GENERAL DYNAMICS CORP
FORM 10-K (Annual Report)
Filed 3/18/1998 For Period Ending 12/31/1997
Address 2941 FAIRVIEW PARK DRIVE SUITE 100 FALLS CHURCH, Virginia 22042-4513 Telephone 703-876-3000 CIK 0000040533 Industry Aerospace & Defense Sector Capital Goods Fiscal Year 12/31 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3671 GENERAL DYNAMICS CORPORATION (Exact name of registrant as specified in its charter)
Delaware 13-1673581 ------State or Other Jurisdiction of I.R.S. Employer Incorporation or Organization Identification No.
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523 ------Address of principal executive offices Zip Code
Registrant's telephone number, including area code (703) 876-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange Title of Each Class on Which Registered ------Common Stock, $1.00 Par Value New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange
9.95% Debentures Due 2018 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10 -K or any amendment of this Form 10 -K. ___ The aggregate market value of the voting stock held by nonaffiliates of the registrant was $4,725,449,330 at March 9, 1998, calculated in accordance with the Securities and Exchange Commission rules as to beneficial ownership.
126,236,874 shares of the registrant's common stock were outstanding at March 9, 1998 (adjusted for two-for-one stock split effected in the form of a 100 percent stock dividend declared on March 4, 1998 and payable on April 2, 1998 to shareholders of record on March 13, 1998).
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and II incorporate information from certain portions of the registrant's Annual Report to security holders for the fiscal year ended December 31, 1997 (1997 Shareholder Report).
Part III incorporates information from certain portions of the registrant's definitive Proxy Statement for the 1998 annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year. GENERAL DYNAMICS CORPORATION
INDEX
PART I PAGE ---- Item 1. Business 1 Item 2. Properties 6 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 Supplementary Item. Executive Officers of the Company 8
PART II
Item 5. Market for the Company's Common Equity and Related Shareholder Matters 10 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 8. Financial Statements and Supplementary Data 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 10 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 11 Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
SIGNATURES 12
PART I
ITEM 1. BUSINESS
INTRODUCTION
The primary business of General Dynamics (the company) is supplying weapons systems and services to the U.S. government and its international allies. The company is a Delaware corporation formed in 1952 as successor to the Electric Boat Company. Two of the company's primary operating units, General Dynamics Land Systems Inc. and Bath Iron Works Corporation, were acquired in 1982 and 1995, respectively. On January 1, 1997, the company acquired the assets of Defense Systems and Armament Systems, formerly operating units of Lockheed Martin Corporation. On October 1, 1997, the company acquired the assets of Advanced Technology Systems, formerly an operating unit of Lucent Technologies. On December 31, 1997, the company acquired the assets of Computing Devices International, formerly a division of Ceridian Corporation. During the period 1992 through 1994, the company divested its tactical military aircraft, missile systems and space launch systems businesses.
The company currently operates in the following business segments: Marine, Combat Systems, Information Systems and Technology, and Other. Marine includes Electric Boat Corporation (Electric Boat), Bath Iron Works Corporation (BIW), and American Overseas Marine Corporation (AMSEA). Combat Systems includes General Dynamics Land Systems Inc. (Land Systems), General Dynamics Defense Systems, Inc. (Defense Systems), and General Dynamics Armament Systems, Inc. (Armament Systems). Information Systems and Technology includes General Dynamics Advanced Technology Systems, Inc. (ATS) and three operating units which comprised Computing Devices International: General Dynamics Information Systems, Inc. (GDIS), Computing Devices Canada, Ltd., and Computing Devices Company Ltd. in the United Kingdom. The Other business segment includes Freeman Energy Corporation (Freeman Energy), Material Service Corporation (Material Service), and Patriot I, II and IV Shipping Corporations (Patriots). Information on revenues, operating profit or loss and identifiable assets attributable to each of the company's business segments is included in Note R to the Consolidated Financial Statements on page 38 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 1997, and is incorporated herein by reference. A description of the company's products and services, competition, and other related information follows.
PRODUCTS AND SERVICES
MARINE
Net Sales (in millions) 1997 1996 1995 ------
Nuclear Submarines $1,321 $1,443 $1,567 Surface Combatants 839 791 246 Other 151 98 71 ------$2,311 $2,332 $1,884 ======
Electric Boat designs and builds nuclear submarines for the U.S. Navy, having contracts for the design of the New Attack Submarine (NSSN), and for construction of the last two Seawolf class attack submarines. Electric Boat entered into a Team Agreement with Newport News Shipbuilding and Drydock Company, providing that Electric Boat will be the prime contractor on construction contracts for the NSSN. In addition, Electric Boat performs a broad range of engineering work including advanced research and technology development, systems and component design evaluation, prototype development and logistics support to the operating fleet. Electric Boat also serves as ship integrator for certain components and subassemblies of the submarines, such as electronic equipment.
BIW has contracts for the construction of 21 Arleigh Burke class destroyers (DDG 51) and plays a lead role in providing design, engineering, and ongoing life cycle support services for DDG 51 class ships. BIW is a member of a three-contractor team which was awarded a contract to design and build the Navy's new class of amphibious transport ships (LPD 17), and is a member of a three-contractor team recently formed to compete for the development, design, construction and life-cycle support of the U.S. Navy's next generation surface combatant ships (DD 21).
1 AMSEA provides ship management services for five of the U.S. Navy's Maritime Prepositioning Ships (MPS), nine of the U.S. Maritime Administration's Ready Reserve Force ships (RRF) and two U.S. Maritime Army War Reserve vessels (AWR-3). The MPS are under five-year contracts of which three were renewed in 1995, and two were renewed in 1996. These contracts are renewable through the year 2011. The RRF ships are in the last year of their five-year contracts. The MPS and AWR-3 vessels operate worldwide; the RRF vessels are located on the east, gulf and west coasts of the United States.
COMBAT SYSTEMS
Net Sales (in millions) 1997 1996 1995 ------Armored Vehicles $ 960 $ 889 $ 933 Ordnance 265 - - Other 284 137 117 ------$1,509 $1,026 $1,050 ======
Land Systems designs and manufactures the M1 Series Abrams Main Battle Tank for the U.S. Army and various foreign governments. Land Systems also performs engineering and upgrade work, and provides support for existing armored vehicles. Production of the M1A2, the latest version of the M1, was initiated in 1992. Land Systems is currently in its second year of its five year multiyear contract with the U.S. Army to upgrade 120 tanks per year from the M1 to the M1A2 version.
Land Systems is also under contract for the development of several other major armored vehicle programs. The first is the Advanced Amphibious Assault Vehicle program for which Land Systems was recently awarded a development contract, including prototype design and construction. Two prototypes are currently under contract with an option for a third. The second is the Heavy Assault Bridge program which is currently under development and is expected to enter production late in this decade. The third is the Crusader Self-Propelled Howitzer development program of which the company's share is approximately 25 percent.
Land Systems will complete production of the Single Channel Ground and Airborne Radio System in late 1998 under a contract with the U.S. Army.
Armament Systems designs, develops and produces advanced gun and ammunition handling systems based on the Gatling principal for applications on various platforms. Armament Systems is also a leader in the production of ammunition products and operates the Milan Army Ammunition Plant in Milan, Tennessee, for the U.S. Army.
Defense Systems builds light armored vehicles, and turrets and transmissions for armored vehicles for both the U.S. Army and foreign governments. As part of a restructuring plan being implemented in 1998, these product lines are being transferred to Land Systems. The remaining business of Defense Systems, the design and manufacture of missile guidance and fire control systems for the U.S. Navy, will be reported in the Marine segment beginning in 1998.
INFORMATION SYSTEMS AND TECHNOLOGY
This segment was formed effective January 1, 1998, following the acquisitions of ATS and Computing Devices International. The net sales of ATS for the fourth quarter of 1997 were reported in the Marine segment.
ATS provides both fixed and mobile undersea fiber-optic surveillance systems as well as special purpose signal and information processors for the U.S. Navy. ATS also provides vibration reduction technologies for the elimination of radiant noise and engine fatigue on various platforms. ATS designs command, communications, control and intelligence systems and network architecture solutions for the NSSN and the LPD 17. ATS also builds power feed and terminal transmission equipment for the commercial undersea fiber-optic market.
GDIS provides world class information processing systems for airborne, land-based, seaborne, and space-based platforms, as well as information management services for the U.S. government and a number of allied nations. The company also provides contract manufacturing services for a number of defense and commercial electronics contractors. Computing Devices Canada, Ltd. is the systems integrator on the Iris program, whose objective is to modernize and fully digitize the tactical command, control and communications systems of the Canadian land forces. In addition, it provides advanced systems products in the areas of maritime surveillance, land based vectronics and display systems. Computing Devices Company Ltd. in the United Kingdom provides and supports electronics technology for airborne, ground and naval systems, and has the second largest share of the European Fighter Aircraft.
2 OTHER
Net Sales (in millions) 1997 1996 1995 ------Aggregates $ 110 $ 87 $ - Coal Mining 107 111 116 Other 25 25 17 ------$ 242 $ 223 $ 133 ======
Material Service is engaged in the mining and sale of aggregates (e.g. stone, sand and gravel) for use in the construction of highways and other infrastructure projects, and for commercial and residential building construction primarily in northern and central Illinois. This business is cyclical and seasonal in nature.
Freeman Energy mines coal, producing approximately 5 million tons in each of the last three years. Freeman Energy owns or leases rights to over 600 million tons of coal reserves in Illinois.
Patriots are financing subsidiaries that lease liquefied natural gas tankers to a nonaffiliated company.
COMPETITION
Historically, competition for U.S. government defense contracts was characterized by a number of major companies competing for a variety of weapon system contracts. The customer's procurement policy generally required competitive bids based on strict product specifications. In addition, the customer often awarded contracts to more than one company in order to ensure competition on subsequent contracts.
In recent years, because of reduced defense spending, the industry has consolidated through mergers and acquisitions to maintain critical mass resulting in fewer and larger competitors. With fewer but more complex programs in competition, companies frequently have formed strategic alliances to pursue these programs. The Department of Defense faces challenges due to the reduction in available procurement funds as it must address industrial base issues while assessing competing needs between and among the various branches of the service. Finally, Congress continues to be very influential in its role of selecting which programs to fund and at what level based on limited budget dollars. As a result, the defense procurement policy is evolving and will be affected by these various and sometimes conflicting factors.
A discussion of competition on individual programs is included in Management's Discussion and Analysis of the Results of Operations and Financial Condition on pages 18 through 23 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K and incorporated herein by reference.
U.S. GOVERNMENT CONTRACTS
The company's net sales to the U.S. government include Foreign Military Sales (FMS). FMS are sales to foreign governments through the U.S. government, whereby the company contracts with and receives payment from the U.S. government and the U.S. government assumes the risk of collection from the customer. Historically, the company's largest FMS sales are M1 tanks and related services, including training in operation and maintenance, and other logistical support. U.S. government sales were as follows (dollars in millions):
Year Ended December 31 ------1997 1996 1995 ------Domestic $3,485 $3,051 $2,422 FMS 166 261 476 ------Total U.S. government $3,651 $3,312 $2,898 ======Percent of net sales 90% 92% 94%
3 All U.S. government contracts are terminable at the convenience of the U.S. government, as well as for default. Under contracts terminable at the convenience of the U.S. government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. Contracts which are terminated for default generally provide that the U.S. government only pays for the work it has accepted and may require the contractor to pay for the incremental cost of reprocurement and may hold the contractor liable for damages. In 1991, the U.S. Navy terminated for default a contract with the company and McDonnell Douglas Corporation for the full-scale development of the U.S. Navy's A-12 aircraft. On February 23, 1998, a final judgment was entered in favor of the contractors for $1,200 million plus interest. The U.S. government has filed a notice of appeal. For further discussion, see Note O to the Consolidated Financial Statements on page 34 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K and incorporated herein by reference.
Companies engaged in supplying goods and services to the U.S. government are dependent on congressional appropriations and administrative allotment of funds, and may be affected by changes in U.S. government policies resulting from various military and political developments. U.S. government defense contracts typically involve long lead times for design and development, and are subject to significant changes in contract scheduling. Often the contracts call for successful design and production of very complex and technologically advanced items.
FOREIGN SALES AND OPERATIONS
The major portion of sales and operating earnings of the company for the past three years was derived from operations in the United States. Although the company purchases supplies from and subcontracts with foreign companies, it had no substantial operations in foreign countries until the acquisition of Computing Devices Canada, Ltd. and Computing Devices Company Ltd. Direct foreign sales were $132 million, $38 million and $29 million in 1997, 1996 and 1995, respectively.
SUPPLIES
Many items of equipment and components used in the production of the company's products are purchased from other manufacturers. The company is dependent upon suppliers and subcontractors for a large number of components and the ability of its suppliers and subcontractors to meet performance and quality specifications and delivery schedules. In some cases the company is dependent on one or a few sources, either because of the specialized nature of a particular item or because of domestic preference requirements pursuant to which it operates on a given project.
All of the company's operations are dependent upon adequate supplies of certain raw materials, such as aluminum and steel, and on adequate supplies of fuel. Fuel or raw material shortages could also have an adverse effect on the company's suppliers, thus impairing their ability to honor their contractual commitments to the company. The company has not experienced serious shortages in any of the raw materials or fuel supplies that are necessary for its production programs.
RESEARCH AND DEVELOPMENT
Research and development activities in Marine and Combat Systems are conducted principally under U.S. government contracts. These research efforts are concerned with developing products for large systems development programs or performing work under research and development technology contracts. Beginning in 1996, the company experienced a decline in customer-sponsored expenditures for research and development due primarily to the NSSN program at Electric Boat moving to the design phase. In addition, the defense businesses engage in independent research and development, of which a significant portion is recovered through overhead charges to U.S. government contracts.
The table below details expenditures for research and development (dollars in millions):
Year Ended December 31 ------1997 1996 1995 ------Company-sponsored $ 55 $ 38 $ 25 Customer-sponsored 58 89 178 ------$113 $127 $203 ======
4 BACKLOG
Summary backlog information for each business segment follows:
December 31 1997 Backlog ------Not Filled 1997 1996 in 1998 ------Marine $ 5,864 $ 7,566 $ 4,088 Combat Systems 2,323 2,057 968 Information Systems and Technology 805 - 268 Other 607 727 542 ------Total Backlog $ 9,599 $10,350 $ 5,866 ======Funded Backlog $ 6,796 $ 6,161 $ 3,342 ======
Total backlog represents the estimated remaining sales value of work to be performed under firm contracts. Funded backlog represents the portion of total backlog that has been appropriated by Congress and funded by the procuring agency. To the extent backlog has not been funded, there is no assurance that congressional appropriations or agency allotments will be forthcoming. Total backlog also includes amounts for long-term coal contracts. For further discussion, see Management's Discussion and Analysis of the Results of Operations and Financial Condition on pages 18 through 23 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K and incorporated herein by reference.
ENVIRONMENTAL CONTROLS
The 1990 Clean Air Act (Act) had a significant impact on Freeman Energy. The Act requires, among other things, a phased reduction in sulfur dioxide emissions by coal burning facilities. Virtually all of the coal in Freeman Energy's Illinois basin mines has medium or high sulfur content. Freeman Energy's two long-term contract customers have clean coal technologies which allow for utilization of Freeman Energy's coal under the new regulations. Freeman Energy has targeted customers with clean coal technology to mitigate the impact of regulations in the near term. The long-term impact of the Act is not known.
Federal, state and local requirements relating to the discharge of materials into the environment and other factors affecting the environment have had and will continue to have an impact on the manufacturing operations of the company. Thus far, compliance with the requirements has been accomplished without material effect on the company's capital expenditures, earnings or competitive position. While it is expected that this will continue to be the case, the company cannot assess the possible effect of compliance with future requirements. Additional information relating to the impact of environmental controls is included under the caption "Environmental" in Note N to the Consolidated Financial Statements on page 33 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K, and is incorporated herein by reference.
PATENTS
Numerous patents and patent applications are owned by the company and utilized in its development activities and manufacturing operations. In many cases, however, the U.S. government has an irrevocable, non-exclusive, royalty-free license, pursuant to which the government may use or authorize others to use the inventions covered by the patents. Pursuant to similar arrangements, the government may consent to the company's use of inventions covered by patents. Patents and licenses are important in the operation of the company's business, as one of management's key objectives is developing and providing its customers with advanced technological solutions.
EMPLOYEES
At December 31, 1997, the company had approximately 29,000 employees (excluding contract labor), of whom 47 percent were covered by collective bargaining agreements with various unions, the most significant of which are the International Association of Machinists and Aerospace Workers, the Industrial Union of Marine and Shipbuilding Workers of America, the Metal Trades Council (MTC) of New London, Connecticut, the United Auto Workers Union, the Office and Professional Employees International Union and the United Mine Workers of America. Several agreements are due to expire during 1998, the most significant of which is the MTC.
5 ITEM 2. PROPERTIES
A summary of floor space at the main facilities of the Marine, Combat Systems, and Information Systems and Technology segments follows (square feet in millions):
COMPANY GOVERNMENT OWNED LEASED FURNISHED FACILITIES FACILITIES FACILITIES TOTAL ------MARINE: Electric Boat Groton, Connecticut 2.6 .2 2.8 Quonset Point, Rhode Island 0.4 1.1 1.5 Avenel, New Jersey 0.4 0.4
Bath Iron Works Bath, Maine 1.1 1.1 East Brunswick, Maine 0.6 0.6 Portland, Maine 0.1 0.1 ------
TOTAL MARINE 5.1 1.4 0.0 6.5 ======
COMBAT SYSTEMS: Land Systems Lima, Ohio 1.6 1.6 Muskegon, Michigan 1.0 0.1 1.1 Scranton, Pennsylvania 0.3 0.3 Woodbridge, Virginia 0.1 0.1 Tallahassee, Florida 0.1 0.1 Sterling Heights, Michigan 0.6 0.6 Anniston, Alabama 0.1 0.1 Imperial, California 0.1 0.1 Chesterfield, Michigan 0.1 0.1 Armament Systems Burlington, Vermont 0.6 0.6 Milan, Tennessee 3.9 3.9 Defense Systems Pittsfield, Massachusetts 0.1 0.8 0.9 ------
TOTAL COMBAT SYSTEMS 2.4 0.7 6.4 9.5 ======
INFORMATION SYSTEMS AND TECHNOLOGY: GDIS Bloomington, Minnesota 0.5 0.5 Computing Devices Canada, Ltd. Ottawa, Ontario 0.2 0.1 0.3 Calgary, Alberta 0.2 0.2 ATS Greensboro, North Carolina 0.1 0.1 0.2 ------TOTAL INFORMATION SYSTEMS AND TECHNOLOGY 0.5 0.7 0.0 1.2 ======
6 BIW began in 1997 a $200 million project to construct a fifteen acre land level transfer facility and manufacturing support center, and a 750- foot dry-dock in Bath, Maine to improve productivity.
OTHER. Freeman Energy operates two underground mines and one surface mine in Illinois. Coal preparation facilities and rail loading facilities are located at each mine sufficient for its output.
Material Service operates several stone quarries, as well as sand and gravel pits and yards in the Chicago, Illinois area for its aggregates business.
REAL ESTATE HELD FOR DEVELOPMENT. As part of the sale of businesses, certain related properties were retained by the company. These properties have been segregated on the Consolidated Balance Sheet as real estate held for development. The company has retained outside experts to support the development of plans and marketing efforts which are intended to maximize the market value of these properties. The remaining properties include 232 acres in Kearny Mesa and 2,420 acres in Sycamore Canyon, both of which are in San Diego, California; and 308 acres in Rancho Cucamonga, California. Most of this property is undeveloped. The company owns 10,000 square feet of building space at Rancho Cucamonga and 200,000 square feet of building space at Sycamore Canyon. Most of the buildings at Kearny Mesa were demolished in 1997 in preparation for development activity. In 1997, two buildings and 55 acres in Rancho Cucamonga were sold.
ITEM 3. LEGAL PROCEEDINGS
The information under the captions "Litigation" and "Environmental" in Note N and the information in Note O to the Consolidated Financial Statements appearing on pages 33 through 34 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the company's security holders during the fourth quarter of the year ended December 31, 1997.
7 SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The name, age, offices and positions held for the last five years of the company's executive officers who are not directors are as follows:
AGE AT DECEMBER 31 NAME, POSITION AND OFFICE 1997 ------
David D. Baier -- Vice President Taxes since August 1995; Staff Vice President Taxes 43 March 1994 -- August 1995; Corporate Tax Counsel and Director of Planning and Litigation September 1991 -- March 1994
G. Kent Bankus -- Vice President Government Relations since April 1993; Staff Vice President 55 Aerospace Programs and Field Offices July 1991 -- April 1993
Edward C. Bruntrager -- Vice President and General Counsel since March 1994; Assistant General 50 Counsel January 1987 -- March 1994
Allan C. Cameron -- Vice President of the company and President of Bath Iron Works since 51 March 1996; Executive Vice President and Chief Operating Officer of Bath Iron Works July 1994 -- March 1996; Facility Manager of Electric Boat May 1993 -- June 1994; Director of Operations of Electric Boat January 1989 -- May 1993
Gordon R. England -- Executive Vice President since March 1997; 60 President - Lockheed Fort Worth March 1993 - March 1995; Executive Vice President of the company and President - Aircraft Systems of the Fort Worth Division August 1992 -- March 1993
James I. Finley -Vice President of the company and President General Dynamics Information 51 Systems since January 1998; Vice President of Government Information Systems November 1995 - December 1997; Vice President Programs and Engineering, Westinghouse/United Technologies 1990 - October 1995
David H. Fogg -- Vice President and Treasurer since March 1998; Staff Vice President and Treasurer 42 November 1994 -- March 1998; Staff Vice President and Assistant Treasurer May 1994 -- November 1994; Corporate Director of Finance and Assistant Treasurer January 1994 -- May 1994; Corporate Director of Risk Management November 1991 -- January 1994
Paul A. Hesse -- Vice President Communications and Secretary since February 1996; Vice President 56 Communications May 1991 -- February 1996
Kenneth A. Hill - Vice President Information Technology since April 1997; Staff Vice President 48 Personnel Relations November 1994 - April 1997; Director Salaried Compensation March 1989 - November 1994
Raymond E. Kozen -- Vice President Planning and Analysis since March 1997; Staff Vice President 56 for Special Projects December 1987 -- March 1997
Kenneth J. Leenstra -- Vice President of the company and President of Armament Systems 60 since February 1997; President of Armament Systems - Lockheed Martin January 1990 -- January 1997
Michael J. Mancuso -- Senior Vice President and Chief Financial Officer 55 since March 1997; Vice President and Chief Financial Officer November 1994 -- March 1997; Vice President and Controller May 1994 -- November 1994; Division Vice President and Chief Financial Officer of Land Systems September 1993 -- May 1994; Vice President and Controller - Commercial Engine Business, Pratt & Whitney, United Technologies Corporation July 1992 -- September 1993
8 AGE AT DECEMBER 31 NAME, POSITION AND OFFICE 1997 ------
Charles E. McQueary - Vice President of the company and President of Advanced Technology 58 Systems since October 1997; President - Advanced Technology Systems, AT&T/Lucent Technologies January 1994 - September 1997; Vice President Federal Systems Advanced Technologies, AT&T October 1987 - December 1993
David A. Savner -- Senior Vice President Law effective April 1998; Senior Partner 54 of Jenner & Block May 1987 -- March 1998
Daniel P. Schmutte -- Vice President of the company and President of Defense Systems 47 since February 1997; Vice President Operations August 1995 - February 1997; Staff Vice President and Assistant to the President/Chief Executive Officer June 1993 -- August 1995; Assistant to the President December 1990 -- June 1993
John W. Schwartz -- Vice President and Controller since March 1998; 41 Staff Vice President and Controller November 1994 -- March 1998; Corporate Director of Accounting July 1992 -- November 1994
David E. Scott - Vice President of the company and President of Computing Devices 52 Canada since February 1998; President Computing Devices Canada June 1997 - January 1998; Vice President Communications Division November 1990 - May 1997
James E. Turner, Jr. - President and Chief Operating Officer since June 1997; 63 Executive Vice President of the Marine Group October 1995 - June 1997; Executive Vice President of the company and President of Electric Boat April 1993 -- October 1995; Executive Vice President of the Marine, Land Systems and Services Group February 1991 -- April 1993
Arthur J. Veitch -- Vice President of the company and President of Land Systems since 51 February 1997; Vice President of the company and Senior Operating Officer of Land Systems August 1995 -- February 1997; Division Vice President and General Manager of the Convair Division August 1992 -- August 1995
John K. Welch -- Vice President of the company and President of Electric Boat since 47 October 1995; Division Vice President Programs and Planning of Electric Boat April 1994 -- October 1995; Division Vice President Program Management and Development of Electric Boat June 1989 -- April 1994
W. Peter Wylie -- Vice President Human Resources and Administration since August 1995; 58 Group Vice President - Hughes Missile Systems Company August 1992 -- December 1994; Division Vice President Human Resources of the company's Missiles and Electronics Group May 1991 -- August 1992
Michael W. Wynne -- Senior Vice President International, Planning and Development 53 since March 1997; Vice President and General Manager of Lockheed Martin, Martin Marietta Astronautics Division May 1994 -- February 1997; Vice President of the company and President of the Space Systems Division August 1992 -- May 1994
All executive officers of the company are elected annually. There are no family relationships, as defined, among any of the above executive officers. No executive officer of the company was selected pursuant to any arrangement or understanding between the officer and any other person.
9 PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The company's common stock is listed on the New York Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange.
The high and low market price of the company's common stock and the cash dividends declared for each quarterly period during the two most recent fiscal years are included in Note S to the Consolidated Financial Statements appearing on page 38 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, and are incorporated herein by reference.
