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 30, 1997
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, Falls Church, Virginia 22042-4523
(Address of principal executive offices)(Zip Code)
(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 - May 2, 1997 62,444,820
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 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURE 16
PART I
GENERAL DYNAMICS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in millions)
March 30 December 31
1997 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 65 $ 516
Marketable securities 304 378
369 894
Accounts receivable 144 97
Contracts in process 726 558
Other current assets 301 309
Total Current Assets 1,540 1,858
NONCURRENT ASSETS:
Marketable securities 296 261
Leases receivable - finance operations 204 204
Real estate held for development 149 147
Property, plant and equipment, net 517 441
Intangible assets 481 165
Other assets 257 223
Total Noncurrent Assets 1,904 1,441
$ 3,444 $ 3,299
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 183 $ 182
Other current liabilities 734 651
Total Current Liabilities 917 833
NONCURRENT LIABILITIES:
Long-term debt 40 38
Long-term debt - finance operations 115 118
Other liabilities 628 596
Commitments and contingencies (See Note G)
Total Noncurrent Liabilities 783 752
SHAREHOLDERS' EQUITY:
Common stock, including surplus (shares
issued 84,387,336) 118 109
Retained earnings 2,299 2,254
Treasury stock (shares held 1997,
21,474,563; 1996, 21,285,157) (672) (650)
Unrealized gain (loss) on investments (1) 1
Total Shareholders' Equity 1,744 1,714
$ 3,444 $ 3,299
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement.
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions, except per share amounts)
Three Months Ended
March 30 March 31
1997 1996
NET SALES $ 941 $ 893
OPERATING COSTS AND EXPENSES 839 810
OPERATING EARNINGS 102 83
Interest, net 9 13
Other income (expense), net (3) 2
EARNINGS BEFORE INCOME TAXES 108 98
Provision for income taxes 37 33
NET EARNINGS $ 71 $ 65
NET EARNINGS PER SHARE $ 1.13 $ 1.03
WEIGHTED AVERAGE SHARES
OUTSTANDING (in millions) 63.1 63.2
DIVIDENDS PER SHARE $ .41 $ .41
SUPPLEMENTAL INFORMATION:
General and administrative expenses
included in operating costs
and expenses $ 78 $ 56
The accompanying Notes to Unaudited Consolidated Financial
Statements are an integral part of this statement.
GENERAL DYNAMICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
Three Months Ended
March 30 March 31
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 71 $ 65
Adjustments to reconcile net earnings
to net cash provided by continuing
operations -
Depreciation, depletion and
amortization 21 13
Decrease (Increase) in -
Marketable securities (12) 55
Accounts receivable 10 (33)
Contracts in process (28) 18
Leases receivable-finance operations - 1
Other current assets - 3
Increase (Decrease) in -
Accounts payable and other current
liabilities (54) (53)
Current income taxes 44 78
Deferred income taxes (7) (43)
Other, net 1 (18)
Net cash provided by continuing
operations 46 86
Net cash used by discontinued operations (34) (9)
Net Cash Provided by Operating Activities 12 77
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions (450) (55)
Purchases of available-for-sale
securities (243) -
Sales/maturities of available-for-sale
securities 292 2
Capital expenditures (10) (10)
Other (2) -
Net Cash Used by Investing Activities (413) (63)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt -
finance operations - 150
Repayment of debt - finance operations (3) (146)
Dividends paid (26) (23)
Purchase of common stock (26) -
Other 5 (5)
Net Cash Used by Financing Activities (50) (24)
NET DECREASE IN CASH AND EQUIVALENTS (451) (10)
CASH AND EQUIVALENTS AT BEGINNING OF
PERIOD 516 215
CASH AND EQUIVALENTS AT END OF PERIOD $ 65 $ 205
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest (including
finance operations) $ 2 $ 4
The accompanying Notes to Unaudited Consolidated Financial
Statements are an integral part of this statement.
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 30, 1997,
are not necessarily indicative of the results that may be expected
for the year ended December 31, 1997. 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, 1996.
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 30, 1997 and March
31, 1996.
