASSCO in late 1998 and Government Systems in September 1999, as well as
the growth in Gulfstream's results of operations. As sales grew by 21
percent over 1998, the company continued to increase its investment in
working capital, primarily in the Aerospace group. The buildup resulted
from an increase in volume with 1999 production up 15 percent over 1998,
as well as a 39 percent increase in the number of completions delivered.
The company expects to continue to invest modestly in working capital
during 2000 as it supports the growth in its business operations.
Cash flows from operations decreased in 1998 over 1997 due to the
delivery of the final Trident class submarine during 1997. The company
increased its investment in working capital during 1998 due to the
production growth on several new programs, including the Virginia-class
submarine and light armored vehicles, as well as growth in the sales of
undersea communications equipment.
General Dynamics 1999 Annual Report 35
<PAGE> 12
- - Federal income tax payments are allocated between continuing and
discontinued operations based on the portion of taxable income
attributable to each. Included in 1999 federal income tax payments is
approximately $58 related to tax on the interest component of the research
and experimentation tax credit settlement discussed under the caption
"Provision for Income Taxes."
- - In April 1999, the company received the $334 cash refund from the IRS
related to this research and experimentation tax credit settlement.
- - Other includes items that are not allocated directly to the business
groups, including pooling acquisition costs, interest paid on debt and
interest received from investments.
Change in Marketable Securities
- - 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 each of the three years in the
period ended December 31, 1999, was due to the company altering its
investment portfolio to include more available-for-sale securities, which
are included in investing activities.
OPERATING ACTIVITIES--DISCONTINUED. Cash flows from discontinued
operations improved during 1999 and 1998 due primarily to decreased payments for
disposition-related liabilities. For discussion of the A-12 program litigation,
see Note P to the Consolidated Financial Statements.
INVESTING ACTIVITIES. On September 1, 1999, the company completed the
acquisition of Government Systems for $1.01 billion in cash. The company
financed the purchase through the issuance of commercial paper. As of February
29, 2000, the company had approximately $1.09 billion commercial paper
outstanding at an average yield of approximately 6.04 percent with an average
term of approximately 55 days. The company expects to reissue commercial paper
as it matures, and has the option to extend the term up to 270 days.
On July 30, 1999, the company acquired Gulfstream, as a result of which,
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 4,131,094 shares were
reserved for issuance upon the exercise of stock options which, prior to the
acquisition, had been options to purchase Gulfstream common stock. The
acquisition was accounted for as a pooling of interests, and accordingly, all
data for periods prior to the combination have been restated to include the
accounts and results of operations of Gulfstream.
On May 3, 1999, the company paid from available funds the remaining fixed
purchase consideration of $51 in cash for the acquisition of NASSCO. The company
acquired four businesses in 1998 totaling approximately $480, including
Gulfstream's acquisition of K-C Aviation for approximately $250, and six
businesses in 1997 totaling approximately $1.2 billion. The company liquidated
substantially all of its available-for-sale investment portfolio in order to
acquire these businesses. The K-C Aviation acquisition was funded primarily from
available funds and a portion from Gulfstream's revolving credit facility. For
further discussion of each acquisition, see Note B to the Consolidated Financial
Statements.
The company expects to complete construction on a facility modernization
project at its Bath Iron Works shipyard in 2000. The company anticipates
investing over $200, of which $75 was expended during 1999 and $40 expended
through 1998.
Following the sale in 1993 and 1994 of the company's operations located in
southern California, the company retained certain properties. These properties,
totaling approximately $60, are included in other noncurrent assets on the
Consolidated Balance Sheet. Development work began in 1994 on certain of these
properties in order to maximize the value the company receives from their sale.
In 1998, the company completed the sale of a 232-acre site in the Kearny Mesa
section of San Diego for approximately $80 in cash, and in 1997 received $23 in
cash from the sale of certain other assets related to these properties.
36 General Dynamics 1999 Annual Report
<PAGE> 13
FINANCING ACTIVITIES. During 1999, the company repaid from its
available funds approximately $360 of Gulfstream's debt instruments.
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. During 1998 and 1997, the company repurchased approximately .6
million and 1.8 million shares, respectively, of its stock on the open market
for a total of $28 and $60, respectively.
On June 25, 1999, Gulfstream's board of directors formally rescinded
management's authority to repurchase shares of its common stock on the open
market. During the first quarter of 1999, Gulfstream repurchased .96 million
shares of its stock on the open market for a total of $45. During 1998,
Gulfstream repurchased approximately 5.5 million shares for a total of $199.
In connection with the company's acquisition of Information Systems,
Computing Devices Canada and U.K. on December 31, 1997, the company borrowed in
Canadian dollars the U.S. equivalent of $220. The company repaid $70 of this
note during 1998 and refinanced the balance in September 1998 under a 10-year
arrangement.
The company exercised its option to call for the early redemption of all
of its outstanding 9.95 percent Debentures on April 1, 1998, for a total of
approximately $40.
On March 1, 2000, the company's board of directors declared an increased
regular quarterly dividend of $.26 per share. The company had previously
increased the quarterly dividend to $.24 per share in March 1999, to $.22 per
share in March 1998 and to $.205 per share in March 1996.
On March 7, 2000, the company's board of directors formally authorized
management to repurchase in the open market up to ten million shares of the
company's issued and outstanding common stock.
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, both of which back the company's commercial paper program. These credit
facilities contain minimum net worth requirements.
General Dynamics 1999 Annual Report 37
<PAGE> 14
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in millions, except per share amounts) 1999 1998 1997
=====================================================================================================
<S> <C> <C> <C>
NET SALES $ 8,959 $ 7,398 $ 5,966
OPERATING COSTS AND EXPENSES 7,756 6,480 5,290
- -----------------------------------------------------------------------------------------------------
OPERATING EARNINGS 1,203 918 676
Interest (expense) income, net (34) (17) 16
Other (expense) income, net (43) 3 (3)
- -----------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 1,126 904 689
Provision for income taxes 246 315 130
- -----------------------------------------------------------------------------------------------------
NET EARNINGS $ 880 $ 589 $ 559
- -----------------------------------------------------------------------------------------------------
NET EARNINGS PER SHARE:
Basic $ 4.40 $ 2.95 $ 2.80
Diluted $ 4.36 $ 2.91 $ 2.73
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
38 General Dynamics 1999 Annual Report
<PAGE> 15
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
(Dollars in millions) 1999 1998
====================================================================================
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 270 $ 210
Marketable securities -- 93
- ------------------------------------------------------------------------------------
270 303
- ------------------------------------------------------------------------------------
Accounts receivable 746 580
Contracts in process 1,204 952
Inventories 961 804
Other current assets 310 391
- ------------------------------------------------------------------------------------
Total Current Assets 3,491 3,030
- ------------------------------------------------------------------------------------
NONCURRENT ASSETS:
Property, plant and equipment, net 1,169 901
Goodwill, net 1,991 1,323
Intangible assets, net 522 465
Other assets 601 477
- ------------------------------------------------------------------------------------
Total Noncurrent Assets 4,283 3,166
- ------------------------------------------------------------------------------------
$ 7,774 $ 6,196
- ------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of long-term debt $ 853 $ 77
Accounts payable 631 522
Other current liabilities 1,969 1,818
- ------------------------------------------------------------------------------------
Total Current Liabilities 3,453 2,417
- ------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 169 453
Other liabilities 981 911
Commitments and contingencies (See Note O)
- ------------------------------------------------------------------------------------
Total Noncurrent Liabilities 1,150 1,364
- ------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, including surplus 487 484
Retained earnings 3,363 2,639
Treasury stock (673) (706)
Accumulated other comprehensive loss (6) (2)
- ------------------------------------------------------------------------------------
Total Shareholders' Equity 3,171 2,415
- ------------------------------------------------------------------------------------
$ 7,774 $ 6,196
- ------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
General Dynamics 1999 Annual Report 39
<PAGE> 16
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in millions) 1999 1998 1997
==================================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings $ 880 $ 589 $ 559
Adjustments to reconcile net earnings to net cash provided by continuing operations--
Depreciation, depletion and amortization 193 161 124
Recognition of pension gains previously deferred (126) -- --
Revaluation of undeveloped coal reserves and equipment 61 -- --
Amortization of debt issuance costs on debt repaid 7 -- --
Decrease (Increase) in assets, net of effects of business acquisitions--
Marketable securities 45 30 62
Accounts receivable 36 (64) (46)
Contracts in process 105 (209) 86
Inventories (189) (55) 27
Other current assets 6 (37) 23
Increase (Decrease) in liabilities, net of effects of business acquisitions--
Accounts payable and other current liabilities (208) 47 (43)
Customer deposits (61) (73) (109)
Current income taxes 235 151 66
Deferred income taxes 41 61 (53)
Other, net (2) (30) 6
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 1,023 571 702
Net cash used by discontinued operations (7) (12) (33)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 1,016 559 669
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired (1,090) (481) (1,230)
Purchases of available-for-sale securities (37) (443) (440)
Sales/maturities of available-for-sale securities 91 493 916
Capital expenditures (197) (186) (113)
Proceeds from sale of assets 18 25 11
Proceeds from sale of real estate held for development -- 74 23
Other (8) (4) (5)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (1,223) (522) (838)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from commercial paper issuances 844 -- --
Proceeds from issuance of other debt -- 56 220
Repayments of other debt (374) (232) (20)
Repayment of debt--finance operations (59) (38) (17)
