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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3671
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1673581
- -------- ----------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
- ------------------------------------------------ ----------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (703) 876-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- ------------------------
Common Stock, Par Value $1 Per Share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K.
---
The aggregate market value of the voting common equity held by
nonaffiliates of the registrant was $6,468,954,567 at March 8, 1999.
127,400,863 shares of the registrant's common stock were outstanding at March 8,
1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and II incorporate information from certain portions of the
registrant's Annual Report to security holders for the fiscal year ended
December 31, 1998 (the 1998 Annual Report).
Part III incorporates information from certain portions of the
registrant's definitive Proxy Statement for the 1999 annual meeting of
shareholders to be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year.
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GENERAL DYNAMICS CORPORATION
INDEX
PART I PAGE
----
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Supplementary
Item. Executive Officers of the Registrant 10
PART II
Item 5. Market for the Company's Common Equity and
Related Stockholder Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 12
PART III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
SIGNATURES 15
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Certain sections of this Annual Report on Form 10-K contain forward-looking
statements that are based on management's expectations, estimates, projections
and assumptions. Words such as "expects," "anticipates," "plans," "believes,"
"estimates," variations of these words and similar expressions are intended to
identify forward-looking statements which include but are not limited to
projections of revenues, earnings, segment performance, cash flows, contract
awards and the company's expectations regarding the upcoming year 2000.
Forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These statements are not
guarantees of future performance and involve certain risks and uncertainties,
which are difficult to predict. Therefore, actual future results and trends may
differ materially from what is forecast in forward-looking statements due to a
variety of factors, including, without limitation: the company's successful
execution of internal performance plans; performance issues with key suppliers
and subcontractors; the status or outcome of legal proceedings; the status or
outcome of labor negotiations; changing priorities or reductions in the U.S.
government defense budget; termination of government contracts due to unilateral
government action; and the timing and occurrence (or non-occurrence) of
circumstances beyond the company's control.
PART I
ITEM 1. BUSINESS
INTRODUCTION
The primary business of General Dynamics Corporation (the company) is
supplying sophisticated defense systems to the United States and its allies. The
company is a Delaware corporation formed in 1952 as successor to the Electric
Boat Company. Two of the company's primary operating units, General Dynamics
Land Systems Inc. and Bath Iron Works Corporation, were acquired in 1982 and
1995, respectively. On January 1, 1997, the company acquired the assets of
Defense Systems and Armament Systems, formerly operating units of Lockheed
Martin Corporation. On October 1, 1997, the company acquired the assets of
Advanced Technology Systems, formerly an operating unit of Lucent Technologies.
On December 31, 1997, the company acquired the assets of three operating units
which formerly comprised Computing Devices International of Ceridian
Corporation: General Dynamics Information Systems, Inc., Computing Devices
Canada Ltd., and Computing Devices Company Limited in the United Kingdom. On
June 30, 1998, the company acquired the assets of Computer Systems &
Communications Corporation. On August 31, 1998, the company acquired the assets
of Caldwell Cable Ventures, Inc., which operates as a subsidiary of Advanced
Technology Systems. On November 10, 1998, the company acquired control of NASSCO
Holdings Incorporated (NASSCO), whose wholly owned subsidiaries include National
Steel and Shipbuilding Company. For more information regarding the company's
acquisitions during 1998 and 1997, see Note C to the Consolidated Financial
Statements on page 31 of the 1998 Annual Report, filed as Exhibit 13 to this
Annual Report on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference. During the period 1992 through 1994, the
company divested its tactical military and commercial aircraft, missile systems
and space launch systems businesses.
The company currently operates in the following business segments: Marine
Systems, Combat Systems, Information Systems and Technology and Other. Marine
Systems includes Electric Boat Corporation (Electric Boat), Bath Iron Works
Corporation (BIW), American Overseas Marine Corporation (AMSEA), General
Dynamics Defense Systems, Inc. (Defense Systems) and National Steel and
Shipbuilding Company. In the first quarter of 1999, Defense Systems will be
moved to the Information Systems and Technology segment. Combat Systems includes
General Dynamics Land Systems Inc. (Land Systems) and General Dynamics Armament
Systems, Inc. (Armament Systems). Information Systems and Technology includes
General Dynamics Advanced Technology Systems, Inc. (ATS), General Dynamics
Information Systems, Inc. (GDIS), Computing Devices Canada Ltd., Computing
Devices Company Limited in the United Kingdom, and Computer Systems &
Communications Corporation (CSCC). The Other business segment includes Freeman
Energy Corporation (Freeman Energy), Material Service Corporation (Material
Service), and Patriot I, II and IV Shipping Corps. (Patriots). Information on
revenues, operating profit or loss and identifiable assets attributable to each
of the company's business segments is included in Note S to the Consolidated
Financial Statements on page 42 of the 1998 Annual Report, filed as Exhibit 13
to this Annual Report on Form 10-K for the year ended December 31, 1998, and is
incorporated herein by reference. A description of the company's products and
services, competition, and other related information follows.
