-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wd/4l/6L6BEAbqb82BJcpnxzxsuT0RFMAN0XegkkRmLyfFRvs4LsMSPmeN1tIa1x JlywaAOYtKemvrF58PoUXA== 0000040533-95-000009.txt : 19951106 0000040533-95-000009.hdr.sgml : 19951106 ACCESSION NUMBER: 0000040533-95-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951001 FILED AS OF DATE: 19951103 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL DYNAMICS CORP CENTRAL INDEX KEY: 0000040533 STANDARD INDUSTRIAL CLASSIFICATION: SHIP & BOAT BUILDING & REPAIRING [3730] IRS NUMBER: 131673581 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03671 FILM NUMBER: 95587066 BUSINESS ADDRESS: STREET 1: 3190 FAIRVIEW PARK DRIVE CITY: FALLS CHURCH STATE: VA ZIP: 22042 BUSINESS PHONE: 7038763375 MAIL ADDRESS: STREET 1: 3190 FAIRVIEW PARK DR CITY: FALLS CHURCH STATE: VA ZIP: 22042 10-Q 1 THIRD QUARTER 10-Q 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 October 1, 1995 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 or organization) Identification No.) 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 - October 29, 1995 62,979,722 GENERAL DYNAMICS CORPORATION INDEX PART I - FINANCIAL INFORMATION PAGE Item 1 - Consolidated Financial Statements Consolidated Balance Sheet 3 Consolidated Statement of Earnings 4 and 5 Consolidated Statement of Cash Flows 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis 12 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 16 Item 6 - Exhibits and Reports on Form 8-K 16 SIGNATURE 17 PART I GENERAL DYNAMICS CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED) (Dollars in millions) October 1 December 31 ASSETS 1995 1994 CURRENT ASSETS: Cash and equivalents $ 143 $ 382 Marketable securities 850 677 993 1,059 Accounts receivable 121 104 Contracts in process 599 351 Other current assets 257 283 Total Current Assets 1,970 1,797 NONCURRENT ASSETS: Leases receivable - finance operations 210 220 Real estate held for development 135 128 Property, plant and equipment, net 417 264 Other assets 385 264 Total Noncurrent Assets 1,147 876 $3,117 $2,673 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 123 $ 134 Other current liabilities 735 492 Total Current Liabilities 858 626 NONCURRENT LIABILITIES: Long-term debt 38 39 Long-term debt - finance operations 148 157 Other liabilities 593 535 Commitments and contingencies (See Note G) Total Noncurrent Liabilities 779 731 SHAREHOLDERS' EQUITY: Common stock, including surplus (shares issued 84,387,336) 90 87 Retained earnings 2,023 1,860 Treasury stock (shares held 1995, 21,408,093; 1994, 21,391,547) (633) (631) Total Shareholders' Equity 1,480 1,316 $3,117 $2,673 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 October 1 October 2 1995 1994 NET SALES $ 718 $ 714 OPERATING COSTS AND EXPENSES 641 637 OPERATING EARNINGS 77 77 Interest, net 14 7 Other income (expense), net 2 (1) EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 93 83 Provision for income taxes 31 29 EARNINGS FROM CONTINUING OPERATIONS 62 54 DISCONTINUED OPERATIONS, NET OF INCOME TAXES: Earnings from operations 18 - Gain on disposal 11 - 29 - NET EARNINGS $ 91 $ 54 NET EARNINGS PER SHARE: Continuing operations $ .98 $ .85 Discontinued operations: Earnings from operations .29 - Gain on disposal .17 - $ 1.44 $ .85 WEIGHTED AVERAGE SHARES AND EQUIVALENTS OUTSTANDING (in millions) 63.3 63.3 DIVIDENDS PER SHARE $ .375 $ .35 SUPPLEMENTAL INFORMATION: General and administrative expenses included in operating costs and expenses $ 55 $ 76 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) Nine Months Ended October 1 October 2 1995 1994 NET SALES $2,174 $2,334 OPERATING COSTS AND EXPENSES 1,942 2,095 OPERATING EARNINGS 232 239 Interest, net 42 13 Other income, net 4 2 EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 278 254 Provision for income taxes 95 89 EARNINGS FROM CONTINUING OPERATIONS 183 165 DISCONTINUED OPERATIONS, NET OF INCOME TAXES: Earnings from operations 31 - Gain on disposal 19 15 50 15 NET EARNINGS $ 233 $ 180 NET EARNINGS PER SHARE: Continuing operations $ 2.89 $ 2.60 Discontinued operations: Earnings from operations .49 - Gain on disposal .30 .24 $ 3.68 $ 2.84 WEIGHTED AVERAGE SHARES AND EQUIVALENTS OUTSTANDING (in millions) 63.3 63.5 DIVIDENDS PER SHARE $1.125 $ 1.05 SUPPLEMENTAL INFORMATION: General and administrative expenses included in operating costs and expenses $ 155 $ 179 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) Nine Months Ended October 1 October 2 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 233 $ 180 Adjustments to reconcile net earnings to net cash provided (used) by continuing operations - Discontinued operations (50) (15) Depreciation, depletion and amortization 26 30 Decrease (Increase) in - Marketable securities (173) (367) Accounts receivable 12 (33) Contracts in process (41) 71 Leases receivable - finance operations 9 8 Other current assets 9 (9) Increase (Decrease) in - Accounts