Dividends paid (136) (108) (102)
Purchases of common stock (59) (226) (60)
Proceeds from option exercises 51 54 33
Other -- (2) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 267 (496) 54
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 60 (459) (115)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 210 669 784
- ----------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 270 $ 210 $ 669
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
40 General Dynamics 1999 Annual Report
<PAGE> 17
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------- Retained
(Dollars in millions, except share amounts) Shares Par Surplus Earnings
============================================================================================================================
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996,
AS PREVIOUSLY REPORTED 168,774,672 $169 $ 22 $2,172
- ----------------------------------------------------------------------------------------------------------------------------
Adjustment for pooling of interests 73,911,773 74 210 (471)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996,
AS RESTATED 242,686,445 243 232 1,701
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings 559
Minimum pension liability
adjustment
Cash dividends declared (102)
Shares issued under compensation plans 631,877 31
Tax benefit of exercised stock
options 34
Shares purchased
Amortization of stock plan
expense 1
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 243,318,322 243 297 2,159
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings 589
Unrealized gains on securities
Foreign currency translation
adjustment
Minimum pension liability
adjustment
Cash dividends declared (110)
Shares issued under
compensation plans 3,572,160 4 88
Tax benefit of exercised stock
options 40
Shares purchased (5,541,617) (6) (192)
Amortization of stock plan expense 1
Modification of common stock options 6
Shares issued for business acquisition 4
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 241,348,865 241 243 2,639
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings 880
Unrealized gains on securities
Foreign currency translation
adjustment
Cash dividends declared (156)
Shares issued under compensation plans 864,252 32
Tax benefit of exercised stock
options 29
Shares purchased (1,272,800) (58)
Shares issued for business acquisition
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 240,940,317 $241 $246 $3,363
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Treasury Stock Accumulated
---------------------------- Other Comprehensive
(Dollars in millions, except share amounts) Shares Amount Income/(Loss)
==========================================================================================================
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996,
AS PREVIOUSLY REPORTED (42,570,314) $(650) $1
- ----------------------------------------------------------------------------------------------------------
Adjustment for pooling of interests (2)
- ----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996,
AS RESTATED (42,570,314) (650) (1)
- ----------------------------------------------------------------------------------------------------------
Net earnings
Minimum pension liability
adjustment 1
Cash dividends declared
Shares issued under compensation plans 1,413,696 19
Tax benefit of exercised stock
options
Shares purchased (1,832,500) (60)
Amortization of stock plan
expense
- ----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 (42,989,118) (691) --
- ----------------------------------------------------------------------------------------------------------
Net earnings
Unrealized gains on securities 1
Foreign currency translation
adjustment (1)
Minimum pension liability
adjustment (2)
Cash dividends declared
Shares issued under
compensation plans 1,348,705 10
Tax benefit of exercised stock
options
Shares purchased (598,000) (28)
Amortization of stock plan expense
Modification of common stock options
Shares issued for business acquisition 157,283 3
- ----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 (42,081,130) (706) (2)
- ----------------------------------------------------------------------------------------------------------
Net earnings
Unrealized gains on securities (2)
Foreign currency translation
adjustment (2)
Cash dividends declared
Shares issued under compensation plans 2,158,056 34
Tax benefit of exercised stock
options
Shares purchased (19,100) (1)
Shares issued for business acquisition 15,424
- ----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 (39,926,750) $(673) $(6)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
General Dynamics 1999 Annual Report 41
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION. The Consolidated
Financial Statements include the accounts of the company and all majority-owned
subsidiaries. The Consolidated Financial Statements give retroactive effect to
the acquisition by General Dynamics Corporation (General Dynamics) of Gulfstream
Aerospace Corporation (Gulfstream) on July 30, 1999, which has been accounted
for as a pooling of interests as described in Note B.
ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles 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.
REVENUE RECOGNITION. Sales and earnings under long-term defense contracts
and 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 for contracts
that meet Statement of Position 81-1 criteria. 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 defense contracts and 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.
Contracts for new aircraft are segmented between the manufacture of the
"green" aircraft (i.e., before exterior painting and installation of customer
selected interiors and optional avionics) and its completion, in accordance with
Statement of Position 81-1. Sales of green aircraft are recorded when the
aircraft is delivered to and accepted by the customer. Completion revenues are
recorded when the customer accepts delivery of the outfitted aircraft. Sales of
all other products and services, including pre-owned aircraft, are recognized
when delivered or the service is performed.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $570, $509 and $432 in 1999, 1998 and 1997, respectively, and are included
in operating costs and expenses on the Consolidated Statement of Earnings.
INTEREST, NET. Interest income was $19, $23 and $51 in 1999, 1998 and
1997, respectively. Interest payments, including the company's finance
operations, were $52, $47 and $44 in 1999, 1998 and 1997, respectively. Interest
expense incurred by the company's LNG tanker finance operation is classified as
operating costs and expenses.
CASH AND EQUIVALENTS AND MARKETABLE SECURITIES. The company classifies
outstanding checks as accounts payable and classifies its securities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." 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. Market
adjustments are recognized in the statement of earnings for trading securities
and are included as a component of accumulated other comprehensive income for
available-for-sale 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 defense 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.
INVENTORIES. Work in process inventories are stated at the lower of cost
(based on estimated average unit costs of the number of units in a production
lot) or market. Raw materials, material components of other work in process and
substantially all purchased parts inventories are stated at the lower of cost
(first-in, first-out method) or market. Pre-owned aircraft acquired in
connection with the sale of new aircraft are recorded at the lower of the
trade-in value or estimated net realizable value.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is carried at
historical cost net of accumulated depreciation. Most of the company's assets
are depreciated using accelerated methods, with the remainder using the
straight-line method.
42 General Dynamics 1999 Annual Report
<PAGE> 19
Buildings and improvements are depreciated over periods ranging from 1 to 50
years. Machinery and equipment are depreciated over periods ranging from 1 to 28
years. Depletion of mineral reserves is computed using the units-of-production
method. Depreciation and depletion expense was $129, $109 and $96 in 1999, 1998
and 1997, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets, identifiable
intangibles and goodwill are reviewed for impairment whenever events or changes
in circumstances, such as declines in sales, earnings or cash flows or material
adverse changes in the business climate indicate that the carrying amount of an
asset may not be recoverable. The company assesses the recoverability of the
cost of the asset based on a review of projected undiscounted cash flows. In the
event an impairment loss is identified, it is recognized based on the amount by
which the carrying value exceeds the fair market value of the long-lived 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.
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
accumulated other comprehensive income and included in the equity section on the
Consolidated Balance Sheet.
COMPREHENSIVE INCOME. Effective January 1, 1998, the company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income," which requires the
presentation and disclosure of comprehensive income. Comprehensive income was
$876, $587 and $560 in 1999, 1998 and 1997, respectively.
CLASSIFICATION. Consistent with industry practice, assets and liabilities
relating to long-term defense 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. BUSINESS COMBINATIONS
Pooling of Interests Method
On July 30, 1999, the company acquired Gulfstream, as a result of which, 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 4,131,094 shares were 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 was
accounted for as a pooling of interests, and, accordingly, the consolidated
financial statements for periods prior to the combination have been restated to
include the accounts and results of operations of Gulfstream.
The preacquisition results of operations for the separate companies and
the combined amounts presented in the consolidated financial statements are as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31
(unaudited) (audited)
July 4,1999 1998 1997
========================================================================================
NET SALES:
<S> <C> <C> <C>
General Dynamics $ 2,756 $ 4,970 $ 4,062
Gulfstream 1,333 2,428 1,904
- ---------------------------------------------------------------------------------------
Combined $ 4,089 $ 7,398 $ 5,966
- ---------------------------------------------------------------------------------------
NET EARNINGS:
General Dynamics $ 370 $ 364 $ 316
Gulfstream 128 225 243
- ---------------------------------------------------------------------------------------
Combined $ 498 $ 589 $ 559
- ---------------------------------------------------------------------------------------
</TABLE>
General Dynamics 1999 Annual Report 43
<PAGE> 20
Purchase Method
On September 1, 1999, the company completed the $1.01 billion cash acquisition
of three business units comprising GTE Government Systems Corporation, a
subsidiary of GTE Corporation, (renamed, General Dynamics Government Systems
Corporation). The company financed the purchase through its commercial paper
program. 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 following unaudited pro forma combined financial information presents
the historical results of operations of the company and Government Systems, with
pro forma adjustments as if Government Systems had been acquired as of the
beginning of the periods presented. The unaudited pro forma information is not
necessarily indicative of what the results of operations actually would have
been if the transaction had occurred as of the beginning of these periods, or of
future results of operations.
