SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3671
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1673581
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
3190 Fairview Park Drive, 22042-4523
Falls Church, Virginia (Zip Code)
(Address of principal executive offices)
(703) 876-3000
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1 par value - April 28, 1996 63,155,674
PAGE
GENERAL DYNAMICS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Earnings 3
Consolidated Statement of Cash Flows 4
Notes to Unaudited Consolidated
Financial Statements 5
Item 2 - Management's Discussion and Analysis 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURE 16
PAGE
PART I
GENERAL DYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)
March 31 December 31
ASSETS 1996 1995
CURRENT ASSETS:
Cash and equivalents $ 205 $ 215
Marketable securities 825 880
1,030 1,095
Accounts receivable 148 105
Contracts in process 561 567
Other current assets 360 246
Total Current Assets 2,099 2,013
NONCURRENT ASSETS:
Leases receivable - finance operations 214 213
Real estate held for development 139 136
Property, plant and equipment, net 400 398
Other assets 370 404
Total Noncurrent Assets 1,123 1,151
$ 3,222 $3,164
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 89 $ 130
Other current liabilities 780 729
Total Current Liabilities 869 859
NONCURRENT LIABILITIES:
Long-term debt 38 38
Long-term debt - finance operations 132 132
Other liabilities 582 568
Commitments and contingencies (See Note G)
Total Noncurrent Liabilities 752 738
SHAREHOLDERS' EQUITY:
Common stock, including surplus
(shares issued 84,387,336) 102 98
Retained earnings 2,126 2,087
Treasury stock (shares held 1996,
21,200,008; 1995, 21,141,961) (630) (625)
Unrealized gain on investments 3 7
Total Shareholders' Equity 1,601 1,567
$ 3,222 $3,164
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
PAGE
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
Three Months Ended
March 31 April 2
1996 1995
NET SALES $ 893 $ 753
OPERATING COSTS AND EXPENSES 810 674
OPERATING EARNINGS 83 79
Interest, net 13 13
Other income, net 2 -
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 98 92
Provision for income taxes 33 32
EARNINGS FROM CONTINUING OPERATIONS 65 60
EARNINGS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES - -
NET EARNINGS $ 65 $ 60
NET EARNINGS PER SHARE:
Continuing Operations $ 1.03 $ .95
Discontinued Operations - -
$ 1.03 $ .95
WEIGHTED AVERAGE SHARES
OUTSTANDING (in millions) 63.2 63.0
DIVIDENDS PER SHARE $ .41 $ .375
SUPPLEMENTAL INFORMATION:
General and administrative expenses included
in operating costs and expenses $ 56 $ 52
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
PAGE
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
Three Months Ended
March 31 April 2
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 65 $ 60
Adjustments to reconcile net earnings to net
cash provided by continuing operations -
Depreciation, depletion and amortization 13 8
Decrease (Increase) in -
Marketable securities 55 128
Accounts receivable (33) (39)
Contracts in process 18 (8)
Leases receivable - finance operations 1 1
Other current assets 3 6
Increase (Decrease) in -
Accounts payable and other current liabilities (53) (29)
Current income taxes 78 2
Deferred income taxes (43) 30
Other, net (18) 2
Net cash provided by continuing operations 86 161
Net cash provided (used) by
discontinued operations (9) 11
Net Cash Provided by Operating Activities 77 172
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Teledyne Vehicle Systems (55) -
Proceeds from sale of investments and
other assets 2 3
Capital expenditures (10) (5)
Net Cash Used by Investing Activities (63) (2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt -
finance operations 150 -
Repayment of debt - finance operations (146) -
Dividends paid (23) (22)
Other (5) 1
Net Cash Used by Financing Activities (24) (21)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (10) 149
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 215 382
CASH AND EQUIVALENTS AT END OF PERIOD $ 205 $ 531
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest $ 4 $ 2
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
PAGE
GENERAL DYNAMICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in millions, except per share amounts)
(A) Basis of Preparation
The unaudited consolidated financial statements included herein
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Although certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations,
the company believes that the disclosures included herein are adequate
to make the information presented not misleading. Operating results
for the three month period ended March 31, 1996, are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996. These unaudited consolidated financial statements
should be read in conjunction with the financial statements and the
notes thereto included in the company's Annual Report on Form 10-K for
the year ended December 31, 1995.
The company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," as of January 1, 1996.