There were 21,046 common shareholders of record of the company's common stock at December 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing on page 40 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information appearing on pages 18 through 23 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information appearing on pages 24 through 40 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth herein, except for a list of the executive officers other than directors that is provided in Part I of this report, is included under the caption "Election of Directors" in the company's definitive Proxy Statement which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be set forth herein is included under the captions "Board of Directors and Board Committees" and "Executive Compensation" in the company's definitive Proxy Statement which is incorporated herein by reference.
10 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be set forth herein is included under the captions "Election of Directors" and "Principal Shareholders" in the company's definitive Proxy Statement which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth herein is included under the captions "Employment Agreements and Other Agreements" and "Transactions Involving Directors and Others" in the company's definitive Proxy Statement which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Report of Independent Public Accountants and Consolidated Financial Statements appearing in the 1997 Shareholder Report on the pages listed in the following index are included in this Annual Report on Form 10-K as Exhibit 13, and are incorporated herein by reference.
Page of 1997 Shareholder Report ------Report of Independent Public Accountants 39
Consolidated Financial Statements:
Consolidated Statement of Earnings 24
Consolidated Balance Sheet 25
Consolidated Statement of Cash Flows 26
Consolidated Statement of Shareholders' Equity 27
Notes to Consolidated Financial Statements (A to S) 28-38
2. Financial Statement Schedules
No schedules are submitted because they are either not applicable or not required, or because the required information is included in the financial statements or the notes thereto.
3. Exhibits--See Index on pages 13 and 14 of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1997.
11 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENERAL DYNAMICS CORPORATION
By: /s/ John W. Schwartz ------John W. Schwartz Vice President and Controller March 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 18, 1998, by the following persons on behalf of the Registrant and in the capacities indicated, including a majority of the directors.
/s/ Nicholas D. Chabraja Chairman, Chief Executive Officer and Director ------(Principal Executive Officer) Nicholas D. Chabraja
/s/ James E. Turner, Jr. President and Chief Operating Officer ------James E. Turner, Jr.
/s/ Michael J. Mancuso Senior Vice President and Chief Financial Officer ------(Principal Financial Officer) Michael J. Mancuso
/s/ John W. Schwartz Vice President and Controller ------(Principal Accounting Officer) John W. Schwartz
Julius W. Becton, Jr.* Director
James S. Crown* Director
Lester Crown* Director
Charles H. Goodman* Director
George A. Joulwan* Director
Paul G. Kaminski* Director
James R. Mellor* Director
Gordon R. Sullivan* Director
Carlisle A. H. Trost* Director
*By Paul A. Hesse pursuant to Power of Attorney executed by the directors listed above, which Power of Attorney has been filed with the Securities and Exchange Commission.
/s/ Paul A. Hesse ------Paul A. Hesse Secretary
12 INDEX TO EXHIBITS
Note Exhibit Number Number Description ------
(5) 3-1A --Restated Certificate of Incorporation, effective May 21, 1991 3-2D --Bylaws as amended effective October 1, 1997 (11) 4 --Letter re agreement to furnish copy of indenture (1) 10-1A --Amendment of Mining Leases between American National Bank and Trust of Chicago, Trustee, and La Salle National Bank, Trustee, to Freeman Coal Mining Corporation, dated January 1, 1960 (1) 10-1B --Amendatory Agreement between Freeman United Coal Mining Company and American National Bank and Trust Company, as Trustee, and La Salle National Bank, as Trustee, dated January 1, 1975 (3) 10-6A --General Dynamics Corporation Incentive Compensation Plan adopted February 3, 1988, approved by the shareholders on May 4, 1988 (4) 10-6B --General Dynamics Corporation Incentive Compensation Plan (as amended), approved by shareholders on May 1, 1991 (4) 10-7E --Facilities Contract DAAE07-90-E-A001 dated June 24, 1990, between General Dynamics Land Systems, Inc. and the United States relating to government-owned facilities and equipment at the Lima Army Tank Plant, Lima, Ohio (7) 10-8B --General Dynamics Corporation Retirement Plan for Directors adopted March 6, 1986, as amended May 5, 1993 (11) 10-14A --Lease Agreement dated December 20, 1996, between Electric Boat Corporation and the Rhode Island Economic Development Corporation (6) 10-18 --Employment Agreement between the company and James R. Mellor dated as of March 17, 1993 (9) 10-18A --Amendment to employment agreement between the company and James R. Mellor dated as of October 3, 1995 (11) 10-18B --Amendment to employment agreement between the company and James R. Mellor dated as of November 5, 1996 (6) 10-22 --Form of Agreement entered into in 1993 between the company and Corporate Officers who were being retained in employment with the company (8) 10-24 --Asset Purchase Agreement, dated August 17, 1995, between the company and Bath Iron Works Corporation (9) 10-25 --Lease Agreement dated January 14, 1982, between Bath Iron Works Corporation and the City of Portland, Maine, relating to pier facilities in the Portland, Maine harbor (9) 10-26 --Lease Agreement dated January 14, 1982, between Bath Iron Works Corporation and the State of Maine, relating to a dry dock facility in the Portland, Maine harbor (10) 10-28 --Asset Purchase and Sale Agreement, dated November 6, 1996, as amended December 20, 1996, between the company and Lockheed Martin Corporation (11) 10-29 --Employment agreement between the company and Nicholas D. Chabraja dated November 12, 1996 (11) 10-30 --General Dynamics Corporation Incentive Compensation Plan adopted February 5, 1997, approved by shareholders on May 7, 1997 10-31 --Retirement Benefit Agreement between the company and Gordon R. England dated February 14, 1997 10-32 --Credit Enhancement Agreement between Bath Iron Works Corporation and the City of Bath, Maine dated September 19, 1997, relating to the development program of facilities in Bath, Maine 10-33 --Retirement Benefit Agreement between the company and Michael J. Mancuso dated March 6, 1998 10-34 --Consulting agreement between the company and Paul G. Kaminski dated August 18, 1997 10-35 --Salary and benefit continuation agreement between the company and Michael W. Wynne dated February 7, 1997
13 INDEX TO EXHIBITS
Note Exhibit Number Number Description ------13 --1997 Shareholder Report (pages 18 through 40) 21 --Subsidiaries 23 --Consent of Independent Public Accountants 24 --Power of Attorney of the Board of Directors 27 --Financial Data Schedule 27A --Restated Financial Data Schedule for the nine months ended September 28, 1997 27B --Restated Financial Data Schedule for the six months ended June 29, 1997 27C --Restated Financial Data Schedule for the three months ended March 30, 1997 27D --Restated Financial Data Schedule for the year ended December 31, 1996 27E --Amended and Restated Financial Data Schedule for the nine months ended September 29, 1996 27F --Restated Financial Data Schedule for the six months ended June 30, 1996 27G --Restated Financial Data Schedule for the three months ended March 31, 1996 27H --Restated Financial Data Schedule for the year ended December 31, 1995
NOTES
(1) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1980, and filed with the Commission March 31, 1981, and incorporated herein by reference.
(2) Not used.
(3) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1987, and filed with the Commission March 17, 1988, and incorporated herein by reference.
(4) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1990, and filed with the Commission March 29, 1991, and incorporated herein by reference.
(5) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1991, and filed with the Commission March 26, 1992, and incorporated herein by reference.
(6) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1992, and filed with the Commission March 30, 1993, and incorporated herein by reference.
(7) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1994, and filed with the Commission March 9, 1995, and incorporated herein by reference.
(8) Filed as an exhibit to the company's current report on Form 8-K filed with the Commission September 28, 1995, and incorporated herein by reference.
(9) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1995, and filed with the Commission March 21, 1996, and incorporated herein by reference.
(10) Filed as an exhibit to the company's current report on Form 8-K filed with the Commission January 15, 1997, and incorporated herein by reference.
(11) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1996, and filed with the Commission March 21, 1997, and incorporated herein by reference.
14 Exhibit 3-2D
GENERAL DYNAMICS CORPORATION
By-Laws
As Amended effective 1 October 1997 BY-LAWS
of
GENERAL DYNAMICS CORPORATION
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of General Dynamics Corporation (hereinafter called the Corporation) in the State of Delaware shall be in the City of Dover, County of Kent. The registered agent of the Corporation in said State is United States Corporation Company.
SECTION 2. Other Offices. The Corporation may have such other offices in such places, either within or without the State of Delaware, as the Board of Directors of the Corporation (hereinafter called the Board) may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of any other proper business notice of which was given in the notice of such meetings shall be held on such date and at such time as shall be designated by the Board. If any annual meeting shall not be held on the date designated therefor the Board shall cause the meeting to be held as soon thereafter as conveniently may be.
SECTION 2. Special Meetings. A special meeting of the stockholders for any purpose or purposes may be called at any time by the Chairman of the Board or by a majority of the directors.
SECTION 3. Place of Meeting. All meetings of the stockholders shall be held at such place or places, within or without the State of Delaware, as may from time to time be designated by the Board.
SECTION 4. Notice of Meetings. Every stockholder shall furnish the Corporation through its Secretary with an address at which notices of meetings and all other corporate notices may be served on or mailed to him. Except as otherwise expressly required by statute, the Certificate of Incorporation or these By-Laws, notice of each meeting of the stockholders shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting, by delivering a written notice thereof to him personally, or by depositing such notice in the United States mail in a postage prepaid envelope, directed to him at his post-office address furnished by him to the Corporation, or, if he shall not have furnished to the Corporation his address but his address shall otherwise appear on the records of the Corporation, then at his address as it shall so appear on the records of the Corporation, or, if he shall not have furnished to the Corporation his post-office address and his address shall not otherwise appear on the records of the Corporation, then at the registered office of the Corporation in the State of Delaware. Except as otherwise expressly required by statute, the Certificate of Incorporation or these By-Laws, no publication of any notice of a meeting of the stockholders shall be required, nor shall the giving of any notice of any adjourned meeting of stockholders be required if the time and place thereof are announced at the meeting at which the adjournment is taken. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
SECTION 5. Quorum. At each meeting of the shareholders, except as otherwise expressly required by statute, the Certificate of Incorporation or these By-Laws, the holders of record of a majority of the issued and outstanding shares of stock of the Corporation entitled to be voted at such meeting, present either in person or by proxy, shall constitute a quorum for the transaction of business, provided, however, that in any case where the holders of Preferred Stock or any series thereof are entitled to vote as a class, a quorum of the Common
1 Stock and a quorum of the Preferred Stock or such series thereof shall be separately determined. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, a majority in interest of the stockholders of the Corporation present in person or by proxy and entitled to vote, or, in the absence of any stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn the meeting from time to time, provided, however, that at any such meeting where the holders of Preferred Stock or any series thereof are entitled to vote as a class, if one class or series of stock of the Corporation but not the other has a quorum present, the meeting may proceed with the business to be conducted by the class or series having a quorum present, and may be adjourned from time to time in respect of business to be conducted by the class or series not having a quorum present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The absence from any meeting in person or by proxy of stockholders holding the number of shares of stock of the Corporation entitled to vote thereat required by statute, the Certificate of Incorporation or these By-Laws for action upon any given matter shall not prevent action at such meeting upon any other matter which may properly come before the meeting, if there shall be present thereat in person or by proxy stockholders holding the number of shares of stock of the Corporation entitled to vote thereat required in respect of such other matter.
SECTION 6. Voting. (a) Except as otherwise expressly required by statute, the Certificate of Incorporation or these By-Laws, each stockholder shall at each meeting of the stockholders be entitled to one vote in person or by proxy for each share of stock of the Corporation entitled to be voted thereat held by him and registered in his name on the books of the Corporation on such date as may be fixed pursuant to Article VII of these By-Laws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting.
(b) Shares of its own stock belonging to the Corporation, or to another corporation if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall not be entitled to vote.
(c) Persons holding stock having voting power in a fiduciary capacity, or their proxies, shall be entitled to vote the shares so held, and persons whose stock having voting power is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon.
(d) No proxy shall be voted or acted upon after three years from its date, unless said proxy provides for a longer period.
(e) If shares shall stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons shall have the same fiduciary relationship respecting the same shares, unless the Secretary shall have been given written notice to the contrary and have been furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:
(i) if only one shall vote, his act shall bind all;
(ii) if more than one shall vote, the act of the majority so voting shall bind all; and
(iii) if more than one shall vote, but the vote shall be evenly split on any particular matter, then, except as otherwise required by the General Corporation Law of the State of Delaware, each faction may vote the shares in question proportionally.
If the instrument so filed shall show that any such tenancy is held in unequal interests, the majority or even-split for the purpose of the next foregoing sentence shall be a majority or even-split in interest.
(f) At all meetings of the stockholders all matters, except as otherwise expressly required by statute, the Certificate of Incorporation or these By-Laws, shall be decided by the vote of a majority in interest of the stockholders present in person or by proxy and entitled to vote on such matters, a quorum being present. Except in the case of votes for the election of directors and for other matters where expressly so required, the vote at any meeting of the stockholders on any question need not be by ballot, unless demanded by a stockholder present in person or by proxy and entitled to vote on such matters, or directed by the chairman of the meeting. Upon a demand of any such stockholder, or at the direction of such chairman, that a vote by ballot be taken on any question, such vote shall be taken. On a vote by ballot each ballot shall be signed by the stockholder voting, or on his behalf by his proxy, and it shall show the number of shares voted by him.
2 SECTION 7. Lists of Stockholders. It shall be the duty of the Secretary or other officer who shall have charge of the stock ledger of the Corporation, either directly or through another officer designated by him or through a transfer agent or transfer clerk appointed by the Board, to prepare and make, at least ten days before every meeting of the stockholders, a complete list of the stockholders of each class entitled to vote at said meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, at the place where the meeting is to be held for said ten days and shall be produced and kept at the time and place of the meeting, during the whole time thereof, and may be inspected by any stockholder who may be present. Upon the willful neglect or refusal of the directors to produce such list at any meeting for the election of director, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, such list or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 8. Inspectors of Votes - Judges. Before, or at, each meeting of the stockholders at which a vote by ballot is to be taken, the Board, or the Chairman of such meeting, shall appoint two Inspectors of Votes or Judges to conduct the vote thereat. Each Inspector of Votes or Judge so appointed shall first subscribe an oath or affirmation faithfully to execute the duties of an Inspector of Votes or Judge at such meeting with strict impartiality and according to the best of his ability. Such Inspectors of Votes or Judges shall have the duties prescribed by law and shall decide upon the qualifications of voters and accept their votes and, when the vote is completed, shall count and ascertain the number of shares voted respectively for and against the question or questions on which a vote was taken and shall make and deliver a certificate in writing to the secretary of such meeting of the results thereof. The Inspectors of Votes or Judges need not be stockholders, and any officer or director may be an Inspector of Votes or Judge on any question other than a vote for or against his election to any position with the Corporation or any other question which he may be directly interested. The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting.
SECTION 9. Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in the By-Laws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 9, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 9. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each cash pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this By - Law. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-Laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 9, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in the Section.
3 SECTION 10. Notice of Business. At any meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section 10, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 10. For business to be properly brought before a stockholder meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a stockholder meeting except in accordance with the procedures set forth in this Section 10. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of the By-Laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 10, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The property, business and affairs of the Corporation shall be managed by the Board. The Board may adopt such rules and regulations for the conduct of its meetings and the management of the affairs of the Corporation as it may deem proper, not inconsistent with statute, the Certificate of Incorporation and these By-Laws.
SECTION 2. Number, Qualifications and Term of Office. The number of directors shall be not less than five nor more than fifteen, as shall be fixed from time to time by resolution of the Board pursuant to a vote of two-thirds of the directors then in office. Individuals over the age of seventy-five years may stand for election as directors only with the approval of the Executive and Nominating Committee and a two-third vote of the Directors then in office for a specified reason to be enumerated in the Corporation's proxy statement. In no event shall a Director stand for election beyond the age of eighty. A majority of the Board shall at all times be comprised of Outside Directors. For purposes of this Section, an Outside Director shall mean a person who is not currently employed by the Corporation or any of its Subsidiaries or Affiliates. All directors who are not Outside Directors shall be known as Inside Directors. Collectively, Inside and Outside Directors shall be known as directors. Any Inside Director who served as the Chief Executive Officer of the Corporation after January 1, 1992, and whose employment with the Corporation terminates, may be invited by the Executive and Nominating Committee to continue to serve as a member of the Board for a transitional period of up to one year following the effective date of his/her termination or for an additional period of time thereafter, but then only with a vote of two-thirds of the Directors then in office and for a specified reason to be enumerated in the Corporation's proxy statement. Each director shall hold office until the annual meeting of the stockholders next following his/her election and until his/her successor shall have been elected and shall have qualified, or until his/her death, or until he/she shall earlier resign. This Section shall not be amended except upon a vote of two-thirds of the directors then in office.
SECTION 3. Chairman. The Board of Directors shall elect a Chairman of the Board from among the directors. This individual need not be an employee of the Corporation. The Chairman of the Board shall have the overall responsibility for all matters pertaining to the Board, including, without limitation, meetings of the Board.
4 SECTION 4. Resignations. Any director may resign at any time by giving notice to the Chairman of the Board or to the Board, in writing or by telegraph, cable or wireless. Any such resignation shall take effect at the time specified therein or, if no time is so specified, upon its receipt by the Chairman of the Board or by the Board; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. Vacancies. Except as provided in the Certificate of Incorporation, any vacancy in the Board, whether caused by death, resignation, increase in the number of directors (whether by resolution of the Board, amendment of these By-Laws or otherwise) or any other cause, may be filled either by the stockholders of the Corporation entitled to vote for the election of directors, at a meeting of the stockholders called for the purpose, or by vote of two-thirds of the directors then in office though less than a quorum; and each director so chosen shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and shall have qualified, or until his earlier death, or until he shall earlier resign. This Section shall not be amended except upon a vote of two-thirds of the directors then in office.
SECTION 6. First Meeting. Promptly after, and on the same day as, each annual election of directors, the Board may, if a quorum be present, meet at the place at which such election was held, for the purpose of organization, the election of officers and the transaction of other business. Notice of such meeting need not be given. Such meeting may be held at any other time and place which shall be specified in a notice given as hereinafter provided for special meetings of the Board.
SECTION 7. Regular Meetings. Regular meetings of the Board shall be held at such times and places as the Board shall determine. Notice of regular meetings shall be mailed to each director addressed to him at his residence or usual place of business, at least five days before the meeting. This Section shall not be amended except upon a vote of two-thirds of the directors then in office.
SECTION 8. Special Meetings; Notice. Special meetings of the Board shall be held whenever called by the Chairman of the Board, or by the Secretary on the written request of any three directors. Except as otherwise expressly required by statute, the Certificate of Incorporation or these By-Laws, notices of each such meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least five days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph, cable or facsimile transmission, or shall be delivered personally or by telephone, not later than two days before the day on which the meeting is to be held. The purposes of any special meeting shall be stated with particularity in the notice thereof. This Section shall not be amended except upon a vote of two-thirds of the directors then in office.
SECTION 9. Place of Meetings. The Board may hold its meetings at such place or places within or without the State of Delaware as it may from time to time determine by resolution, or as shall be specified in the respective notices of meetings.
SECTION 10. Quorum and Manner of Acting. Except as otherwise expressly required by statute, the Certificate of Incorporation or these By- Laws, five directors shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum the Chairman of the Board or a majority of the directors present may adjourn any meeting from time to time until a quorum shall be present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Prompt notice of any adjourned meetings shall be given. This Section shall not be amended except upon a vote of two-thirds of the directors then in office.
SECTION 11. Committees of Board of Directors. Except as otherwise provided in these By-Laws, the Board may, by resolution or resolutions passed by a majority of the Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation, which, to the extent provided in said resolution or resolutions, shall have and may exercise the powers of the Board in the management of the property, business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. A majority of all the members of such committee may fix its rules of procedure, determine its manner of acting and fix the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given unless the Board shall otherwise by resolution provide. The Board shall have
5 power to change the members of any such committee at any time, to fill vacancies therein and to discharge any such committee or to remove any member thereof, either with or without cause, at any time.
SECTION 12. Ex Officio Member of Committees. The Chairman of the Board shall be a member "ex-officio" of all committees of the Board, except where expressly prohibited by statute, the Certificate of Incorporation or these By-Laws or by the terms of any plan or other document establishing any such committee.
SECTION 13. Agenda. An agenda of matters to come before each meeting of the Board shall be sent to each director at least five days before each regular meeting of the Board and at least three days before each special meeting of the Board. This Section shall not be amended except upon a vote of two-thirds of the directors then in office.
ARTICLE IV OFFICERS
SECTION 1. Number and Qualification of Officers. The principal officers of the Corporation shall be a Chief Executive Officer, one or more Vice Presidents, a Controller, a Secretary, and a Treasurer. The Board of Directors may choose such other officers as it may from time to time determine. The Chief Executive Officer shall be chosen from among the directors.
SECTION 2. Election and Term of Office. The officers shall be chosen annually by the Board. Each officer shall hold office until his successor shall have been elected and shall have qualified, or until his earlier death or until his earlier resignation or removal in the manner hereinafter provided.
SECTION 3. Powers and Duties of Officers. The powers and duties of the officers shall be as determined from time to time by resolution of the Board, or in such other manner as the Board may authorize, not inconsistent with statute, the Certificate of Incorporation and these By-Laws.
SECTION 4. Resignation and Removal. Any officer may resign at any time by giving notice to the Chairman of the Board or to the Board, in writing or by telegraph, cable or wireless. Any such resignation shall take effect at the time specified therein or, if no time is so specified, upon its receipt by the Chairman of the Board or by the Board; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any officer may be removed, either with or without cause, at any time, by the vote of a majority of the Board.
SECTION 5. Vacancies. Filling a vacancy in any office for the unexpired portion of the term, because of death, resignation, removal or any other cause, shall be approved by the Board.
ARTICLE V CONTRACTS, CHECKS, DRAFTS AND PROXIES
SECTION 1. Contracts. The Board may by resolution authorize any officer or officers, or agent or agents, to enter into any contract or engagement and to execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the Board or by these By-Laws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any purpose or for any amount.
SECTION 2. Checks and Drafts. All checks, drafts or other orders for the payment of money, issued in the name of the Corporation, shall be signed in such manner as shall from time to time be determined by resolution of the Board.
SECTION 3. Proxies. All proxies or instruments authorizing any person to attend, vote, consent or otherwise act at any and all meetings of stockholders of any corporation in which the Corporation shall own shares or in which it shall otherwise be interested shall be executed by the Chairman of the Board or such other officer as the Chairman of the Board or the Board may from time to time determine.
6 ARTICLE VI
CAPITAL STOCK
SECTION 1. Certificates for Stock. Every holder of shares of stock of the Corporation shall be entitled to have a certificate, in such form as the Board shall prescribe, certifying the number and class of shares of stock of the Corporation owned by him. Each such certificate shall be signed in the name of the Corporation by the Chairman of the Board, the President or a Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him; provided, however, that if such certificate is countersigned (a) by a transfer agent other than the Corporation or its employee or (b) by a registrar other than the Corporation or its employee, the signatures of any such Chairman of the Board, President, Vice-President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimiles. In case any officer who shall have signed, or whose facsimile signature shall have been placed upon, any such certificate or certificates shall cease to be such officer before such certificate or certificates shall have been issued by the Corporation, such certificate or certificates may be issued by the Corporation with the same effect as though he were such officer at the date of issue.
SECTION 2. Transfer of Stock. Title to a certificate and to the shares of stock of the Corporation represented thereby shall be transferred only
(a) by delivery of the certificate endorsed either in blank or to a specified person by the person appearing by the certificate to be the owner of the shares represented thereby, or
(b) by delivery of the certificate and a separate document containing a written assignment of the certificate or a power of attorney to sell, assign or transfer the same or the shares represented thereby, signed by the person appearing by the certificate to be the owner of the shares represented thereby. Such assignment or power of attorney may be either in blank or to a specified person.
SECTION 3. Registered Holders. The Corporation shall be entitled to treat the registered holder of any certificate for stock of the Corporation as the absolute and exclusive owner thereof and of the shares represented thereby for all purposes, including without limitation the right to receive dividends and to vote and liability for calls and assessments, and, accordingly, the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any person, whether or not the Corporation shall have express or other notice thereof, save as expressly provided by statute.
SECTION 4. Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with statute, the Certificate of Incorporation or these By-Laws, concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any principal officer or officers to appoint, one or more Transfer Clerks or one or more Transfer Agents and one or more Registrars, and may require all certificates for shares of stock of the Corporation to bear the signature or signatures of any of them.
ARTICLE VII
RECORD DATE
SECTION 1. Fixing of Record Date.
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of the dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action other than stockholder action by written consent, the Board of Directors may fix a record date, which shall not precede the date such record date is fixed and shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any such other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
7 (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.
ARTICLE VIII
WAIVERS OF NOTICE
Whenever notice is required to be given by statute, the Certificate of Incorporation or these By-Laws, a written waiver thereof, signed by the person entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
ARTICLE IX
AMENDMENTS
Subject to any limitations that may be imposed by the stockholders, and except as specifically provided in Article III of these By-Laws, the Board may make by-laws and from time to time may alter, amend or repeal any by-laws. The stockholders may also adopt, alter, amend or repeal any by-laws at any meeting provided that notice of such proposed adoption, alteration, amendment or repeal is included in the notice of such meeting.
CERTIFICATE
The undersigned, Secretary of GENERAL DYNAMICS CORPORATION, a Delaware corporation, does hereby certify that the foregoing is a true copy of the By-Laws of the Corporation in effect as of this date.
WITNESS my hand and the seal of the Corporation this day of , 19 .