<TABLE>
<CAPTION>
Year Ended December 31 (unaudited) 1999 1998
========================================================================================
<S> <C> <C>
NET SALES $ 9,791 $ 9,095
NET EARNINGS 882 589
NET EARNINGS PER SHARE:
Basic $ 4.41 $ 2.95
Diluted 4.37 2.91
- -----------------------------------------------------------------------------------------
</TABLE>
On November 10, 1998, the company acquired control of NASSCO Holdings
Incorporated (NHI) for $369 in cash plus the obligation to discharge $46 in
debt. The company paid $318 of the total consideration and repaid the $46
obligation in cash during November 1998 and paid the remaining fixed purchase
consideration of $51 during May 1999. NHI'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 (see Note M).
On August 19, 1998, Gulfstream completed the acquisition of K-C Aviation,
Inc. for approximately $250 in cash. K-C Aviation was a leading provider of
business aviation services and the largest independent completion center for
business aircraft in North America.
On 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 in
connection with the acquisition. See Note J for details on the terms of the
debt. Computing Devices International added three new defense electronics and
system integration units to the company: General Dynamics Information Systems,
Inc., Computing Devices Canada Ltd. and Computing Devices Company Limited in the
United Kingdom.
On 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.
On 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 missile guidance and naval fire control
systems. Their manufacture of light vehicles and turrets and transmissions for
combat vehicles was transferred to another operating unit of the company in
early 1998. Armament Systems designs, develops and produces advanced gun,
ammunition handling and air defense systems, and is a leader in the production
of ammunition and ordnance products.
The purchase prices have been allocated to the estimated fair values of
net tangible assets acquired, with any excess recorded as goodwill and
intangible assets (see Note H). Certain of the estimates related to the
acquisition of Government Systems Corporation are still preliminary at December
31, 1999, but will be finalized within one year from the date of acquisition.
The operating results of the acquired businesses are included with those of the
company from their respective closing dates.
C. EARNINGS PER SHARE
In 1998, the company adopted the provisions of 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. Basic and diluted weighted average
shares outstanding are as follows (in thousands):
44 General Dynamics 1999 Annual Report
<PAGE> 21
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Basic weighted average
shares outstanding 199,988 199,466 199,769
Assumed exercise
of options 1,945 2,758 4,512
Contingently issuable
shares 124 22 194
- --------------------------------------------------------------------------------
Diluted weighted average
shares outstanding 202,057 202,246 204,475
- --------------------------------------------------------------------------------
</TABLE>
D. INCOME TAXES
The provision for income taxes included on the Consolidated Statement of
Earnings is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Current:
U.S. Federal $ 344 $ 269 $ 182
Foreign 8 15 -
State 18 5 1
- --------------------------------------------------------------------------------
Total current 370 289 183
- --------------------------------------------------------------------------------
Deferred:
U.S. Federal 51 27 11
Foreign 1 (9) -
State (11) 8 1
- --------------------------------------------------------------------------------
Total deferred 41 26 12
- --------------------------------------------------------------------------------
Research and experimentation
tax credits (165) - -
Decrease in valuation
allowance - - (65)
- --------------------------------------------------------------------------------
$ 246 $ 315 $ 130
- --------------------------------------------------------------------------------
</TABLE>
The provision for state and local income taxes which is allocable to U.S.
government contracts is included in operating costs and expenses on the
Consolidated Statement of Earnings.
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 1999 1998 1997
=====================================================================================
<S> <C> <C> <C>
Statutory federal income
tax rate 35.0% 35.0% 35.0%
Research and experimentation
tax credits (14.7) - -
Decrease in valuation
allowance - - (9.4)
Net operating loss
carryforwards - - (6.3)
State tax on commercial
operations, net of federal benefits 0.9 1.3 0.4
Other 0.6 (1.5) (0.8)
- --------------------------------------------------------------------------------------
Effective income tax rate 21.8% 34.8% 18.9%
- --------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
================================================================================
<S> <C> <C>
Long-term contract costing methods $ 55 $ 90
A-12 termination 92 93
Accrued costs on disposed businesses 55 62
Coal mining liabilities 25 26
Postretirement liabilities 98 90
Tax credit/loss carryforwards 11 49
Other 227 236
- --------------------------------------------------------------------------------
Deferred assets $563 $646
- --------------------------------------------------------------------------------
Lease income $ 62 $ 66
Commercial pension asset 87 42
Intangible assets 29 48
Property basis differences 28 40
Other 66 118
- --------------------------------------------------------------------------------
Deferred liabilities $272 $314
- --------------------------------------------------------------------------------
Net deferred asset $291 $332
- --------------------------------------------------------------------------------
</TABLE>
Based on the level of projected earnings and current backlog, no material
valuation allowance was required for the company's deferred tax assets at
December 31, 1999 and 1998. The current portion of the net deferred tax asset is
$264 and $328 at December 31, 1999 and 1998, respectively, and is included in
other current assets on the Consolidated Balance Sheet.
General Dynamics 1999 Annual Report 45
<PAGE> 22
The company made federal income tax payments of $289, $112 and $102 in
1999, 1998 and 1997, respectively.
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 of $165 (net of amounts
previously recorded in 1991 and 1992), or $.82 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 General Dynamics' 1990 through
1993 consolidated federal income tax returns and Gulfstream's 1990 through 1994
consolidated federal income tax returns. Unresolved matters for these years have
been protested to the IRS Appeals Division. A refund claim by General Dynamics
for $78 (plus interest) for research and experimentation tax credits for the
year 1990 will also be considered by the IRS Appeals Division. The IRS is
currently examining General Dynamics' 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.
E. CONTRACTS IN PROCESS
Contracts in process primarily represent costs and accrued profit related to
defense contracts and programs and consist of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
================================================================================
<S> <C> <C>
Contract costs and estimated profits $ 9,464 $ 7,866
Other contract costs 721 485
- --------------------------------------------------------------------------------
10,185 8,351
Less advances and progress payments 8,981 7,399
- --------------------------------------------------------------------------------
$ 1,204 $ 952
- --------------------------------------------------------------------------------
</TABLE>
Contract costs include production costs and related overhead, including
general and administrative expenses. Other contract costs primarily represent
amounts required to be recorded under generally accepted accounting principles
that are not currently allocable to contracts, such as a portion of the
company's estimated workers' compensation, other insurance-related assessments,
postretirement benefits and environmental expenses. Recovery of these costs
under contracts is considered probable based on the company's backlog. If the
level of backlog in the future does not support the continued deferral of these
costs, the profitability of the company's remaining contracts could be affected.
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. INVENTORIES
Inventories consist primarily of aircraft components, as follows:
<TABLE>
<CAPTION>
December 31 1999 1998
===================================================
<S> <C> <C>
Work in process $436 $445
Raw materials 262 191
Pre-owned aircraft 243 150
Other 20 18
- ---------------------------------------------------
$961 $804
- ---------------------------------------------------
</TABLE>
G. PROPERTY, PLANT AND EQUIPMENT, NET
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31 1999 1998
===============================================================
<S> <C> <C>
Land and improvements $ 121 $ 99
Mineral reserves 64 88
Buildings and improvements 597 450
Machinery and equipment 1,444 1,322
Construction in process 162 108
- ---------------------------------------------------------------
2,388 2,067
Less accumulated depreciation,
depletion and amortization 1,219 1,166
- ---------------------------------------------------------------
$1,169 $ 901
- ---------------------------------------------------------------
</TABLE>
Certain of the company's plant facilities are provided by the U.S.
government and therefore not included above.
During 1999, management concluded not to make additional investments in
its undeveloped high sulfur coal reserves given the current coal industry
environment. As such, the company revalued these coal reserves and related
assets based on an undis-
46 General Dynamics 1999 Annual Report
<PAGE> 23
counted cash flow analysis, which resulted in a non-cash charge to earnings of
approximately $60 (before-tax). The charge is included in operating costs and
expenses on the Consolidated Statement of Earnings and is included in the
results of the company's Other business group.
During 1999, the company acquired for $20 a small aggregates company,
located in Indiana, whose assets are primarily mineral reserves.
H. GOODWILL AND INTANGIBLE ASSETS
Goodwill resulted from the company's business acquisitions. Goodwill is
amortized on a straight-line basis over 40 years and is shown net of accumulated
amortization of $84 and $44 at December 31, 1999 and 1998, respectively.
Intangible assets resulting primarily from the company's business
acquisitions consist of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
=========================================================
<S> <C> <C>
Contracts and programs acquired $455 $416
Other 67 49
- ---------------------------------------------------------
$522 $465
- ---------------------------------------------------------
</TABLE>
Intangible assets are shown net of accumulated amortization of $110 and
$86 at December 31, 1999 and 1998, respectively. Contracts and programs acquired
are amortized on a straight-line basis over periods ranging from 8 to 40 years.
Other intangible assets consist primarily of customer lists and purchase options
on buildings currently leased. These other intangible assets are amortized over
periods ranging from 3 to 20 years.
I. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
=========================================================
<S> <C> <C>
Customer deposits $ 471 $ 488
Workers' compensation 479 341
Retirement benefits 279 196
Advance payments--
government contracts 142 139
Other 598 654
- ---------------------------------------------------------
$1,969 $1,818
- ---------------------------------------------------------
</TABLE>
J. DEBT
Debt (excluding finance operations) consists of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
=========================================================
<S> <C> <C>
Commercial paper $ 852 $ -
Term loans - 305
Senior notes 149 142
Notes payable - 56
Industrial development bonds 15 15
Other 6 12
- ---------------------------------------------------------
1,022 530
Less current portion 853 77
- ---------------------------------------------------------
$ 169 $ 453
- ---------------------------------------------------------
</TABLE>
On July 27, 1999, the company began issuing commercial paper in
anticipation of the acquisition of Government Systems Corporation. As of
December 31, 1999, the company had $861 par value discounted commercial paper
outstanding at an average yield of approximately 6.09 percent with an average
term of approximately 66 days. 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, both of which back this commercial paper
program.