SFAS 121 requires a company to adjust the carrying value of long-lived
assets and certain identifiable intangibles if their value is
determined to be impaired as defined by the standard. The adoption of
the standard did not have a material impact on the company's results
of operations or financial condition.
SFAS No. 123, "Accounting for Stock-Based Compensation,"
encourages companies to adopt a fair value approach to valuing stock
options which would require a charge to earnings in the period the
options are granted. The company has elected, as permitted by the
standard, to continue to follow its current method of accounting for
stock options which has no impact on earnings.
In the opinion of the company, the unaudited consolidated
financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary for a fair statement of the
results for the three month periods ended March 31, 1996 and April 2,
1995.
(B) Acquisitions
Effective September 13, 1995, the company purchased the stock of
Bath Iron Works Corporation for approximately $300 in cash. In
December 1995, the company received a purchase price adjustment of $8
in accordance with the terms of the purchase agreement. This
transaction has been accounted for under the purchase method of
accounting. Operating results of Bath Iron Works have been included
with those of the company from the closing date. Had the acquisition
been completed as of January 1, 1995, net sales, earnings from
continuing operations and net earnings per share from continuing
operations on a pro forma basis would have been $996, $65 and $1.03
per share, respectively, for the three month period ending April 2,
1995.
Effective March 29, 1996, the company purchased the assets of
Teledyne Vehicle Systems (TVS), an operating unit of Teledyne Inc.,
for approximately $55 in cash. TVS specializes in combat vehicles as
well as mobility systems, suspension technology, and diesel engines
for armored vehicle markets worldwide. The transaction has been
accounted for under the purchase method of accounting. The excess of
the purchase price over the estimated fair value of the net tangible
assets acquired of approximately $40 has been recorded as intangible
assets related to the TVS product lines, and is being amortized on a
straight line basis over an average period of approximately 25 years.
This allocation was based on preliminary estimates and may be revised
at a later date. The results of TVS will be included with those of the
company beginning in the second quarter. Pro forma results for the
first quarter are not presented because the effects of the acquisition
are not material to the company's results of operations.
(C) Liabilities
A summary of significant liabilities, by balance sheet caption,
follows:
March 31 December 31
1996 1995
Workers' compensation $ 233 $ 233
Retirement benefits 188 199
Income taxes payable 80 10
Salaries and wages 73 74
A-12 termination liability
and legal fees 38 38
Other 168 175
Other Current Liabilities $ 780 $ 729
Accrued costs on disposed businesses $ 286 $ 274
Coal mining related liabilities 74 69
Other 222 225
Other Liabilities $ 582 $ 568
(D) Deferred Tax Asset
The company had a net deferred tax asset of $252 and $209 at
March 31, 1996 and December 31, 1995, the current portion of which was
$231 and $120, respectively, and was included in other current assets
on the Consolidated Balance Sheet. No valuation allowance was
required for the company's deferred tax assets at March 31, 1996 and
December 31, 1995.
(E) Earnings Per Share
As there is no material dilution, net earnings per share is based
upon the weighted average number of common shares outstanding during
each period. Prior period amounts have been restated to present
simple earnings per share. The weighted average shares were 63.2 and
63.0 for the three months ended March 31, 1996 and April 2, 1995,
respectively.
(F) Discontinued Operations
Net sales of discontinued operations were $28 and $90 for the
first quarter of 1996 and 1995, respectively. There were no earnings
(loss) from discontinued operations in the first quarter of 1996 or
1995. During the first quarter of 1996, the company's Commercial
Aircraft Subcontracting business ceased operations after the delivery
of its final shipset.
(G) Commitments and Contingencies
Litigation
On January 7, 1991, the U.S. Navy terminated for default a
contract with the company and McDonnell Douglas Corporation (McDonnell
Douglas) for the full-scale development of the U.S. Navy's A-12
aircraft. The U.S. Navy has demanded repayment of unliquidated
progress payments, plus interest. The company and McDonnell Douglas
have a claim pending against the U.S. government in the Court of
Federal Claims (see Note H).
Certain issues related to the Internal Revenue Service (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, in July 1994, the company received a Statutory Notice of
Deficiency from the IRS which the company is contesting in the U.S.
Tax Court. The company has accrued an amount which is expected to be
adequate to cover any liability arising from this matter. Also, as
part of the Tax Court litigation, the company is contesting the
disallowance by the IRS of its refund claim for additional research
and experimentation tax credits for the years 1981 through 1986. The
company's position is that it is entitled to a tax credit for certain
research performed pursuant to fixed price government contracts. The
company believes that its position has been strengthened by the recent
decision in Fairchild Industries v. United States, which held for the
taxpayer on this issue. The resolution of the Tax Court litigation is
expected to take several years.