(CORPORATE SEAL) Secretary
8 Exhibit 10-31 Enclosure (3)
RETIREMENT BENEFIT AGREEMENT
AGREEMENT dated as of February 14, 1997, between General Dynamics Corporation, a Delaware Corporation (the "Corporation"), and Gordon R. England (the "Employee").
WHEREAS, the Employee, following his employment by the Corporation, will accrue retirement benefits under the General Dynamics Retirement Plan for Salaried Employees (the "Retirement Plan") and to the extent the accrued benefits under the Retirement Plan are limited by Section 415, 401(a)(4) or 401(a)(17) of the Internal Revenue Code (or similar provision), any benefit that would have been provided by the benefit formula of the Retirement Plan in excess of those limitations will be provided under a non-qualified plan (Supplemental Retirement Plan). The Retirement Plan and the Supplemental Retirement Plan are hereinafter collectively referred to as the "Retirement Program."
WHEREAS, this Agreement provides for certain additional retirement benefits to be paid on the Employee's retirement.
NOW, THEREFORE, in consideration for the employee's acceptance of employment by the Corporation, and the services to be rendered to the Corporation by the Employee, the Corporation and the Employee agree as follows:
1. MEMBERSHIP IN GENERAL DYNAMICS RETIREMENT PLAN. The Employee will become a member of the General Dynamics Retirement Program, a copy of which has been furnished to him.
2. RETIREMENT BENEFIT. Upon the Employee's retirement from the Corporation, the Employee shall be entitled to such annual retirement benefits, if any, as of the date of the Employee's termination of employment with the Corporation, based upon the terms of the Retirement Program. Payment of these benefits shall commence at such time and in the form the Employee elects pursuant to the terms of the Retirement Plan.
3. SUPPLEMENTAL RETIREMENT BENEFIT.
(a) Upon the Employee's termination of employment with the Corporation, the Employee may receive a retirement benefit (the "Supplemental Retirement Benefit") pursuant to this Agreement in an amount determined in accordance with Section 3(c) or (d) below, as applicable, and subject to adjustment pursuant to Section 4 below. Any benefit payable under this Agreement shall be reduced by all amounts payable under the Corporation's Retirement Program.
(b) Notwithstanding anything in this Agreement to the contrary, no Supplemental Retirement Benefit shall be paid hereunder if, in the sole opinion of the Compensation Committee, the Employee is discharged for causing harm to the Corporation (financial, reputation, or product), through: (i) an act or acts of
1 personal dishonesty, (ii) conviction of a felony related to the Corporation, (iii) material violation of General Dynamics' standards of business ethics and conduct, (iv) individually filing or participating in a lawsuit against the Corporation, or (v) subsequent employment with a competitor without prior Compensation Committee approval.
(c) If the Employee ceases rendering services to the Corporation during his first three years of Service, the Supplemental Retirement Benefit, if any, shall equal an amount as specified below:
(i) If the Employee voluntarily terminates employment, no Supplemental Retirement Benefit shall be paid other than that accrued under the "Retirement Program."
(ii) In the event of Employee's illness or disability such that he is unable, in the sole opinion of the Compensation Committee, to adequately perform the tasks of his position, $100,000 per year for his life.
(iii) If the Corporation shall substantially downgrade the Employee's responsibilities or if the Corporation shall involuntarily terminate his employment other than for cause, $100,000 per year for his life.
(d) If the Employee ceases rendering services to the Corporation following completion of at least three full years of Service, the Supplemental Retirement Benefit shall equal $100,000 per year, plus an additional $4,166.67 for each full month of Service that is in excess of 36 months, subject to a maximum Supplemental Retirement Benefit from the Corporation of $200,000 per year for his life.
(e) For the purpose of Paragraphs (c) and (d) above, "Service" shall mean employment with the Corporation subsequent to the date of this Agreement.
4. ALTERNATE FORM OF BENEFIT. The Employee shall have the option, on written notice transmitted to the Corporation at least 30 days prior to the date on which payment of his benefit would otherwise commence hereunder, to elect to receive the retirement benefit described herein payable in an alternate form as provided by the Retirement Plan or, in the Corporation's discretion, in another form of actuarial equivalent value mutually agreeable to the parties. The applicable single-life annual benefit provided hereunder shall then be converted to the alternate form elected by the application of the actuarial factors used for converting benefits under the Retirement Plan at the time the retirement benefit is to commence.
5. SURVIVOR BENEFIT IN CASE OF DEATH PRIOR TO COMMENCEMENT OF BENEFITS. If the employee dies after the date of this Agreement but prior to commencement of benefits, and at the time of his death he is otherwise entitled to a Supplemental Retirement Benefit under this Agreement, then his spouse shall be entitled to receive a "Pre-Retirement Surviving Spouse Annuity" as provided in the Retirement Plan (currently defined as a 50% Contingent Annuity) for her life,
2 commencing on the Employee's death. The amount of the Pre-Retirement Surviving Spouse Annuity payable under this Agreement shall equal (1) the amount that would have been paid to the Employee under this Agreement as a single-life annuity, assuming he was involuntarily terminated immediately prior to his date of death, less (2) the Retirement Plan's actuarial adjustments necessary to express the single-life annuity as a 50% contingent annuity option.
6. PAYMENT. All annual retirement benefits for the life of the Employee (or alternate form of benefit) or other amounts payable as provided in this Agreement shall be paid as provided in the Employee's benefit election under the Retirement Plan. Any retirement benefits to which the Employee is entitled under this Agreement shall be paid directly by the Corporation to the extent they are not paid under the Retirement Plan. The Corporation may, in its sole discretion, accelerate the payment of benefits under this Agreement in the form of an actuarial equivalent value mutually agreeable to the parties.
7. NO ASSIGNMENT. No benefit under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void, and no such benefit shall in any manner be liable for or subject to the debts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in the Retirement Program or pursuant to a Qualified Domestic Relations Order as described in Code Section 414(p).
8. PAYMENT FROM GENERAL ASSETS.
(a) Unless otherwise determined by the Corporation, the Supplemental Retirement Benefit will be payable by the Corporation from its general assets. The Corporation shall not be obliged to acquire, designate or set aside any specific assets for payment of the Supplemental Retirement Benefit. Further, the Employee shall have no claim whatsoever to any specific assets or group of assets of the Corporation.
(b) The Corporation may, in its discretion, designate that the Supplemental Retirement Benefit shall be satisfied from the assets of a trust, fund, or other segregated group of assets. But, should these assets prove to be insufficient to satisfy payment of the Supplemental Retirement Benefit or post-retirement benefits described above, the Corporation shall remain liable for their payment unless otherwise agreed to by the parties of this Agreement.
9. This Agreement shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on behalf of its Chairman and Chief Executive Officer by the Corporate Vice President - Human Resources and Administration and its corporate seal to be hereunto affixed and attested to by the Secretary of the Corporation, and the Employee has executed this Agreement as of the date first above written.
3 ATTEST: GENERAL DYNAMICS CORPORATION
/s/ Paul A. Hesse By: /s/ W.P. Wylie ------Secretary W.P. Wylie Corporate Vice President - Human Resources and Administration
/s/ Gladys M. Bucklew /s/ Gordon R. England ------Witness Gordon R. England
4 Exhibit 10.32
CREDIT ENHANCEMENT AGREEMENT between CITY OF BATH, MAINE and BATH IRON WORKS CORPORATION
Dated as of September 19, 1997 TABLE OF CONTENTS
ARTICLE I ...... 1 Section 1.1. Definitions ...... 1 Section 1.2. Interpretation and Construction ...... 4 Section 1.3. Development Program ...... 5 Section 1.4. Completion ...... 5 Section 1.5. City Costs ...... 5 Section 1.6. Agreement Controls ...... 6
ARTICLE II ...... 6 Section 2.1. Creation of Development Program Fund ...... 6 Section 2.2. Liens ...... 6 Section 2.3. Deposits into Development Program Fund ...... 6 Section 2.4. Monies Held in Trust ...... 6
ARTICLE III ...... 7 Section 3.1. Credit Enhancement Payments ...... 9 Section 3.2. Failure to Make Payment ...... 9 Section 3.3. Manner of Payments ...... 9 Section 3.4. Obligations Unconditional ...... 9 Section 3.5. Limited Obligation ...... 10 Section 3.6. Calculation of Retained Tax Increment ...... 10 Section 3.7. Revaluation ...... 10
ARTICLE IV ...... 10 Section 4.1. Pledge of Project Cost Account ...... 10 Section 4.2. Perfection of Interest ...... 11 Section 4.3. Further Instruments ...... 11 Section 4.4. No Disposition of Developer Subaccount ...... 11 Section 4.5. Access to Books and Records ...... 11
ARTICLE V ...... 11 Section 5.1. Events of Default ...... 11 Section 5.2. Remedies on Default ...... 12 Section 5.3. Remedies Cumulative ...... 12
i Section 5.4. Agreement to Pay Attorneys' Fees and Expenses..... 13 Section 5.5. Tax Laws...... 13
ARTICLE VI...... 13 Section 6.1. Effective Date and Term...... 13 Section 6.2. Cancellation and Expiration of Term...... 13
ARTICLE VII...... 13 Section 7.1. Consent to Pledge and/or Assignment...... 13 Section 7.2. Pledge, Assignment or Security Interest...... 14 Section 7.3. Assignment...... 14
ARTICLE VIII...... 14 Section 8.1. Successors...... 14 Section 8.2. Parties in Interest...... 14 Section 8.3. Severability...... 14 Section 8.4. No Personal Liability of Officials of the City.... 14 Section 8.5. Counterparts...... 14 Section 8.6. Governing Law...... 15 Section 8.7. Notices...... 15 Section 8.8. Amendments...... 15 Section 8.9. Net Agreement...... 15 Section 8.10. Benefit of Assignee or Pledges...... 15 Section 8.11. Integration...... 15 Section 8.12. Disputes...... 15 Section 8.13. Arbitration...... 16
ii THIS CREDIT ENHANCEMENT AGREEMENT dated as of Sept. 19, 1997, between the City of Bath, Maine (the "City"), a municipal body corporate and politic and a political subdivision of the State of Maine, and Bath Iron Works Corporation (the "Developer"), a Maine corporation with a place of business in Bath, Maine,
WITNESSETH THAT
WHEREAS, the City designated The Bath Iron Works Municipal Development and Tax Increment Financing District #1 and The Bath Iron Works Municipal Development and Tax Increment Financing District #2 (the "Districts") pursuant to Chapter 207 of Title 30-A of the Maine Revised Statutes, as amended, by action of the City Council at a City Council Meeting held on April 8, 1997 (the "Vote") and pursuant to the same Vote adopted a development program and financial plan for the Districts (the "Development Program"); and
WHEREAS, the Maine Department of Economic and Community Development has reviewed and accepted the District and the Development Program effective April , 1997; and
WHEREAS, the Development Program contemplates the execution and delivery of a credit enhancement agreement between the City and the Developer; and
WHEREAS, the City and the Developer desire and intend that this Credit Enhancement Agreement be and constitute the credit enhancement agreement contemplated by and described in the Development Program;
NOW, THEREFORE, in consideration of the foregoing and in consideration of the mutual promises and covenants set forth herein, the parties hereby agree as follows:
ARTICLE I DEFINITIONS: INTERPRETATIONS
SECTION 1.1. DEFINITIONS. The terms defined in this Article I shall, for all purposes of this Agreement, have the meanings herein specified, unless the context clearly requires otherwise:
"Agreement" shall mean this Credit Enhancement Agreement between the City and the Developer.
"Captured Assessed Value" shall mean the valuation amount by which the then current assessed value of the Districts exceeds the Original Assessed Value of the Districts.
"City" means the City of Bath, Maine, a municipality duly organized and existing under the laws of the State of Maine.
"City Share" means (a) all of the Retained Tax Increment Revenues other than the Developer Share thereof plus (b) all interest and earnings on all of the Retained Tax Increment Revenues, except as provided in Section 3.1(e) hereof.
1 "Developer" means Bath Iron Works Corporation, a Maine corporation with a place of business in Bath, Maine.
"Development Program" means the development program for the District as adopted by the Bath City Council at a Meeting held on April 8, 1997.
"Development Program Fund" means the development program fund described in the Financial Plan section of the Development Program and established and maintained pursuant to Article II hereof.
"Developer Share" means (a) 100% of the Real Property Increment with respect to the Land Level Facility and 50% of the Real Property Increment with respect to the Existing Facility and 50% of the Personal Property Increment with respect to the Land Level Facility and 50% of the Personal Property Increment with respect to the Existing Facility, for each of the twenty-five years of the term of this Agreement (commencing with the year 1999 Tax Year) of the Retained Tax Increment Revenues, provided, however, that such percentages shall be reduced to the following amounts at such time that the aggregate amount of payments by the City to the Developer during the term of this Agreement and pursuant to this Agreement equal $85,000,000; 100% of the Real Property Increment with respect to the Land Level Facility with respect to assessed value equal to the assessed value of Land Level Facility (District #1) real property as of April 1, 2002; 35% of the Real Property Increment with respect to the Land Level Facility with respect to assessed value of real property in excess of the assessed value of Land Level Facility (District #1) real property as of April 1, 2002; 35% of the Personal Property Increment with respect to the Land Level Facility; 35% of the Real Property Increment with respect to the Existing Facility; and 35% of the Personal Property Increment with respect to the Existing Facility.
In the event that the Tax Shift Formulas are changed and as a result the City's Tax Shift amount is decreased by reason of inclusion in the City's valuation for purposes of the Tax Shift Formulas of any portion of the Captured Assessed Value with respect to which the Developer's Share is determined hereunder, then, commencing with the later of (a) the 2009 Fiscal Year or (b) the Fiscal Year in which the Tax Shift Formulas are changed, the Developer Share shall be reduced by an amount equal to 50% of the difference, calculated solely with respect to the Developer Share of the Retained Tax Increment, between (a) the Tax Shift as determined using the method set forth in the current Tax Shift Formulas and (b) the Tax Shift as properly determined using the then effective State laws relating to state aid to education, revenue sharing and county tax; any reduction under this paragraph shall be calculated annually and applied to reduce the payments of the Developer Share on the next scheduled payment date herein following such calculation.
A change in the Tax Shift resulting other than from including Captured Assessed Value in the City's valuation shall not result in a reduction of the Developer's Share.
Anything in this Agreement to the contrary notwithstanding, for purposes of calculating the Developer's Share, the platform for the Land Level Transfer System (the concrete pad, filled
2 land and pilings supporting the structures thereon) shall be included within the real property increment of the Land Level Facility.
"District(s)" means the Bath Iron Works Corporation Municipal Development and Tax Increment Financing District #1 ("District #1") and The Bath Iron Works Municipal Development and Tax Increment Financing District #2 ("District #2") designated by the City pursuant to Chapter 207 of Title 30-A of the Maine Revised Statutes, as amended, by vote at City Council Meeting held on April 8, 1997, which Districts shall include the Existing Facility and the Land Level Facility.
"Effective Date" means Sept. 19, 1997.
"Existing Facility" means the Property consisting of the existing shipbuilding facility of the Developer, located on the parcel shown on Tax Map 27 as Parcel 142 within District #2, including all land, buildings, and all personal property located on such parcel as of April 1 each year subject to City ad valorem taxes together with all improvements or additions thereto within the existing geographic boundaries of such facility, all as currently depicted on Exhibit A hereto.
"Financial Plan" means the financial plan described in the "Financial Plan" Section of the Development Program.
"Fiscal Year" means July 1 to June 30 of each year or such other fiscal year as the City may from time to time establish; for purposes of this Agreement, the Fiscal Year 1999 means the Fiscal Year commencing July 1, 1999 and ending June 30, 2000 and the Fiscal Year 2023 means the Fiscal Year commencing July 1, 2023 and ending June 30, 2024.
"Land Level Facility" means the land level facility to be constructed in District #1 by the Developer adjacent to the Existing Facility, together with all land, buildings, personal property located on such adjacent land as of April 1 of each year subject to City ad valorem taxes together with all improvements or additions thereto as depicted on Exhibit B hereto.
"Original Assessed Value" means $128,011,800, the assessed value of the Districts as of March 31, 1997 as the same may be adjusted from time to time in accordance with Section 3.7 hereof.
"Personal Property Increment" means that portion of the Tax Increment attributable to increases in personal property valuations with respect to personal property located in the Districts.
"Project" means the design, planning, development, acquisition, construction and operation of the Land Level Facility and other Bath Iron Works Corporation improvements within the Districts as described in the Development Program.
"Project Cost Account" means the project cost account described in the Financial Plan Section of the Development Program consisting of the City Subaccount and the Developer
3 Subaccount and established and maintained pursuant to Article II hereof and to provisions of 30-A M.R.S.A. Section 5254(3)(A)(2).
"Project Costs" means "project costs" as defined in 30-A M.R.S.A. Section 5152(8).
"Property" means all real property and all personal property now or hereafter located in the Districts.
"Property Taxes" means any and all ad valorem property taxes levied, charged or assessed against real or personal property in the Districts by the City, or on its behalf.
"Real Property Increment" means that portion of the Tax Increment attributable to increases in real estate valuations with respect to real estate located in the Districts.
"Retained Tax Increment Revenues" means that portion of the Tax Increment to be retained by the City and deposited into the Development Program Fund pursuant to the terms of the Development Program and this Agreement.
"Tax Increment" means the real and personal property taxes exclusive of any state, country or special district tax, assessed by the City on the captured assessed value of property within the Districts, which Tax Increment shall consist of the Real Property Increment and the Personal Property Increment.
"Tax Payment Date" means the date(s) on which property taxes levied by the City are due and payable from owners of property located within the City.
"Tax Shift" means the decrease in county tax payable by the City and the increases in State aid for education and revenue sharing in all three cases resulting from the exclusion of Captured Assessed Value from the City's valuation in calculating such amounts of county tax, State aid to education and revenue sharing under the current Tax Shift Formulas.
"Tax Shift Formulas" mean the formulas currently utilized by the State of Maine in calculating (a) the county tax payable in accordance with 30-A M.R.S.A. Section 706 and 36 M.R.S.A. Sections 305(1), 381; (b) the municipal revenue sharing distribution of the Local Government Fund in accordance with 30-A M.R.S.A. Section 5681; and (c) State aid to education, including aid for total operating costs, total program cost allocation (taking into account the maximum local share or circuit breaker) and total debt service cost allocation (taking into account the maximum local share or circuit breaker), all as computed in accordance with Maine Department of Education Form ED 261.
SECTION 1.2. INTERPRETATION AND CONSTRUCTION. In this Agreement, unless the context otherwise requires: a) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in this Agreement, refer to this Agreement, and the term "hereafter" means after, and the term "heretofore" means before, the date of delivery of this Agreement.
4 (b) Words importing a particular gender mean and include correlative words of every other gender and words importing the singular number mean and include the plural number and vice versa.
(c) Words importing persons mean and include firms, associations, partnerships (including limited partnerships), trusts, corporations and other legal entities, including public or governmental bodies, as well as any natural persons.
(d) Any headings preceding the texts of the several Articles and Sections of this Agreement, and any table of contents or marginal notes appended to copies hereof, shall be solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.
(e) Except as otherwise provided herein, all approvals, consents and acceptances required to be given or made pursuant to this Agreement by any signatory hereto shall not be withheld unreasonably, provided, that this paragraph shall not apply to approvals, consents and acceptances under applicable laws, ordinances and codes, including, without limitation, land use ordinances.
(f) All notices to be given hereunder shall be given in writing and, unless a certain number of days is specified, within a reasonable time.
(g) If any clause, provision or Section of this Agreement shall be ruled invalid by any court of competent jurisdiction, the invalidity of such clause, provision or Section shall not affect any of the remaining provisions hereof except as otherwise provided in Section 3.4 hereof.
SECTION 1.3. DEVELOPMENT PROGRAM. Neither this Agreement nor the Development Program obligate the Developer to construct the Land Level Facility or to make any other improvements to its facility.
SECTION 1.4. COMPLETION. The Developer shall have completed as much of the Development Program as will qualify for financial assistance hereunder within five (5) years after the Effective Date. If none of the Development Program is completed within five (5) years after the Effective Date, then this Agreement (except Section 1.5 pertaining to costs) and the District shall terminate at the end of five (5) years after the Effective Date. Notwithstanding any other provision hereof, no payments shall be made or be payable by the City to the Developer under this Agreement unless such payments are used to pay or reimburse the Developer for Project Costs incurred within five (5) years of the Effective Date pursuant to proper documentation thereof provided by the Developer pursuant to Section 3.1(d) hereof.
SECTION 1.5. CITY COSTS. The Developer shall pay or reimburse the City for all reasonable fees, expenses and other charges of the City and its consultants, including the City's attorneys, accountants and overtime of the City's appraiser, tax assessor and other City staff, in connection with the review, negotiation, approval, execution, administration, enforcement and
5 carrying out of this Agreement and the review, negotiation, approval, administration, enforcement and carrying out of the Development Program. Notwithstanding any of the provision of this Agreement, this section shall survive any termination of this Agreement.
SECTION 1.6. AGREEMENT CONTROLS. In the event of any inconsistency between this Agreement and the Development Program, the terms and provisions of this Agreement shall take precedence, to the extent permitted by law, over the inconsistent provisions of the Development Program.
ARTICLE II PROJECT COST ACCOUNT AND FUNDING REQUIREMENTS
SECTION 2.1. CREATION OF DEVELOPMENT PROGRAM FUND. The City hereby confirms the creation and establishment of a segregated fund in the name of the City designated as the "Bath Iron Works Corporation Municipal Development Tax Increment Financing District Program Fund" (the "Development Program Fund") pursuant to, and in accordance with the terms and conditions of, the Development Program. The Development Program Fund shall consist of the Project Cost Account. The Project Cost Account shall consist of the City Subaccount and the Developer Subaccount.
SECTION 2.2 LIENS. The City shall not create any liens, encumbrances or other interests of any nature whatsoever, nor shall it hypothecate the Developer Subaccount of the Project Cost Account of the Development Program Fund or any funds therein or revenues resulting from investment of funds therein, other than the interest of the Developer granted under this Agreement in and to the amounts on deposit in the Developer Subaccount, provided, however, nothing herein shall prohibit creation of real and personal property tax liens on the Developer's property in accordance with, and entitled to the priority provided under, Maine law.
SECTION 2.3. DEPOSITS INTO DEVELOPMENT PROGRAM FUND. The City shall deposit into the Developer Subaccount of the Project Cost Account within fifteen (15) days after the City's receipt thereof, an amount equal to the Developer Share of the Retained Tax Increment Revenues for the period to which the payment relates. All amounts deposited in or transferred to the Developer Subaccount of the Project Cost Account shall be paid to the Developer in accordance with Article III of this Agreement. All interest and earnings on the Retained Tax Increment Revenues prior to and after deposit thereof into the Project Cost Account shall be the sole property of the City and shall be free and clear of any interest of the Developer under this Agreement.
SECTION 2.4. MONIES HELD IN TRUST. Except as otherwise permitted in this Agreement, all monies required to be deposited with or paid into the Developer Subaccount of the Project Cost Account to fund payments to Developer under the provisions hereof and the provisions of the Development Program, shall be held by the City, in trust, for the benefit of the Developer in accordance with the provisions of this Agreement.
6 All funds in the City Subaccount of the Project Cost Account shall be the sole and exclusive property of the City and shall not be subject in any way to the terms or provisions of this Agreement.
ARTICLE III PAYMENT OBLIGATIONS
SECTION 3.1. CREDIT ENHANCEMENT PAYMENTS. (a) The City shall retain and deposit, within fifteen (15) days following each Tax Payment Date or the date payment is actually received by the City with respect to Property in the Districts, whichever is later, in the Developer Subaccount of the Project Cost Account, the Developer Share of the Tax Increment in each year commencing with the City's Fiscal Year 1999 and continuing thereafter through and including the Fiscal Year 2023.
Notwithstanding the foregoing, if at any time the assessed value of the Existing Facility is less than the Original Assessed Value, then the amount payable with respect to the Land Level Facility shall be reduced by an amount equal to the difference between the Property Taxes that would be then payable on an amount equal to Original Assessed Value and the Property Taxes payable on the then assessed value of the Existing Facility.
(b) Subject to the provisions of this Agreement, the City agrees to pay Developer, within fifteen (15) days following each Tax Payment Date or the date payment is actually received by the City, whichever is later, the Developer Share of the Retained Tax Increment Revenues resulting from the Property Tax payments due on such Tax Payment Date and actually received by the City with respect to Property in the Districts.
(c) If, with respect to any Tax Payment Date, Developer fails to pay any portion of the Property Taxes assessed by the City, because of a valuation dispute or otherwise, the property taxes actually paid by Developer with respect to such Tax Payment Date shall, first, be applied to taxes due on account of Original Assessed Value and, second, shall constitute Retained Tax Increment Revenues.
(d) The Developer agrees that all payments made will be used and applied to either pay debt service on indebtedness incurred to finance "Project Costs" as that term is defined under Act and described in the Development Program or used to pay directly, amortize or reimburse Developer for payment of, qualified Project Costs. The City shall be required to make payments under this Agreement only upon receipt of satisfactory documentation that the amounts are being paid for Project Costs pursuant to Section 1.4 hereof, which documentation shall be in the form of properly completed certificates, executed by the Developer in the form attached hereto as Exhibit A.
In addition, notwithstanding any other provisions of this Agreement, including, without limitation, the provisions of Section 3.1(a)-(b), the City shall not be obligated to make any payments to the Developer unless the Developer provides such documentation evidencing that Developer has incurred Project Costs after the date of this Agreement equal to or greater than $65,000,000 by December 31, 1999 and $120,000,000 by December 31, 2000 relating to
7 construction and equipping of the Land Level Facility and/or the Existing Facility. Developer shall repay to City any payments made hereunder if Developer fails to meet its obligation set forth above.