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PRODUCTS AND SERVICES
MARINE SYSTEMS
Net Sales (in millions) 1998 1997 1996
------------ ------------ ------------
Nuclear Submarines $ 1,381 $ 1,321 $ 1,443
Surface Combatants 936 839 791
Other 349 151* 98
------------ ------------ ------------
$ 2,666 $ 2,311 $ 2,332
============ ============ ============
* Marine Systems net sales for 1997 include the fourth quarter net
sales of ATS. In 1998, the net sales of ATS are reported in the
Information Systems and Technology segment.
Electric Boat designs, builds and supports nuclear submarines for the
U.S. Navy, having contracts for the construction of the final Seawolf-class
attack submarine and of the first four ships of the Virginia-class submarine,
formerly known as the New Attack Submarine. Construction work on the
Virginia-class will be shared equally with Electric Boat as the prime contractor
and Newport News Shipbuilding Inc. in the role of subcontractor. In addition to
nuclear submarine design and construction, Electric Boat performs a broad range
of engineering work, including advanced research and technology development,
systems and component design evaluation, prototype development and logistics
support to the operating fleet. Electric Boat also serves as ship integrator for
certain components and subassemblies of the submarines, such as electronic
equipment.
To date, BIW has been awarded contracts for the construction of 27
Arleigh Burke class destroyers (DDG 51), 13 of which remain in backlog at
December 31, 1998. BIW plays a lead role in providing design, engineering, and
ongoing life cycle support services for DDG 51 class ships. BIW is a member of a
three-contractor team which was awarded a contract in 1996 to design and build
the Navy's new class of amphibious transport ships (LPD 17). BIW is also a
member of a two-contractor Shipbuilder Alliance which was awarded a contract in
1998 for the first phase of system concept design work for the next generation
surface combatant ships (DD 21). BIW will serve as the Alliance prime contractor
for the first phases of the DD 21 program, will lead one of the Alliance's two
competing design teams and is expected to share equally with Ingalls
Shipbuilding, a division of Litton Industries, Inc., in the production of the DD
21 ships.
AMSEA provides ship management services for five of the U.S. Navy's
Maritime Prepositioning Ships (MPS), nine of the U.S. Maritime Administration's
Ready Reserve Force ships (RRF) and two U.S. Maritime Army War Reserve vessels
(AWR). The MPS are under five-year contracts of which three were renewed in
1995, and two were renewed in 1996. These contracts are renewable through the
year 2011. The RRF ships are currently operating under an extension of their
original five-year contract. The MPS vessels operate worldwide; the RRF and AWR
vessels are located on the east, gulf and west coasts of the United States.
Defense Systems is the lead provider of Trident Fire Control Systems and
complete life cycle management of complex electronic systems for the U.S. and
U.K. Navies. Defense Systems' TechSight business unit provides automated
maintenance and diagnostics systems for the automotive, aircraft and
manufacturing industries, and web-based training and certification in the
medical, financial, legal and educational fields.
National Steel and Shipbuilding Company designs and builds auxiliary
ships for the U.S. Navy, having contracts for the design and construction of
seven strategic sealift ships, five of which remain in backlog at December 31,
1998. In addition, it is a West Coast ship repair facility for the U.S. Navy and
has expertise in commercial shipbuilding.
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COMBAT SYSTEMS
Net Sales (in millions) 1998 1997 1996
------------- ------------- -------------
Armored Vehicles $ 915 $ 960 $ 889
Ordnance 257 265 -
Other 100 284 137
------------- ------------- -------------
$ 1,272 $ 1,509 $ 1,026
============= ============= =============
Land Systems designs and manufactures the M1 Series Abrams Main Battle
Tank for the U.S. Army and various foreign governments. Land Systems also
performs engineering and upgrade work, and provides support for existing armored
vehicles. Production of the M1A2, the latest version of the M1, was initiated in
1992. Land Systems is currently in its fourth year of production in a five-year
multiyear contract with the U.S. Army to upgrade approximately 600 tanks from
the M1 to the M1A2 version.
Land Systems is also under contract for the development of several other
major armored vehicle programs. The U.S. Marine Corps selected and awarded Land
Systems a development contract for the Advanced Amphibious Assault Vehicle
(AAAV), including prototype design and construction. Three prototypes are
currently under contract. The Army selected Land Systems for the Wolverine Heavy
Assault Bridge program which is currently under development and is expected to
enter production late in 2000. Land Systems also continues work on the Army's
Crusader Self-Propelled Howitzer development program of which the company's
share of the program is approximately 25 percent.