On July 14, 1995, 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
million in excess of a $40 million point in each of the four policy
years. The named plaintiff, Paul Hunt, is an individual suing on
behalf of himself and other individuals who are members of the Lloyd's
of London syndicates and other British insurers who have underwritten
the risk. A similar lawsuit, Bath Iron Works v. Institute of London
Underwriters, was recently settled with the insurers. The company
does not expect that these matters will have a material impact on the
company's financial condition or results of operations.
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 financial condition or results of operations.
Environmental
The company is directly or indirectly involved in fourteen
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.
The company measures its environmental exposure based on
currently available facts, existing technologies, and presently
enacted laws and regulations. Where a reasonable basis for
apportionment exists with other PRPs, the company has considered only
its share of the liability. The company considers the solvency of
other PRPs, whether responsibility is being disputed, and its
experience in similar matters in determining its share. Based on a
site by site analysis, the company has recorded an amount which it
believes will be adequate to cover any liability arising from the
sites.
Other
The company was contingently liable for debt and lease guarantees
and other arrangements aggregating up to a maximum of approximately
$85 at March 31, 1996 and December 31, 1995, respectively. During the
first quarter, a nonaffiliate for whom the company has guaranteed debt
of approximately $40 disclosed that it anticipated not being in
compliance with loan covenants. As a result, the company is subject
to increased risk of this guaranteed debt being declared in default.
This nonaffiliate is currently negotiating new debt arrangements,
though, to date, the company is not aware that any such new
arrangement has been reached. In the event of default and the company
satisfying its obligation under the guarantee, the company would have
a security interest in the assets of the nonaffiliate. The company
believes that it is adequately accrued for any liability it may incur
in connection with this guaranteed debt.
In connection with the sale of its defense businesses, the
company remains contingently liable for contract performance by the
purchasers of these businesses under agreements entered into with the
U.S. government. The company believes the probability of any
liability arising from this matter is remote. In addition, the sales
agreements contain certain representations and warranties under which
the purchasers have certain specified periods of time to assert claims
against the company. Some claims have been asserted which in the
aggregate are material in amount, but the company does not believe
that its liability as a result of these claims will exceed the
liabilities recorded at the time of the sales.
(H) Termination of A-12 Program
As stated in Note G, the U.S. Navy terminated the company's A-12
aircraft contract for default. The A-12 contract was a fixed-price
incentive contract for the full-scale development and initial
production of the U.S. Navy's new carrier-based Advanced Tactical
Aircraft. Both the company and McDonnell Douglas (the contractors)
were parties to the contract with the U.S. Navy, each had full
responsibility to the U.S. 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 U.S. 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 and equitable relief. In the aggregate, the contractors seek to
recover payment for all costs incurred in the A-12 program and its
termination, including interest. The total amount sought, as updated
through the end of 1995, is approximately $2.2 billion, over and above
amounts previously received from the U.S. Navy. The company has not
recognized any claim revenue from the U.S. Navy.
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
issues the U.S. government raised with respect to the contractors'
performance and the U.S. Navy's knowledge thereof, the court issued an
order converting the termination for default to a termination of
convenience. The court has set November 1996 as the date for the
trial on damages.
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 trial. In the unlikely event that
the court's decision converting the termination to a termination for
convenience is reversed, 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.
PAGE
GENERAL DYNAMICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
March 31, 1996
(Dollars in millions, except per share amounts)
Business Environment
Background
The company's primary business has historically been supplying
weapons systems to the U.S. government. In 1990, U.S. defense
budgets, which had been declining since 1985, began falling sharply in
response to the end of the Cold War. Management anticipated that the
budget declines were structural in that, for the foreseeable future,
there would be fewer new weapons systems required which would result
in excess capacity in the industry. Accordingly, management believed
there would be a necessary contraction and consolidation of the U.S.
defense industry. To date, management's analysis of these
developments has proved to be true as evidenced by declines, in real
terms, in the defense budget and by the number of industry
combinations in recent years.