On October 16, 1996, Gulfstream entered into a long-term agreement under
which the lenders who were parties to the credit agreement made available to the
company a $400 term loan facility and a $250 revolving credit facility.
Gulfstream repaid the outstanding obligation on the revolving credit facility
during 1999. On July 30, 1999, the company repaid the term loan in full from
available funds and terminated the credit agreement. In connection therewith,
the company recorded a one-time non-cash charge of $7 (before-tax) for the
unamortized debt costs associated with this instrument.
On December 31, 1997, the company borrowed in Canadian dollars the U.S.
equivalent of $220 in connection with its acquisition of Information Systems,
Computing Devices Canada and U.K. In April 1998, the company repaid $70 of this
note, and in September 1998 refinanced the balance with the senior notes
maturing in 2008. The debt carries a 6.32 percent annual interest rate, interest
payable semi-annually.
General Dynamics 1999 Annual Report 47
<PAGE> 24
On November 30, 1998, Gulfstream issued notes totaling $56 secured by
three pre-owned aircraft. During 1999, the company repaid these notes in full
from available funds.
The industrial development bonds are due December 1, 2002, and bear
interest at 6.60 percent per annum with interest payable semi-annually. Other
consists of Title XI bonds of $5, which were repaid during the first quarter of
1999, and subsidiary mortgage obligations.
International credit arrangements include a $30 credit facility expiring
in August 2000, renewable annually thereafter.
K. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
December 31 1999 1998
===============================================================
<S> <C> <C>
Retirement benefits $296 $268
Accrued costs on disposed businesses 156 177
Coal mining related liabilities 71 73
Other 458 393
- ---------------------------------------------------------------
$981 $911
- ---------------------------------------------------------------
</TABLE>
The company has recorded liabilities for contingencies related to disposed
businesses. These liabilities include postretirement benefits, 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 the
appropriate discount rate. 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.
L. SHAREHOLDERS' EQUITY
AUTHORIZED STOCK. On July 30, 1999, the company's stockholders approved 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
of $1 par value common stock. Other authorized capital stock of the company
consists of 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.
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,
which was 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 in prior periods 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 to give effect to the stock split.
DIVIDENDS PER SHARE. Dividends per share were $.96, $.88 and $.82 in 1999,
1998 and 1997, respectively.
SHARES OUTSTANDING. The company had 201,013,567, 199,267,735 and
200,329,204 shares of common stock outstanding as of December 31, 1999, 1998 and
1997, respectively.
M. FINANCE OPERATIONS
The company owns three liquefied natural gas (LNG) tankers which have been
leased to a nonrelated company. The leases are financed by privately-placed
bonds that are secured by the LNG tankers. The bonds are callable under certain
conditions and are nonrecourse to the company. Accordingly, in the event the
lessee defaults on the lease payments, General Dynamics is not obligated to
repay the debt.
48 General Dynamics 1999 Annual Report
<PAGE> 25
The following is a summary of the comparative financial statements for the
LNG tanker finance operations:
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31 1999 1998
==============================================================
ASSETS
<S> <C> <C>
Leases receivable $181 $193
Due from parent 37 40
- --------------------------------------------------------------
$218 $233
- --------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt $ 81 $100
Income taxes 62 66
Shareholder's equity 75 67
- --------------------------------------------------------------
$218 $233
- --------------------------------------------------------------
</TABLE>
Leases receivable and debt are included in other assets and other
liabilities, respectively, on the Consolidated Balance Sheet. The leases are
classified as direct financing leases and extend through 2009.
The components of the company's net investment in the leases receivable
are as follows:
<TABLE>
<CAPTION>
December 31 1999 1998
==========================================================
<S> <C> <C>
Aggregate future minimum
lease payments $ 256 $ 287
Unguaranteed residual value 38 38
Unearned interest income (113) (132)
- ----------------------------------------------------------
$ 181 $ 193
- ----------------------------------------------------------
</TABLE>
The company is scheduled to receive minimum lease payments of $31 annually
in each of the next five years.
Semi-annual scheduled 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 2000, $20
in 2001, $23 in 2002, $17 in 2003 and $3 in 2004.
EARNINGS DATA
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
============================================================
<S> <C> <C> <C>
Interest income $ 19 $ 20 $ 21
Interest expense (6) (7) (9)
Income taxes and other (4) (4) (3)
- ------------------------------------------------------------
Net earnings $ 9 $ 9 $ 9
- ------------------------------------------------------------
</TABLE>
NASSCO Funding Corporation (NFC) is a special purpose corporation
organized to provide funding for the acquisition, construction or reconstruction
of qualified U.S. flag and U.S. built marine vessels through the Capital
Construction Fund program (CCF) of the Maritime Administration. Assets of NFC
consist of cash equivalents of $50 and marketable securities of $48 at December
31, 1999 and 1998, respectively. Assets of NFC are restricted for CCF use. At
December 31, 1999, qualified accounts receivable of an affiliate of
approximately $40 are also designated for the CCF. At December 31, 1998, NFC had
outstanding commercial paper of $40. The company repaid this obligation during
1999.
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the company's financial instruments approximates
carrying value for all financial instruments. 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 $48 at
December 31, 1998, and included primarily government backed mortgage securities
designated for the CCF (see Note M). Other available-for-sale investments at
December 31, 1999 and 1998 consist primarily of $36 and $46, respectively, of
U.S. government debt obligations restricted for payment of workers' compensation
benefits under an agreement with the State of Maine. Also included at December
31, 1999 are $5, primarily in municipal securities, restricted for repayment of
the industrial development bonds discussed in Note J, and $6 in equity
securities restricted for the payment of supplemental retirement obligations
discussed in Note R. Amortized cost for available-for-sale marketable securities
and other available-for-sale invest-
General Dynamics 1999 Annual Report 49
<PAGE> 26
ments approximates fair value at December 31, 1999 and 1998. For debt and equity
securities and obligations classified as other available-for-sale investments at
December 31, 1999, $1 mature within one year, $27 between one and five years, $8
between five and ten years, and $11 had no fixed maturity date.
Proceeds from sales of available-for-sale securities were $48, $274 and
$612 in 1999, 1998 and 1997, respectively.
The company was contingently liable for debt and lease guarantees and
other arrangements aggregating up to a maximum of approximately $75 at December
31, 1999. 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.
O. 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 P.
On December 19, 1999, the company settled the matter related to the sale
of the company's missile business, various related leases and other alleged
agreements with Raytheon Company and Raytheon Missile Systems Company (formerly
known as HE Holdings, Inc. and Hughes Missile Systems Company, respectively).
The settlement did not have a material impact on the company's results of
operations or financial condition.
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 Lloyd's 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 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. In February 2000, General Dynamics completed
the trial of this matter before a special master. The company expects a decision
later in 2000 and does not expect that this case will have a material impact on
the company's results of operations or financial condition.
The company was 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 alleged that they
suffered personal injuries and/or property damage from chronic exposure to
50 General Dynamics 1999 Annual Report
<PAGE> 27
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 were 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
plaintiffs, who have had summary judgment entered against them. These four
plaintiffs failed to appeal the judgement against them and the time for appeal
expired in January 2000. The company settled all the remaining cases and final
dismissal orders were entered by the court in February 2000. The resolution of
these matters did not 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. The parties are
processing final dismissal orders to be entered by the court. The court entered
a consent decree negotiated with the U.S. EPA in response to the Special Notice
Letter in February 2000. The company does not believe that these lawsuits or the
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 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 where the release of hazardous materials
may have occurred.
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 or other multi-party sites at which the company is a
PRP.
Other
In the ordinary course of business, the company has letters of credit and other
similar instruments with financial institutions and insurance carriers
aggregating approximately $820 at December 31, 1999. For discussion of other
financial guarantees, see Note N. The company's rental commitments under
existing operating leases at December 31, 1999, are not significant.
The company has agreements with certain of its suppliers to procure major
aircraft components such as engines, wings and avionics. The agreements vary in
length from three to five years and generally provide for price and quantity of
components to be supplied. In connection with the Gulfstream V program, the
company has entered into revenue sharing agreements with two
General Dynamics 1999 Annual Report 51
<PAGE> 28
suppliers. The terms of such agreements require the suppliers to design,
manufacture and supply certain aircraft components in exchange for a fixed
percentage of the revenues associated with such aircraft, and payments are
required to be made on a pro rata basis concurrent with the associated customer
deposits received on the Gulfstream V contract.
As of December 31, 1999, in connection with orders for twelve Gulfstream V
aircraft in backlog, the company has offered customers trade-in options (which
may or may not be exercised by the customer) under which the company will accept
trade-in aircraft (primarily Gulfstream IVs and IV-SPs) at a guaranteed minimum
trade-in price. Additionally, at December 31, 1999, in connection with recorded
sales of new aircraft, the company has a commitment to accept pre-owned aircraft
totaling approximately $140. Management believes that the fair market value of
all such aircraft exceeds the specified trade-in value.