payable and other current liabilities 11 (76) Current income taxes 13 (4) Deferred income taxes 38 37 Other, net (12) (13) Net cash provided (used) by continuing operations 75 (191) Net cash provided (used) by discontinued operations 50 (28) Net Cash Provided (Used) by Operating Activities 125 (219) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Bath Iron Works (300) - Proceeds from sale of discontinued operations 22 259 Proceeds from sale of investments and other assets 11 4 Capital expenditures (22) (15) Net Cash Provided (Used) by Investing Activities (289) 248 CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (68) (62) Repurchase of stock - (19) Repayment of long-term debt - finance operations (6) (14) Repayment of long-term debt (2) (1) Proceeds from option exercises 1 14 Other - 4 Net Cash Used by Financing Activities (75) (78) NET DECREASE IN CASH AND EQUIVALENTS (239) (49) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 382 94 CASH AND EQUIVALENTS AT END OF PERIOD $ 143 $ 45 SUPPLEMENTAL CASH FLOW INFORMATION CASH PAYMENTS FOR: Federal income taxes $ 40 $ 71 Interest (including finance operations) 12 12 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 and nine month periods ended October 1, 1995, are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. 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, 1994. In the opinion of the company, the unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results for the three and nine month periods ended October 1, 1995 and October 2, 1994. (B) Acquisition On September 13, 1995, the company closed the agreement to purchase Bath Iron Works Corporation for approximately $300 in cash. Bath Iron Works is a premier builder of surface combatant ships for the U.S. Navy and has a backlog which currently includes contracts for the delivery of 11 DDG 51 destroyers. 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 has been recorded as an intangible asset related to the destroyer program and amounted to $141. The intangible asset, which is included in other assets on the Consolidated Balance Sheet, is being amortized over a 25-year period. Operating results of Bath Iron Works have been included with those of the company from the closing date. The following pro forma combined financial information presents the historical results of operations of the company and Bath Iron Works for the three and nine month periods ended October 1, 1995 and October 2, 1994, with pro forma adjustments as if Bath Iron Works had been acquired as of the beginning of the periods presented. The pro forma information is based upon certain estimates and assumptions that the company believes are reasonable in the circumstances. The pro forma information is not necessarily indicative of what the results of operations actually would have been if the transaction had occurred on the date indicated, or of future results of operations. Third Quarter Nine Months 1995 1994 1995 1994 Net Sales $ 873 $ 922 $2,812 $2,986 Earnings From Continuing Operations $ 64 $ 58 $ 196 $ 178 Per Share $ 1.01 $ .92 $ 3.10 $ 2.80 (C) Discontinued Operations Earnings from operations The operating results of discontinued operations are summarized below: Third Quarter Nine Months 1995 1994 1995 1994 Net sales $ 131 $ 130 $ 352 $ 508 Earnings before income taxes $ 28 $ - $ 48 $ - Provision for income taxes 10 - 17 - Net earnings $ 18 $ - $ 31 $ - Per Share $ .29 $ - $ .49 $ - Gain on Disposal During the third quarter of 1995, the company closed the sales of two concrete pipe yards of its Material Service business for $7 in cash. In addition, the company recognized a portion of its deferred gain from a prior disposal as a result of the favorable resolution of a contingency. The Company recognized a gain on these transactions of $11, or $.17 per share, net of income taxes of $2. During the second quarter of 1995, the company closed the sales of eight ready-mix yards of its Material Service business for $15 in cash. The company recognized a gain on disposal of $8, or $.13 per share, net of income taxes of $4. During the first six months of 1994, the company closed the sale of its Space Launch Systems business to Lockheed Martin Corporation (formerly Martin Marietta Corporation) for $209 in cash, and the sales of the lime, brick and a portion of the concrete pipe operations of its Material Service business for a total of $50 in cash. The company recognized a gain on disposal of $15, or $.24 per share, net of income taxes of $8 on these transactions. (D) Liabilities A summary of significant components of other liabilities, by current and non-current balance sheet caption, follows: October 1 December 31 1995 1994 Workers' compensation $ 230 $ 162 Salaries and wages 79 56 Accrued retirement benefits 201 50 A-12 termination liability and legal fees 45 61 Other 180 163 Other Current Liabilities $ 735 $ 492 October 1 December 31 