(e) The Developer (and its successors and assigns, as owners of property in the District) shall pay to the City, when due, all Property Taxes and assessments with respect to property of the Developer in the City of Bath. If such Property Taxes and assessments are not paid when due, the City may withhold and suspend all payments under this Agreement until such Property Taxes and assessments and all interest thereon and other costs relating thereto are paid in full. In addition, if the Developer institutes any tax abatement proceeding with respect to any Property in the District, the City may withhold and suspend all payments of the Developer Share of the Tax Increment with respect to the items of Property subject to the abatement proceeding, and shall deposit the withheld amount into a separate interest bearing escrow account. Upon final action and completion of such abatement proceeding, the proper amount (based on the results of the abatement proceedings plus an allocable share of the interest accrued thereon) held in escrow account shall be paid to the Developer.
(f) Developer covenants and agrees that (i) in the event any part of the Property now or hereafter located in the District should be valued at less than its full value or is now exempt from payment of Property Tax for any reason or for any reason hereafter becomes exempt from payment of Property Tax, including, but not limited to, any portion of the Land Level Facility being located on submerged land or if any of the Property is now or hereafter leased by Developer from any person or entity including, without limitation, any submerged or intertidal lands lease from the State of Maine and any lease from any private land owner or (ii) in the event that title to any property in the District is hereafter transferred to any entity exempt from the payment of Property Taxes, including, without limitation, the State of Maine or any agency or authority thereof, or (iii) in the event that any submerged lands lease expires or is transferred to another party, then Developer, its successors and assigns, as owner, lessee or user of real estate in the District and as a covenant running with the land shall be obligated to pay to the City each year during and after the expiration or termination of this Agreement, an amount equal to (a) 100% of the Property Taxes that would be assessed by the City on such Property, as if and under the assumption that all such Property were fully taxable and owned in fee by Developer and not exempt from Property Taxes less (b) solely during the twenty-five (25) year term of this Agreement, the portion of the amounts described in the preceding clause (a) that would have been payable to the Developer, or its successors and assigns, under Section 3.1(a) if such Property were taxable. The covenants in this paragraph shall survive expiration or termination of this Agreement. Notwithstanding the foregoing, the provisions of this paragraph 3.1(f) shall not apply to property taken by eminent domain or conveyed to any governmental entity under a bona fide threat of condemnation, except for such period of time, if any, as Developer, its successors or assigns, continues to operate any business on the Property following such condemnation or deed in lieu of condemnation.
(g) Developer agrees that for purposes of this Agreement and for purposes of the assessment of Property Tax, the following shall constitute personal property: (a) dry docks (but excluding landing grids consisting of the large cement blocks located under the dry dock area); (b) cranes; (c) rail systems for cranes and ships; (d) portable staging and welding equipment; (e)
8 personnel lifts; (f) modular or mobile equipment and work stations; (g) support equipment; (h) outfit support terminals; (i) ship transfer systems; (j) process piping; (k) manufacturing process wiring; (l) fire suppression systems; (m) fender bumper systems; and (n) all property that is personal property under applicable law.
When an issue arises as to whether an item is considered real or personal property, the determining factor is whether the item in question primarily supports the manufacturing process, in which case it shall be considered personal property, or supports a building or structure or constitutes an improvement to the land, in which case it shall be considered real property.
SECTION 3.2 FAILURE TO MAKE PAYMENT. In the event the City should fail to, or be unable to, make any of the payments required under the foregoing provisions of this Article III, the item or installment so unpaid shall continue as a limited obligation of the City, under the terms and conditions hereinafter set forth, until the amount unpaid shall have been fully paid. Developer shall be entitled to initiate an action against the City to specifically enforce its obligations hereunder, including without limitation the city's obligation to establish and maintain the Development Program Fund, deposit all Retained Tax Increment Revenues into the Developer Subaccount of the Project Cost Account established thereunder and make required payments to Developer.
SECTION 3.3 MANNER OF PAYMENTS. The payments provided for in this Article III shall be paid directly to the Developer in the manner provided hereinabove for its own use and benefit by check drawn on the City.
SECTION 3.4 OBLIGATIONS UNCONDITIONAL. Except as otherwise provided in this Agreement or as required by applicable law, the obligations of the City to make the payments described in this Agreement in accordance with the terms hereof shall be absolute and unconditional, and the City shall not suspend or discontinue any payment hereunder or terminate this Agreement for any cause, irrespective of any defense or any rights of setoff, recoupment or counterclaim it might otherwise have against the Developer, other than by reason of and to the extent provided in a final judgment by a court of competent jurisdiction.
Notwithstanding the foregoing, the City reserves the right to terminate this Agreement upon receipt of a final judgment by a court of competent jurisdiction to the effect that this Agreement or the Development Program (or the designation of the Districts) adopted in connection herewith or any payment made thereunder or hereunder is or would be illegal or invalid or not properly authorized. Such termination shall not, however, affect the Developer's obligation to defend and indemnify the City, which obligations shall survive any such termination. In addition, the City may setoff any amount found by the court of competent jurisdiction to be due to the City from the Developer or from the owner of any property in the District.
The Developer agrees to defend, indemnify, pay, reimburse and hold the City, its councilors, officers, agents and employees, harmless from any and all claims, suits, liabilities, actions, proceedings and expenses, including, without limitation, attorneys fees and expenses and accountant's fees and expenses, arising out of this Agreement, the Development Program or any
9 claim of illegality or invalidity of this Agreement or the Development Program or the City's approval of the District, this Agreement or the Development Program or out of the City's preparation and participation in this Agreement or the Development Program.
SECTION 3.5. LIMITED OBLIGATION. The City's obligations under this Agreement, including the City's obligations of payment hereunder shall be limited obligations of the City payable solely from the Developer Share of the Retained Tax Increment Revenues actually paid by the Developer and/or other taxpayers with respect to Property in the Districts and actually received by the City and pledged therefor under this Agreement. The City's obligations hereunder shall not constitute a general debt or a general obligation or charge against or pledge of the faith and credit or taxing power of the City, the State of Maine, or of any municipality or political subdivision thereof, but shall be payable solely from such Developer Share of the Retained Tax Increment Revenues actually paid by the Developer and/or other taxpayers with respect to Property in the Districts and actually received by the City. This Agreement shall not directly or indirectly or contingently obligate the City, the State of Maine, or any other municipality or political subdivision to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their payment, excepting the pledge of the Developer Share of the Retained Tax Increment Revenues established under this Agreement.
SECTION 3.6. CALCULATION OF RETAINED TAX INCREMENT. The City and the Developer shall maintain records which are adequate to calculate the Retained Tax Increment, the Developer Share and the City Share and shall cooperate with each other in making such calculations. Annually, within 30 days of mailing of the City's tax bill, the City shall calculate and submit to Developer its calculations of the amount of Retained Tax Increment and the Developer Share and City Share thereof for that year. If the Developer does not object to such calculations within 30 days of receipt thereof, the calculations shall be final and binding on all parties. If there is a dispute as to the calculations and the parties are unable to agree, the dispute shall be determined in the manner provided in Section 8.13 hereof.
SECTION 3.7. REVALUATION. In the event there is a City-wide revaluation of taxable property within the City, the Original Assessed Value shall be increased in proportion to the City-wide increase in property values resulting from such revaluation.
ARTICLE IV PLEDGE AND SECURITY INTEREST
SECTION 4.1. PLEDGE OF PROJECT COST ACCOUNT. In consideration of this Agreement and other valuable consideration and for the purpose of securing payment of the amounts provided for hereunder to the Developer by the City, according to the terms and conditions contained herein, and in order to secure the performance and observance of all of the City's covenants and agreements contained herein, the City does hereby grant a security interest in and pledge to the Developer the Developer Subaccount and all sums of money and other securities and investments therein. This pledge and the provisions of Section 2.4 hereof shall not apply to any interest and earnings on the Project Cost Account, including the Developer Subaccount thereof, all of which shall be the absolute property of the City, free and clear of any interest of the Developer.
10 SECTION 4.2. PERFECTION OF INTEREST. The City shall cooperate with the Developer in causing appropriate financing statements and continuation statements naming the Developer as pledgee of all such amounts from time to time on deposit in the Developer Subaccount of the Project Cost Account to be duly filed and recorded in the appropriate state offices as required by and permitted under the provisions of the Maine Uniform Commercial Code or other similar law as adopted in the State of Maine and any other applicable jurisdiction, as from time to time amended, in order to perfect and maintain the security interests created hereunder. To the extent reasonably deemed necessary by the Developer, the City will at such time and from time to time as requested by Developer establish the Developer Subaccount of the Project Cost Account Fund described in Section 2.3(b)(i) hereof as a segregated fund under the control of an escrow agent, trustee or other fiduciary so as to perfect Developer's interest therein on terms reasonably satisfactory to the City.
SECTION 4.3 FURTHER INSTRUMENTS. The City shall, upon the reasonable request of the Developer, from time to time execute and deliver such further instruments and take such further action as may be reasonable and as may be required to carry out the provisions of this Agreement; provided, however, that no such instruments or actions shall pledge the credit of the City or require any payment or expense by the City (unless paid by Developer) or discharge either party or change any provision of this Agreement.
SECTION 4.4 NO DISPOSITION OF DEVELOPER SUBACCOUNT. Except as permitted hereunder, the City shall not sell, lease, pledge, assign or otherwise dispose, encumber or hypothecate any interest in the Developer Subaccount of the Project Cost Account and will promptly pay or cause to be discharged or make adequate provision to discharge any lien, charge or encumbrance on any part thereof not permitted hereby.
SECTION 4.5 ACCESS TO BOOKS AND RECORDS. All books, records and documents in the possession of the City relating to the District, the Development Program, the Agreement and the monies, revenues and receipts on deposit or required to be deposited into the Development Program Fund and the Developer Subaccount of the Project Cost Account shall at all reasonable times be open to inspection by the Developer, its agents and employees. All books, records and documents of the Developer reasonably necessary to the verification of Project Costs shall at all reasonable times be open to inspection by the City, its agents and employees, provided, however, that any information reasonably designated by Developer as proprietary shall be inspected in a manner so as to preserve the confidential nature of such information.
ARTICLE V DEFAULTS AND REMEDIES
SECTION 5.1. EVENTS OF DEFAULT. Each of the following events shall constitute and be referred to in this Agreement as an "Event of Default":
(a) Any failure by the City or the Developer to pay any amounts due hereunder when the same shall become due and payable;
11 (b) Any failure by the City to make deposits into the Developer Subaccount of the Project Cost Account as and when due;
(c) Any failure by the City or the Developer to observe and perform in all material respects any covenant, condition, agreement or provision contained herein on the part of the City or Developer to be observed or performed, which failure is not cured within thirty (30) days following written notice thereof; provided, however, that this subsection (c) shall not be construed to include Developer's failure to pay property taxes for any reason as an Event of Default hereunder;
(d) If a decree or order of a court or agency or supervisory authority having jurisdiction in the premises of the appointment of a conservator or receiver or liquidator of, any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding up or liquidation of the City's or Developer's affairs shall have been entered against the City or the Developer, the City or the Developer shall have consented to the appointment of a conservator or receiver or liquidator in any such proceedings of or relating to the City or the Developer or of or relating to all or substantially all of its property, including without limitation the filing of a voluntary petition in bankruptcy by the City or the Developer or the failure by the City or the Developer to have an involuntary petition in bankruptcy dismissed within a period of 90 consecutive days following its filing or in the event an order for release has been entered under the Bankruptcy Code with respect to the City or the Developer.
SECTION 5.2. REMEDIES ON DEFAULT. Whenever any Event of Default described in Section 5.1 hereof shall have occurred and be continuing, the nondefaulting party may take any one or more of the following remedial steps following any applicable cure period:
(a) The nondefaulting party may take whatever action at law in at equity as may appear necessary or desirable to collect the amount then due and thereafter to become due, to specifically enforce the performance or observance of any obligations, agreements or covenants of the nondefaulting party under this Agreement and any documents, instruments and agreements contemplated hereby or to enforce any rights or remedies available hereunder or under applicable law; and
(b) The Developer shall also have the right to exercise any rights or remedies available to a secured party under the laws of the State of Maine.
SECTION 5.3 REMEDIES CUMULATIVE. No remedy herein conferred upon or reserved to any party is intended to be exclusive of any other available remedy or remedies but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law, in equity or by statute. Delay or omission to exercise any right or power accruing upon any Events of Default to insist upon the strict performance of any of the covenants and agreements herein set forth or to exercise any rights or remedies upon the occurrence of an Event of Default shall not impair any such right or power or be considered or taken as a waiver or relinquishment for the future of the right to insist upon and to enforce, from time to time and as often as may be deemed expedient, by injunction
12 or other appropriate legal or equitable remedy, strict compliance by the parties hereto with all of the covenants and conditions hereof, or of the rights to exercise any such rights or remedies, if such Events of Default be continued or repeated.
SECTION 5.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. Subject to the provisions of this Agreement, in the event the City or the Developer should default under any of the provisions of this Agreement, and the nondefaulting party shall require and employ attorneys or incur other expenses or costs for the collection of payments due or to become due or for the enforcement of performance or observance of any obligation or agreement on the part of the City or the Developer herein contained, the defaulting party shall, on demand therefor, pay to the nondefaulting party the reasonable fees of such attorneys and such other reasonable costs and expenses so incurred by the Developer.
SECTION 5.5. TAX LAWS. Except as provided in Section 3.1 hereof, the parties acknowledge that all laws of the State now in effect or hereafter enacted with respect to taxation of property shall be applicable and that the City, by entering into this Agreement, is not excusing any non-payment of taxes by Developer. Without limiting the foregoing, the City and the Developer shall always be entitled to exercise all rights and remedies regarding assessment, collection and payment of taxes assessed on Developer's property.
ARTICLE VI EFFECTIVE DATE, TERM AND TERMINATION
SECTION 6.1. EFFECTIVE DATE AND TERM. This Agreement shall become effective upon its execution and delivery by the parties hereto and shall remain in full force from the date hereof and shall expire upon the performance of all obligations on the part of the City and the Developer hereunder.
SECTION 6.2. CANCELLATION AND EXPIRATION OF TERM. At the termination or other expiration of this Agreement in accordance with the provisions of this Agreement, the City and the Developer shall each execute and deliver such documents and take or cause to be taken such actions as may be necessary to evidence the termination of this Agreement.
ARTICLE VII ASSIGNMENT AND PLEDGE OF DEVELOPER'S INTEREST
SECTION 7.1. CONSENT TO PLEDGE AND/OR ASSIGNMENT. The City hereby acknowledges that it is the intent of the Developer to pledge and assign its right, title and interest in, to and under this Agreement as collateral for financing for the Project, although no obligation is hereby imposed on the Developer to make such assignment or pledge. Recognizing this intention, the City does hereby consent and agree to the pledge and assignment of all the Developer's right, title and interest in, to and under this Agreement and in, and to the payments to be made to Developer hereunder, to third parties as collateral or security for financing the Development Program, on one or more occasions during the term hereof.
13 SECTION 7.2. PLEDGE, ASSIGNMENT OR SECURITY INTEREST. The City hereby consents to the pledge, assignment or granting of a security interest by the Developer of its right, title and interest in, to and under this Agreement as collateral for financing of the Project. The City agrees to execute and deliver any assignments, pledge assignments, consents or other confirmations on terms reasonably satisfactory to the City required by the prospective pledgee or assignee, including without limitation recognition of the pledgee or assignee as the holder of all right, title and interest herein and as the payee of amounts due and payable hereunder and any and all such other documentation as shall confirm to such pledge or assignee the position of such assignee or pledgee and the irrevocable and binding nature of this Agreement and provide to the pledgee or assignee such rights and/or remedies as the parties may reasonably deem necessary for the establishing, perfection and protection of its interest herein.
SECTION 7.3. ASSIGNMENT. Except to the extent provided in Section 7.1 and Section 7.2, the Developer shall not have the right to transfer and assign all or any portion of its rights in, to and under this Agreement, except to the owners of the Property in the District and this Agreement shall run with the land and bind and inure to the benefit of such owners, their successors and assigns.
ARTICLE XIII MISCELLANEOUS
SECTION 8.1. SUCCESSORS. In the event of the dissolution of the City or the Developer, the covenants, stipulations, promises and agreements set forth herein, by or on behalf of or for the benefit of such party shall bind or inure to the benefit of the successors and assigns thereof time to time and any entity, officer, board, commission, agency or instrumentality to whom or to which any power or duty of such party shall be transferred.
SECTION 8.2. PARTIES IN INTEREST. Except as herein otherwise specifically provided, nothing in this Agreement expressed or implied is intended or shall be construed to confer upon any person, firm or corporation other than the City and the Developer any right, remedy or claim under or by the reason of this Agreement, it being intended that this Agreement shall be for the sole and exclusive benefit of the City and the Developer.
SECTION 8.3. SEVERABILITY. In case any one or more of the provisions of this Agreement shall, for any reason, be held to be illegal and invalid, such illegality or invalidity shall not affect any other provision of this Agreement and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been contained herein.
SECTION 8.4. NO PERSONAL LIABILITY OF OFFICIALS OF THE CITY. No covenant, stipulation, obligation or agreement of the City contained herein shall be deemed to be a covenant, stipulation or obligation of any present or future elected or appointed official, officer, agent, servant or employee of the City in his individual capacity and neither the members of the City Council of the City nor any official, officer, employee or agent of the City shall be liable personally with respect to this Agreement or be subject to any personal liability or accountability by reason hereof.
14 SECTION 8.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original, but such counterparts shall together constitute but one and the same Agreement.
SECTION 8.6. GOVERNING LAW. The laws of the State of Maine shall govern the construction and enforcement of this Agreement.
SECTION 8.7. NOTICES. All notices, certificates, requests, requisitions or other communication by the City or the Developer pursuant to this Agreement shall be in writing and shall be sufficiently given and shall be deemed given when mailed by first class mail, postage prepaid, addressed as follows:
If to the City:
City Manager Bath City Hall 55 Front Street Bath, ME 04530-2588
If to the Developer:
Bath Iron Works Corporation 700 Washington Street Bath, ME 04530
Either of the parties may, by notice given to the other, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent hereunder.
SECTION 8.8. AMENDMENTS. This Agreement may be amended only with the concurring written consent of both of the parties hereto.
SECTION 8.9. NET AGREEMENT. Subject only to the provisions of Sections 3.1, 3.4, 3.5 and 5.2 hereof, this Agreement shall be deemed and construed to be a "net agreement," and the City shall pay absolutely net during the term hereof all payments required hereunder, free of any deductions, and without abatement, deductions or setoffs.
SECTION 8.10. BENEFIT OF ASSIGNEES OR PLEDGEES. The City agrees that this Agreement is executed in part to assist the Developer in obtaining financing for the Project and accordingly all covenants and agreements on the part of the City as to the amounts payable hereunder are hereby declared to be for the benefit of any such assignee or pledgee from time to time of the Developer's right, title and interest herein.
SECTION 8.11. INTEGRATION. This Agreement completely and fully supersedes all other prior or contemporaneous understandings or agreements, both written and oral, between the City
15 and the Developer relating to the specific subject matter of this Agreement and the transactions contemplated hereby.
SECTION 8.12. DISPUTES. The Developer and the City waive any right which either may have to contest, and shall not take any action to challenge, the other's authority to enter into, perform or enforce the Agreement or to carry out the Development Program or the validity or enforceability of this Agreement, the District or the Development Program. Subject to the provisions of Sections 1.5, 3.4 and 5.4 hereof, the City and the Developer shall each utilize their respective best efforts to uphold the District, the Development Program, this Agreement and the City's authority to enter into this Agreement and the validity and enforceability of the Districts, the Development Program and this Agreement, including without limitation opposing, to the extent permitted by law, any litigation or proceeding challenging such authority, validity or enforceability. The City and the Developer both covenant and agree that (except as provided in Section 3.1 hereof) the assumptions, analyses and results set forth in this Agreement shall in no way prejudice the rights of either party or be used, in any way, by either party in either presenting evidence or making argument in any dispute which may arise in connection with valuation of the Existing Property or the Land Level Facility.
SECTION 8.13. ARBITRATION. Any dispute arising under this Agreement or under the Development Program shall be resolved by arbitration. The parties shall use best efforts to agree on an arbitrator and rules of arbitration. If agreement is not reached within forty-five (45) days, the dispute shall be resolved by arbitration in accordance with the rules of the American Arbitration Association.
IN WITNESS WHEREOF, the City and the Developer have caused this Agreement to be executed in their respective corporate names and their respective corporate seals to be hereunto affixed and attested by the duly authorized officers, all as of the date first above written.
WITNESS: CITY OF BATH
/s/ Roger R. Havendilt By: /s/ John Bubier ------John Bubier City Manager
/s/ Roger R. Havendilt By: /s/ John Hall ------John Hall, Chairman City Council
WITNESS: BATH IRON WORKS CORPORATION
By: /s/ Kevin P. Gildart ------Kevin P. Gildart Assistant to the President
16 EXHIBIT A
REQUEST FOR PAYMENT
The undersigned (the "Developer") does hereby request payment in the amount of $ from the City of Bath out of the Developer Subaccount of the Project Cost Account established under the Development Program of The Bath Iron Works Municipal Development District and Tax Increment Financing District #1 and The Bath Iron Works Municipal Development District and Tax Increment Financing District #2 and does hereby certify to the City of Bath that the amount requested will be used to pay Project Costs as that term is defined in Chapter 207 of Title 30- A of the Maine Revised Statutes, as follows: [check applicable provisions]
/ / Direct payment of Project Costs in the amount of $______; and/or
/ / Reimbursement to the Developer for Project Costs previously incurred, in the amount of $______
There are attached hereto invoices showing the incurring by the undersigned of Project Costs in the amount of $______. None of these invoices have been the subject of a previous request for payment from the Project Cost Account.
The Developer further certifies that all of such Project Costs constitute Project Costs as defined in the Credit Enhancement Agreement, dated September __, 1997 between the City of Bath and the undersigned, and that the Developer has complied with all terms, conditions and covenants of such Agreement and that no default or event of default exists under said Agreement.
Dated:______
BATH IRONS WORKS CORPORATION
______By:______Its Duly Authorized
17 EXHIBIT 10-33
RETIREMENT BENEFIT AGREEMENT
AGREEMENT DATED AS OF 6th March, 1998 between General Dynamics Corporation, a Delaware corporation ("the Corporation"), and Michael J. Mancuso ("the Executive").
WHEREAS, the Executive has accrued retirement benefits under the General Dynamics Retirement Plan for Salaried Employees (the "Retirement Plan") and to the extent the accrued benefits under the Retirement Plan are limited by Section 415, 401 (a)(4) or 401 (a)(17) of the Internal Revenue Code (or similar provisions), any benefit that would have been provided by the benefit formula of the Retirement Plan in excess of those limitations will be provided under a nonqualified plan (Supplemental Retirement Plan). The Retirement Plan and the Supplemental Retirement Plan are hereinafter collectively referred to as the "Retirement Program."
WHEREAS, this Agreement provides for certain additional retirement benefits to be paid following the Executive's termination of employment or retirement.
NOW, THEREFORE, in consideration for the Executive's future services to be rendered to the Corporation by the Executive, the Corporation and the Executive agree as follows:
1. MEMBERSHIP IN GENERAL DYNAMICS RETIREMENT PLAN.
The Executive will maintain his membership in the General Dynamics Retirement Program, a copy of which has been furnished to him.
2. RETIREMENT PROGRAM BENEFIT.
Upon the Executive's retirement from the Corporation, the Executive shall be entitled to such annual retirement benefits, if any, as of the date of the Executive's termination of employment with the Corporation, based upon the terms of the Retirement Program. Payment of these benefits shall commence at such time and in the form the Executive elects pursuant to the terms of the Retirement Plan.
3. AMOUNT OF SUPPLEMENTAL RETIREMENT BENEFIT.
Upon termination of the Executive's employment with the Corporation under the conditions specified in Sections 4 and 5 below, the Executive's Supplemental Retirement Benefit shall equal an annual payment of One-Hundred Thousand Dollars and no cents ($100,000.00) times the Executive's "Vested Percentage". The Supplemental Benefit Amount shall be paid monthly and shall be in addition to any amount that may be payable under the Retirement Program. The Supplemental Retirement Benefit shall be equal to a single-life annuity form of payment and shall be adjusted in accordance with the election of any optional form of payment which the Executive may elect under the Retirement Program.
Payment of Supplemental Retirement Benefits shall commence to the Executive on the first day of the month following his attainment of age fifty-seven (57) or following his date of termination of employment or retirement, if later.
Page 1 of 4 4. ELIGIBILITY FOR SUPPLEMENTAL RETIREMENT BENEFITS.
If the Executive voluntarily terminates employment with the Corporation prior to October 1, 1999, no Supplemental Retirement Benefit shall be payable under the terms of this Retirement Benefit Agreement. This restriction shall not apply to any retirement benefits that may be payable under the Retirement Program. Subject to the restrictions enumerated in Section 5 below, if the Executive terminates employment on or after October 1, 1999, he shall receive a "Vested Percentage" of his Supplemental Retirement Benefit equal to twenty percent (20%), plus an additional twenty percent (20%) for each year of employment completed after September 30, 1999, until October 1, 2003, when the Executive's Vested Percentage shall equal one-hundred percent (100%). The Executive shall not receive credit for a partial year of employment towards his Vested Percentage.
Alternatively, if the Executive shall terminate his employment with the Corporation other than Termination for Cause at anytime after signing this Agreement under either of the conditions specified in paragraphs (a) or (b) below, the Executive shall be deemed to have a "Vested Percentage" equal to one-hundred percent (100%) and shall be entitled to the Supplemental Retirement Benefit specified in Section 3 above.