P. 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. In January 1991, 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 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.
Nonetheless, the parties have agreed to explore the possibility of an
out-of-court settlement of the litigation. Warren Christopher, former U.S.
Secretary of State, is serving as a neutral mediator. The parties have agreed
that they will not comment on negotiations during the mediation process.
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.
52 General Dynamics 1999 Annual Report
<PAGE> 29
Q. 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. With
respect to equity grants, the plan is designed to comply 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 a specific performance period (generally 18 to 24
months). 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.
Options granted under Gulfstream's incentive compensation plans prior to
the acquisition were subject to different vesting periods based on the terms of
the plans. Upon the change in control, substantially all of the outstanding
Gulfstream options became fully vested.
There were 540,661, 507,340 and 345,860 shares of restricted stock awarded
in 1999, 1998 and 1997, respectively. There were 1,724,973 shares of restricted
stock outstanding at December 31, 1999.
Information with respect to stock options is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
=============================================================================================
<S> <C> <C> <C>
NUMBER OF SHARES
UNDER STOCK OPTIONS:
Outstanding at
beginning of year 8,672,328 10,072,286 9,382,983
Granted 1,666,720 3,770,314 2,910,252
Exercised (2,622,081) (4,803,536) (1,904,259)
Canceled (214,086) (366,736) (316,690)
- ---------------------------------------------------------------------------------------------
Outstanding at end of year 7,502,881 8,672,328 10,072,286
- ---------------------------------------------------------------------------------------------
EXERCISABLE AT END
OF YEAR 5,419,012 4,470,291 5,715,494
=============================================================================================
WEIGHTED AVERAGE
EXERCISE PRICE:
Outstanding at
beginning of year $ 30.35 $ 16.28 $ 12.41
Granted 59.62 45.92 29.70
Exercised 20.64 13.24 17.73
Canceled 49.23 27.93 16.33
Outstanding at end
of year 39.82 30.35 16.28
Exercisable at end of year 34.16 19.29 9.66
- ---------------------------------------------------------------------------------------------
</TABLE>
General Dynamics 1999 Annual Report 53
<PAGE> 30
Information with respect to stock options outstanding and stock options
exercisable at December 31, 1999, is as follows:
<TABLE>
<CAPTION>
Options Outstanding
- ------------------------------------------------------------------------------
Number Weighted Weighted
Range of Outstanding Average Remaining Average
Exercise Prices at 12/31/99 Contractual Life Exercise Price
==============================================================================
<S> <C> <C> <C>
$ 3.11-11.37 1,070,558 4.71 years $ 4.17
21.50-33.88 1,743,311 1.68 31.78
36.50-50.06 3,165,011 6.42 46.57
51.43-73.06 1,524,001 4.71 60.01
- ------------------------------------------------------------------------------
7,502,881
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
- -----------------------------------------------------------
Number Weighted
Range of Outstanding Average
Exercise Prices at 12/31/99 Exercise Price
===========================================================
<S> <C> <C>
$ 3.11-11.37 1,070,558 $ 4.17
21.50-33.88 1,726,645 31.87
36.50-50.06 2,494,309 47.46
51.43-73.06 127,500 56.89
- -----------------------------------------------------------
5,419,012
- -----------------------------------------------------------
</TABLE>
At December 31, 1999, 4,684,782 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>
1999 1998 1997
========================================================================================
<S> <C> <C> <C> <C>
Net Earnings: As reported $ 880 $ 589 $ 559
Pro forma 853 578 553
Net Earnings Per
Share--Basic: As reported $ 4.40 $ 2.95 $ 2.80
Pro forma 4.27 2.90 2.77
Net Earnings Per
Share--Diluted: As reported $ 4.36 $ 2.91 $ 2.73
Pro forma 4.22 2.86 2.70
- ----------------------------------------------------------------------------------------
Weighted average fair
value of options granted $ 8.74 $ 13.48 $ 6.25
- ----------------------------------------------------------------------------------------
</TABLE>
The compensation cost calculated under the fair value approach shown above
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 assumptions used for grants in all
years presented: (1) expected dividend yields from 1.5 to 2.5 percent, (2)
expected volatility from 17.6 to 46.1 percent, (3) risk-free interest rates
from 4.7 to 6.4 percent and (4) expected lives from 4 months to 3 years.
R. RETIREMENT PLANS
The company provides defined pension and other postretirement benefits to
certain eligible employees. The following is a reconciliation of the benefit
obligations, plan/trust assets, and funded status of the company's plans:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
1999 1998 1999 1998
========================================================================================
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT
OBLIGATION
Benefit obligation at
beginning of year $ (4,104) $ (3,594) $ (741) $ (712)
Service cost (112) (81) (10) (9)
Interest cost (281) (252) (51) (50)
Amendments (25) (57) - 39
Actuarial gain/(loss) 288 (262) 77 (51)
Acquisitions (422) (69) (109) (13)
Benefits paid 263 211 56 55
- ----------------------------------------------------------------------------------------
Benefit obligation at
end of year $ (4,393) $ (4,104) $ (778) $ (741)
- ----------------------------------------------------------------------------------------
</TABLE>
54 General Dynamics 1999 Annual Report
<PAGE> 31
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
1999 1998 1999 1998
==========================================================================================
<S> <C> <C> <C> <C>
CHANGE IN PLAN/
TRUST ASSETS
Fair value of assets at
beginning of year $ 5,532 $ 4,730 $ 295 $ 241
Actual return on plan/
trust assets (104) 926 31 62
Acquisitions 545 29 59 -
Employer contributions 19 33 11 20
Plan participants'
contributions - 25 - -
Curtailment/settlement (7) - - -
Benefits paid (263) (211) (30) (28)
- ------------------------------------------------------------------------------------------
Fair value of assets at
end of year $ 5,722 $ 5,532 $ 366 $ 295
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
1999 1998 1999 1998
==========================================================================================
<S> <C> <C> <C> <C>
FUNDED STATUS RECONCILIATION
Funded status $ 1,329 $ 1,428 $ (412) $ (446)
Unrecognized net
actuarial gain (1,019) (1,241) (161) (73)
Unrecognized prior
service cost 251 255 (12) (14)
Unrecognized transition
(asset)/obligation (16) (24) 57 71
- ------------------------------------------------------------------------------------------
Prepaid/(accrued)
benefit cost $ 545 $ 418 $ (528) $ (462)
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
1999 1998 1997 1999 1998 1997
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSUMPTIONS AT
DECEMBER 31
Discount rate 7.50% 6.75% 7.25% 7.50% 6.75% 7.25%
Varying rates of increase in
compensation levels
based on age 4.00-11.00% 4.00-11.00% 4.50-10.00%
Expected weighted average
long-term rate
of return on assets 8.31% 8.00% 8.00% 8.00% 8.00% 8.00%
Assumed health care
cost trend rate for next year:
Post-65 claim groups 6.75% 4.50% 5.00%
Pre-65 claim groups 6.75% 6.50% 7.50%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic pension and other postretirement benefits costs included the
following:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
1999 1998 1997 1999 1998 1997
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 112 $ 81 $ 64 $ 10 $ 9 $ 8
Interest cost 281 252 227 51 50 50
Expected return on plan assets (397) (329) (288) (19) (16) (14)
Recognized net actuarial
gain (8) (10) (8) (1) (4) (3)
Amortization of unrecognized
transition (asset)/obligation (7) (8) (8) 13 23 24
Amortization of prior service cost 29 27 25 (1) (1) (1)
- --------------------------------------------------------------------------------------------------------
$ 10 $ 13 $ 12 $ 53 $ 61 $ 64
- --------------------------------------------------------------------------------------------------------
</TABLE>
PENSION BENEFITS. As of December 31, 1999, the company has 12 trusteed,
noncontributory, qualified defined benefit pension plans covering substantially
all of its government business employees and two plans covering substantially
all of its commercial business 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.
Under SFAS No. 87, "Employers' Accounting for Pensions," the company is
required to assume a discount rate at which the obligation could be currently
settled. Reflecting the movement in interest rates, the company increased its
discount rate assumption from 6.75 percent to 7.50 percent at December 31, 1999,
which decreased the projected benefit obligation $347.
General Dynamics 1999 Annual Report 55
<PAGE> 32
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.
The company's contractual arrangements with the U.S. government provide
for the recovery of contributions to the company's government plans. The amount
contributed to certain of 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 has a right to a portion of 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 these plans.
Beginning in 1992, General Dynamics deferred certain gains realized by its
commercial pension plan for the purpose of offsetting any costs associated with
its final disposition. In connection with the acquisition of Gulfstream, General
Dynamics merged the two companies' commercial pension plans. Gulfstream
previously maintained four defined benefit pension plans covering substantially
all employees. As a result of the merger of these plans, the company recognized
the previously deferred gains on General Dynamics commercial plan, totaling $126
(before-tax). The non-recurring gain is included in operating costs and expenses
on the Consolidated Statement of Earnings and is included in the results of the
company's Other business group. The company's net prepaid pension cost of $250
and $120 at December 31, 1999 and 1998, respectively, is included in other
noncurrent assets on the Consolidated Balance Sheet.