In response to this changing business environment, management
initiated a program requiring its major businesses to be market
leaders and to have "critical mass" - the appropriate size to retain
key capabilities and ensure economies of scale, and sought to meet
these criteria through mergers, acquisitions, or sales of businesses
if necessary. In following this strategy, the company sold in prior
years its Tactical Military Aircraft, Missile Systems and Space Launch
Systems businesses. In 1995, the company acquired Bath Iron Works, a
builder of surface combatant ships for the U.S. Navy. Effective March
29, 1996, the company purchased the assets of Teledyne Vehicle Systems
(TVS), an operating unit of Teledyne Inc., for $55 in cash. TVS
specializes in combat vehicles as well as mobility systems, suspension
technology, and diesel engines for armored vehicle markets world-wide.
The acquisition brings the company's share of the U.S. Army's Crusader
Advanced Field Artillery System (Crusader) program to more than 25
percent. TVS is also a subcontractor on the company's candidate for
the U.S. Marine Corps' Advanced Amphibious Assault Vehicle (AAAV)
development program. The operating results of TVS will be reported in
the company's Armored Vehicles segment beginning in the second
quarter.
Legislative Developments
Marine Group. For fiscal year 1997 (FY97), the President's budget
submission included $700 million of the remaining $800 million funding
required for the third Seawolf, and funding for the continued design
and long-lead materials for construction of the first ship of the New
Attack Submarine (NSSN) program. Construction of the third Seawolf
provides the level of activity necessary to maintain operation of all
Electric Boat's facilities until the NSSN program begins in 1998.
Current Department of Defense (DoD) plans call for a total of 30 ships
in the NSSN program. Congressional directives require that the first
four NSSNs be equally allocated between Electric Boat and its
competitor, with competition on subsequent ships to begin in 2003.
Also in FY97, the President is requesting funding to complete a two
year procurement of six DDG 51 destroyers, three of which would be
allocated to the company. Finally, the President's FY97 budget
includes advance funding for the Navy's new arsenal ship, which
represents the potential for additional ship construction for Bath
Iron Works. Funding was previously obtained for the design and
construction of the lead ship in the LPD 17 class amphibious assault
ship program which is to be awarded in 1996. Bath Iron Works is
teamed with other major contractors competing for the LPD 17, which
the Navy anticipates to be a 12-ship program.
Armored Vehicles. The U.S. Army has begun a program to upgrade
over 1,000 of its M1 Abrams tanks to the M1A2 configuration by the
year 2003. In fiscal year 1996, Congress approved the authority to
enter into a multi-year contract under this program. For FY97, the
President is requesting funding for the multi-year contract, which the
company is currently negotiating. This multi-year contract should
stabilize domestic tank production and provide the foundation for
further international opportunities. Funding has also been requested
for four armored vehicle programs in which the company is
participating. The first is a four-year program to upgrade Fox
Nuclear, Biological and Chemical Reconnaissance System vehicles. The
second is the Heavy Assault Bridge which is currently under
development and is expected to enter production late in this decade.
In addition, the company teamed with two other contractors on the
Crusader development contract which could lead to a production program
worth as much as $13 billion. Finally, the company is competing for
the AAAV development contract which is expected to be awarded in mid-
1996 and followed by a multibillion dollar production program in the
next decade. Additional funding was also approved for the FY97 Single
Channel Ground and Airborne Radio System (SINCGARS) procurement which
the Army plans to dual source. The company was recently awarded a
contract for 40% of the third competitive SINCGARS production bid.
Strategic Focus
The company is working closely with its customers to meet demands
for capability and affordability at significantly reduced procurement
rates. Accordingly, management is continuing to focus on aggressively
reengineering the cost structures of all operations to create highly
efficient businesses capable of operating profitably at significantly
lower volumes. With DoD initiatives to reduce its own infrastructure,
additional opportunities may be available for greater involvement in
overhaul, maintenance, upgrade and modification work. In addition,
the company continues to explore ways to utilize its financial
capacity to strengthen its operations through both internal and
external investments. Accordingly, management will continue to
consider the benefits of corporate business combinations and financial
restructuring options to further enhance the value of the company.
Backlog
The following table shows the approximate backlog of the company as
calculated at March 31, 1996 and December 31, 1995:
March 31 December 31
1996 1995
Marine Group $ 3,402 $ 3,671
Armored Vehicles 807 959
Other 573 597
Funded Backlog $ 4,782 $ 5,227
Total Backlog $ 6,969 $ 7,386
Funded backlog represents the total estimated remaining sales value
of work that has been appropriated by Congress, and contracted and
funded by the procuring agency. Funded backlog also includes amounts
for long-term coal contracts. To the extent backlog has not been
funded, there is no assurance that congressional appropriations or
agency allotments will be forthcoming.