1995 1994 Accrued costs on disposed businesses $ 298 $ 306 Coal mining related liabilities 70 73 Other 225 156 Other Liabilities $ 593 $ 535 (E) Deferred Tax Asset The company had a net deferred tax asset of $278 and $316 at October 1, 1995 and December 31, 1994, the current portion of which was $196 and $185, 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 October 1, 1995 and December 31, 1994. (F) Earnings Per Share Earnings per share are computed from the weighted average number of common shares and equivalents outstanding during each period. Common share equivalents are attributable primarily to outstanding stock options. Because there is not a material difference between primary and fully diluted earnings per share, only fully diluted earnings per share are presented. (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). On March 8, 1993, a class action lawsuit, Berchin et al vs. General Dynamics Corporation and William A. Anders, was filed in the Federal District Court for the Southern District of New York. The suit alleges violations of various provisions of the federal securities laws, fraud, negligent misrepresentation, and breach of fiduciary duty by the defendants with regard to disclosures made, or omitted with regard to the subsequent divestiture of core businesses, which disclosures were contained in the company's tender offer completed in July 1992. The company is defending itself vigorously in connection with this matter, and expects that resolution of this matter will not have a material impact on the company's financial condition or results of operations. 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 a portion of its claims for research and experimentation tax credits. 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 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 intends to defend itself in this matter, and does not expect the matter 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 fifteen 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 $105 at October 1, 1995 and December 31, 1994. 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) A-12 Termination 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 1994, is approximately $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, finding that the A-12 contract was not terminated for contractor default, but because the Office of the Secretary of Defense withdrew support and funding from the A-12. In November 1995, a trial will be held to determine whether, notwithstanding the errors committed by the U.S. Navy in terminating the A-12 contract, the contractors' performance was so seriously deficient that conversion to a termination for convenience would create an unconscionable windfall for the contractors. Specifically, in order to prevail the U. S. government must prove either that the U.S. Navy overlooked or severely misinterpreted critical information on performance failures, or that the contractors withheld, concealed, or provided misleading critical information which would have changed the Navy's attitude concerning the A-12. The company does not believe the evidence will support either theory. Remaining issues, including quantum, will be deferred until the court rules on whether a termination for convenience should be ordered. 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 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 (before tax), 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 October 1, 1995 (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 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 recent years its Tactical Military Aircraft, Missile Systems and Space Launch Systems businesses. More recently, on September 13, 1995, the company acquired Bath Iron Works Corporation. Bath Iron Works is a premier builder of surface combatant ships for the U.S. Navy, and has served as the lead shipyard for 10 of 20 classes of surface combatants built for the Navy since World War II. Their backlog includes contracts for the delivery of 11 DDG 51 destroyers. Navy plans call for the construction of an additional 25 destroyers which are expected to be allocated between Bath Iron Works and its principal competitor. As a result of the acquisition, the company has formed a new business segment, the Marine Group. This segment includes the company's Electric Boat Division, which represented the former Nuclear Submarines segment; the company's ship management operations, which were previously reported in the Other segment; and Bath Iron Works. The company continues to have an Armored Vehicles segment and an Other segment, which now principally represents its coal mining operations in the midwest. Legislative Developments Congress approved funding for long-lead activity on the third Seawolf in 1992 and for the New Attack Submarine (NSSN) development program in 1994, both of which are to be built at Electric