At December 31, 1999, approximately 54 percent of the plans' assets were
invested in securities of the U.S. government or its agencies, 31 percent in
diversified U.S. common stocks, 11 percent in diversified U.S. corporate debt
securities, and 4 percent in mortgage-backed securities.
In addition to the qualified defined benefit plans, the company provides
eligible employees the opportunity to participate in defined contribution
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 to the
defined contribution plans amounted to $46, $40 and $30 in 1999, 1998 and 1997,
respectively. Approximately 15 and 13 million shares of the company's common
stock were held by the defined contribution plans at December 31, 1999 and 1998,
respectively.
The company also sponsors several unfunded non-qualified supplemental
executive plans that provide participants with additional benefits, including
any excess of such benefits over limits imposed on qualified plans by federal
law. The recorded liability and expense related to these plans are not material
to the company's results of operations and financial condition.
OTHER POSTRETIREMENT BENEFITS. The company maintains plans providing
postretirement health care 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, 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 health 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 maintains several Voluntary Employee's Beneficiary Association
(VEBA) trusts for certain of its plans. It is the company's policy to fund the
VEBAs in accordance with exising federal income tax regulations, calculated in a
manner similar to the determination of annual net periodic postretirement
benefit cost. The remaining plans are funded as claims are received.
As previously stated, the company increased its discount rate assumption
from 6.75 percent to 7.50 percent at December 31, 1999, which decreased the
accumulated postretirement benefit obligation $49.
56 General Dynamics 1999 Annual Report
<PAGE> 33
The health care cost trend rates are assumed to gradually decline to 4.75
percent for post-65 and pre-65 claim groups, in the year 2002 and thereafter
over the projected payout period of the benefits. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care
plans. A one-percentage-point change in assumed health care cost trend rates
would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
=============================================================================
<S> <C> <C>
Effect on total of service
and interest cost components $ 4 $ (4)
Effect on accumulated
postretirement benefit
obligation $ 54 $ (47)
- -----------------------------------------------------------------------------
</TABLE>
At December 31, 1999, the majority of the VEBA trusts' assets were
invested in diversified U.S. common stocks, U.S. fixed income securities and
bank notes.
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 with profits in backlog sufficient to recover the excess
cost, the company defers the charge in contracts in process until such time
that the cost is allocable to contracts.
S. BUSINESS GROUP INFORMATION
Management has chosen to organize and measure its business groups 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 groups are aggregated for
reporting purposes consistent with these criteria. Management measures its
groups' profit based primarily on operating earnings. As such, net interest,
other income items and income taxes have not been allocated to the company's
groups. For a further description of the company's business groups, see
Management's Discussion and Analysis of the Results of Operations and Financial
Condition.
Summary financial information for each of the company's business groups
follows:
<TABLE>
<CAPTION>
Net Sales Operating Earnings Sales to U.S. Government
1999 1998 1997 1999 1998 1997 1999 1998 1997
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace $ 2,909 $ 2,428 $ 1,904 $ 482 $ 373 $ 229 $ 138 $ 135 $ 59
Information Systems
& Technology* 1,422 933 185 127 69 15 833 477 163
Marine Systems* 3,088 2,529 2,248 328 276 227 3,054 2,519 2,239
Combat Systems* 1,290 1,272 1,387 155 166 179 1,178 1,165 1,249
Other** 250 236 242 111 34 26 - - -
- ---------------------------------------------------------------------------------------------------------------------------------
$ 8,959 $ 7,398 $ 5,966 $ 1,203 $ 918 $ 676 $ 5,203 $ 4,296 $ 3,710
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Depreciation,
Identifiable Assets Capital Expenditures Depletion and Amortization
1999 1998 1997 1999 1998 1997 1999 1998 1997
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace $ 1,757 $ 1,537 $ 1,100 $ 29 $ 28 $ 30 $ 38 $ 35 $ 33
Information Systems
& Technology* 2,418 1,250 1,298 25 16 4 54 45 17
Marine Systems* 1,431 1,250 706 101 78 28 51 35 31
Combat Systems* 938 922 644 12 18 13 27 27 22
Other** 373 406 371 20 16 19 17 15 17
Corporate*** 857 831 1,464 10 30 19 6 4 4
- -------------------------------------------------------------------------------------------------------------------------
$ 7,774 $ 6,196 $ 5,583 $ 197 $ 186 $ 113 $ 193 $ 161 $ 124
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of January 1, 1999, management realigned its information technology
businesses, resulting in a different composition of reportable groups.
Data for all periods presented has been restated to give recognition to
the 1999 composition of reportable groups.
** Other operating earnings include the operating results of the company's
commercial pension plans, including Gulfstream's merged plans
post-acquisition (See Note R). Other identifiable assets include assets of
both of the company's finance operations (See Note M).
*** Corporate identifiable assets include cash and equivalents and marketable
securities, deferred taxes, real estate held for development and net
prepaid pension cost related to the company's commercial pension plans.
General Dynamics 1999 Annual Report 57
<PAGE> 34
The following table presents revenues by geographic area of the location
of the company's customers:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
============================================================================
<S> <C> <C> <C>
North America:
United States $ 7,991 $ 6,386 $ 5,334
Canada and Mexico 207 290 67
- ----------------------------------------------------------------------------
Total North America 8,198 6,676 5,401
Africa/Middle East 325 173 40
Europe 261 191 201
Asia/Pacific 93 280 236
Latin America/Other 82 78 88
- ----------------------------------------------------------------------------
Total $ 8,959 $ 7,398 $ 5,966
- ----------------------------------------------------------------------------
</TABLE>
T. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------
Net Earnings Market Price
Per Share(a) Range
Net Operating Net ---------------------- ------------------------------- Dividends
Sales Earnings Earnings Basic Diluted High Low Declared(b)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
4th Quarter $ 2,655 $ 328 $ 198 $ .99 $ .98 $ 63 $ 46 3/16 $ .24
3rd Quarter 2,215 355 184 .92 .91 70 15/16 59 3/16 .24
2nd Quarter 2,087 279 175 .88 .86 75 7/16 62 15/16 .24
1st Quarter 2,002 241 323 1.62 1.60 64 15/16 53 .24
1998
4th Quarter $ 2,208 $ 255 $ 160 $ .81 $ .79 $ 62 $ 49 1/4 $ .22
3rd Quarter 1,798 243 159 .79 .78 55 42 7/8 .22
2nd Quarter 1,735 227 148 .74 .73 48 3/8 40 1/4 .22
1st Quarter 1,657 193 122 .62 .61 45 3/4 41 25/32 .22
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Quarterly data is based on a 13 week period.
(a) The sum of the earnings per share for the four quarters in both years
differs from the annual earnings per share due to the required method of
computing the weighted average number of shares in interim periods.
(b) Represents dividends declared per share on General Dynamics' common stock.
58 General Dynamics 1999 Annual Report
<PAGE> 35
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 accounting
principles generally accepted in the United States 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 four 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.
<TABLE>
<S> <C>
/s/ MICHAEL J. MANCUSO /s/ JOHN W. SCHWARTZ
Michael J. Mancuso John W. Schwartz
Senior Vice President and Chief Financial Officer Vice President and Controller
</TABLE>
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, 1999
and 1998, and the related Consolidated Statements of Earnings, Shareholders'
Equity and Cash Flows for each of the three years in the period ended December
31, 1999. 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 did not audit the financial statements of
Gulfstream Aerospace Corporation for the years ended December 31, 1998 and 1997,
a company acquired during 1999 in a transaction accounted for as a pooling of
interests, as discussed in Note B. Such statements are included in the
consolidated financial statements of General Dynamics Corporation and reflect
total assets and total revenues of 26 percent and 33 percent in 1998,
respectively, and total revenues of 32 percent in 1997, of the related
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us for 1998 and 1997, and our opinion, insofar as
it relates to amounts included for Gulfstream Aerospace Corporation, is based
solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 audit and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Vienna, Virginia /s/ ARTHUR ANDERSEN LLP
January 25, 2000 ARTHUR ANDERSEN LLP
General Dynamics 1999 Annual Report 59
<PAGE> 36
SELECTED FINANCIAL DATA (UNAUDITED)
The following table presents summary selected historical financial data derived
from the audited Consolidated Financial Statements and other information of the
company for each of the five years presented. The following information should
be read in conjunction with Management's Discussion and Analysis of the Results
of Operations and Financial Condition and the audited Consolidated Financial
Statements and related Notes thereto.