(a) In the event of the Executive's illness or disability such that he is unable, in the sole opinion of the Compensation Committee, to adequately perform the tasks of his position; or
(b) If the Corporation shall substantially downgrade the Executive's responsibilities or if the Corporation shall involuntarily terminate his employment other than Termination for Cause as defined below.
5. REDUCTIONS AND FORFEITURES OF PAYMENT.
Notwithstanding anything in this Agreement to the contrary:
(a) Termination for Cause: No Supplemental Retirement Benefit shall be paid in any amount hereunder (and any Supplemental Retirement Benefit currently being paid to the Executive shall be permanently forfeited) if, in the sole opinion of the Compensation Committee, the Executive is discharged for causing harm to the Corporation ("Termination for Cause"), including, but not limited to: (1) an act or acts of personal dishonesty, (ii) conviction of a felony related to the Corporation, (iii) material violation of General Dynamics' standards of business ethics and conduct, or (iv) individually filing, assisting or participating in a lawsuit against the Corporation or it's officers in their official capacity.
(b) Re-employment: The Executive specifically agrees that this Supplemental Retirement Benefit is for his enjoyment in retirement. Therefore, if the Executive's employment with the Corporation terminates other than Termination for Cause prior to October 1, 2003, and the Executive is subsequently employed at anytime by any other employer either as an employee or an independent contractor (other than as a director on the board of directors for a charitable organization) without prior Compensation Committee approval, which approval shall not be unreasonably withheld, the Executive's Vested Percentage shall be deemed to be zero percent (0.0%) and he shall not receive any Supplemental Retirement Benefit at all (and such benefit shall be permanently discontinued if the Executive is in pay status). If Executive's employment with the Corporation terminates other than Termination for Cause on or after October 1, 2003, and the Executive is subsequently employed at anytime by any other employer as either an employee or an independent contractor (other than as a director on the board of directors for a charitable organization)
Page 2 of 4 without prior Compensation Committee approval, which approval shall not be unreasonably withheld, the Executive's "Vested Percentage" shall be deemed to be fifty percent (50%) and his Supplemental Retirement Benefit shall be computed with such Vested Percentage and no greater (and such benefit shall be permanently reduced to reflect this Vested Percentage if the Executive is in pay status at the time of his re- employment without consent). For purposes of this Section 5(b) "reemployment" means employment, including as a member of the board of directors, with an organization otherwise unaffiliated with the Corporation.
6. ALTERNATE FORM OF BENEFIT.
The Executive shall have the option, on written notice transmitted to the Corporation at least 30 days prior to the date on which payment of his benefit would otherwise commence hereunder, to elect to receive the retirement benefit described herein payable in an alternate form as provided by the Retirement Plan or, in the Corporation's discretion, in another form of actuarial equivalent value. The applicable single-life annual benefit shall then be converted to the alternate form elected by the application of the actuarial factors used for converting benefits under the Retirement Plan at the time the Executive's retirement benefit is to commence.
7. SURVIVOR BENEFIT IN CASE OF DEATH PRIOR TO COMMENCEMENT OF BENEFITS.
If the Executive dies after the date of this Agreement but prior to commencement of benefits, and at the time of his death he would have been entitled to a Supplemental Retirement Benefit under this Agreement in the event of his involuntary termination (other than Termination for Cause), then his spouse shall be entitled to receive a "Pre-Retirement Surviving Spouse Annuity" as provided in the Retirement Plan (currently defined as a 50% Contingent Annuity) for her life. The amount of the Pre-Retirement Surviving Spouse Annuity payable under this Agreement shall equal the amount that would have been paid to the Executive under this Agreement as a single-life annuity, assuming he was involuntarily terminated (other than Termination for Cause) immediately prior to his date of death, reduced by the Retirement Plan's actuarial adjustments necessary to express the single-life annuity as a 50% contingent annuity option. Payment of this benefit shall commence on the date the Supplemental Retirement would have commenced to the Executive if he had involuntarily terminated (other than Termination for Cause) immediately prior to his death.
8. PAYMENT.
All annual retirement benefits for the life of the Executive (or alternate form of benefit) or other amounts payable as provided in this Agreement shall be paid as provided in the Executive's benefit election under the Retirement Plan. Any retirement benefits to which the Executive is entitled under this Agreement shall be paid directly by the Corporation to the extent they are not paid under the Retirement Plan. The Corporation may, in its sole discretion, accelerate the payment of benefits under this Agreement in the form of an actuarial equivalent value mutually agreeable to the parties.
9. NO ASSIGNMENT.
No benefit under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void, and no such benefit shall in any manner be liable for or subject to the debts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in the Retirement Program.
Page 3 of 4 10. PAYMENT FROM GENERAL ASSETS.
Unless otherwise determined by the Corporation, the Supplemental Retirement Benefit will be payable by the Corporation from its general assets. The Corporation shall not be obliged to acquire, designate or set aside any specific assets for payment of the Supplemental Retirement Benefit. Further, the Executive shall have no claim whatsoever to any specific assets or group of assets of the Corporation.
The Corporation may, in its discretion, designate that the Supplemental Retirement Benefit shall be satisfied from the assets of a trust, fund, or other segregated group of assets. But, should these assets prove to be insufficient to satisfy payment of the Supplemental Retirement Benefit described above, the Corporation shall remain liable for their payment unless otherwise agreed to by the parties of this Agreement.
11. TAXATION.
The Executive and the Corporation agree that all payments hereunder shall be treated as "wages" for federal and state income tax and employment tax purposes at such time and in such manner as shall be prescribed by law. Each party to this Agreement shall be responsible for the payment of any such taxes as shall be legally required of such party.
12. This Agreement shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on behalf of its Chairman and Chief Executive Officer by the Corporate Vice President - Human Resources and Administration and its corporate seal to be hereunto affixed and attested to by the Secretary of the Corporation, and the Executive has executed this Agreement as of the date first above written.
ATTEST: GENERAL DYNAMICS CORPORATION
/s/ PAUL A. HESSE By: /s/ W. P. WYLIE ------Secretary W. P. Wylie Corporate Vice President - Human Resources and Administration
/s/ HENRY C. EICKELBERG /s/ MICHAEL J. MANCUSO ------Witness Michael J. Mancuso
Page 4 of 4 EXHIBIT 10-34
GENERAL DYNAMICS
3190 Fairview Park Drive Falls Church, Virginia 22042-4523
Nicholas D. Chabraja August 18, 1997 703-876-3251 Chairman of the Board Fax: 703-876-3043 and Chief Executive Officer
Mr. Paul G. Kaminski Technovation, Inc. 6691 Rutledge Drive Fairfax Station, VA 22039
Dear Paul:
This letter will confirm the consulting agreement between us as follows:
1. SERVICES TO BE RENDERED
We retain you to render, and you agree to render to us upon request, your services as an independent contractor for General Dynamics Corporation and its subsidiaries. Such services shall be requested from time to time by the Chief Executive Officer, or his designee. The services shall include: a. Acquisitions and divestitures -- Assist as requested with assessment of opportunities for acquisitions and divestitures, and advise on the competitive impact of proposed transactions under the Department of Defense's (DOD's) merger policies; b. Restructuring and reengineering -- Assist as requested with the Company's restructuring and reengineering initiatives; c. International cooperation -- Assist as requested with international programs, and teaming, partnership and joint venture arrangements; d. Technology strategy -- Review internal research and development plans in the context of an integrated investment strategy. Consider internal and external sources of technology; e. Congress -- Provide assistance as requested in communicating with the Congress on key issues of interest to the Company; and f. Other services -- Consult on other matters on which we mutually agree. Mr. Paul G. Kaminski August 18, 1997
Page 2
2. TERM OF AGREEMENT
Agreement shall be for one year beginning September 1, 1997 and ending August 31, 1998, and may be extended from year to year upon the agreement of the parties. Your obligations pursuant to paragraph 6 shall survive any termination of this agreement.
3. FEES
We shall pay you a fee of Two Hundred Thousand Dollars ($200,000) for the one-year term of this agreement (the "Annual Fee"), for which you will render up to forty (40) days of service. The Annual Fee shall be paid in four quarterly installments of Fifty Thousand Dollars ($50,000) each, with the first installment due upon execution of the agreement and subsequent installments due upon commencement of the consulting quarter.
In the event that you provide more than forty (40) days of service during the term of this agreement, we will pay you Five Thousand Dollars ($5,000) per day (the "Daily Fee") for each additional day of service rendered. In addition, we shall accelerate payment of any unpaid amount of your Annual Fee.
We shall also reimburse you for all reasonable travel expenses actually and necessarily incurred by you on our behalf in the rendering of services hereunder. Expense receipts and other documentation in support of expenses will be retained by you and be available for our review at our office upon request. Air travel will be in business class, or first class if no business class is available.
You shall submit to us at the end of each quarter an invoice showing the quarterly installment, the daily fee, if any, the number of days of service, and a breakdown of travel and other expenses.
4. ACTIVITY REPORTS
You shall submit periodic activity reports in the manner, at the times, and to the extent required by the Chief Executive Officer. You shall from time to time at our request and, in any event, upon termination of this agreement, deliver to us all working papers, plant or engineering data, and other documents and materials that have been prepared or developed by you or made available to you in connection with your performance of services under this agreement. Mr. Paul G. Kaminski August 18, 1997
Page 3
5. SERVICES FOR OTHERS
During the term of this agreement or any extension thereof, you may render services to others as an employee or a consultant, provided that without the express written permission of General Dynamics, you may not serve any major competitors, or engage in any business on your own behalf which sponsors, produces or sells goods or services which compete or conflict with ours. You agree to provide General Dynamics with a list of your current clients and to notify General Dynamics whenever you add new clients.
6. CONFIDENTIAL NATURE OF WORK
You will not, during or after the term of this agreement, divulge to anyone, or except in the performance of this agreement, make use of information or knowledge which you shall have obtained during the term of this agreement and which shall not be generally known or recognized.
7. INVENTIONS AND INTELLECTUAL PROPERTY RIGHTS
The provisions governing inventions and intellectual property rights shall be as follows:
(a) All inventions, discoveries, improvements, devices, designs, apparatus, practices, processes, methods, or products (hereinafter individually or collectively called "inventions"), whether patentable or not, trade secrets, technical and other data, and all copyrightable material made, developed, perfected, devices, conceived or first reduced to practice by you, either solely or jointly with others, or your employees (if any) during the term of this agreement and in the course of your work for us shall be our sole and exclusive property, except as may otherwise be required as provided in subparagraph (b) below.
(b) You understand that we have entered into, or from time to time in the future may enter into, agreements with agencies of the United States Government (including, but not limited to the Department of Defense) and that we may be subject to laws and regulations which impose obligations, restrictions and limitations on us with respect to inventions and patents which may be acquired by us or which may be conceived or developed by consultants, employees and others rendering services to us. You agree to be bound by all such obligations, restrictions and limitations on us with respect to Mr. Paul G. Kaminski August 18, 1997
Page 4 inventions and patents which may be acquired by us or which may be conceived or developed by consultants, employees and others rendering services to us. You agree to be bound by all such obligations, restrictions and limitations applicable to inventions conceived or developed by you in the course of, or in any way connected with your work under this agreement, and to take any and all further action which may be required to discharge such obligations and to comply with such restrictions and limitations.
8. NATURE OF RELATIONSHIP
It is understood that in performing any services pursuant to this agreement, you are acting as an independent contractor and not as an employee, agent or representative of ours. You shall not act as our agent or enter into any agreements or incur any obligations on our behalf, or commit us in any other manner, without our prior written consent. You will be responsible for reporting and paying any federal and state taxes owing on the consulting income received.
You have been provided with a copy of the General Dynamics Standards of Business Ethics and Conduct. You have also been provided with copies of the General Dynamics policies and procedures relating to accounting and expense reporting and travel. You agree to conduct your performance under this consultant agreement in accordance with these Standards and policies.
You understand that there are restrictions established by federal law on certain Retired Military Officers and former U.S. Government employees. While there are many restrictions, they can be briefly summarized into two categories. First, on particular matters in which the Company was a party, you may not make any communications with, or appearances before, the government on behalf of the Company at any time. Second, you may not lobby the DOD for five years after leaving DOD. "Lobby" in this context means to communicate with, or appear before, the DOD with intent to influence official action. You further understand that General Dynamics requires that you comply with these restrictions, and expects you to decline any assignment which may cause you to violate the restrictions or policy.
9. SECURITY
You shall abide by all applicable security laws and regulations of the United States of America and our organization and shall take or refrain from taking any action which may be required for compliance therewith. Mr. Paul G. Kaminski August 18, 1997
Page 5
It is understood that a security clearance up to the level of Top Secret shall be required to perform services requested under this agreement. You will be contacted by our Security Department concerning the execution of a "Consultant Security Certification" and further guided in submitting appropriate government clearance forms to the Defense Investigative Service Clearance Office.
10. ENTIRE AGREEMENT
This instrument contains the entire agreement between the parties with respect to the consulting services to be rendered by you to us, and supersedes all prior agreements, arrangements, and/or understandings between the parties regarding the subject matter hereof.
If the foregoing clearly sets forth our understanding, will you please sign and return to us the enclosed duplicate copy of this letter, which shall thereupon constitute an agreement between us.
Very truly yours,
GENERAL DYNAMICS CORPORATION
/s/ NICHOLAS D. CHABRAJA Nicholas D. Chabraja Chairman and Chief Executive Officer
CONSULTANT APPROVAL:
Confirmed and accepted as of ______, 1997 by:
/s/ PAUL G. KAMINSKI ------Paul G. Kaminski Social Security Number or
Employer Identification Number
EXHIBIT 10.35
AGREEMENT
AGREEMENT DATED AS OF 7 February, 1997 between General Dynamics Corporation, a Delaware corporation ("the Corporation"), and Michael W. Wynne ("the Executive").
In consideration for the Executive's future services to be rendered to the Corporation by the Executive, the Corporation and the Executive agree as follows:
1. SALARY AND BENEFIT CONTINUATION
In the event that the Executive's employment with the Corporation is involuntarily terminated, other than for cause, during the first two years of the Executive's employment, the Executive's salary and benefits will continue for a period of one year.
2. TAXATION
The Executive and the Corporation agree that all payments hereunder shall be treated as "wages" for federal and state income tax and employment tax purposes as such time and in such manner as shall be prescribed by law. Each party to this Agreement shall be responsible for the payment of any such taxes as shall be legally required of such party.
3. This Agreement shall be governed by the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on behalf of its Chairman and Chief Executive Officer by the Corporate Vice President - Human Resources and Administration and its corporate seal to be hereunto affixed and attested to by the Secretary of the Corporation, and the Executive has executed this Agreement as of the date first above written.
ATTEST: GENERAL DYNAMICS CORPORATION
/S/ PAUL A. HESSE By: /S/ W.P. WYLIE ------Secretary W.P. Wylie Corporate Vice President - Human Resources and Administration
/S/ DAVID R. BREEN /S/ MICHAEL W. WYNNE ------Witness Michael W. Wynne
Page 1 of 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except per share amounts)
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of the Results of Operations and Financial Condition and other sections of this Annual Report contain forward-looking statements that are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "plans," "believes," "estimates," variations of these words and similar expressions are intended to identify forward-looking statements which include but are not limited to projections of revenues, earnings, segment performance, cash flows and contract awards. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including: the company's successful execution of internal performance plans; performance issues with key suppliers and subcontractors; legal proceedings; labor negotiations; changing priorities or reductions in the U.S. government defense budget; and termination of government contracts due to unilateral government action.
BUSINESS OVERVIEW
The company's primary business is supplying weapons systems and services to the U.S. government and its international allies. Over the last decade, due to a decline in the U.S. defense budgets, participants in the defense industry began a process of contraction and consolidation. The company participated in this shift by changing its focus to strengthen certain core businesses through both internal and external means. Management continues to focus on developing advanced technological solutions to meet its customers' operational requirements, while continually improving its cost structure. These efforts have created highly efficient businesses that are positioned to capture new programs and contracts. The company's businesses have been awarded new programs with the potential for significant production, as well as several important contracts on existing programs. Since September 1995, the company has invested approximately $1.6 billion in cash for the net assets of eight businesses that have strengthened the company's core operations and expanded its capabilities to include full systems integration, data management and open network platform systems integration. Those acquisitions which were reflected in the 1997 results were immediately accretive to earnings. All acquisitions completed to date are expected to be accretive to earnings in 1998.
Management will continue to implement its strategy to strengthen the company through continued improvement to operations; positioning itself to capture new programs and contracts; and pursuing acquisitions that bring real value to its shareholders and affordability to its customers.
For its potential acquisitions, the company looks to those that address all or some of the following strategic criteria:
- offer the opportunity to achieve savings through consolidation;
- leverage on the company's operating strength and core competencies;
- broaden product lines;
- provide technology that improves the company's competitive position.
With approximately $400 million in funds on hand after the most recent acquisition and the capacity for additional long-term borrowing, the company has the financial capability to take advantage of potential opportunities.
EARNINGS FROM CONTINUING OPERATIONS
1995 $247 1996 $270 1997 $316
OPERATING CASH FLOWS
1995 $349 1996 $415 1997 $528
BUSINESS SEGMENTS
Until recently, the company had two primary business segments, Marine and Combat Systems. Marine designs and builds nuclear submarines and surface combatants for the U.S. Navy as well as provides ship management services for the U.S. government on prepositioning and ready reserve ships. Combat Systems designs and manufactures armored vehicles, components of other combat vehicles and advanced gun, ammunition handling and air defense systems for the U.S. armed forces and international customers. It also is a leader in the production of ammunition and ordnance products.
18 GENERAL DYNAMICS 1997 ANNUAL REPORT During the fourth quarter, the company acquired the Computing Devices International business of Ceridian Corporation and the Advanced Technology Systems division of Lucent Technologies. Computing Devices International is a defense electronics and systems integration business for primarily the U.S., Canadian and U.K. governments. Advanced Technology Systems is a leading supplier of undersea surveillance systems, signal processing and vibration control systems and related technologies primarily for the U.S. Navy. With these acquisitions, the company plans to form in 1998 a third primary business segment, Information Systems and Technology. For a discussion of the accounting for these transactions and related information, see Note B to the Consolidated Financial Statements.
The company also has several miscellaneous businesses including coal mining and aggregates operations in the Midwest, and a leasing operation for liquefied natural gas tankers which are classified as "Other."
A discussion of each business segment's backlog position (the estimated remaining sales value of work to be performed under firm contracts), anticipated programs, operating results and outlook follows. As noted earlier, the anticipated defense programs of the company are subject to, among other events, changing priorities or reductions in the U.S. government defense budget. However, the company's programs continue to receive support in the defense budget consistent with the company's expectations. For a summary of business segment information, see Note R to the Consolidated Financial Statements which is incorporated herein by reference.
MARINE
BACKLOG
Firm Backlog
1995 $5,686 1996 $7,566 1997 $5,864
Anticipated Awards
1997 $7,000
Year-end firm backlog includes contracts for the construction of the final two Seawolf-class attack submarines with final delivery scheduled for 2001 and nine Arleigh Burke class destroyers (DDG 51) with final delivery scheduled for 2003, and for the continued design of the next generation submarine, the New Attack Submarine (NSSN).
The backlog chart also depicts the impact of certain contracts not yet awarded to the company as of year end. In March 1998, the Navy awarded a contract to the company for the construction of six additional DDG 51s for approximately $2 billion. The company anticipates an award later in 1998 for the continued design and construction of the first four NSSNs for approximately $5 billion.
In February 1997, the company entered into a Team Agreement with Newport News Shipbuilding and Drydock Company (Newport News) for the NSSN program. The Team Agreement provides that the company will be the prime contractor on construction contracts for the NSSNs, and that construction and assembly work will be equally shared with Newport News through a subcontracting arrangement. The company will retain the lead design role. The FY98 Department of Defense Appropriations Act includes a provision that authorizes the Secretary of the Navy to enter into a contract or contracts for the construction of the first four NSSNs under the terms of the Team Agreement. Current Department of Defense plans call for 30 ships in the NSSN program.
The company is also a member of a three-contractor team which was awarded a contract to design and build the Navy's new class of amphibious transport ships (LPD 17). Congressional funding was previously approved for the design and construction of the lead LPD 17. The Navy anticipates this to be a 12 -ship program. If the Navy receives Congressional funding for all 12 ships, the company has agreed with its partners that it will construct four ships.
The company and two other contractors have formed a team to compete for the development, design, construction and life-cycle support of the U.S. Navy's next-generation surface combatant ships (DD 21). The DD 21 program is estimated at $20 billion and includes the construction of more than 30 ships during the first quarter of the next century. The company will serve as the leader through the initial study, technology development and initial system design phases of the program. Should the company's team win the competition, program lead will shift to another team member for detail design and ship construction. It is anticipated that ship design and construction will be shared evenly between the company and the other shipbuilder.
RESULTS OF OPERATIONS AND OUTLOOK
------1997 1996 1995 ------Net Sales $2,311 $2,332 $1,884 Operating Earnings 234 216 194 ------
Net sales decreased $21 in 1997 due to lower submarine construction activity as a result of the delivery of the final Trident and the first Seawolf submarines. This decrease was partially offset by increased engineering and design work on the NSSN.
GENERAL DYNAMICS 1997 ANNUAL REPORT 19 Operating earnings increased $18 due to earnings rate increases on the DDG 51 program in the fourth quarter and on the Seawolf program in the third quarter. The DDG 51 program is realizing the benefits of reengineering efforts which are reducing costs and increasing margins. The Seawolf program is benefiting from diminishing operating risks as the program matures and performance improves, and as the business base stabilizes from the NSSN program.
Net sales and operating earnings increased $448 and $22, respectively, in 1996 due primarily to the acquisition of Bath Iron Works. For a discussion of the accounting for this transaction and related information, see Note B to the Consolidated Financial Statements. The operating results of Bath Iron Works have been included with those of the company from the closing date, September 13, 1995.
Excluding the results of Bath Iron Works, net sales decreased approximately five percent during 1996 due to lower construction activity on the Trident and Los Angeles class submarine programs. The impact of lower submarine construction activity on operating earnings was offset by an increase in the earnings rate on the Trident program.
Looking forward, while submarine construction revenues are expected to continue to decline, the decrease will partially be offset by an increase in engineering revenues primarily from the NSSN program. Despite the shift in the product mix, operating margins are expected to approximate those reported in 1997.
COMBAT SYSTEMS
BACKLOG
1995 $1,103 1996 $2,057 1997 $2,323
The company is in the second year of its $1.3 billion five-year multiyear contract for the upgrade of 600 M1 Abrams tanks to the M1A2 configuration. This contract is part of a U.S. Army procurement program to upgrade at least 1,150 of these vehicles by the year 2003. Based on the U.S. Army's current plan, the company anticipates that its existing multiyear contract will be followed by contracts to complete the current upgrade program.
The company is under contract for the development of several other major systems including the design and development of the Advanced Amphibious Assault Vehicle (AAAV) and construction of at least three prototypes. The Marine Corps plans to procure more than 1,000 vehicles in the next decade, a production program worth as much as $4 billion. The Crusader Self-Propelled Howitzer program remains the Army's largest single research and development program; the company's share is approximately 25 percent. The U.S. Army plans to build over 800 Crusader systems, a production program that could be worth as much as $13 billion. Another program is the Heavy Assault Bridge which is expected to enter production in early 1998.
Other mature production programs in Combat Systems backlog include several major components of the Bradley combat vehicle and its derivatives; Hydra Rocket; diesel engines; and a four-year program to upgrade Fox Nuclear, Biological and Chemical Reconnaissance System vehicles.
RESULTS OF OPERATIONS AND OUTLOOK
------1997 1996 1995 ------Net Sales $1,509 $1,026 $1,050 Operating Earnings 187 140 140 ------
Net sales increased $483 and operating earnings increased $47 during 1997 due primarily to the acquisition of Defense Systems and Armament Systems from Lockheed Martin Corporation on January 1, 1997. For a discussion of the accounting for this transaction and related information, see Note B to the Consolidated Financial Statements. Excluding the results of the acquisitions, net sales decreased five percent due primarily to decreased tank kit production resulting from delivery of the last 48 kits to Egypt as part of the co-production program in early 1997. This decrease was partially offset by increased activity on the AAAV program.
Net sales decreased $24 during 1996 due primarily to decreased M1 production resulting from the delivery of the last of 218 M1A2 tanks to Kuwait in the first quarter of the year. This decrease was partially offset by increased activity on the domestic upgrade program and the impact of the acquisition of Teledyne Vehicle Systems (Muskegon Operations) in March 1996.
Operating earnings were unchanged in 1996 due to slightly higher volume on the Single Channel Ground and Airborne Radio System (SINCGARS) program and the impact of the Muskegon Operations acquisition, which offset the aforementioned decrease in M1 production.
In April, the Army selected the company's competitor to be the sole source provider of SINCGARS for the final years of the program. The company is currently scheduled to complete production in late 1998. 20 GENERAL DYNAMICS 1997 ANNUAL REPORT The company continues to seek improvements in operating margins in Combat Systems through efforts to reduce costs. During the first quarter of 1997, the company reached an early agreement with its employees represented by the United Auto Workers Union on a new collective bargaining contract. The company believes the terms of the contract, which extends to October 2000, will provide it with cost savings and therefore an improved competitive position. The company also initiated actions during the second half of 1997 to transfer light vehicles, turrets and transmission production of Defense Systems to other facilities within Combat Systems, and to transition the ballistic missile fire control business to the Marine segment beginning in 1998. The company expects these actions to provide further cost reductions and improvements to its competitive position. Net sales for the ballistic missile fire control business were approximately $120 in 1997.