(B) Acquisitions
Effective March 29, 1996, the company purchased the assets of
Teledyne Vehicle Systems (Muskegon Operations), formerly an operating
unit of Teledyne Inc., for approximately $55 in cash. The transaction
has been accounted for under the purchase method of accounting.
Operating results of the Muskegon Operations are included with those
of the company from the closing date.
Effective January 1, 1997, the company purchased the assets of
Defense Systems and Armament Systems, formerly operating units of
Lockheed Martin Corporation, for approximately $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. The transaction has
been accounted for under the purchase method of accounting.
Operating results of Defense Systems and Armament Systems are
included with those of the company from the closing date.
Approximately $320, the excess of the purchase price over the
estimated fair value of the net tangible assets acquired, has been
recorded as intangible assets related to contracts and programs
acquired and goodwill. The intangible assets are being amortized on
a straight-line basis over periods ranging from 30 to 40 years. This
allocation was based on preliminary estimates and may be revised at a
later date.
(C) Intangible Assets
Intangible assets consist of the following:
March 30 December 31
1997 1996
Intangible assets related to contracts
and programs acquired $ 370 $ 149
Goodwill 111 16
$ 481 $ 165
Intangible assets are shown net of accumulated amortization of $14
and $10 at March 30, 1997 and December 31, 1996, respectively.
Intangible assets related to all contracts and programs acquired are
amortized on a straight-line basis over periods ranging from 25 to 40
years. Costs in excess of net assets acquired (goodwill) is
amortized ratably over 40 years.
(D) Liabilities
A summary of significant liabilities, by balance sheet caption,
follows:
March 30 December 31
1997 1996
Workers' compensation $ 236 $ 239
Retirement benefits 183 179
Salaries and wages 76 68
Other 239 165
Other Current Liabilities $ 734 $ 651
Accrued costs on disposed businesses $ 219 $ 256
Retirement benefits 126 111
Coal mining related liabilities 77 77
Other 206 152
Other Liabilities $ 628 $ 596
(E) Income Taxes
The company had a net deferred tax asset of $277 and $270 at
March 30, 1997 and December 31, 1996, the current portion of which
was $219 and $231, 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 30, 1997 and
December 31, 1996.
Certain issues related to the 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.
(F) 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.
(G) Commitments and Contingencies
Litigation
Claims made by and against the company regarding the development
of the Navy's A-12 aircraft are discussed in Note H.
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 believes
the jury verdict is not supported by the facts or the applicable law.
The company will, therefore, ask the judge to enter judgment for the
company notwithstanding the verdict, or, in the alternative order a
new trial. The company will also ask the trial judge to exercise his
discretion to substantially reduce or eliminate the punitive damage
award. While the company is unable to assess the ultimate outcome of
this matter, management currently believes it will not have a
material impact on its 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. 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. The
company does not expect that the matter will have a material impact
on the company's results of operations or financial condition.
Hughes Missile Systems Company (HMSC) has filed an amended
complaint against the company alleging breaches of 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 $42 in 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. The company, 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, any 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 a Comprehensive Environmental
Response, Compensation and Liability Act case. 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. The company is unable to estimate
its share of any liability arising from these claims. However, the
company believes it is entitled to indemnity from the U.S. for any
liability. Therefore, the company does not believe the litigation
will have a material adverse 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 adopted the provisions of the 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. The adoption of the statement did not have
a material impact on the company's results of operations or financial
condition.
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 of approximately $90 at March 30,
1997.
(H) 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 and equitable 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 of convenience.
The parties continue to litigate quantum issues. Although the
parties signed a stipulation on damages totaling $1,071, the court
has now ruled that the plaintiffs may be entitled to additional
amounts. Further proceedings are required to establish the final
amount of damages. Final resolution of the A-12 litigation will
depend on the entry of final judgment, the outcome of expected
appeals, and further litigation 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 trial. 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.
GENERAL DYNAMICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
March 30, 1997
(Dollars in millions, except per share amounts)
Forward-Looking Statements
Management's Discussion and Analysis of the Results of
Operations and Financial Condition contains forward-looking
statements that are based on management's expectations, estimates,
projections and assumptions. Words such as "expects," "anticipates,"
"plans," "believes," "estimates," variations of such words and
similar expressions are intended to identify such forward-looking
statements which include but are not limited to projections of
revenues, earnings, segment performance, cash flows and contract
awards. Such 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; labor negotiations;
changing priorities or reductions in the U.S. government defense
budget; and termination of government contracts due to unilateral
government action.