Certain of Defense Systems' product lines were transferred to Land
Systems during 1998, including the manufacture of light armored vehicles, and
turrets and transmissions for armored vehicles for the U.S. Army and foreign
governments.
Armament Systems designs, develops and produces advanced gun and
ammunition handling systems for applications on various land, sea and air
platforms. Armament Systems is also a leader in the production of ammunition
products. Armament Systems is the sole producer of the Hydra 70 2.75"
air-to-ground rocket, having produced over 600,000 to date. In October 1998,
Armament Systems formed a joint venture with Mason & Hanger Corporation that
consolidated two of the U.S. Army's largest ammunition production facilities.
Previously a consolidated subsidiary, the company's Milan Army Ammunition Plant
is now part of the unconsolidated joint venture, American Ordnance L.L.C.
INFORMATION SYSTEMS AND TECHNOLOGY
This segment was formed effective January 1, 1998, following the
acquisitions of ATS and the three operating units formerly of Computing Devices
International. The net sales of ATS for the fourth quarter of 1997 were reported
in the Marine Systems segment. Net sales (in millions) for 1998 for this segment
were as follows:
Communications Systems $ 214
Avionics 204
Commercial 132
Maritime 110
Other 136
----------
$ 796
==========
ATS provides undersea surveillance systems as well as special purpose
signal and information processors for the U.S. Navy. ATS also provides vibration
reduction technologies for the elimination of radiant noise and engine fatigue
on various platforms. ATS designs command, communications, control and
intelligence systems and network architecture solutions for the DD 21 and the
LPD 17 class of ships. ATS also designs and builds power feed and terminal
transmission equipment for the commercial undersea fiber-optic communications
market. Caldwell Cable Ventures, Inc. provides underwater cable installation
services to the commercial telecommunications and utilities markets.
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GDIS provides information processing systems for airborne, land-based,
seaborne, and space-based platforms, as well as information management services
for the U.S. government. Contract manufacturing services, provided by the
company to defense and commercial electronics contractors, was transferred to
ATS during 1998.
Computing Devices Canada Ltd. is the systems integrator on the IRIS
program, whose objective is to modernize and fully digitize the tactical
command, control and communications systems of the Canadian land forces. In
addition, it provides advanced systems products in the areas of maritime
surveillance, land based vetronics and display systems.
Computing Devices Company Limited in the United Kingdom provides and
supports electronics technology for airborne, ground and naval systems, and has
the second largest U.K. share of the European Fighter Aircraft avionics
equipment market.
CSCC provides systems integration and communication services for the U.S.
Department of Defense and other NATO countries.
OTHER
Net Sales (in millions) 1998 1997 1996
------------ ------------ ------------
Aggregates $ 123 $ 110 $ 87
Coal Mining 88 107 111
Other 25 25 25
------------ ------------ ------------
$ 236 $ 242 $ 223
============ ============ ============
Material Service is engaged in the mining and sale of aggregates (stone,
sand and gravel) for use in the construction of highways and other
infrastructure projects, and for commercial and residential building
construction primarily in northern and central Illinois. This business is
cyclical and seasonal in nature.
Freeman Energy mines coal, producing approximately 4-5 million tons in
each of the last three years. Freeman Energy owns or leases rights to over 600
million tons of coal reserves in Illinois.
Patriots are financing subsidiaries that lease liquefied natural gas
tankers to a nonaffiliated company.
COMPETITION
Historically, competition for U.S. government defense contracts was
characterized by a number of major companies competing for a variety of weapon
system contracts. The customer's procurement policy generally required
competitive bids based on strict product specifications. In addition, the
customer often awarded contracts to more than one company in order to ensure
competition on subsequent contracts.
In recent years, because of reduced defense spending, the industry has
consolidated through mergers and acquisitions to maintain critical mass,
resulting in fewer and larger competitors. With fewer but more complex programs
in competition, companies frequently have formed strategic alliances to pursue
these programs. The Department of Defense faces challenges due to the reduction
in available procurement funds as it must address industrial base issues while
assessing competing needs between and among the various branches of the service.
Finally, Congress continues to be very influential in its role of selecting
which programs to fund and at what level based on limited budget dollars. As a
result, the defense procurement policy is evolving and will be affected by these
various and sometimes conflicting factors.
A discussion of competition on individual programs is included in
Management's Discussion and Analysis of the Results of Operations and Financial
Condition on pages 20 through 25 of the 1998 Annual Report, filed as Exhibit 13
to this Annual Report on Form 10-K and incorporated herein by reference.