INFORMATION SYSTEMS AND TECHNOLOGY
The acquisitions of Computing Devices International and Advanced Technology Systems add four new businesses to the company. General Dynamics Information Systems provides the company with broader and deeper capabilities in electronics and systems integration and information management. Computing Devices Canada, Ltd. is Canada's premier defense electronics contractor with extensive experience in the management of complex projects involving large scale systems integration. They are the systems integrator on the Iris program, whose objective is to modernize and fully digitize the tactical command, control and communications systems of the Canadian land forces. Computing Devices Company Ltd. in the United Kingdom opens new markets in highly sophisticated defense electronics. Advanced Technology Systems is a leading supplier of undersea surveillance systems, signal processing systems, vibration control systems, and related technologies for a wide range of applications. Management believes these businesses will further permit the company to seek new programs and contracts and to strengthen the company's role as prime contractor with a full complement of systems integration, data management and battlefield digitization skills. Year-end backlog for these businesses totaled approximately $800 million.
The operating results of Computing Devices International will be included with those of the company beginning in the first quarter of 1998. Advanced Technology Systems' operating results were included with those of the company beginning in the fourth quarter of 1997 and reported in Marine. Their results for 1998, however, will be reported in Information Systems and Technology. Revenues for the operating segment are expected to approach $900 million in 1998.
OTHER ------1997 1996 1995 ------Net Sales $242 $223 $133 Operating Earnings 25 (3) (19) ------
Operating earnings increased $28 during 1997 due primarily to the suspension of coal mining activity at an unprofitable location in early 1997.
Net sales increased $90 and operating losses decreased $16 during 1996 due to the reclassification of the aggregates business to continuing operations in the second quarter of the year, and to the extension of the leases held by the ship financing business.
ADDITIONAL FINANCIAL INFORMATION
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased during 1997 due primarily to business acquisitions. As a percentage of net sales, however, general and administrative expenses have remained consistent with 1996 and 1995.
INTEREST, NET. Interest income was $40 in 1997, down from $59 in 1996 and 1995 due primarily to a decline in the average cash balance resulting from the previously discussed business acquisitions. Interest income is expected to decrease significantly in 1998 due to a decline in the average cash balance resulting from acquisitions in the fourth quarter of 1997. Interest expense is expected to increase in 1998 as a result of borrowings made at the end of the year to effect the acquisition of Computing Devices International.
OTHER INCOME, NET. Other income varies from period to period based on the timing of transactions such as the sales of investments and miscellaneous assets.
PROVISION FOR INCOME TAXES. The company reached a favorable agreement with the Internal Revenue Service, subject to approval by the Joint Committee on Taxation, with respect to its claim for additional research and experimentation tax credits. For further discussion of this and other tax matters, as well as a discussion of the net deferred tax asset, see Note D to the Consolidated Financial Statements.
DISCONTINUED OPERATIONS. The company has operated certain businesses that were accounted for as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. In early 1996, the company's commercial aircraft subcontracting business ceased operations after the delivery of its final shipset, and the company's aggregate business was reclassified to continuing operations following the sale of certain of its product lines. There are no businesses classified as discontinued operations as of December 31, 1997. For additional discussion, see Note C to the Consolidated Financial Statements.
GENERAL DYNAMICS 1997 ANNUAL REPORT 21 EARNINGS PER SHARE. On March 4, 1998, the company's board of directors authorized a two-for-one stock split effected in the form of a 100 percent stock dividend. Accordingly, earnings per share data has been restated to give retroactive recognition to the stock split for all periods presented.
The company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which requires the presentation of earnings per share on both a basic and diluted basis for all periods presented. There are no differences between basic earnings per share and the historical earnings per share reported by the company.
ENVIRONMENTAL MATTERS. The company adopted the provisions of Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities," as of January 1, 1997. SOP 96-1 provides authoritative guidance regarding the recognition, measurement, display and disclosure of environmental remediation liabilities resulting from Superfund or analogous laws and regulations. The adoption of SOP 96-1 had no material impact on the company's results of operations or financial condition. For a discussion of environmental matters and other contingencies, see Note N to the Consolidated Financial Statements. The company's liability, in the aggregate, with respect to these matters is not deemed to be material to the company's results of operations or financial condition.
YEAR 2000. The company will be required to modify significant portions of its computer software and related technologies throughout its businesses so that they will function properly in the year 2000 and beyond. The company's operating units are assessing the impact of the Year 2000 issue on their operations, including the development of cost estimates, and the extent of programming changes required to address this issue. As most of these costs are expected to be allowable under the company's contracts with U.S. government, they are not expected to have a significant impact on the company's results of operations or financial condition.
MARKET RISK. The company's investment securities and debt instruments carry fixed rates of interest over their respective maturity terms. The company does not use derivative instruments to alter the interest characteristics of these instruments. The aggregate fair value of the company's financial instruments approximates the carrying value at December 31, 1997.
The company's foreign operations attempt to minimize the effects of currency risk by borrowing externally in the local currency and by hedging their limited purchases made in foreign currencies when practical. As a matter of policy, the company does not engage in currency speculation.
With the acquisition of Computing Devices International, the company is exposed to the effect of foreign currency fluctuations on the U.S. dollar value of earnings of Computing Devices Canada and Computing Devices Company in the U.K. The company does not expect the impact of foreign currency fluctuations to be material to the company's results of operations or financial condition.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board issued SFAS 130, "Reporting Comprehensive Income" in June 1997. SFAS 130 requires a company to report comprehensive income and its components in a full set of general-purpose financial statements beginning in the first quarter of 1998. There will be no material difference between comprehensive income and historical net earnings reported by the company.
The Accounting Standards Executive Committee issued SOP 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments," in December 1997. SOP 97-3 provides guidance to aid in the determination of when liabilities should be recognized for guaranty-fund and other insurance-related assessments, as well as requirements for the measurement of the liability and related recoverable asset. The company is required to adopt the provisions of SOP 97-3 in 1999 and expects that it will not have a material impact on the results of operations or financial condition.
FINANCIAL CONDITION
The company's liquidity and financial condition remained strong during 1997 even after the use of $1,230 for the acquisition of six businesses during the year. The company ended the year with $441 of cash and equivalents and marketable securities. A discussion of the company's financial condition in terms of its operating, investing and financing activities as defined in the Consolidated Statement of Cash Flows follows.
OPERATING ACTIVITIES--CONTINUING. The net cash provided by continuing operations as reported on the Consolidated Statement of Cash Flows is summarized by type as follows:
YEAR ENDED DECEMBER 31 ------1997 1996 1995 ------Operations $ 581 $ 520 $ 405 Allocated federal income tax payments (115) (127) (89) Other 62 22 33 ------Operating cash flows 528 415 349 Decrease (increase) in marketable securities, net 62 742 (203) ------Net cash provided by continuing operations $ 590 $1,157 $ 146 ------
22 GENERAL DYNAMICS 1997 ANNUAL REPORT The four types of cash flows are described as follows:
- Operations represent the pretax cash flows generated by the company's business segments. Due to the final deliveries of two maturing submarine programs, cash flows from operations exceeded operating earnings plus depreciation and amortization for each of the three years in the period ended December 31, 1997. While this trend is not expected to continue in 1998, the company expects to generate funds from operations in excess of its short- and long-term liquidity needs.
- For purposes of preparing the Consolidated Statement of Cash Flows, federal income tax payments are allocated between continuing and discontinued operations based on the portion of taxable income attributed to each.
- Other cash flows include items that are not directly attributable to a business segment, such as interest received from investments in excess of interest paid on debt.
- In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the purchases, sales and maturities of marketable securities classified as trading are reflected as cash flows from operating activities. The decrease in 1996 was due to the company altering its investment portfolio to include more available-for-sale securities which are included in investing activities. This strategy was continued in 1997.
OPERATING ACTIVITIES--DISCONTINUED. Cash flows from discontinued operations improved during 1997 due primarily to lower allocated federal income tax payments and a decrease in payments for disposition related liabilities. Cash flows from discontinued operations decreased during 1996 due primarily to the commercial aircraft subcontracting business ceasing operations and the resulting higher federal income tax payments associated with the delivery of its final shipset. For discussion of the A-12 program litigation, see Note O to the Consolidated Financial Statements.
INVESTING ACTIVITIES. As previously discussed, the company acquired six businesses in 1997. For further discussion of each acquisition, see Note B to the Consolidated Financial Statements. The company liquidated substantially all of its available-for-sale investment portfolio in order to acquire these businesses.
The company commenced a project to modernize the facilities and to improve productivity at its Bath Iron Works' shipyard in late 1997. The company anticipates investing approximately $200 over a period of three years.
As part of the sale of discontinued operations in 1995, the company retained certain properties located in southern California. These properties have been segregated on the Consolidated Balance Sheet as real estate held for development. The company began development work on certain of the properties in 1994 in order to maximize the value the company receives from the sales of these properties. In 1997, the company received $23 of proceeds from the sale of certain assets related to these properties.
[PHOTO]
Michael J. Mancuso, Senior Vice President and Chief Financial Officer
FINANCING ACTIVITIES. To effect the acquisition of Computing Devices International on December 31, 1997, the company borrowed $220 from a Canadian bank. The company expects to repay $70 of this note and refinance the balance under a long-term arrangement during the second quarter of 1998.
The company has elected to exercise its option to call for the early redemption of all of its outstanding 9.95% Debentures due April 1, 2018. The company will repay the balance for a premium, in addition to its regular quarterly interest payment, on April 1, 1998, for a total of approximately $40.
On March 4, 1998, the company's board of directors declared an increased regular quarterly dividend of $.22 per share, adjusted for the previously discussed stock split, reflecting the board's confidence in the sustainability of the cash flows generated by the company's operations. The company had previously increased the dividend to $.205 per share, also adjusted for the stock split, in March 1996.
In 1994, the board of directors reconfirmed management's authority to repurchase, at its discretion, up to six million shares of the company's common stock, adjusted for the previously discussed stock split. During 1997 and 1996, the company repurchased approximately 1.8 million and 780,000 shares, respectively, of its stock on the open market for a total of $60 and $23, respectively. As of December 31, 1997, the company had repurchased approximately 3.7 million shares.
The Title XI Bonds issued by the ship financing business were retired in 1996. This retirement was financed by the private placement of new nonrecourse bonds that are callable under certain conditions. The refinancing had no material impact on the company's results of operations or financial condition.
The company has the capacity for long-term borrowings and currently has a committed, $400 line of credit expiring in December 1998 and a committed, five -year $400 line of credit. GENERAL DYNAMICS 1997 ANNUAL REPORT 23 CONSOLIDATED STATEMENT OF EARNINGS Restated (See Note K)
Year Ended December 31 ------(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995 ------NET SALES $4,062 $3,581 $3,067 OPERATING COSTS AND EXPENSES 3,616 3,228 2,752 ------OPERATING EARNINGS 446 353 315 Interest, net 36 55 55 Other income, net (3) 1 5 ------EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 479 409 375 Provision for income taxes 163 139 128 ------EARNINGS FROM CONTINUING OPERATIONS 316 270 247 DISCONTINUED OPERATIONS, NET OF INCOME TAXES: Earnings from operations - - 55 Gain on disposal - - 19 ------74 ------NET EARNINGS $ 316 $ 270 $ 321 ======
BASIC EARNINGS PER SHARE: Continuing Operations $ 2.51 $ 2.14 $ 1.96 Net Earnings 2.51 2.14 2.55
DILUTED EARNINGS PER SHARE: Continuing Operations $ 2.50 $ 2.13 $ 1.95 Net Earnings 2.50 2.13 2.54 ------(Shares in thousands) ------Basic weighted average shares outstanding 125,674 126,343 125,985 Assumed exercise of options 712 517 454 Contingently issuable shares 194 60 58 ------Diluted weighted average shares outstanding 126,580 126,920 126,497 ------
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
24 GENERAL DYNAMICS 1997 ANNUAL REPORT CONSOLIDATED BALANCE SHEET Restated (See Note K)
December 31 ------(DOLLARS IN MILLIONS) 1997 1996 ------
ASSETS ------CURRENT ASSETS:
Cash and equivalents $ 336 $ 516 Marketable securities 105 378 ------441 894 Accounts receivable 234 97 Contracts in process 702 558 Other current assets 312 309 ------Total Current Assets 1,689 1,858 ------NONCURRENT ASSETS: Marketable securities - 261 Leases receivable--finance operations 193 204 Real estate held for development 128 147 Property, plant and equipment, net 592 441 Intangible assets 1,204 165 Other assets 285 223 ------Total Noncurrent Assets 2,402 1,441 ------$4,091 $3,299 ------
LIABILITIES AND SHAREHOLDERS' EQUITY ------CURRENT LIABILITIES: Current portion of long-term debt $ 108 $ - Accounts payable 255 182 Other current liabilities 928 651 ------Total Current Liabilities 1,291 833 ------NONCURRENT LIABILITIES: ------Long-term debt 157 38 Long-term debt--finance operations 100 118 Other liabilities 628 596 Commitments and contingencies (See Note N) ------Total Noncurrent Liabilities 885 752 ------SHAREHOLDERS' EQUITY: Common stock, including surplus (shares issued 168,774,672) 220 191 Retained earnings 2,386 2,172 Treasury stock (shares held 1997, 42,989,118; 1996, 42,570,314) (691) (650) Unrealized gain on investments - 1 ------Total Shareholders' Equity 1,915 1,714 ------$4,091 $3,299 ------
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
GENERAL DYNAMICS 1997 ANNUAL REPORT 25 CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 ------(DOLLARS IN MILLIONS) 1997 1996 1995 ------CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 316 $ 270 $ 321 Adjustments to reconcile net earnings to net cash provided by continuing operations -- Discontinued operations - - (74) Depreciation, depletion and amortization 91 67 38 Decrease (Increase) in assets, net of effects of business acquisitions -- Marketable securities 62 742 (203) Accounts receivable (6) 25 21 Contracts in process 86 41 6 Leases receivable--finance operations 10 8 14 Other current assets 18 - 21 Increase (Decrease) in liabilities, net of effects of business acquisitions -- Accounts payable and other current liabilities (35) 2 (22) Current income taxes 66 76 3 Deferred income taxes (15) (61) 36 Other, net (3) (13) (15) ------Net cash provided by continuing operations 590 1,157 146 Net cash provided (used) by discontinued operations (33) (121) 84 ------Net Cash Provided by Operating Activities 557 1,036 230 ------CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of cash acquired (1,230) (59) (292) Purchases of available-for-sale securities (440) (986) - Sales/maturities of available-for-sale securities 916 484 7 Capital expenditures (83) (75) (32) Proceeds from sale of assets 34 41 30 Other (5) (10) (5) ------Net Cash Used by Investing Activities (808) (605) (292) ------CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt 220 - - Proceeds from issuance of debt--finance operations - 150 - Repayment of debt--finance operations (17) (158) (15) Dividends paid (102) (101) (92) Purchase of common stock (60) (23) - Proceeds from option exercises 30 8 4 Other - (6) (2) ------Net Cash Provided (Used) by Financing Activities 71 (130) (105) ------NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (180) 301 (167) CASH AND EQUIVALENTS AT BEGINNING OF YEAR 516 215 382 ------CASH AND EQUIVALENTS AT END OF YEAR $ 336 $ 516 $ 215 ------
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
26 GENERAL DYNAMICS 1997 ANNUAL REPORT CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Restated (See Note K)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Common Stock Treasury Stock Unrealized Gain ------Retained ------on Available-for- Shares Par Surplus Earnings Shares Amount Sale Securities ------BALANCE, DECEMBER 31, 1994 168,774,672 $169 $ - $1,778 42,783,094 $631 $ ------Net earnings 321 Cash dividends declared ($.75 per share) (94) Shares issued under Incentive Compensation Plan 11 (499,172) (6) Unrealized gain on available-for-sale securities 7 ------BALANCE, DECEMBER 31, 1995 168,774,672 169 11 2,005 42,283,922 625 7 ------Net earnings 270 Cash dividends declared ($.82 per share) (103) Shares purchased 783,800 23 Shares issued under Incentive Compensation Plan 11 (497,408) 2 Change in unrealized gain on available-for-sale securities (6) ------BALANCE, DECEMBER 31, 1996 168,774,672 169 22 2,172 42,570,314 650 1 ------Net earnings 316 Cash dividends declared ($.82 per share) (102) Shares purchased 1,832,500 60 Shares issued under Incentive Compensation Plan 29 (1,413,696) (19) Change in unrealized gain on available-for-sale securities (1) ------BALANCE, DECEMBER 31, 1997 168,774,672 $169 $51 $2,386 42,989,118 $691 $ ------
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
GENERAL DYNAMICS 1997 ANNUAL REPORT 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restated (See Note K)
(Dollars in millions, except per share amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include the accounts of the company and all majority-owned subsidiaries.
ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
SALES AND EARNINGS UNDER LONG-TERM CONTRACTS AND PROGRAMS. Major defense programs are accounted for using the percentage-of-completion method of accounting. The combination of estimated profit rates on similar, economically interdependent contracts is used to develop program earnings rates. These rates are applied to contract costs, including general and administrative expenses, for the determination of sales and operating earnings. Program earnings rates are reviewed quarterly to assess revisions in contract values and estimated costs at completion. Based on these assessments, any changes in earnings rates are made prospectively.
Any anticipated losses on contracts or programs are charged to earnings when identified. Such losses encompass all costs, including general and administrative expenses, allocable to the contracts. Revenue arising from the claims process is not recognized either as income or as an offset against a potential loss until it can be reliably estimated and its realization is probable.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $334, $275 and $234 in 1997, 1996 and 1995, respectively, and are included in operating costs and expenses on the Consolidated Statement of Earnings.
INTEREST, NET. Interest income was $40, $59 and $59 in 1997, 1996 and 1995, respectively. Interest expense incurred by the company's finance operations totaled $9, $10 and $13 in 1997, 1996 and 1995, respectively, and is classified as operating costs and expenses. Interest payments for the company were $12, $14 and $18 in 1997, 1996 and 1995, respectively.
NET EARNINGS PER SHARE. The company has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which requires the presentation of earnings per share on both a basic and diluted basis for all periods presented.
CASH AND EQUIVALENTS AND MARKETABLE SECURITIES. The company classifies its securities based on the remaining maturity at the time of purchase. The company considers securities with a maturity of three months or less to be cash equivalents. The company adjusts all marketable securities to fair value. In general, market adjustments to those securities with maturities less than one year are recognized in earnings and recognized as a separate component of shareholders' equity for securities with maturities greater than one year. At December 31, 1997, marketable securities consist primarily of corporate and municipal debt securities.
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS. Accounts receivable represent only amounts billed and currently due from customers. Recoverable costs and accrued profit related to long-term contracts and programs on which revenue has been recognized, but billings have not been presented to the customer (unbilled receivables), are included in contracts in process.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is carried at cost net of accumulated depreciation. The company primarily uses accelerated methods of depreciation for depreciable assets. Depletion of mineral reserves is computed using the units-of- production method. Depreciation expense was $70, $59 and $38 in 1997, 1996 and 1995, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets, identifiable intangibles and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the company estimates the future cash flows expected to result from the use of the asset. If the asset is held for sale, the company reviews its fair value less cost to sell.
ENVIRONMENTAL LIABILITIES. The company accrues environmental costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. Cleanup and other environmental exit costs related to sold businesses were recorded at the time of disposal. Recorded liabilities have not been discounted. To the extent the U.S. government has specifically agreed to pay the ongoing maintenance and monitoring costs at sites currently used in the conduct of the company's government contracting business, these costs are treated as contract costs and recognized as paid.
STOCK-BASED COMPENSATION. The company measures compensation cost for stock options as the excess, if any, of the quoted market price of the company's stock at the measurement date over the exercise price. Stock awards are recorded at fair value at the date of award. 28 GENERAL DYNAMICS 1997 ANNUAL REPORT CLASSIFICATION. Consistent with industry practice, assets and liabilities relating to long-term contracts and programs are classified as current although a portion of these amounts is not expected to be realized within one year. In addition, certain prior year amounts have been reclassified to conform to the current year presentation.
B. ACQUISITIONS
Effective December 31, 1997, the company purchased the assets of Computing Devices International, formerly a division of Ceridian Corporation, for approximately $500, net of cash acquired of $100. The company borrowed $220 to effect the acquisition. See Note I for details on the terms of the debt. Computing Devices International is a defense electronics and systems integration business with presence in the U.S., Canadian and U.K. defense electronics markets.
Effective October 1, 1997, the company purchased the assets of Advanced Technology Systems, formerly an operating unit of Lucent Technologies, for $267, net of purchase price adjustment of $17 received in January 1998. Advanced Technology Systems is a leading supplier of undersea surveillance systems, signal processing and vibration control systems and related technologies for a wide range of applications.
Effective January 1, 1997, the company purchased the assets of Defense Systems and Armament Systems, formerly operating units of Lockheed Martin Corporation, for $450 in cash. Defense Systems builds light vehicles, turrets and transmissions for combat vehicles, as well as missile guidance and naval fire control systems. Armament Systems designs, develops and produces advanced gun, ammunition handling and air defense systems, and is a leader in the production of ammunition and ordnance products.
Effective March 29, 1996, the company purchased the assets of Teledyne Vehicle Systems (Muskegon Operations), formerly an operating unit of Teledyne Inc., for $55 in cash. Muskegon Operations specializes in combat vehicles as well as mobility systems, suspension technology and diesel engines for armored vehicle markets worldwide.
Effective September 13, 1995, the company purchased the stock of Bath Iron Works Corporation for $300 in cash. Bath Iron Works builds surface combatants for the U.S. Navy.
Each of these acquisitions has been accounted for under the purchase method of accounting. The purchase prices have been allocated to the estimated fair values of net tangible assets acquired, with any excess recorded as intangible assets (see Note G). Certain of the estimates related to the acquisitions of Computing Devices International and Advanced Technology Systems are still preliminary at December 31, 1997, but will be finalized within one year from their respective date of acquisition. The operating results of the acquired businesses are included with those of the company from their respective closing dates.
C. DISCONTINUED OPERATIONS
In 1994, the company and McDonnell Douglas Corporation (McDonnell Douglas), acquired by The Boeing Company in 1997, announced an agreement to terminate their contract for the company's production of fuselage sections for the MD-11 jetliner. Under the agreement, the responsibility for production of fuselages was transferred from the company's commercial aircraft subcontracting business to McDonnell Douglas, with the delivery of the 166th shipset in early 1996. The company's commercial aircraft subcontracting business ceased operations after the completion of its obligations under this agreement.
Also in early 1996, the aggregates operations of the company's Material Service business were reclassified to continuing operations following the sale of its lime, brick, concrete pipe and ready-mix operations.
Net sales from discontinued operations were $28 and $467 in 1996 and 1995, respectively. Net earnings were $55, net of income taxes of $29, in 1995. Included in the results of 1995 is a portion of the company's deferred gain from a prior disposal as a result of the favorable resolution of a contingency.
D. INCOME TAXES
The provision for federal income taxes for continuing operations is summarized as follows:
YEAR ENDED DECEMBER 31 ------1997 1996 1995 ------Current $ 178 $ 200 $ 92 Deferred (15) (61) 36 ------$ 163 $ 139 $ 128 ------
The provision for state and local income taxes, which is allocable to U.S. government contracts, is included in operating costs and expenses. The reconciliation from the statutory federal income tax rate to the company's effective income tax rate is as follows:
------YEAR ENDED DECEMBER 31 ------1997 1996 1995 ------Statutory income tax rate 35.0% 35.0% 35.0% Other (1.0) (1.0) (.9) ------Effective income tax rate 34.0% 34.0% 34.1% ------
GENERAL DYNAMICS 1997 ANNUAL REPORT 29 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities consist of the following:
DECEMBER 31 ------1997 1996 ------Long-term contract costing methods $ 98 $117 A-12 termination 95 91 Accrued costs on disposed businesses 74 90 Coal mining liabilities 27 27 Postretirement liabilities 43 14 Other 121 111 ------Deferred Assets $458 $450 ------Lease income $ 70 $ 74 Commercial pension asset 48 43 Intangible assets 38 33 Other 17 30 ------Deferred Liabilities $173 $180 ------Net Deferred Asset $285 $270 ------
No valuation allowance was required for the company's deferred tax assets at December 31, 1997 and 1996. The current portion of the net deferred tax asset is $223 and $231 at December 31, 1997 and 1996, respectively, and is included in other current assets on the Consolidated Balance Sheet.
The company made federal income tax payments of $97, $199 and $83 in 1997, 1996 and 1995, respectively.
Certain issues related to the Internal Revenue Service's (IRS) audit of the company's consolidated federal income tax returns for the years 1977 through 1986 were not resolved at the administrative level. Accordingly, the IRS issued the company a Statutory Notice of Deficiency which the company contested in the U.S. Tax Court. All issues raised by the IRS in the Notice were litigated and the Court found in favor of the company for substantially all of the amount in dispute. The IRS has the right to appeal the Court's decision; however, in the event of an appeal, the company believes the decision will be upheld.
In addition, the company had filed refund claims totaling $355 (plus interest) for additional research and experimentation tax credits for the years 1981 through 1990. On October 16, 1997, as part of the Tax Court litigation, the company and the IRS reached a tentative agreement that settled the tax claims for the years 1981 through 1986 for $132 (plus interest). This agreement is subject to approval by the Joint Committee on Taxation. Remaining claims totaling $176 (plus interest) for the years 1987 through 1990 are still being contested at the IRS administrative level and are not covered by the settlement agreement.
The exact amount and timing of the net refund associated with the Tax Court litigation and related settlement is not known. However, the company expects the net refund will exceed the amounts previously recorded and, therefore, will result in the recognition of additional tax benefits when realization is assured.