Boat. The third Seawolf provides the level of construction activity necessary to maintain operation of all of Electric Boat's facilities until construction begins on the NSSN, which the DoD currently plans for 1998. The 1996 Defense Appropriations Conference (the Conference) Report included $700 million of the remaining $1.5 billion funding required for the third Seawolf and $1.1 billion for the NSSN. The Conference Report also provided funding for two DDG 51 destroyers. The House of Representatives voted down the Conference Report, while the Senate has yet to bring it to the floor for final passage. As a result, the Conference has been reopened in an attempt to resolve certain of the issues that led to the House action. The issues to be addressed by the Conference are not expected to affect the funding of the aforementioned programs. The U.S. Army has a stated acquisition objective to upgrade 1,079 of its M1 Abrams tanks to the M1A2 configuration by the year 2003. The first 210 units of this program have been funded. The Conference Report included approval for a multi-year program which the company believes will result in a stable five-year tank procurement. The company is confident this provision will be supported in future Conference actions. Because the anticipated procurement rate of the upgrade program is significantly less than previous domestic tank production programs, the company is seeking to supplement volumes by further expanding international sales and by participating in other armored vehicle programs. 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 October 1, 1995 and December 31, 1994. October 1 December 31 1995 1994 Marine Group $4,113 $2,486 Armored Vehicles 1,149 1,378 Other 702 698 Funded Backlog $5,964 $4,562 Total Backlog $7,836 $6,006 Funded backlog represents the total estimated remaining sales value of authorized work that has been appropriated by Congress, and authorized 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. Results of Operations The following table sets forth the net sales and operating earnings by business segment for the three and nine month periods ending October 1, 1995 and October 2, 1994: Three Month Period Nine Month Period Inc/ Inc/ 1995 1994 (Dec) 1995 1994 (Dec) NET SALES: Marine Group $ 430 $ 403 $ 27 $1,279 $1,314 $ (35) Armored Vehicles 255 277 (22) 794 912 (118) Other 33 34 (1) 101 108 (7) $ 718 $ 714 $ 4 $2,174 $2,334 $(160) OPERATING EARNINGS: Marine Group $ 47 $ 46 $ 1 $ 143 $ 149 $ (6) Armored Vehicles 35 37 (2) 106 103 3 Other (5) (6) 1 (17) (13) (4) $ 77 $ 77 $ - $ 232 $ 239 $ (7) Marine Group Net sales and operating earnings decreased during the nine month period due to decreased construction activity on the Trident and SSN 688 programs, partially offset by increased engineering and design work on the NSSN. Net sales and operating earnings increased during the three month period due to the acquisition of Bath Iron Works. This transaction has been accounted for under the purchase method of accounting, wherein an intangible asset related to the destroyer program of $141 million was recognized and is being amortized over a 25-year period. The operating results of Bath Iron Works have been included with those of the company from the closing date. The inclusion of two weeks of Bath Iron Works' results in the results of the quarter more than offset the volume decrease at Electric Boat. As long-term programs near completion and risks are removed, and the benefits of cost reduction efforts are realized, the company regularly assesses their estimated earnings at completion. Based on this assessment, the earnings rate on the Trident program was increased in the second quarter of 1995. Previously, the earnings rates on both the SSN 688 and Trident programs were increased in the third quarter of 1994. These earnings rate increases also partially offset the decrease in net sales and operating earnings resulting from decreased construction volume. Armored Vehicles Net sales and operating earnings decreased during the three month period due primarily to decreased M1 tank production. Net sales decreased during the nine month period also due primarily to decreased M1 tank production, as well as related spare parts and engineering work. Operating earnings increased during the nine month period due to the increase in the earnings rates on the M1 and Single Channel Ground and Airborne Radio System programs in the third quarter of 1994, which more than offset the aforementioned volume decrease. Interest, Net Interest income (net of interest expense) increased due to the significant increase in the average balance of cash and marketable securities held by the company during the comparative three and nine month periods, as well as an increase in the interest rates on the company's investments. Discontinued Operations Earnings from discontinued operations in 1995 are attributable