Business Segments
The company comprises two major business segments: Marine and
Combat Systems Groups, as well as miscellaneous businesses classified
as Other. The following table sets forth the net sales and operating
earnings by business segment for the three month period ending March
30, 1997 and March 31, 1996:
Increase/
Three Month Period (Decrease)
1997 1996
NET SALES:
Marine Group $559 $614 $ (55)
Combat Systems Group 337 246 91
Other 45 33 12
$941 $893 $ 48
OPERATING EARNINGS:
Marine Group $ 59 $ 54 $ 5
Combat Systems Group 45 33 12
Other (2) (4) 2
$102 $ 83 $ 19
Marine Group
Results of Operations and Outlook
Net sales decreased during the three month period due to lower
submarine construction activity, primarily on the Trident Program.
The final Trident and first Seawolf submarines are scheduled for
delivery mid-year.
Operating earnings increased during the three month period as
the impact of lower construction activity was more than offset by the
increase in the earnings rates on the Trident program in the third
quarter of 1996 and the Seawolf program in the first quarter of 1997.
These earnings rate increases are due to cost reduction efforts as
well as diminishing operating risks as the submarine programs mature.
As a result, operating margins of the Marine Group are expected to
remain above 1996 levels.
Business and Market Considerations
During the first quarter, the company entered into a Team
Agreement with Newport News Shipbuilding and Drydock Company (Newport
News) for the New Attack Submarine (NSSN) program. The Team
Agreement provides that Electric Boat will be the prime contractor on
construction contracts for the NSSNs, though construction and
assembly work will be equally shared with Newport News through a
subcontracting arrangement. Electric Boat will retain the lead
design role. The Team Agreement requires the approval of the Navy,
Department of Defense, and a change in the existing law which
currently requires competition between Electric Boat and Newport News
for construction of NSSNs after each has produced two ships. Based
on estimates developed by the team, the company believes the Team
Agreement will provide material cost savings to the Navy, therefore
enhancing government support for full funding of the first four ships
and obtaining the required administrative and legislative approvals.
Bath Iron Works (BIW) is a member of a three-contractor team
that was selected in the fourth quarter of 1996 to design and build
the Navy's new class of amphibious transport ships (LPD 17). The LPD
17 award was protested by a competing contractor team led by Litton
Industries. In April, the General Accounting Office upheld the
Navy's original selection of the three-contractor team.
Congress has authorized the Secretary of the Navy to initiate
multiyear contracts for the procurement of 12 Arleigh Burke class
destroyers (DDG 51) between FY98 and FY01. In April, the Navy
released the results of the DDG Program Management Assistance Group
(PMAG), whose objective was to make a recommendation for a long-term
integrated approach to the surface combatant industrial base. The
PMAG's comprehensive review determined there was no industrial base
reason to change the Navy's practice of equally allocating the
procurement of the 12 destroyers between BIW and its competitor.
Combat Systems Group
Results of Operations and Outlook
Net sales and operating earnings increased during the three
month period due primarily to the acquisition of Defense Systems and
Armament Systems. The acquisition was immediately accretive to the
company's net earnings. For a discussion of the accounting for this
transaction and related information, see Note B to the Consolidated
Financial Statements. Defense Systems and Armament Systems have
historically earned lower operating margins than those reported by
the company's domestic and foreign tank programs. These margins will
vary from quarter to quarter based on timing of deliveries and
licensing income. First quarter results were favorably affected by
these timing events.
The company believes it can maintain the operating margins of
the Combat Systems segment at the current level, for at least the
next several quarters, through a combination of efforts to reduce
costs and increase sales. Actions taken to achieve this goal include
the successful completion of union negotiations at Land Systems, as
further discussed below, and the pursuit of international sales.
Business and Market Considerations
On January 1, 1997, the company purchased the assets of Defense
Systems and Armament Systems, formerly operating units of Lockheed
Martin Corporation, for $450 in cash. Defense Systems builds 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. The acquisition expands the company's
participation in armored vehicles from heavy tanks to light vehicles,
and from full platforms to major subsystems. The acquisition also
creates a presence in fire control systems and components.