The IRS has completed its examination of the company's consolidated federal income tax returns for the years 1987 through 1989. Certain issues related to these years have been protested to the IRS Appeals Division. The IRS is also currently examining the company's consolidated returns for the years 1990 through 1995. Since the company has recorded liabilities for tax contingencies, resolution of these matters is not expected to have a materially unfavorable impact on the company's financial condition or results of operations.
E. CONTRACTS IN PROCESS
Contracts in process consist of the following:
DECEMBER 31 ------1997 1996 ------Contract costs and estimated profits $6,382 $6,076 Other costs 410 352 ------6,792 6,428 Less advances and progress payments 6,090 5,870 ------$ 702 $ 558 ------
Contract costs include production costs and related overhead, including general and administrative expenses. Other costs primarily represent amounts required to be recorded under GAAP that are not currently allocable to contracts, such as a portion of the company's estimated workers' compensation, retiree medical and environmental expenses. These costs have been deferred because their recovery under contracts is considered probable based on existing backlog. If the level of backlog in the future does not support the continued deferral of these costs, their recognition could affect the profitability of the company's remaining contracts.
Under the contractual arrangements by which progress payments are received, the U.S. government asserts that it has a security interest in the contracts in process identified with the related contracts.
F. PROPERTY, PLANT AND EQUIPMENT, NET
The major classes of property, plant and equipment are as follows:
DECEMBER 31 ------1997 1996 ------Land and improvements $ 82 $ 78 Mineral reserves 87 93 Buildings and improvements 329 250 Machinery and equipment 1,194 974 ------1,692 1,395 Less accumulated depreciation, depletion and amortization 1,100 954 ------$ 592 $ 441 ------
30 GENERAL DYNAMICS 1997 ANNUAL REPORT Certain of the company's plant facilities are provided by the U.S. government and therefore not included above.
G. INTANGIBLE ASSETS
Intangible assets resulting from the company's acquisitions discussed in Note B consist of the following:
DECEMBER 31 ------1997 1996 ------Contracts and programs acquired $ 376 $ 149 Goodwill 828 16 ------$1,204 $ 165 ------
Intangible assets are shown net of accumulated amortization of $31 and $10 at December 31, 1997 and 1996, respectively. Intangible assets are amortized on a straight-line basis over periods ranging from 8 to 40 years.
H. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
DECEMBER 31 ------1997 1996 ------Workers' compensation $242 $239 Retirement benefits 221 179 Salaries and wages 93 68 Customer deposits 114 2 Other 258 163 ------$928 $651 ------
The increase in total other current liabilities is primarily attributable to the acquisitions during 1997 discussed in Note B.
I. DEBT
Debt consists of the following:
DECEMBER 31 ------1997 1996 ------Note payable $220 $ - Debentures 38 38 Other 7 ------265 38 Less current portion 108 ------$157 $ 38 ------
On December 31, 1997, the company borrowed $220 from a Canadian bank to effect the acquisition of Computing Devices International at a rate of 5.17 percent due in March 1998. The company expects to repay $70 of this debt and refinance the balance under a long-term arrangement.
The company has elected to exercise its option to call for the early redemption of all of its outstanding 9.95 percent Debentures due April 1, 2018. The redemption date is April 1, 1998.
The company has the capacity to borrow up to $800 under its committed lines of credit. Of this amount, $400 is available under a short-term line of credit and $400 is available under a five-year line of credit. There were no borrowings under the lines of credit during 1997 or under similar facilities during 1996.
J. OTHER LIABILITIES Other liabilities consist of the following:
DECEMBER 31 ------1997 1996 ------Accrued costs on disposed businesses $211 $256 Retirement benefits 154 111 Coal mining related liabilities 78 77 Other 185 152 ------$628 $596 ------
The company has recorded liabilities for contingencies related to disposed businesses. These liabilities include retiree medical, environmental, legal and other costs.
The company has certain liabilities which are specific to the coal mining industry, including workers' compensation and reclamation. The company is subject to the Federal Coal Mine Health & Safety Act of 1969, as amended, and the related workers' compensation laws in the states in which it has operated. These laws require the company to pay benefits for occupational disability resulting from coal workers' pneumoconiosis (black lung). The liability for known claims and an actuarially determined estimate of future claims that will be awarded to current and former employees is discounted based on a rate of 7.25 percent at December 31, 1997 and 1996. Liabilities to reclaim land disturbed by the mining process and to perform other closing functions are recorded over the estimated production lives of the mines.
The increase in total other liabilities is primarily attributable to the acquisitions during 1997 discussed in Note B.
K. SHAREHOLDERS' EQUITY
STOCK SPLIT. On March 4, 1998, the company's board of directors authorized a two-for-one stock split effected in the form of a 100 percent stock dividend to be distributed on April 2, 1998 to shareholders of record on March 13, 1998. Shareholders' equity has been restated to give retroactive recognition to the stock split for all periods presented by reclassifying from retained earnings and surplus to common stock the par value of the additional shares arising from the split. In addition, all references in the financial statements to number of shares, per share amounts, stock option data, and market prices of the company's common stock have been restated.
AUTHORIZED STOCK. The authorized capital stock of the company consists of 200 million shares of $1 par value common stock and 50 million shares of $1 par value preferred stock issuable in series, with the rights, preferences and limitations of each series to be determined by the board of directors.
GENERAL DYNAMICS 1997 ANNUAL REPORT 31 L. FINANCE OPERATIONS
The company owns three liquefied natural gas (LNG) tankers which have been leased to a nonrelated company. The U.S. government- guaranteed Title XI Bonds, which financed the leases, were retired in 1996. This retirement was financed by the private placement of new bonds that are also secured by the LNG tankers. The new bonds are callable under certain conditions and are also nonrecourse to the company. Accordingly, in the event the lessee defaults on the lease payments, the company is not obligated to repay the debt. The 1996 refinancing did not have a material impact on the company's results of operations or financial condition.
The following is a summary of the comparative financial statements for the finance operations:
BALANCE SHEET DATA
DECEMBER 31 ------1997 1996 ------ASSETS Leases receivable $204 $214 Due from parent 52 64 ------$256 $278 ------LIABILITIES AND SHAREHOLDER'S EQUITY Debt $118 $135 Income taxes 70 74 Shareholder's equity 68 69 ------$256 $278 ------
EARNINGS DATA
YEAR ENDED DECEMBER 31 ------1997 1996 1995 ------Interest income $21 $23 $17 Interest expense and income taxes 12 17 14 ------Net earnings $ 9 $ 6 $ 3 ------
On October 1, 1995, the leases were extended from 2004 through 2009. These leases are classified as direct financing leases. The lease extension increased aggregate future minimum lease payments and unearned interest income, but did not alter the company's net investment in leases receivable. The components of the company's net investment in the leases receivable are as follows:
DECEMBER 31 ------1997 1996 ------Aggregate future minimum lease payments $318 $349 Unguaranteed residual value 38 38 Less unearned interest income 152 173 ------$204 $214 ------
The company is scheduled to receive minimum lease payments of $31 annually in each of the next five years.
Semiannual sinking fund payments, sufficient to retire 100 percent of the aggregate principal amount of the debt, have commenced and will continue through maturity in 2004. The weighted average interest rate on the debt is 6.2 percent. The schedule of principal payments for the next five years is $18 in 1998, $19 in 1999, $19 in 2000, $21 in 2001 and $22 in 2002.
M. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the company's financial instruments are as follows: DECEMBER 31 ------1997 1996 ------Carrying Fair Carrying Fair Amount Value Amount Value ------Cash and equivalents and marketable securities $441 $441 $1,155 $1,155 Other available-for-sale investments 46 46 51 51 Short- and long-term debt 265 268 38 41 Short- and long-term debt - finance operations 118 120 135 137 ------
Fair value is based on quoted market prices, except for privately placed debt where fair value is based on risk-adjusted discount rates.
Marketable securities classified as available-for-sale were $30 and $501 at December 31, 1997 and 1996, respectively, and included primarily corporate debt securities. Other available-for-sale investments represent U.S. government debt obligations restricted for payment of worker's compensation benefits under an agreement with the State of Maine. Amortized cost for available-for-sale marketable securities and other investments approximated fair value at December 31, 1997 and 1996.
The proceeds from the sale of available-for-sale securities were $612, $228 and $7 in 1997, 1996 and 1995, respectively. For debt securities and obligations classified as available-for-sale at December 31, 1997, $38 mature within one year, $28 between one and five years, and $10 between five and ten years.
The company was contingently liable for debt and lease guarantees and other arrangements aggregating up to a maximum of approximately $59 at December 31, 1997. The company knows of no event of default which would require it to satisfy these guarantees and, therefore, the fair value of these contingent liabilities is considered immaterial.
32 GENERAL DYNAMICS 1997 ANNUAL REPORT N. COMMITMENTS AND CONTINGENCIES
LITIGATION. Claims made by and against the company regarding its consolidated federal income tax returns are discussed in Note D. Claims made by and against the company regarding the development of the Navy's A-12 aircraft are discussed in Note O.
On May 1, 1997, a jury in San Diego County rendered a verdict of $101 against the company in favor of 97 former Convair employees. In this lawsuit, Argo, et al. v. General Dynamics, the plaintiffs alleged that the company interfered with their right to join an earlier class action lawsuit and concealed its plans to close its Convair division. The jury awarded the plaintiffs a total of $1.8 in actual damages, and $99 in punitive damages. The company is appealing the judgment. The company believes it has substantial legal defenses, but in any case, it believes the punitive damage award is excessive as a matter of law. Management currently believes the ultimate outcome will not have a material impact on the company's results of operations or financial condition.
General Dynamics Corporation was served with a complaint filed in the Circuit Court of St. Louis County, Missouri, titled Hunt, et al. v. General Dynamics and Lloyd Thompson, seeking a declaratory judgment and rescission of certain excess loss insurance contracts covering the company's self-insured workers' compensation program at its Electric Boat division for the period July 1, 1988, to June 30, 1992. The insurance contracts cover losses of up to $30 in excess of a $40 attachment point in each of the four policy years. General Dynamics has counterclaimed, alleging that the plaintiffs have breached their insurance contracts by failing to pay claims. General Dynamics seeks a declaratory judgment that the policies are valid, seeks actual damages, and payment of a penalty under a Missouri statute, on the ground that the plaintiffs' failure to pay is vexatious and unreasonable. The named plaintiffs are members of the Lloyd's of London syndicates and other British insurers who have underwritten the risk. The company does not expect that the matter will have a material impact on the company's results of operations or financial condition.
HE Holdings, Inc. and Hughes Missile Systems Company (HMSC) have filed a fifth amended complaint against the company alleging breach of contract, fraud, and conversion with respect to certain representations and warranties contained in the Asset Purchase Agreement dated May 8, 1992, for the sale of the company's missile business. The amended complaint, which was filed in the Superior Court of the State of California, seeks $38 in compensatory damages as well as punitive damages. The company does not expect that the lawsuit will have a material impact on the company's results of operations or financial condition.
In March 1996, the company received a judgment for $26 against the government in General Dynamics v. U.S., a case tried in U.S. District Court for the Central District of California. The company sued the government under the Federal Tort Claims Act, alleging that the Defense Contract Audit Agency negligently audited the Division Air Defense contract, which led to the company's indictment in 1985. The indictment was later dropped. The government has appealed the 1996 judgment. HMSC will receive 30 percent of the net recovery as a result of its purchase of the company's missile business in 1992. The company has not recognized any claim revenue from this matter.
The company has been sued as the "alter ego" of Asbestos Corporation Ltd., a Canadian company, in which General Dynamics owned shares between 1969 and 1982. General Dynamics, along with more than 50 other defendants, has been sued in several thousand cases filed in Texas by plaintiffs alleging exposure to asbestos. Although the gross claims attributable to the plaintiffs cannot be estimated, including the share of the company or any other defendant, losses arising from these matters are largely covered by insurance. Therefore, the company does not believe that these matters will have a material impact on the company's results of operations or financial condition.
The company is a defendant in tort cases pending in state and federal court in Arizona, as well as in cases brought under the Comprehensive Environmental Response, Compensation and Liability Act. The litigation arises out of groundwater and soil contamination at the Tucson airport. The company's predecessor in interest, Consolidated Aircraft Company, operated a modification center at the site during World War II. The company has defenses to the claims, as well as a claim against the government for indemnification. Although the company is unable to estimate its share of any liability arising from these claims, the company does not believe the litigation will have a material impact on the company's results of operations or financial condition.
The company is also a defendant in other lawsuits and claims and in other investigations of varying nature. The company believes its liabilities in these proceedings, in the aggregate, are not material to the company's results of operations or financial condition.
ENVIRONMENTAL. The company is directly or indirectly involved in certain Superfund sites in which the company, along with other major U.S. corporations, has been designated a potentially responsible party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency with respect to past shipments of hazardous waste to sites now requiring environmental cleanup. Based on a site by site analysis of the estimated quantity of waste contributed by the company relative to the estimated total quantity of waste, the company believes it is a small contributor and its liability at any individual site is not material. The company is also involved in the cleanup and remediation of various conditions at sites it currently or formerly owned or operated.
GENERAL DYNAMICS 1997 ANNUAL REPORT 33 The company measures its environmental exposure based on enacted laws and existing regulations, and on the technology expected to be approved to complete the remediation effort. The estimated cost to perform each of the elements of the remediation effort is based on when those elements are expected to be performed. Where a reasonable basis for apportionment exists with other PRPs, the company estimates only its allowable share of the joint and several remediation liability for a site, taking into consideration the solvency of other participating PRPs. Based on a site by site analysis, the company believes it has adequate accruals for any liability it may incur arising from the sites.
OTHER. In the ordinary course of business, the company has entered into letter of credit arrangements and other arrangements with financial institutions and insurance carriers aggregating approximately $415 at December 31, 1997. For discussion of other financial guarantees, see Note M. The company's rental commitments under existing leases at December 31, 1997, are not significant.
O. TERMINATION OF A-12 PROGRAM
The A-12 contract was a fixed-price incentive contract for the full-scale development and initial production of the Navy's new carrier-based Advanced Tactical Aircraft. The Navy terminated the company's A-12 aircraft contract for default. Both the company and McDonnell Douglas (the contractors) were parties to the contract with the Navy, each had full responsibility to the Navy for performance under the contract, and both are jointly and severally liable for potential liabilities arising from the termination. As a consequence of the termination for default, the Navy demanded that the contractors repay $1,352 in unliquidated progress payments, but agreed to defer collection of the amount pending a decision by the U.S. Court of Federal Claims on the contractors' appeal of the termination for default, or a negotiated settlement.
The contractors filed a complaint on June 7,1991, in the U.S. Court of Federal Claims contesting the default termination. The suit, in effect, seeks to convert the termination for default to a termination for convenience of the U.S. government and seeks other legal relief. A trial on Count XVII of the complaint, which relates to the propriety of the termination for default, was concluded in October 1993. In December 1994, the court issued an order vacating the termination for default. On December 19, 1995, following a trial on the merits, the court issued an order converting the termination for default to a termination for convenience.
On February 23, 1998, a final judgment was entered in favor of the contractors for $1,200 plus interest. The U.S. government has filed a notice of appeal. Final resolution of the A-12 litigation will depend on the outcome of expected appeal or negotiation with the government. The company has not recognized any claim revenue from the Navy.
The company has fully reserved the contracts in process balance associated with the A-12 program and has accrued the company's estimated termination liabilities, and the liability associated with pursuing the litigation through the appeals process. In the unlikely event that the court's decision converting the termination to a termination for convenience is reversed on appeal, and the contractors are ultimately found to be in default of the A-12 contract and are required to repay all unliquidated progress payments, additional losses of approximately $675, plus interest, may be recognized by the company. This result is considered remote.
P. INCENTIVE COMPENSATION PLAN
Under the 1997 Incentive Compensation Plan, the company may grant awards in combination of cash, common stock, stock options and restricted stock. The plan complies with the Securities and Exchange Commission's Rule 16b-3 and with the Internal Revenue Code Section 162(m).
In October 1993, the company introduced a long-term incentive program which granted stock options and restricted stock. The stock options are exercisable at the fair market value of the common stock on the date of grant generally with 50 percent of the stock options vesting on the one year anniversary of their grant and the remaining 50 percent vesting on the two year anniversary of their grant. The stock options have a maximum term of five years. The restricted stock has a feature that will increase or decrease the number of shares initially granted based on movement in the company's stock price from the date of grant to the end of the two year performance period. Once the number granted has been adjusted, restrictions will continue to be imposed for an additional two years, at which time all restrictions will lapse. Prior to October 1993, stock options granted under the company's incentive compensation plans were awarded for a maximum term of ten years and were exercisable in their entirety beginning 18 months after the date of award.
34 GENERAL DYNAMICS 1997 ANNUAL REPORT There were 345,860, 91,546 and 398,790 shares of restricted stock awarded in 1997, 1996 and 1995, respectively. There were 982,002 shares of restricted stock outstanding at December 31, 1997. Information with respect to stock options is as follows:
YEAR ENDED DECEMBER 31 ------1997 1996 1995 ------NUMBER OF SHARES UNDER STOCK OPTIONS: Outstanding at beginning of year 3,653,704 4,605,446 3,641,774 Granted 1,344,252 137,600 1,439,300 Exercised (1,272,382) (990,010) (342,528) Canceled (148,266) (99,332) (133,100) ------Outstanding at end of year 3,577,308 3,653,704 4,605,446 ------EXERCISABLE AT END OF YEAR 1,602,766 2,858,744 1,958,622 ======
WEIGHTED AVERAGE EXERCISE PRICE: Outstanding at beginning of year $25.74 $22.84 $18.90 Granted 33.17 30.40 30.12 Exercised 24.55 12.60 11.21 Canceled 30.45 29.02 23.45 Outstanding at end of year 28.76 25.74 22.84 Exercisable at end of year 24.53 24.49 17.16 ------
Information with respect to stock options outstanding and stock options exercisable at December 31, 1997, is as follows:
OPTIONS OUTSTANDING ------Number Weighted Weighted Range of Outstanding Average Remaining Average Exercise Prices at 12/31/97 Contractual Life Exercise Price ------$ 3.60 - 11.37 67,984 3.6 years $ 7.96 19.91 - 23.50 1,107,170 1.0 23.35 29.06 - 33.38 2,391,054 3.6 31.81 36.50 - 41.02 11,100 4.5 39.09 ------3,577,308 ======
OPTIONS EXERCISABLE ------Number Weighted Weighted Range of Outstanding Average Remaining Average Exercise Prices at 12/31/97 Contractual Life Exercise Price ------3.60 - 11.37 67,984 3.6 years $ 7.96 19.91 - 23.50 1,107,170 1.0 23.35 29.06 - 33.38 427,612 2.9 30.22 ------1,602,766 ======
At December 31, 1997, 7,458,980 treasury shares have been reserved for options that may be granted in the future, in addition to the shares reserved for issuance on the exercise of options outstanding.
Had compensation cost for stock options been determined based on the fair value at the grant dates for awards under the company's incentive compensation plans, the company's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated as follows:
------1997 1996 1995 ------Net Earnings: As Reported $ 316 $ 270 $ 321 Pro Forma 312 268 321 Net Earnings Per Share--Basic: As Reported $2.51 $2.14 $2.55 Pro Forma 2.49 2.12 2.55 Net Earnings Per Share--Diluted: As Reported $2.50 $2.13 $2.54 Pro Forma 2.47 2.11 2.54 ------Weighted average fair value of options granted $5.42 $3.77 $3.69 ------
The compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options.
The fair value is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:
------1997 1996 1995 ------Dividend yield 2.5% 2.3% 2.5% Expected volatility 18% 20% 20% Risk-free interest rate 6.4% 5.7% 5.6% Expected lives after vesting period 18 months 4 months 4 months ------
Q. RETIREMENT PLANS
PENSION. The company has 17 trusteed, noncontributory, defined benefit pension plans covering substantially all employees. Under certain of the plans, benefits are primarily a function of both the employee's years of service and level of compensation, while under other plans, benefits are a function primarily of years of service.
It is the company's policy to fund the plans to the maximum extent deductible under existing federal income tax regulations. Such contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.
GENERAL DYNAMICS 1997 ANNUAL REPORT 35 Net periodic pension cost for the total company included the following:
YEAR ENDED DECEMBER 31 ------1997 1996 1995 ------Service cost -- benefits earned during period $ 52 $ 50 $ 47 Interest cost on projected benefit obligation 210 182 158 Actual gain on plan assets (741) (12) (933) Net amortization and deferral 478 (212) 737 ------$ (1) $ 8 $ 9 ------
The following table sets forth the plans' funded status:
DECEMBER 31 ------1997 1996 ------Actuarial present value of benefit obligations: Vested benefit obligation $(3,074) $(2,405) ======Accumulated benefit obligation $(3,093) $(2,450) ======Projected benefit obligation $(3,339) $(2,597) Plans' assets at fair value 4,491 3,356 ------Plans' assets in excess of projected benefit obligation 1,152 759 Unrecognized net gain (919) (550) Unrecognized prior service cost 253 240 Unrecognized net asset at January 1, 1986 (35) (39) ------Prepaid pension cost $ 451 $ 410 ------
Assumptions used in accounting for the plans are as follows:
DECEMBER 31 ------1997 1996 1995 ------Discount rate 7.25% 7.5% 7% Varying rates of increase in compensation levels based on age 4.5-10% 4.5-10% 4.5-10% Expected long-term rate of return on assets 8% 8% 8% ------
Under SFAS No. 87, "Employers' Accounting for Pensions," the company is required to assume a discount rate at which the obligation could be currently settled. Reflecting the movement in interest rates, the company decreased its discount rate assumption from 7.5 percent to 7.25 percent at December 31, 1997, which increased the projected benefit obligation $95. Also, due to the business acquisitions in 1997 discussed in Note B, the projected benefit obligation increased $563 and the plans' assets increased $598.
Changes in prior service cost resulting from plan amendments are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan.
Since 1992, the company has deferred certain gains realized by the commercial plan for the purpose of offsetting any costs associated with its final disposition, either through reversion or other actions. These deferred gains have been classified against the prepaid pension cost resulting in a net asset of $136 and $124 at December 31, 1997 and 1996, respectively, which is included in other noncurrent assets on the Consolidated Balance Sheet.
The company's contractual arrangements with the U.S. government provide for the recovery of contributions to the company's government plans. Historically, the amount contributed to these plans, charged to contracts and included in net sales has exceeded the net periodic pension cost included in operating costs and expenses as determined under SFAS 87. Therefore, the company has deferred recognition of earnings resulting from the difference between contributions and net periodic pension cost to provide better matching of revenues and expenses. Similarly, pension settlements and curtailments under the government plans have also been deferred. As the U.S. government will receive an equitable interest in the excess assets of a government pension plan in the event of plan termination, the aforementioned deferrals have been classified against the prepaid pension cost related to the government plans resulting in the recognition of no net asset on the Consolidated Balance Sheet.
At December 31, 1997, approximately 38 percent of the plans' assets are invested in securities of the U.S. government or its agencies, 27 percent in diversified U.S. common stocks, 18 percent in mortgage-backed securities and 17 percent in diversified U.S. corporate debt securities.
In addition to the defined benefit plans, the company provides eligible employees the opportunity to participate in savings plans that permit contributions on both a pretax and after-tax basis. Generally, salaried employees and certain hourly employees are eligible to participate upon commencement of employment with the company. Under most plans, the employee may contribute to various investment alternatives, including investment in the company's common stock. In certain of the plans, the company matches a portion of the employees' contributions with contributions to a fund which invests in the company's common stock. The company's contributions amounted to $27, $22 and $25 in 1997, 1996 and 1995, respectively. Approximately 6 million shares of the company's common stock were held by the plans at both December 31, 1997 and 1996.
36 GENERAL DYNAMICS 1997 ANNUAL REPORT The company also sponsors several unfunded non-qualified supplemental executive plans that provide participants with additional benefits, including any excess of such benefits over limits imposed on qualified plans by federal law. The recorded liability and expense related to these plans are not material to the company's results of operations and financial condition.
OTHER POSTRETIREMENT BENEFITS. The company maintains plans providing retiree medical coverage for many of its current and former employees. Postretirement life insurance benefits are also provided to certain retirees. These benefits vary by employment status and age, service and salary level at retirement. The coverage provided and the extent to which the retirees share in the cost of the program vary throughout the company. Both medical and life insurance benefits are provided only to those employees who retire directly from the service of the company and not to those who terminate service/seniority prior to eligibility for retirement.
The company established and began funding a Voluntary Employee's Beneficiary Association (VEBA) trust in 1992 for certain plans in the amount of their related annual net periodic postretirement benefit cost. The remaining plans are primarily funded as claims are received.
The net periodic postretirement benefit cost for the total company included the following:
YEAR ENDED DECEMBER 31 ------1997 1996 1995 ------Service cost - benefits earned during period $ 4 $ 7 $ 8 Interest cost on projected benefit obligation 44 46 51 Actual gain on plan assets (43) (17) (32) Amortization of unrecognized transition obligation 24 29 35 Net amortization and deferral 26 4 20 ------$ 55 $ 69 $ 82 ------
The following table sets forth the plans' funded status:
DECEMBER 31 ------1997 1996 ------Accumulated postretirement benefit obligation: Retirees $464 $459 Other fully eligible participants 43 32 Other active participants 113 137 ------620 628 Less plans' assets at fair value 241 203 ------Obligation in excess of plans' assets 379 425 Unrecognized transition obligation (130) (217) Unrecognized net gain 76 56 Unrecognized prior service cost (3) (3) ------Accrued postretirement benefit obligation $322 $261 ------
Assumptions used in accounting for the plans are as follows:
DECEMBER 31 ------1997 1996 1995 ------Discount rate 7.25% 7.5% 7% Expected long-term rate of return on assets 8% 8% 8% Assumed health care cost trend rate for next year: Post-65 claim groups 5% 6% 7% Pre-65 claim groups 7.5% 8.5% 9.5-13% ------
As stated above, the company decreased its discount rate assumption from 7.5 percent to 7.25 percent at December 31, 1997, which increased the accumulated postretirement benefit obligation $15. Also, due to the business acquisitions in 1997 discussed in Note B, the accumulated postretirement benefit obligation increased $65, partially offset by a reduction due to contract negotiations with the United Auto Workers Union. The health care cost trend rates are assumed to gradually decline to 4.5 percent and 5 percent for post-65 and pre-65 claim groups, respectively, in the year 2002 and thereafter over the projected payout period of the benefits.