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U.S. GOVERNMENT CONTRACTS
The company's primary customer is the U.S. government. Net sales to the
U.S. government include Foreign Military Sales (FMS), which are sales to foreign
governments through the U.S. government, whereby the company contracts with and
receives payment from the U.S. government and the U.S. government assumes the
risk of collection from the customer. Historically, the company's largest FMS
sales are M1 tanks and related services, including training in operation and
maintenance, and other logistical support. U.S. government sales were as follows
(dollars in millions):
Year Ended December 31
---------------------------------------
1998 1997 1996
------ ------ ------
Domestic $3,986 $3,485 $3,051
FMS 175 166 261
------ ------ ------
Total U.S. government $4,161 $3,651 $3,312
====== ====== ======
Percent of net sales 84% 90% 92%
All U.S. government contracts are terminable at the convenience of the
U.S. government, as well as for default. Under contracts terminable at the
convenience of the U.S. government, a contractor is entitled to receive payments
for its allowable costs and, in general, the proportionate share of fees or
earnings for the work done. Contracts which are terminated for default generally
provide that the U.S. government only pays for the work it has accepted and may
require the contractor to pay for the incremental cost of reprocurement and may
hold the contractor liable for damages. In 1991, the U.S. Navy terminated for
default a contract with the company and McDonnell Douglas Corporation, now owned
by the Boeing Company, for the full-scale development of the U.S. Navy's A-12
aircraft. On February 23, 1998, a final judgment was entered in favor of the
contractors for $1,200 million plus interest. The U.S. government filed an
appeal in the U.S. Court of Appeals for the Federal Circuit. The U.S. government
seeks reversal of the judgment and a remand to the trial court for a full trial
on the merits. The appeal has been briefed and argued. For further discussion,
see Note P to the Consolidated Financial Statements on page 37 of the 1998
Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K and
incorporated herein by reference.
Companies engaged in supplying goods and services to the U.S. government
are dependent on congressional appropriations and administrative allotment of
funds, and may be affected by changes in U.S. government policies resulting from
various military and political developments. U.S. government defense contracts
typically involve long lead times for design and development, and are subject to
significant changes in contract scheduling. Often the contracts call for
successful design and production of very complex and technologically advanced
items.
FOREIGN SALES AND OPERATIONS
The major portion of sales and operating earnings of the company for the
past three years was derived from operations in the United States. Although the
company purchases supplies from and subcontracts with foreign companies, it had
no substantial operations in foreign countries until the acquisition of
Computing Devices Canada Ltd. and Computing Devices Company Limited in the
United Kingdom at the end of 1997. Direct foreign sales, including international
operations, were $413 million, $132 million and $38 million in 1998, 1997 and
1996, respectively.
SUPPLIES
Many items of equipment and components used in the production of the
company's products are purchased from other manufacturers. The company is
dependent upon suppliers and subcontractors for a large number of components and
the ability of its suppliers and subcontractors to meet performance and quality
specifications and delivery schedules. In some cases the company is dependent on
one or a few sources, either because of the specialized nature of a particular
item or because of domestic preference requirements pursuant to which it
operates on a given project.
All of the company's operations are dependent upon adequate supplies of
certain raw materials, such as aluminum and steel, and on adequate supplies of
fuel. Fuel or raw material shortages could also have an adverse effect on the
company's suppliers, thus impairing their ability to honor their contractual
commitments to the company. The company has not experienced serious shortages in
any of the raw materials or fuel supplies that are necessary for its production
programs.
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RESEARCH AND DEVELOPMENT
Research and development activities in Marine Systems, Combat Systems and
Information Systems and Technology are conducted principally under U.S.
government contracts. These research efforts have been and continue to be
concerned with developing products for large systems development programs or
performing work under research and development technology contracts. Beginning
in 1996, the company experienced a decline in customer sponsored expenditures
for research and development due primarily to the Virginia class submarine
program at Electric Boat moving to the design phase. Each of the company's
defense businesses also engages in independent research and development, of
which a significant portion is recovered through overhead charges to U.S.
government contracts. The increase in company-sponsored research and
development is directly related to the 1998 acquisitions included in the
Information Systems and Technology segment.