<TABLE>
<CAPTION>
(Dollars in millions, except per share and employee amounts) 1999 1998 1997 1996 1995
================================================================================================================================
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 8,959 $ 7,398 $ 5,966 $ 4,645 $ 4,109
Operating costs and expenses 7,756 6,480 5,290 4,240 3,753
Interest (expense) income, net (34) (17) 16 51 42
Provision for income taxes 246 315 130 140 127
Earnings from continuing operations 880 589 559 317 276
Basic earnings per share from
continuing operations 4.40 2.95 2.80 1.58 N/A(b)
Diluted earnings per share from
continuing operations 4.36 2.91 2.73 1.54 N/A(b)
Cash dividends per common stock
share(a) .96 .88 .82 .82 .75
Sales per employee(c) 227,500 208,600 191,700 164,100 152,600
FINANCIAL POSITION AT DECEMBER 31
Cash and equivalents and
marketable securities $ 270 $ 303 $ 774 $ 1,162 $ 1,392
Property, plant and equipment, net 1,169 901 770 616 571
Total assets 7,774 6,196 5,583 4,625 4,177
Short- and long-term debt 1,022 530 645 438 184
Short- and long-term debt--
finance operations 81 140 118 135 146
Shareholders' equity 3,171 2,415 2,008 1,525 1,784
Book value per share 15.78 12.12 10.02 7.62 9.30
OTHER INFORMATION AT DECEMBER 31
Funded backlog $ 11,665 $ 10,565 $ 9,549 $ 9,238 $ 7,165
Total backlog 19,480 18,900 12,381 13,454 9,324
Shares outstanding 201.0 199.3 200.3 200.1 191.9
Basic weighted average shares
outstanding 200.0 199.5 199.8 200.2 N/A(b)
Diluted weighted average shares
outstanding 202.1 202.2 204.5 205.5 N/A(b)
Active employees:
Total company 43,400 38,440 34,800 28,300 32,000
Excluding discontinued operations 43,400 38,440 34,800 28,300 31,100
</TABLE>
(a) Represents dividends declared per share on General Dynamics' common stock.
(b) Gulfstream completed its initial public offering during 1996.
(c) For comparative purposes, calculation has been modified for the effects of
business acquisitions. See Note B.
60 General Dynamics 1999 Annual Report
<PAGE> 1
EXHIBIT 21, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
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-LLTF Inc. . . . . . . . . . . . . . . . . . . . . . . . Maine . . . . . . . . . . . . 100
CD Plus S.A.R.L. . . . . . . . . . . . . . . . . . . . . . . . . France . . . . . . . . . . . 100
Computer Systems & Communications Corporation . . . . . . . . . Delaware . . . . . . . . . . 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
EB Groton Engineering, Inc. . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
EB Groton Operations, Inc. . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
EB Newport Engineering, Inc. . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
EB Quonset Point Operations, Inc. . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Electro Dynamic Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Power Technology, Inc. . . . . . . . . . . Delaware . . . . . . . . . . 100
Electrocom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
GDIC Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Computing Devices Canada Ltd. . . . . . . . . . . . . . . . Canada . . . . . . . . . . . 100
Computing Devices Company Limited. . . . . . . . . . . . . . United Kingdom . . . . . . . 100
Computing Devices Hastings Limited. . . . . . . . . . . United Kingdom . . . . . . . 100
Computing Devices Eastbourne Limited. . . . . . . . . . United Kingdom . . . . . . . 100
GCC Beteiligungsverwal Tungs GMBH . . . . . . . . . . . . . Austria . . . . . . . . . . . 100
General Dynamics Advanced Technology Systems, Inc. . . . . . . . Delaware . . . . . . . . . . 100
Caldwell Cable Ventures, 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
</TABLE>
<PAGE> 2
EXHIBIT 21, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
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 Foreign Sales Corporation . . . . . . . . . . . Virgin Islands . . . . . . . 100
General Dynamics Government Systems Corporation . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Government Systems Overseas Corporation . . Delaware . . . . . . . . . . 100
General Dynamics Overseas Systems and Services Corporation . Delaware . . . . . . . . . . 100
General Dynamics Federal Services Corporation . . . . . . . California . . . . . . . . . 100
General Dynamics Interactive Corporation . . . . . . . . . . Delaware . . . . . . . . . . 100
Page International Holdings, Inc. . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Page Europa SpA . . . . . . . . . . . . . . . . . . . . Italy . . . . . . . . . . . . 100
General Dynamics Information Systems, Inc. . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics International Corporation . . . . . . . . . . . Delaware . . . . . . . . . . 100
General Dynamics Land Systems Inc. . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
AV Technology, LLC . . . . . . . . . . . . . . . . . . . . . Maryland . . . . . . . . . . 100
General Dynamics Land Systems Customer Service & Support
Company . . . . . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . 100
General Dynamics Support Services Company . . . . . . . Delaware . . . . . . . . . . 100
Global Support Services Company . . . . . . . . . . . . Cayman Islands . . . . . . . 100
General Dynamics Land Systems International, Inc. . . . . . Delaware . . . . . . . . . . 100
General Dynamics Robotic Systems, 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
Gulfstream Aerospace Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Gulfstream Aerospace Corporation . . . . . . . . . . . . . . California . . . . . . . . . 100
Gulfstream Aerospace Corporation . . . . . . . . . . . . . . Oklahoma . . . . . . . . . . 100
Gulfstream Aerospace Corporation . . . . . . . . . . . . . . Georgia . . . . . . . . . . . 100
Gulfstream Aerospace Corporation of Texas . . . . . . . . . Texas . . . . . . . . . . . . 100
Gulfstream Aerospace FSC, Ltd. . . . . . . . . . . . . . . . Barbados . . . . . . . . . . 100
Gulfstream Aerospace (Middle East) Ltd. . . . . . . . . . . Cyprus . . . . . . . . . . . 100
Gulfstream Aerospace Services Corporation . . . . . . . . . Delaware . . . . . . . . . . 100
Gulfstream Aircraft Incorporated . . . . . . . . . . . . . . Georgia . . . . . . . . . . . 100
Gulfstream Delaware Incorporation . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Gulfstream Financial Services Corporation . . . . . . . . . Georgia . . . . . . . . . . . 100
Gulfstream International Corporation . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Gulfstream NetJets, Inc. . . . . . . . . . . . . . . . . . . Georgia . . . . . . . . . . . 100
Interiores Aeros S.A. de C.V. . . . . . . . . . . . . . . . Mexico . . . . . . . . . . . 100
</TABLE>
<PAGE> 3
EXHIBIT 21, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
PAGE 3
GENERAL DYNAMICS CORPORATION
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiaries of General Dynamics Place of Percent of
Corporation (Parent and Registrant) Incorporation Voting Power
- ---------------------------------- ------------ -------------
<S> <C> <C>
Material Service Resources Company . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Capital Fuels Sales Corporation . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Capital Resources Development Company . . . . . . . . . . . Delaware . . . . . . . . . . 100
Century Mineral Resources, Inc. . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Material Service Corporation . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Material Service Foundation . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
MLRB, Inc. . . . . . . . . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Mineral and Land Resources Corporation . . . . . . . . . Delaware . . . . . . . . . . 100
Thornton Quarries Corporation . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Freeman Energy Corporation . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Freeman Resources, Inc. . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . 100
Freeman United Coal Mining Company . . . . . . . . . . . Delaware . . . . . . . . . . 100
Walker Creek Resource Company . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
NASSCO Holdings Incorporated . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
International Manufacturing Technologies, Inc. . . . . . . . California . . . . . . . . . 100
Technologias Internacionales de Manufactura S.A. de C.V. . . Mexico . . . . . . . . . . . 100
NASSCO Funding Corporation . . . . . . . . . . . . . . . . . California . . . . . . . . . 100
National Steel and Shipbuilding Company . . . . . . . . . . Nevada . . . . . . . . . . . 100
Patriot I Shipping Corp. . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Patriot II Shipping Corp. . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . 100
Patriot IV Shipping Corp. . . . . . . . . . . . . . . . . . . . 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, 1999
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, 1999, into the company's previously filed
Registration Statements File Numbers 33-23448, 2-23904, 2-23032, 2-28952,
2-50980, 2-24270, 33-42799, 33-80213 and 33-81051.
<TABLE>
<S> <C>
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Vienna, Virginia
March 24, 2000
</TABLE>
<PAGE> 1
EXHIBIT 23A, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-3671
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement
No. 333-80213 of General Dynamics Corporation on Form S-4 of our report with
respect to the consolidated financial statements of Gulfstream Aerospace
Corporation as of December 31, 1998 and for the years ended December 31, 1998
and 1997, dated February 1, 1999 (March 1, 1999 as to Note 16), appearing in
this Annual Report on Form 10-K of General Dynamics Corporation for the year
ended December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 15, 2000
<PAGE> 1
<TABLE>
<S> <C> <C>
GENERAL DYNAMICS CORPORATION EXHIBIT 24
COMMISSION FILE NUMBER 1-3671 POWER OF ATTORNEY
------------- REPORTS ON FORM
IRS NO. 13-1673581 10-K AND 10-Q
--------------------
</TABLE>
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,
DAVID A. SAVNER, 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
9th day of February 2000.
<TABLE>
<S> <C>
/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/ Carl E. Mundy, Jr.
- --------------------------------------- ------------------------------------
Lester Crown Carl E. Mundy, Jr.