In January 1996, the company agreed to the initial terms of a nine-
year, $1.5 billion contract to be the lead design yard of the NSSN,
and is currently negotiating the contracts for the construction of the
third Seawolf and the upgrade of M1 tanks. While this new business
has been appropriated by Congress, it has not yet been formally
contracted and, therefore, not reflected in the backlog data reported
above.
Results of Operations
The following table sets forth the net sales and operating
earnings by business segment for the three month periods ending March
31, 1996 and April 2, 1995:
Three Month Period Increase/
1996 1995 (Decrease)
NET SALES:
Marine Group $ 614 $ 439 $ 175
Armored Vehicles 246 278 (32)
Other 33 36 (3)
$ 893 $ 753 $ 140
OPERATING EARNINGS:
Marine Group $ 54 $ 49 $ 5
Armored Vehicles 33 36 (3)
Other (4) (6) 2
$ 83 $ 79 $ 4
Marine Group
Net sales and operating earnings increased during the three month
period 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 and operating earnings decreased
over 5 percent due to lower construction activity on the Trident and
Los Angeles class submarine programs. The decline in construction
activity was partially offset by increased engineering and design work
on the NSSN, and by the increase in the earnings rate on the Trident
program in the second quarter of 1995.
Armored Vehicles
Net sales and operating earnings decreased during the three month
period due primarily to decreased M1 tank production resulting from
the delivery of the final M1A2 tank to Kuwait in the first quarter of
1996. This decrease was partially offset by increased SINCGARS
production.
New Accounting Standards
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," in March 1995 and No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS 121 requires a company to adjust
the carrying value of long-lived assets and certain identifiable
intangibles if their value is determined to be impaired as defined by
the standard. The company adopted the provisions of SFAS 121 as of
January 1, 1996, which had no material impact on the company's results
of operations or financial condition. SFAS 123 encourages companies
to adopt a fair value approach to valuing stock options which would
require a charge to earnings in the period the options are granted.
The company has elected, as permitted by the standard, to continue to
follow its current method of accounting for stock options which has no
impact on earnings.
Financial Condition
Operating Activities
Net cash provided by continuing operations decreased this year
over last year due primarily to the net change in the amount the
company invested in marketable securities from period to period. Net
cash provided by discontinued operations decreased this year over last
year due primarily to the company's Commercial Aircraft Subcontracting
business ceasing operations in January 1996.
For a discussion of environmental matters and other
contingencies, see Note G 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 financial
condition or results of operations.
Investing Activities
As previously discussed, the company acquired TVS on March 29,
1996, for $55 in cash.
Financing Activities
The Title XI Bonds issued by the company's finance operations
were retired. This retirement was financed by the private placement
of new, non-callable bonds which are also non-recourse to the company.
The refinancing has no material impact on the company's results of
operations or financial condition.
The company's Board of Directors increased the regular quarterly
dividend on the company's common stock from $0.375 to $0.41 per share
in March 1996. This increase reflects the Board's confidence in the
sustainability of the cash flows generated by the company's continuing
operations.
The company expects to generate sufficient funds from operations
to meet both its short and long-term liquidity needs. In addition,
the company has the capacity for long-term borrowings and currently
has a committed, short-term $600 line of credit. The line of credit
expires in May 1996 at which time the company anticipates renewing the
line.
PAGE
PART II
GENERAL DYNAMICS CORPORATION
OTHER INFORMATION
March 31, 1996
Item 1. Legal Proceedings
Reference is made to Note G, Commitments and Contingencies,
which is incorporated herein by reference, for a statement relevant to
activities in the quarter covering certain litigation to which the
company is a party.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11, Statement Re Computation of Per Share Earnings
(b) Reports on Form 8-K
On January 8, 1996, the company reported to the Securities
and Exchange Commission under Item 5, Other Events, that on
December 19, 1995, the United States Court of Federal
Claims filed an order in the matter of McDonnell Douglas
Corporation and General Dynamics Corporation v. United
States of America converting the termination of the
company's A-12 contract for default, to a termination for
convenience.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GENERAL DYNAMICS CORPORATION
by /s/John W. Schwartz
John W. Schwartz
Staff Vice President and Controller
(Principal Accounting Officer)
Dated May 13, 1996