The table below details expenditures for research and development
(dollars in millions):
Year Ended December 31
---------------------------------
1998 1997 1996
---- ---- ----
Company-sponsored $ 93 $ 55 $ 38
Customer-sponsored 52 58 89
---- ---- ----
$145 $113 $127
==== ==== ====
BACKLOG
Summary backlog information (in millions) for each business segment
follows:
1998 Backlog
December 31 Not Expected to
------------------------------------- Be Filled
1998 1997 in 1999
------------- ------------- ---------------
Marine Systems $ 11,728 $ 5,864 $ 9,077
Combat Systems 1,579 2,323 510
Information Systems and Technology 729 805 165
Other 562 607 491
-------------- -------------- --------------
Total Backlog $ 14,598 $ 9,599 $ 10,243
============== ============== ==============
Funded Backlog $ 7,292 $ 6,796 $ 3,510
============== ============== ==============
Total backlog represents the estimated remaining sales value of work to
be performed under firm contracts. Funded backlog represents the portion of
total backlog that has been appropriated by Congress and funded by the procuring
agency. To the extent backlog has not been funded, there is no assurance that
congressional appropriations or agency allotments will be forthcoming. Total
backlog also includes amounts for long-term coal contracts. For further
discussion, see Management's Discussion and Analysis of the Results of
Operations and Financial Condition on pages 20 through 25 of the 1998 Annual
Report, filed as Exhibit 13 to this Annual Report on Form 10-K and incorporated
herein by reference.
ENVIRONMENTAL CONTROLS
The 1990 Clean Air Act (the Act) had a significant impact on Freeman
Energy. The Act requires, among other things, a phased reduction in sulfur
dioxide emissions by coal burning facilities. Virtually all of the coal in
Freeman Energy's Illinois basin mines has medium or high sulfur content. Freeman
Energy's two long-term contract customers have clean coal technologies which
allow for utilization of Freeman Energy's coal under the new regulations.
Freeman Energy has targeted customers with clean coal technology to mitigate the
impact of regulations in the near term. The long-term impact of the Act is not
known.
Federal, state and local requirements relating to the discharge of
materials into the environment and other factors affecting the environment have
had and will continue to have an impact on the manufacturing operations of the
company. Thus far, compliance with the requirements has been accomplished
without material effect on the company's capital expenditures, earnings or
competitive position. While it is expected that this will continue to be the
case, the company cannot assess the possible effect of compliance with future
requirements. Additional information relating to the impact of environmental
controls is included under the caption "Environmental" in Note O to the
Consolidated Financial Statements on page 37 of the 1998 Annual Report, filed as
Exhibit 13 to this Annual Report on Form 10-K, and is incorporated herein by
reference.
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PATENTS
Numerous patents and patent applications are owned by the company and
utilized in its development activities and manufacturing operations. In many
cases, however, the U.S. government has an irrevocable, non-exclusive,
royalty-free license, pursuant to which the government may use or authorize
others to use the inventions covered by the patents. Pursuant to similar
arrangements, the government may consent to the company's use of inventions
covered by patents owned by other persons. Patents and licenses are important
in the operation of the company's business, as one of management's key
objectives is developing and providing its customers with advanced
technological solutions.
EMPLOYEES
At December 31, 1998, the company had approximately 31,000 employees
(excluding contract labor), of whom 42 percent were covered by collective
bargaining agreements with various unions, the most significant of which are the
International Association of Machinists and Aerospace Workers, the Marine
Draftsmen's Association, the Metal Trades Council (MTC) of New London,
Connecticut, the United Auto Workers Union and the United Mine Workers of
America. Several agreements are due to expire during 1999, the most significant
of which is the Marine Draftsmen's Association.
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ITEM 2. PROPERTIES
PRINCIPAL BUSINESS SEGMENTS. A summary of floor space at the main facilities of
the Marine Systems, Combat Systems, and Information Systems and Technology
segments follows (square feet in millions):
COMPANY GOVERNMENT
OWNED LEASED FURNISHED
FACILITIES FACILITIES FACILITIES TOTAL
--------------- --------------- ---------------- ------------
MARINE SYSTEMS:
Electric Boat
Groton, Connecticut (Shipyard) 2.8 .1 2.9
Quonset Point, Rhode Island (Plant/Warehouse) 0.4 1.1 1.5
Avenel, New Jersey (Land/Plant) 0.4 0.4
Bath Iron Works
Bath, Maine (Shipyard) 1.1 1.1
East Brunswick, Maine (Warehouse) 0.6 0.6
Portland, Maine (Shipyard) 0.1 0.1
National Steel and Shipbuilding
Company
San Diego, California (Shipyard) 0.2 6.0 6.2
Defense Systems
Pittsfield, Massachusetts (Labs) 0.1 0.8 0.9
--------------- --------------- ---------------- ------------
TOTAL MARINE SYSTEMS 5.5 7.4 0.8 13.7
=============== =============== ================ ============
COMBAT SYSTEMS:
Land Systems
Lima, Ohio (Plant) 1.6 1.6
Muskegon, Michigan (Plant) 1.0 0.1 1.1
Scranton, Pennsylvania (Plant) 0.3 0.3
Woodbridge, Virginia (Office) 0.1 0.1
Tallahassee, Florida (Plant/Office) 0.1 0.1
Sterling Heights, Michigan (Warehouse) 0.6 0.6
Anniston, Alabama (Plant/Warehouse) 0.1 0.1
Imperial, California (Plant/Warehouse) 0.1 0.1
Shelby Township, Michigan (Plant) 0.2 0.2
Armament Systems
Burlington, Vermont (Plant/Office) 0.6 0.6
--------------- --------------- ---------------- ------------
TOTAL COMBAT SYSTEMS 2.5 0.6 1.7 4.8
=============== =============== ================ ============
INFORMATION SYSTEMS AND TECHNOLOGY:
GDIS
Bloomington, Minnesota (Office) 0.5 0.5
Computing Devices Canada Ltd.