During the first quarter, Land Systems reached an early
agreement with its employees represented by the United Auto Workers
Union on a new collective bargaining contract. Land Systems believes
the terms of the contract, which extends until October 2001, will
provide it with cost savings and therefore an improved competitive
position.
In April, the Army selected the company's competitor to be the
sole source provider of the Single Channel Ground and Airborne Radio
System for the final years of the program. As the company currently
has contracts to produce radios until late 1998, this selection will
not affect 1997 results.
Other
Net sales increased during the three month period due to the
reclassification of the aggregates business to continuing operations
in the second quarter of 1996. Operating losses were marginally
lower as the seasonal losses of the aggregates business were offset
by slightly improved performance of the coal operations.
Backlog
The following table details the backlog of each business segment
as calculated at March 30, 1997 and December 31, 1996:
March 30 December 31
1997 1996
Marine Group $ 7,189 $ 7,566
Combat Systems Group 2,743 2,057
Other 714 727
Total Backlog $ 10,646 $ 10,350
Funded Backlog $ 6,689 $ 6,161
Total backlog represents the estimated remaining sales value of
work primarily performed under authorized U.S. government contracts.
Funded backlog represents the portion of total backlog that has been
appropriated by Congress and funded by the procuring agency. The
increase in backlog at the Combat Systems Group, over the three month
period, is due primarily to the acquisition of Defense Systems and
Armament Systems. 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.
Additional Financial Information
Interest, Net
Interest income decreased during the three month period due to a
decline in the average cash balance resulting from the acquisition of
Defense Systems and Armament Systems on January 1, 1997.
Environmental Matters
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.
New Accounting Standards
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share"
in February 1997. SFAS 128 requires a company to present basic and
diluted earnings per share amounts for net earnings on the face of
the Consolidated Statement of Earnings. The company is required to
adopt the provisions of the standard during the fourth quarter of
1997, and when adopted, will require restatement of prior years'
earnings per share. The standard will not have a material impact on
historical earnings per share reported by the company.
The Accounting Standards Executive Committee issued Statement of
Position (SOP) 96-1, "Environmental Remediation Liabilities" in
October 1996. SOP 96-1 provides benchmarks to aid in the
determination of when environmental liabilities should be recognized,
as well as requirements for what the accrual of environmental
liabilities should include. The company adopted the provisions of
the statement as of January 1, 1997, which had no material impact on
the company's results of operations or financial condition.
Financial Condition
Operating Activities
Cash flows from continuing operations decreased this year over
last year due primarily to the change in the amount the company
invested in marketable securities classified as trading per SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Cash flows from discontinued operations decreased this year over last
year due to payments for disposition related liabilities. Cash flows
from discontinued operations are still expected to improve for the
full year 1997 over 1996, due primarily to lower allocated federal
income tax payments.
Investing Activities
As discussed in Note B, the company acquired the assets of
Defense Systems and Armament Systems on January 1, 1997, for
approximately $450 in cash.
Financing Activities
In 1994, the company's Board of Directors reconfirmed
management's authority to repurchase at its discretion, up to 3
million shares of the company's common stock. As of March 30, 1997,
the company had repurchased approximately 1.3 million shares,
including approximately 0.4 million shares during the first quarter
of 1997. In addition, the company repurchased 0.5 million shares in
April 1997.
The company expects to generate sufficient funds from operations
to meet both its short-term 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 1997 at which time the company anticipates
renewing the line.
PART II
GENERAL DYNAMICS CORPORATION
OTHER INFORMATION
March 30, 1997
Item 1. Legal Proceedings
Reference is made to Note G, Commitments and Contingencies,
to the Consolidated Financial Statements in Part I, 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 15, 1997, the company reported to the Securities
and Exchange Commission under Item 2, Acquisition or
Disposition of Assets, that on January 1, 1997, the company
had acquired, through two newly formed subsidiaries, the
assets of the Defense Systems and Armament Systems business
units from Lockheed Martin Corporation. Included in the
filing was the Asset Purchase and Sale Agreement.
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 9, 1997