/s/ Charles H. Goodman /s/ Carlisle A.H. Trost
- ----------------------------------- ---------------------------------
Charles H. Goodman Carlisle A.H. Trost
</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, 1999, AND THE
RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1999
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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 270
<SECURITIES> 0
<RECEIVABLES> 746
<ALLOWANCES> 0
<INVENTORY> 2,165
<CURRENT-ASSETS> 3,491
<PP&E> 2,388
<DEPRECIATION> (1,219)
<TOTAL-ASSETS> 7,774
<CURRENT-LIABILITIES> 3,453
<BONDS> 169
0
0
<COMMON> 487
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,684
<SALES> 8,959
<TOTAL-REVENUES> 8,959
<CGS> 7,756
<TOTAL-COSTS> 7,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 1,126
<INCOME-TAX> 246
<INCOME-CONTINUING> 880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 880
<EPS-BASIC> 4.40
<EPS-DILUTED> 4.36
</TABLE>
<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-END> JUL-04-1999<F1>
<CASH> 457
<SECURITIES> 133
<RECEIVABLES> 678
<ALLOWANCES> 0
<INVENTORY> 2,039
<CURRENT-ASSETS> 3,689
<PP&E> 2,154
<DEPRECIATION> (1,225)
<TOTAL-ASSETS> 6,901
<CURRENT-LIABILITIES> 2,578
<BONDS> 416
0
0
<COMMON> 477
<OTHER-SE> 2,378
<TOTAL-LIABILITY-AND-EQUITY> 6,901
<SALES> 4,089
<TOTAL-REVENUES> 4,089
<CGS> 3,569
<TOTAL-COSTS> 3,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 514
<INCOME-TAX> 16
<INCOME-CONTINUING> 498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 498
<EPS-BASIC> 2.50
<EPS-DILUTED> 2.46
<FN>
<F1> ON JULY 30, 1999, GENERAL DYNAMICS ACQUIRED GULFSTREAM IN A POOLING OF
INTERESTS TRANSACTION. AS SUCH, THE INFORMATION SUBMITTED ON THIS
SCHEDULE HAS BEEN RESTATED TO INCLUDE GULFSTREAM'S ACCOUNT BALANCES
AND RESULTS OF OPERATIONS AS OF AND FOR THE SIX MONTHS ENDING JULY 4, 1999.
</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 APRIL 4, 1999, AND THE
RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED APRIL 4,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> APR-04-1999<F1>
<CASH> 260
<SECURITIES> 52
<RECEIVABLES> 644
<ALLOWANCES> 0
<INVENTORY> 2,011
<CURRENT-ASSETS> 3,693
<PP&E> 2,094
<DEPRECIATION> (1,176)
<TOTAL-ASSETS> 6,875
<CURRENT-LIABILITIES> 2,649
<BONDS> 428
0
0
<COMMON> 472
<OTHER-SE> 2,232
<TOTAL-LIABILITY-AND-EQUITY> 6,875
<SALES> 2,002
<TOTAL-REVENUES> 2,002
<CGS> 1,761
<TOTAL-COSTS> 1,761
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 244
<INCOME-TAX> (79)
<INCOME-CONTINUING> 323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323
<EPS-BASIC> 1.62
<EPS-DILUTED> 1.60
<FN>
<F1> ON JULY 30, 1999, GENERAL DYNAMICS ACQUIRED GULFSTREAM IN A POOLING OF
INTERESTS TRANSACTION. AS SUCH, THE INFORMATION SUBMITTED ON THIS
SCHEDULE HAS BEEN RESTATED TO INCLUDE GULFSTREAM'S ACCOUNT BALANCES
AND RESULTS OF OPERATIONS AS OF AND FOR THE THREE MONTHS ENDING
APRIL 4, 1999.
</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, 1998, AND THE
RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1998
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-31-1998
<PERIOD-END> DEC-31-1998<F1>
<CASH> 210
<SECURITIES> 93
<RECEIVABLES> 580
<ALLOWANCES> 0
<INVENTORY> 1,756
<CURRENT-ASSETS> 3,030
<PP&E> 2,067
<DEPRECIATION> (1,166)
<TOTAL-ASSETS> 6,196
<CURRENT-LIABILITIES> 2,417
<BONDS> 453
0
0
<COMMON> 484
<OTHER-SE> 1,931
<TOTAL-LIABILITY-AND-EQUITY> 6,196
<SALES> 7,398
<TOTAL-REVENUES> 7,398
<CGS> 6,480
<TOTAL-COSTS> 6,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 904
<INCOME-TAX> 315
<INCOME-CONTINUING> 589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 589
<EPS-BASIC> 2.95
<EPS-DILUTED> 2.91
<FN>
<F1> ON JULY 30, 1999, GENERAL DYNAMICS ACQUIRED GULFSTREAM IN A POOLING OF
INTERESTS TRANSACTION. AS SUCH, THE INFORMATION SUBMITTED ON THIS
SCHEDULE HAS BEEN RESTATED TO INCLUDE GULFSTREAM'S ACCOUNT BALANCES
AND RESULTS OF OPERATIONS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998.
</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 27, 1998, AND
THE RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED
SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-27-1998<F1>
<CASH> 170
<SECURITIES> 113
<RECEIVABLES> 419
<ALLOWANCES> 0
<INVENTORY> 1,678
<CURRENT-ASSETS> 2,718
<PP&E> 1,995
<DEPRECIATION> (1,170)
<TOTAL-ASSETS> 5,754
<CURRENT-LIABILITIES> 2,175
<BONDS> 448
0
0
<COMMON> 447
<OTHER-SE> 1,798
<TOTAL-LIABILITY-AND-EQUITY> 5,754
<SALES> 5,190
<TOTAL-REVENUES> 5,190
<CGS> 4,527
<TOTAL-COSTS> 4,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 658
<INCOME-TAX> 229
<INCOME-CONTINUING> 429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 429
<EPS-BASIC> 2.15
<EPS-DILUTED> 2.12
<FN>
<F1> ON JULY 30, 1999, GENERAL DYNAMICS ACQUIRED GULFSTREAM IN A POOLING OF
INTERESTS TRANSACTION. AS SUCH, THE INFORMATION SUBMITTED ON THIS SCHEDULE
HAS BEEN RESTATED TO INCLUDE GULFSTREAM'S ACCOUNT BALANCES AND RESULTS OF
OPERATIONS AS OF AND FOR THE NINE MONTHS ENDING SEPTEMBER 27, 1998.
</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 JUNE 28, 1998, AND THE
RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 28,
1998 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-31-1998
<PERIOD-END> JUN-28-1998<F1>
<CASH> 436
<SECURITIES> 106
<RECEIVABLES> 396
<ALLOWANCES> 0
<INVENTORY> 1,586
<CURRENT-ASSETS> 2,862
<PP&E> 1,943
<DEPRECIATION> (1,137)
<TOTAL-ASSETS> 5,664
<CURRENT-LIABILITIES> 2,110
<BONDS> 427
0
0
<COMMON> 485
<OTHER-SE> 1,689
<TOTAL-LIABILITY-AND-EQUITY> 5,664
<SALES> 3,392
<TOTAL-REVENUES> 3,392
<CGS> 2,972
<TOTAL-COSTS> 2,972
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 415
<INCOME-TAX> 145
<INCOME-CONTINUING> 270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270
<EPS-BASIC> 1.35
<EPS-DILUTED> 1.33
<FN>
<F1> ON JULY 30, 1999, GENERAL DYNAMICS ACQUIRED GULFSTREAM IN A POOLING OF
INTERESTS TRANSACTION. AS SUCH, THE INFORMATION SUBMITTED ON THIS
SCHEDULE HAS BEEN RESTATED TO INCLUDE GULFSTREAM'S ACCOUNT BALANCES
AND RESULTS OF OPERATIONS AS OF AND FOR THE SIX MONTHS ENDING
JUNE 28, 1998.
</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 MARCH 29, 1998, AND THE
RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 29,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-29-1998<F1>
<CASH> 476
<SECURITIES> 97
<RECEIVABLES> 329
<ALLOWANCES> 0
<INVENTORY> 1,531
<CURRENT-ASSETS> 2,753
<PP&E> 1,920
<DEPRECIATION> (1,114)
<TOTAL-ASSETS> 5,559
<CURRENT-LIABILITIES> 2,099
<BONDS> 443
0
0
<COMMON> 492
<OTHER-SE> 1,565
<TOTAL-LIABILITY-AND-EQUITY> 5,559
<SALES> 1,657
<TOTAL-REVENUES> 1,657
<CGS> 1,464
<TOTAL-COSTS> 1,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 188
<INCOME-TAX> 66
<INCOME-CONTINUING> 122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122
<EPS-BASIC> .62
<EPS-DILUTED> .61
<FN>
<F1> ON JULY 30, 1999, GENERAL DYNAMICS ACQUIRED GULFSTREAM IN A POOLING OF
INTERESTS TRANSACTION. AS SUCH, THE INFORMATION SUBMITTED ON THIS
SCHEDULE HAS BEEN RESTATED TO INCLUDE GULFSTREAM'S ACCOUNT BALANCES
AND RESULTS OF OPERATIONS AS OF AND FOR THE THREE MONTHS ENDING
MARCH 29, 1998.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99, ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-3671
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Gulfstream Aerospace Corporation:
We have audited the consolidated balance sheet of Gulfstream Aerospace
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1998 (none of which are
presented herein). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial results of Gulfstream Aerospace Corporation
and subsidiaries at December 31, 1998, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 1, 1999
(March 1, 1999 as to Note 16)