primarily to the MD-11 program at the company's Commercial Aircraft Subcontracting business. Previously, the company had ceased earnings recognition on the MD-11 program due to uncertainties surrounding its completion. As a result of resolving these and other matters related to the shut-down of the operations, the company began recognizing earnings on the program once again in the second quarter of 1995. Discussed in Note C to the Consolidated Financial Statements are several transactions which occurred during the nine months ended October 1, 1995 and October 2, 1994 involving the disposal of discontinued operations. New Accounting Standard In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires the adjustment of 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 is required to adopt the provisions of this standard on January 1, 1996 and is currently studying its impact. Financial Condition Operating Activities Net cash provided by continuing operations increased this year over last year due primarily to the decrease in the amount of cash used for investment in marketable securities, and the increase in proceeds from investment income. Net cash provided by discontinued operations increased this year over last year due primarily to the receipt of scheduled payments by the company's Commercial Aircraft Subcontracting business in accordance with the terms of the termination agreement with McDonnell Douglas Corporation. 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 Bath Iron Works Corporation on September 13, 1995 for $300 in cash. Also previously discussed, the company has sold the assets of several businesses during the nine month periods ended October 1, 1995 and October 2, 1994. The proceeds from these transactions are reported as proceeds from sale of discontinued operations in the Consolidated Statement of Cash Flows. Financing Activities The company's Board of Directors increased the regular quarterly dividend on the company's common stock from $0.30 to $0.35 per share and from $0.35 to $0.375 per share in March 1994 and March 1995, respectively. During the second quarter of 1994, the company repurchased approximately 450,000 shares of its stock on the open market for a total of $19. 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 $300 line of credit. PART II GENERAL DYNAMICS CORPORATION OTHER INFORMATION October 1, 1995 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 August 17, 1995, the company reported to the Securities and Exchange Commission (SEC) under Item 5, Other Events, that on that day the company had reached an agreement to acquire all the outstanding shares of Bath Iron Works Corporation for $300 million in cash. On September 28, 1995, the company reported to the SEC under Item 2, Acquisition or Disposition of Assets, that on September 13, 1995 the company had acquired all the outstanding shares of Bath Iron Works Corporation. Included in the filing were the separate financial statements of Bath Iron Works and pro forma combined financial information. 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 Controller (Principal Accounting Officer) Dated November 3, 1995 EX-11 2 EXHIBIT Exhibit 11, 3rd Quarter 1995 Form 10-Q, Commission File Number 1-3671 GENERAL DYNAMICS CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) (Dollars in millions, except per share data) Third Quarter Nine Months 1995 1994 1995 1994 NET EARNINGS: Continuing Operations $ 62 $ 54 $ 183 $ 165 Discontinued Operations: Earnings from operations 18 - 31 - Gain on disposal 11 - 19 15 $ 91 $ 54 $ 233 $ 180 Weighted average common shares outstanding 62,968,276 63,076,884 62,973,350 63,074,088 NET EARNINGS PER SHARE - PRIMARY: Continuing Operations $ .98 $ .85 $ 2.90 $ 2.60 Discontinued Operations: Earnings from operations .29 - .49 - Gain on disposal .17 - .30 .24 $ 1.44 $ .85 $ 3.69 $ 2.84 Common shares from above 62,968,276 63,076,884 62,973,350 63,074,088 Assumed exercise of options 269,797 219,609 196,759 403,654 (treasury stock method) 63,238,073 63,296,493 63,170,109 63,477,742 NET EARNINGS PER SHARE - FULLY DILUTED: Continuing Operations $ .98 $ .85 $ 2.89 $ 2.60 Discontinued Operations: Earnings from operations .29 - .49 - Gain on disposal .17 - .30 .24 $ 1.44 $ .85 $ 3.68 $ 2.84 Common shares from above 62,968,276 63,076,884 62,973,350 63,074,088 Assumed exercise of options 347,257 224,157 347,257 405,013 (treasury stock method) 63,315,533 63,301,041 63,320,607 63,479,101 EX-27 3 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of October 1, 1995, and the related Consolidated Statement of Earnings for the nine months ended October 1, 1995 and is qualified in its entirety to such financial statements. 1,000,000 QTR-3 DEC-31-1995 OCT-01-1995 143 850 121 0 599 1970 1234 817 3117 858 38 90 0 0 1390 3117 2174 2174 1942 1942 0 0 4 278 95 183 50 0 0 233 3.69 3.68
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