Ottawa, Ontario (Office/Plant) 0.2 0.1 0.3
Calgary, Alberta (Office) 0.2 0.2
ATS
Greensboro, North Carolina (Factory) 0.1 0.3 0.4
Whippany, New Jersey (Office/Labs) 0.2 0.2
--------------- --------------- ---------------- ------------
TOTAL INFORMATION SYSTEMS AND TECHNOLOGY 0.7 0.9 0.0 1.6
=============== =============== ================ ============
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BIW began in 1997 a $200 million project to construct a fifteen acre land
level transfer facility and manufacturing support center, and a 750-foot
dry-dock in Bath, Maine to improve productivity.
OTHER. Freeman Energy operates two underground coal mines and one surface
coal mine in Illinois. Coal preparation facilities and rail loading facilities
are located at each mine sufficient for its output. Material Service operates
several stone quarries, as well as sand and gravel pits and yards in the
Chicago, Illinois area for its aggregates business.
REAL ESTATE HELD FOR DEVELOPMENT. As part of the sale of businesses,
certain related properties were retained by the company. These properties have
been segregated on the Consolidated Balance Sheet as real estate held for
development. The company developed plans and marketing efforts which are
intended to maximize the market value of these properties. In 1997, two
buildings and 55 acres in Rancho Cucamonga were sold. In 1998, a 232-acre site
in the Kearny Mesa section of San Diego was sold. The remaining properties
include approximately 2,200 acres in Sycamore Canyon, San Diego, California and
308 acres in Rancho Cucamonga, California. Most of this property is undeveloped.
The company owns approximately 20,000 square feet of building space at Rancho
Cucamonga and approximately 200,000 square feet of building space at Sycamore
Canyon.
GENERAL. The company believes that its main facilities are adequate for
the present needs of the company and its subsidiaries and, as supplemented by
planned improvements and construction, are expected to remain adequate for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The information under the captions "Litigation" and "Environmental" in
Note O and the information in Note P to the Consolidated Financial Statements
appearing on pages 35 through 37 of the 1998 Annual Report, included in this
Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in
response to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the company's security holders
during the fourth quarter of the year ended December 31, 1998.
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SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, offices and positions held for the last five years of the
company's executive officers who are not directors are as follows:
AGE AT
DECEMBER 31
NAME, POSITION AND OFFICE 1998
------------------------- -----------
David D. Baier -- Vice President Taxes since August 1995; Staff Vice President Taxes 44
March 1994 -- August 1995; Corporate Tax Counsel and Director of Planning
and Litigation September 1991 -- March 1994
G. Kent Bankus -- Vice President Government Relations since April 1993; Staff Vice President 56
Aerospace Programs and Field Offices July 1991 -- April 1993
Allan C. Cameron -- Vice President of the company and President of Bath Iron Works since 52
March 1996; Executive Vice President and Chief Operating Officer of Bath Iron Works
July 1994 -- March 1996; Facility Manager of Electric Boat May 1993 -- June 1994
Gordon R. England -- Executive Vice President since March 1997; President - Lockheed Martin 61
Corporation Fort Worth March 1993 -- March 1995; Executive Vice President of the company and
President - Aircraft Systems of the company's Fort Worth Division August 1992 -- March 1993
James I. Finley -- Vice President of the company and President of General Dynamics Information 52
Systems since January 1998; Vice President of Government Information Systems November 1995 --
December 1997; Vice President Programs and Engineering, Westinghouse/United
Technologies 1990 -- October 1995
David H. Fogg -- Vice President and Treasurer since March 1998; Staff Vice President and 43
Treasurer November 1994 -- March 1998; Staff Vice President and Assistant Treasurer
May 1994 -- November 1994; Corporate Director of Finance and Assistant Treasurer
January 1994 -- May 1994
Kenneth A. Hill -- Vice President Information Technology since April 1997; Staff Vice President 49
Personnel Relations November 1994 -- April 1997; Director Salaried Compensation
March 1989 -- November 1994
Raymond E. Kozen -- Vice President Planning and Analysis since March 1997; Staff Vice President 57
for Special Projects December 1987 -- March 1997
Kenneth J. Leenstra -- Vice President of the company and President of Armament Systems 61