The effect of a one percent increase each year in the health care cost trend rate used would result in an increase of $42 in the accumulated postretirement benefit obligation at December 31, 1997, and an increase of $4 in the aggregate of the service and interest cost components of the 1997 net periodic cost.
At December 31, 1997, approximately 52 percent of the trusts' assets were invested in diversified U.S. common stocks, 18 percent in mortgage- backed securities, 24 percent in securities of the U.S. government and its agencies and 6 percent in diversified U.S. corporate debt securities.
The company's contractual arrangements with the U.S. government provide for the recovery of contributions to a VEBA, and for non-funded plans, for costs based on claims paid. The net periodic postretirement benefit cost exceeds the company's cost currently allocable to contracts. To the extent the company has contracts in backlog sufficient to recover the excess cost, the company is deferring the charge in contracts in process until such time that the cost is allocable to contracts.
GENERAL DYNAMICS 1997 ANNUAL REPORT 37 R. BUSINESS SEGMENT INFORMATION
The company's primary business is supplying weapons systems and services to the U.S. government and its international allies. For a description of the company's business segments, see Management's Discussion and Analysis of the Results of Operations and Financial Condition.
Summary financial information for each of the company's segments follows:
NET SALES OPERATING EARNINGS SALES TO U.S. GOVERNMENT ------1997 1996 1995 1997 1996 1995 1997 1996 1995 ------Marine $ 2,311 $ 2,332 $ 1,884 $ 234 $ 216 $ 194 $ 2,280 $ 2,316 $ 1,869 Combat Systems 1,509 1,026 1,050 187 140 140 1,371 996 1,029 Other 242 223 133 25 (3) (19) ------$ 4,062 $ 3,581 $ 3,067 $ 446 $ 353 $ 315 $ 3,651 $ 3,312 $ 2,898 ------
DEPRECIATION, DEPLETION IDENTIFIABLE ASSETS CAPITAL EXPENDITURES AND AMORTIZATION ------1997 1996 1995 1997 1996 1995 1997 1996 1995 ------Marine $ 706 $ 806 $ 935 $ 28 $ 18 $ 8 $ 34 $ 40 $ 23 Combat Systems 974 336 237 17 14 8 36 12 9 Other 371 388 317 19 12 3 17 12 5 Corporate* 2,040 1,769 1,675 19 31 13 4 3 1 ------$4,091 $3,299 $3,164 $ 83 $ 75 $ 32 $ 91 $ 67 $ 38 ------
* Corporate identifiable assets include cash and equivalents and marketable securities, deferred taxes, real estate held for development, net assets of discontinued operations and prepaid pension cost. Corporate identifiable assets also include $1,075 of identifiable assets of Advanced Technology Systems and Computing Devices International acquired in the fourth quarter of 1997, which will become part of the company's new Information Systems and Technology segment in 1998. See Management's Discussion and Analysis of the Results of Operations and Financial Condition for further description of this new segment.
S. QUARTERLY DATA (UNAUDITED)
Common Stock(a) ------Net Earnings Market Price Per Share (a) Range Net Operating Net ------Dividends Sales Earnings Earnings Basic Diluted High Low Declared ------1997 4th Quarter $1,101 $ 117 $ 83 $ .66 $ .65 $44 7/16 $37 31/32 $ .205 3rd Quarter 988 113 82 .65 .65 45 3/4 37 .205 2nd Quarter 1,032 114 80 .64 .64 38 15/16 31 9/16 .205 1st Quarter 941 102 71 .56 .56 36 1/8 32 13/16 .205 ------1996 4th Quarter $ 896 $ 92 $ 70 $ .56 $ .55 $37 3/4 $33 3/8 $ .205 3rd Quarter 862 89 68 .54 .54 34 13/16 28 3/4 .205 2nd Quarter 930 89 67 .53 .53 32 5/8 28 1/2 .205 1st Quarter 893 83 65 .51 .51 31 7/16 28 13/16 .205 ------
Note: Quarterly data is based on a 13 week period.
(a) Data has been restated to give retroactive recognition to the company's announced two-for-one stock split. See Note K.
38 GENERAL DYNAMICS 1997 ANNUAL REPORT STATEMENT OF FINANCIAL RESPONSIBILITY
To the Shareholders of General Dynamics Corporation:
The management of General Dynamics Corporation is responsible for the consolidated financial statements and all related financial information contained in this report. The financial statements, which include amounts based on estimates and judgments, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis.
The company maintains a system of internal accounting controls designed and intended to provide reasonable assurance that assets are safeguarded, that transactions are executed and recorded in accordance with management's authorization and that accountability for assets is maintained. An environment that establishes an appropriate level of control consciousness is maintained and monitored by management. An important element of the monitoring process is an internal audit program that independently assesses the effectiveness of the control environment.
The Audit and Corporate Responsibility Committee of the board of directors, which is composed of five outside directors, meets periodically and, when appropriate, separately with the independent auditors, management and internal audit to review the activities of each.
The financial statements have been audited by Arthur Andersen LLP, independent public accountants, whose report follows.
/s/ MICHAEL J. MANCUSO /s/ JOHN W. SCHWARTZ ------Michael J. Mancuso John W. Schwartz Senior Vice President and Controller Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To General Dynamics Corporation:
We have audited the accompanying Consolidated Balance Sheet of General Dynamics Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related Consolidated Statements of Earnings, Shareholders' Equity and Cash Flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of General Dynamics Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP ------ARTHUR ANDERSEN LLP
Washington, D.C. January 26, 1998 (except with respect to the stock split discussed in Note K, as to which the date is March 4, 1998, and to the matter discussed in Note O, as to which the date is February 23, 1998)
GENERAL DYNAMICS 1997 ANNUAL REPORT 39 SELECTED FINANCIAL DATA (UNAUDITED)
------(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PER EMPLOYEE AMOUNTS) 1997 1996 1995 1994 1993 ------Summary of Operations Net sales $ 4,062 $ 3,581 $ 3,067 $ 3,058 $ 3,187 Operating costs and expenses 3,616 3,228 2,752 2,737 2,878 Interest, net 36 55 55 22 36 Provision for income taxes 163 139 128 120 143 Earnings from continuing operations 316 270 247 223 270 Earnings per share from continuing operations--basic(d) 2.51 2.14 1.96 1.77 2.17 Earnings per share from continuing operations--diluted(d) 2.50 2.13 1.95 1.76 2.13 Cash dividends on common stock(d) .82 .82 .75 .70 .50 Sales per employee 160,000(c) 155,500 138,200(b) 143,900(a) 138,100(a) ======Financial Position at December 31 Cash and equivalents and marketable securities $ 441 $ 1,155 $ 1,095 $ 1,059 $ 585 Property, plant and equipment, net 592 441 398 264 302 Total assets 4,091 3,299 3,164 2,673 2,635 Long-term debt (including current portion) 265 38 38 40 38 Long-term debt-finance operations (including current portion) 118 135 146 161 175 Shareholders' equity 1,915 1,714 1,567 1,316 1,177 Per share(d) 15.22 13.58 12.39 10.45 9.41 ======Other Information Funded backlog $ 6,796 $ 6,161 $ 5,227 $ 4,562 $ 5,487 Total backlog 9,599 10,350 7,386 6,006 7,015 Shares outstanding at December 31 (in millions)(d) 125.8 126.2 126.5 126.0 125.1 Weighted average shares outstanding-- basic (in millions)(d) 125.7 126.3 126.0 126.1 124.4 Weighted average shares outstanding-- diluted (in millions)(d) 126.6 126.9 126.5 126.9 126.5 Common shareholders of record at December 31 21,046 22,129 22,930 23,935 24,496 Active employees at December 31: Total company 29,000 23,100 27,700 24,200 30,500 Excluding discontinued operations 29,000 23,100 26,800 21,300 23,100 ======
(a) Excludes Bath Iron Works, which was acquired on September 13, 1995. See Note B.
(b) Includes pro forma results of Bath Iron Works as if owned by the company for the entire year.
(c) Excludes Advanced Technology Systems, which was acquired on October 1, 1997, and Computing Devices International, which was acquired on December 31, 1997. See Note B.
(d) Data has been restated to give retroactive recognition to the company's announced two-for-one stock split. See Note K.
40 GENERAL DYNAMICS 1997 ANNUAL REPORT EXHIBIT 21, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 1-3671
GENERAL DYNAMICS CORPORATION SUBSIDIARIES
Subsidiaries of General Dynamics Place of Percent of Corporation (Parent and Registrant) Incorporation Voting Power ------American Overseas Marine Corporation ...... Delaware ...... 100 Quincy Maritime Corporation I ...... Delaware ...... 100 Quincy Maritime Corporation II ...... Delaware ...... 100 Quincy Maritime Corporation III ...... Delaware ...... 100 Water Transportation Alternatives, Inc...... Delaware ...... 100 Bath Iron Works Corporation ...... Maine ...... 100 BIW Acquisition Corporation ...... Maine ...... 100 CD Plus S.A.R.L...... France ...... 100 CDI Acquisition Company Limited ...... Canada ...... 100 Computing Devices Canada, Ltd...... Canada ...... 100 Computing Devices Company Ltd...... United Kingdom ...... 100 Computing Devices Hastings Ltd...... England ...... 100 Computing Devices Eastbourne Ltd...... England ...... 100 Concord I Maritime Corporation ...... Delaware ...... 100 Braintree I Maritime Corp...... Delaware ...... 100 Concord II Maritime Corporation ...... Delaware ...... 100 Braintree II Maritime Corp...... Delaware ...... 100 Concord III Maritime Corporation ...... Delaware ...... 100 Braintree III Maritime Corp...... Delaware ...... 100 Concord IV Maritime Corporation ...... Delaware ...... 100 Braintree IV Maritime Corp...... Delaware ...... 100 Concord V Maritime Corporation ...... Delaware ...... 100 Braintree V Maritime Corp...... Delaware ...... 100 Convair Aircraft Corporation ...... Delaware ...... 100 Convair Corporation ...... Delaware ...... 100 Elco Company, The ...... New Jersey ...... 100 Electric Boat Corporation ...... Delaware ...... 100 Electric Boat Groton Engineering, Inc...... Delaware ...... 100 Electric Boat Groton Operations, Inc...... Delaware ...... 100 Electric Boat Newport Engineering, Inc...... Delaware ...... 100 Electric Boat Quonset Point Operations, Inc...... Delaware ...... 100 Electro Dynamic Corporation ...... Delaware ...... 100 General Dynamics Power Technology, Inc...... Delaware ...... 100 Electrocom, Inc...... Delaware ...... 100 General Dynamics Advanced Technology Systems, Inc...... Delaware ...... 100 General Dynamics Armament Systems, Inc...... Delaware ...... 100 General Dynamics Ordnance Systems, Inc...... Delaware ...... 100 General Dynamics (C.I.) Limited ...... Cayman Islands ...... 100 General Dynamics Defense Systems, Inc...... Delaware ...... 100 AV Technology, LLC ...... Maryland ...... 80 General Dynamics Foreign Sales Corporation ...... Virgin Islands ...... 100 General Dynamics Information Systems, Inc...... Delaware ...... 100 Computing Devices International Employment, Inc...... Delaware ...... 100 Paragon Imaging, Inc...... Florida ...... 100 General Dynamics International Corporation ...... Delaware ...... 100
EXHIBIT 21, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
PAGE 2
GENERAL DYNAMICS CORPORATION SUBSIDIARIES
Subsidiaries of General Dynamics Place of Percent of Corporation (Parent and Registrant) Incorporation Voting Power ------General Dynamics Land Systems Inc...... Delaware ...... 100 General Dynamics Amphibious Systems, Inc...... Delaware ...... 100 General Dynamics Land Systems International, Inc...... Delaware ...... 100 General Dynamics Land Systems Product Support and Services Company ...... Texas ...... 100 General Dynamics Support Services Company ...... Delaware ...... 100 Global Support Services Company ...... Virgin Islands ...... 100 General Dynamics Land Systems Tallahassee Operations, Inc. Delaware ...... 100 G.T. Devices, Inc...... Maryland ...... 100 General Dynamics Limited ...... United Kingdom ...... 100 General Dynamics Manufacturing Limited ...... Canada ...... 100 General Dynamics Marine Services, Inc...... Delaware ...... 100 General Dynamics Properties, Inc...... Delaware ...... 100 General Dynamics Shared Resources, Inc...... Delaware ...... 100 Material Service Resources Company ...... Delaware ...... 100 Century Mineral Resources, Inc...... Illinois ...... 100 Material Service Corporation ...... Delaware ...... 100 EPSP, Inc...... Texas ...... 100 Material Service Foundation ...... Illinois ...... 100 MLRB, Inc...... Illinois ...... 100 Mineral and Land Resources Corporation ...... Delaware ...... 100 MLRT, Inc...... Texas ...... 100 Thornton Quarries Corporation ...... Illinois ...... 100 Freeman Energy Corporation ...... Delaware ...... 100 Freeman Resources, Inc...... Illinois ...... 100 Freeman United Coal Mining Company ...... Delaware ...... 100 Patriot I Shipping Corporation ...... Delaware ...... 100 Patriot II Shipping Corporation ...... Delaware ...... 100 Patriot IV Shipping Corporation ...... Delaware ...... 100 S-C 1969 Credit Corporation ...... New York ...... 100
EXHIBIT 23, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 1-3671
GENERAL DYNAMICS CORPORATION
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference into this Form 10-K for the year ended December 31, 1997, into the company's previously filed registration statements on Form S -8 file numbers 33-23448, 2-23904, 2- 23032, 2-28952, 2-50980, 2-24270 and 33-42799.
/s/ ARTHUR ANDERSEN LLP ------ARTHUR ANDERSEN LLP
Washington, D.C., March 18, 1998
GENERAL DYNAMICS CORPORATION EXHIBIT 24
COMMISSION FILE NUMBER 1-3671 POWER OF ATTORNEY IRS NO. 13-1673581 REPORTS ON FORM 10-K AND 10-Q
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and/or officers of GENERAL DYNAMICS CORPORATION, a Delaware corporation, hereby constitutes and appoints each of NICHOLAS D. CHABRAJA, MICHAEL J. MANCUSO, PAUL A. HESSE, and his true and lawful attorney and agent, in the name and on behalf of the under-signed, to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable to enable General Dynamics Corporation to comply with the Securities Act of 1933, and the Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission (The Commission) in respect thereof, in connection with annual reports to the commission on form 10-K, quarterly reports on form 10-Q, and other reports as required by General Dynamics Corporation, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the names of the undersigned in his capacity as Director and/or Officer of General Dynamics Corporation to reports filed with the Securities and Exchange Commission with respect thereto, to any and all amendments, including hereby ratifying and confirming all that the attorneys and agents, or any of them, has done, shall do or shall cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 4 day of February 1998.
/s/ Julius W. Becton, Jr. /s/ George A. Joulwan ------Julius W. Becton, Jr. George A. Joulwan
/s/ Nicholas D. Chabraja /s/ Paul G. Kaminski ------Nicholas D. Chabraja Paul G. Kaminski
/s/ James S. Crown /s/ James R. Mellor ------James S. Crown James R. Mellor
/s/ Lester Crown /s/ Gordon R. Sullivan ------Lester Crown Gordon R. Sullivan
/s/ Charles H. Goodman /s/ Carlisle A.H. Trost ------
Charles H. Goodman Carlisle A.H. Trost
ARTICLE 5 This schedule contains summary financial information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of December 31, 1997, and the related Consolidated Statement of Earnings for the year ended December 31, 1997 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000
PERIOD TYPE YEAR FISCAL YEAR END DEC 31 1997 PERIOD END DEC 31 1997 CASH 336 SECURITIES 105 RECEIVABLES 234 ALLOWANCES 0 INVENTORY 702 CURRENT ASSETS 1689 PP&E 1692 DEPRECIATION 1100 TOTAL ASSETS 4091 CURRENT LIABILITIES 1253 BONDS 38 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 220 1 OTHER SE 1695 1 TOTAL LIABILITY AND EQUITY 4091 SALES 4062 TOTAL REVENUES 4062 CGS 3616 TOTAL COSTS 3616 OTHER EXPENSES 0 LOSS PROVISION 0 INTEREST EXPENSE 4 INCOME PRETAX 479 INCOME TAX 163 INCOME CONTINUING 316 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 316 EPS PRIMARY 2.51 1 EPS DILUTED 2.50 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors. ARTICLE 5 This schedule contains summary information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of September 28, 1997, and the related consolidated Statement of Earnings for the nine months ended September 28, 1997 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000
PERIOD TYPE 9 MOS FISCAL YEAR END DEC 31 1997 PERIOD END SEP 28 1997 CASH 202 SECURITIES 643 RECEIVABLES 170 ALLOWANCES 0 INVENTORY 583 CURRENT ASSETS 1,888 PP&E 1,618 DEPRECIATION 1,110 TOTAL ASSETS 3,492 CURRENT LIABILITIES 887 BONDS 40 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 220 1 OTHER SE 1,636 1 TOTAL LIABILITY AND EQUITY 3,492 SALES 2,961 TOTAL REVENUES 2,961 CGS 2,632 TOTAL COSTS 2,632 OTHER EXPENSES 0 LOSS PROVISION 0 INTEREST EXPENSE 3 INCOME PRETAX 353 INCOME TAX 120 INCOME CONTINUING 233 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 233 EPS PRIMARY 1.85 1 EPS DILUTED 1.84 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors. ARTICLE 5 This schedule contains summary information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of June 29, 1997, and the related consolidated Statement of Earnings for the six months ended June 29, 1997 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000
PERIOD TYPE 6 MOS FISCAL YEAR END DEC 31 1997 PERIOD END JUN 29 1997 CASH 205 SECURITIES 450 RECEIVABLES 172 ALLOWANCES 0 INVENTORY 561 CURRENT ASSETS 1,674 PP&E 1,633 DEPRECIATION 1,113 TOTAL ASSETS 3,391 CURRENT LIABILITIES 879 BONDS 40 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 214 1 OTHER SE 1,578 1 TOTAL LIABILITY AND EQUITY 3,391 SALES 1,973 TOTAL REVENUES 1,973 CGS 1,757 TOTAL COSTS 1,757 OTHER EXPENSES 0 LOSS PROVISION 0 INTEREST EXPENSE 2 INCOME PRETAX 230 INCOME TAX 79 INCOME CONTINUING 151 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 151 EPS PRIMARY 1.20 1 EPS DILUTED 1.20 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors. ARTICLE 5 This schedule contains summary information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of March 30, 1997, and the related consolidated Statement of Earnings for the three months ended March 30, 1997 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000
PERIOD TYPE 3 MOS FISCAL YEAR END DEC 31 1997 PERIOD END MAR 30 1997 CASH 65 SECURITIES 304 RECEIVABLES 144 ALLOWANCES 0 INVENTORY 726 CURRENT ASSETS 1,540 PP&E 1,624 DEPRECIATION 1,107 TOTAL ASSETS 3,444 CURRENT LIABILITIES 917 BONDS 40 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 200 1 OTHER SE 1,544 1 TOTAL LIABILITY AND EQUITY 3,444 SALES 941 TOTAL REVENUES 941 CGS 839 TOTAL COSTS 839 OTHER EXPENSES 0 LOSS PROVISION 0 INTEREST EXPENSE 1 INCOME PRETAX 108 INCOME TAX 37 INCOME CONTINUING 71 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 71 EPS PRIMARY 0.56 1 EPS DILUTED 0.56 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors. ARTICLE 5 This schedule contains summary financial information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of December 31, 1996, and the related Consolidated Statement of Earnings for the year ended December 31, 1996 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000
PERIOD TYPE YEAR FISCAL YEAR END DEC 31 1996 PERIOD END DEC 31 1996 CASH 516 SECURITIES 378 RECEIVABLES 97 ALLOWANCES 0 INVENTORY 558 CURRENT ASSETS 1,858 PP&E 1,395 DEPRECIATION 954 TOTAL ASSETS 3,299 CURRENT LIABILITIES 833 BONDS 38 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 191 1 OTHER SE 1,523 1 TOTAL LIABILITY AND EQUITY 3,299 SALES 3,581 TOTAL REVENUES 3,581 CGS 3,228 TOTAL COSTS 3,228 OTHER EXPENSES 0 LOSS PROVISION 0 INTEREST EXPENSE 4 INCOME PRETAX 409 INCOME TAX 139 INCOME CONTINUING 270 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 270 EPS PRIMARY 2.14 1 EPS DILUTED 2.13 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors. ARTICLE 5 This schedule contains summary financial information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of September 29, 1996, and the related Consolidated Statement of Earnings for the nine months ended September 29, 1996 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000
PERIOD TYPE 9 MOS FISCAL YEAR END DEC 31 1996 PERIOD END SEP 29 1996 CASH 9 SECURITIES 835 RECEIVABLES 152 ALLOWANCES 0 INVENTORY 495 CURRENT ASSETS 1,814 PP&E 1,427 DEPRECIATION 968 TOTAL ASSETS 3,265 CURRENT LIABILITIES 838 BONDS 38 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 188 1 OTHER SE 1,477 1 TOTAL LIABILITY AND EQUITY 3,265 SALES 2,685 TOTAL REVENUES 2,685 CGS 2,424 TOTAL COSTS 2,424 OTHER EXPENSES 0 LOSS PROVISION 0 INTEREST EXPENSE 3 INCOME PRETAX 303 INCOME TAX 103 INCOME CONTINUING 200 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 200 EPS PRIMARY 1.58 1 EPS DILUTED 1.58 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors. ARTICLE 5 This schedule contains summary information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of June 30, 1996, and the related consolidated Statement of Earnings for the six months ended June 30, 1996 and is qualified in its entirety to such financial statements.
PERIOD TYPE 6 MOS FISCAL YEAR END DEC 31 1996 PERIOD END JUN 30 1996 CASH 131 SECURITIES 641 RECEIVABLES 143 ALLOWANCES 0 INVENTORY 494 CURRENT ASSETS 1,741 PP&E 1,409 DEPRECIATION 939 TOTAL ASSETS 3,258 CURRENT LIABILITIES 863 BONDS 38 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 187 1 OTHER SE 1,454 1 TOTAL LIABILITY AND EQUITY 3,258 SALES 1,823 TOTAL REVENUES 1,823 CGS 1,651 TOTAL COSTS 1,651 OTHER EXPENSES (2) LOSS PROVISION 0 INTEREST EXPENSE 2 INCOME PRETAX 200 INCOME TAX 68 INCOME CONTINUING 132 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 132 EPS PRIMARY 1.04 1 EPS DILUTED 1.04 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors. ARTICLE 5 This schedule contains summary information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of March 31, 1996, and the related consolidated Statement of Earnings for the three months ended March 31, 1996 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000
PERIOD TYPE 3 MOS FISCAL YEAR END DEC 31 1996 PERIOD END MAR 31 1996 CASH 205 SECURITIES 825 RECEIVABLES 148 ALLOWANCES 0 INVENTORY 561 CURRENT ASSETS 2,099 PP&E 1,223 DEPRECIATION 823 TOTAL ASSETS 3,222 CURRENT LIABILITIES 869 BONDS 38 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 184 1 OTHER SE 1,417 1 TOTAL LIABILITY AND EQUITY 3,222 SALES 893 TOTAL REVENUES 893 CGS 810 TOTAL COSTS 810 OTHER EXPENSES 0 LOSS PROVISION 0 INTEREST EXPENSE 1 INCOME PRETAX 98 INCOME TAX 33 INCOME CONTINUING 65 DISCONTINUED 0 EXTRAORDINARY 0 CHANGES 0 NET INCOME 65 EPS PRIMARY 0.51 1 EPS DILUTED 0.51 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors. ARTICLE 5 This schedule contains summary financial information extracted from General Dynamics Corporation Consolidated Balance Sheet as of December 31, 1995, and the related Consolidated Statement of Earnings for the year ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. MULTIPLIER: 1,000,000
PERIOD TYPE YEAR FISCAL YEAR END DEC 31 1995 PERIOD END DEC 31 1995 CASH 215 SECURITIES 880 RECEIVABLES 105 ALLOWANCES 0 INVENTORY 567 CURRENT ASSETS 2,013 PP&E 1,208 DEPRECIATION 810 TOTAL ASSETS 3,164 CURRENT LIABILITIES 859 BONDS 38 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 180 1 OTHER SE 1,387 1 TOTAL LIABILITY AND EQUITY 3,164 SALES 3,067 TOTAL REVENUES 3,067 CGS 2,752 TOTAL COSTS 2,752 OTHER EXPENSES 0 LOSS PROVISION 0 INTEREST EXPENSE 4 INCOME PRETAX 375 INCOME TAX 128 INCOME CONTINUING 247 DISCONTINUED 74 EXTRAORDINARY 0 CHANGES 0 NET INCOME 321 EPS PRIMARY 2.55 1 EPS DILUTED 2.54 1
1 Data has been restated to give retroactive recognition to the company's two-for-one stock split authorized on March 4, 1998 by the board of directors.
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