since February 1997; President of Armament Systems - Lockheed Martin Corporation
January 1990 -- January 1997
Michael J. Mancuso -- Senior Vice President and Chief Financial Officer 56
since March 1997; Vice President and Chief Financial Officer November 1994 --
March 1997; Vice President and Controller May 1994 -- November 1994; Division
Vice President and Chief Financial Officer of Land Systems September 1993 -- May 1994;
Charles E. McQueary -- Vice President of the company and President of Advanced 59
Technology Systems since October 1997; President - Advanced Technology
Systems, AT&T/Lucent Technologies January 1994 -- September 1997
10
13
AGE AT
DECEMBER 31
NAME, POSITION AND OFFICE 1998
------------------------- -----------
Kendell M. Pease -- Vice President Communications since May 1998; Admiral and Chief 54
Information Officer, U.S. Navy, August 1992 -- May 1998
David A. Savner -- Senior Vice President - Law and Secretary since April 1998; Senior Partner 54
of Jenner & Block May 1987 -- March 1998
Daniel P. Schmutte -- Vice President of the company and President of Defense Systems 48
since February 1997; Vice President Operations August 1995 -- February 1997;
Staff Vice President and Assistant to the President/Chief Executive Officer
June 1993 -- August 1995
John W. Schwartz -- Vice President and Controller since March 1998; Staff Vice President 42
and Controller November 1994 -- March 1998; Corporate Director of Accounting
July 1992 -- November 1994
David E. Scott -- Vice President of the company and President of Computing Devices 53
Canada since February 1998; President Computing Devices Canada June 1997 --
January 1998; Vice President Communications Division November 1990 -- May 1997
James E. Turner, Jr. -- President and Chief Operating Officer since June 1997; 64
Executive Vice President of the Marine Group October 1995 -- June 1997;
Executive Vice President of the company and President of Electric Boat
April 1993 --October 1995
Arthur J. Veitch -- Vice President of the company and President of Land Systems since 52
February 1997; Vice President of the company and Senior Operating Officer of
Land Systems August 1995 -- February 1997; Division Vice President and General Manager
of the company's Convair Division August 1992 -- August 1995
Richard H. Vortmann -- Vice President of the company and President of NASSCO since 54
February 1999; President, Chief Executive Officer and Chairman of the Board of NASSCO
April 1989 -- February 1999
John K. Welch -- Vice President of the company and President of Electric Boat since 48
October 1995; Division Vice President Programs and Planning of Electric
Boat April 1994 -- October 1995; Division Vice President Program
Management and Development of Electric Boat June 1989 -- April 1994
W. Peter Wylie -- Vice President Human Resources and Administration since August 1995; 59
Group Vice President - Hughes Missile Systems Company August 1992 -- December 1994
Michael W. Wynne -- Senior Vice President International, Planning and Business Development 54
since March 1997; Vice President and General Manager of Lockheed Martin, Martin
Marietta Astronautics Division May 1994 -- February 1997; Vice President of the
company and President of the Space Systems Division August 1992 -- May 1994
All executive officers of the company are elected annually. No executive officer
of the company was selected pursuant to any arrangement or understanding between
the officer and any other person.
11
14
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The company's common stock is listed on the New York Stock Exchange,
Chicago Stock Exchange and Pacific Stock Exchange.
On August 31, 1998, the company issued 157,283 shares of common stock to
James D. Caldwell in connection with the company's acquisition of Caldwell's
Diving Company, Inc. and Cable Ventures Inc. (now known as Caldwell Cable
Ventures, Inc.). Up to an additional 15,503 shares of common stock may be
issued to Mr. Caldwell upon completion of post-closing financial statements for
the acquired businesses. In connection with these share issuances, the company
claims exemption from registration under Section 4(2) of the Securities Act of
1933, as amended, based on the fact that the transaction did not involve any
public offering of securities.
The high and low sales price of the company's common stock and the cash
dividends declared with respect to the company's common stock for each quarterly
period during the two most recent fiscal years are included in Note T to the
Consolidated Financial Statements appearing on page 42 of the 1998 Annual
Report, included in this Annual Report on Form 10-K as Exhibit 13, and are
incorporated herein by reference.
There were 19,904 holders of record of the company's common stock at
December 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The "Selected Financial Data" appearing on page 44 of the 1998 Annual
Report, included in this Annual Report on Form 10-K as Exhibit 13, is
incorporated herein by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The "Management's Discussion and Analysis of the Results of Operations
and Financial Condition" appearing on pages 20 through 25 of the 1998 Annual
Report, included in this Annual Report on Form 10-K as Exhibit 13, is
incorporated herein by reference in response to this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
The information appearing under the caption "Market Risk" on page 24 of
the 1998 Annual Report, included in this Annual Report on Form 10-K as Exhibit
13, is incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Notes to the Consolidated
Financial Statements and Report of Independent Public Accountants appearing on
pages 26 through 43 of the 1998 Annual Report, included in this Annual Report on
Form 10-K as Exhibit 13, are incorporated herein by reference in response to
this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
12
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth herein, except for a list of the
executive officers other than directors that is provided in Part I of this
report, is included in the sections entitled "Board of Directors of the Company"
and "Other Information - Section 16(a) Beneficial Ownership Reporting
Compliance" in the company's definitive Proxy Statement, which sections are
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be set forth herein is included in the
sections entitled "Board of Directors of the Company" and "Executive
Compensation" in the company's definitive Proxy Statement, which sections are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be set forth herein is included in the
section entitled "Ownership of Common Stock by the Principal Shareholders and
Management" in the company's definitive Proxy Statement, which section is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth herein is included in the
section entitled "Board of Directors of the Company -Transactions Involving
Directors and the Company" in the company's definitive Proxy Statement, which
section is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Report of Independent Public Accountants and Consolidated Financial
Statements appearing in the 1998 Annual Report on the pages listed in the
following index are included in this Annual Report on Form 10-K as Exhibit 13,
and are incorporated herein by reference.
Page of
1998
Annual
Report
-------
Report of Independent Public Accountants 43
Consolidated Financial Statements:
Consolidated Statement of Earnings 26
Consolidated Balance Sheet 27
Consolidated Statement of Cash Flows 28
Consolidated Statement of Shareholders' Equity 29
Notes to Consolidated Financial Statements (A to T) 30-42
13
16
2. Financial Statement Schedules
No schedules are submitted because they are either not applicable or not
required, or because the required information is included in the Consolidated
Financial Statements or the Notes thereto.
3. Exhibits--See Index on pages 16 through 18 of this Annual Report
on Form 10-K.
(b) Reports on Form 8-K
On November 25, 1998, the company reported to the Securities and Exchange
Commission under Item 2, Acquisition or Disposition of Assets, that on November
10, 1998, the company had acquired control of NASSCO Holdings Incorporated,
whose wholly owned subsidiaries include National Steel and Shipbuilding Company,
from NASSCO Holdings Incorporated Employee Stock Ownership Plan and three
individual stockholders. Included in the filing was the Stock Purchase Agreement
for the acquisition.
14
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GENERAL DYNAMICS CORPORATION
By: /s/ John W. Schwartz
--------------------
John W. Schwartz
Vice President and Controller
March 18, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 18, 1999, by the following persons on
behalf of the Registrant and in the capacities indicated, including a majority
of the directors.
/s/ Nicholas D. Chabraja Chairman, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Nicholas D. Chabraja
/s/ James E. Turner, Jr. President and Chief Operating Officer
- ------------------------
James E. Turner, Jr.
/s/ Michael J. Mancuso Senior Vice President and Chief Financial Officer
- ---------------------- (Principal Financial Officer)
Michael J. Mancuso
/s/ John W. Schwartz Vice President and Controller
- -------------------- (Principal Accounting Officer)
John W. Schwartz
Julius W. Becton, Jr.* Director
James S. Crown* Director
Lester Crown* Director
Charles H. Goodman* Director
George A. Joulwan* Director
Paul G. Kaminski* Director
James R. Mellor* Director
Carl E. Mundy, Jr.* Director
Carlisle A.H. Trost* Director
*By David A. Savner pursuant to Power of Attorney executed by the directors
listed above, which Power of Attorney has been filed with the Securities and
Exchange Commission.
/s/ David A. Savner
-------------------
David A. Savner
Secretary
15
18
INDEX TO EXHIBITS
Note Exhibit
Number Number Description
- ------ ------- -----------
(5) 3-1A --Restated Certificate of Incorporation, effective May 21, 1991
(12) 3-2D --Bylaws as amended effective October 1, 1997
(11) 4 --Letter re agreement to furnish copy of indenture
(1) 10-1A --Amendment of Mining Leases between American National Bank and Trust
of Chicago, Trustee, and La Salle National Bank, Trustee, to Freeman Coal Mining
Corporation, dated January 1, 1960
(1) 10-1B --Amendatory Agreement between Freeman United Coal Mining Company and American
National Bank and Trust Company, as Trustee, and La Salle National Bank, as Trustee,
dated January 1, 1975
(3) 10-6A --General Dynamics Corporation Incentive Compensation Plan adopted February 3, 1988,
approved by the shareholders on May 4, 1988
(4) 10-6B --General Dynamics Corporation Incentive Compensation Plan (as amended),
approved by shareholders on May 1, 1991
(4) 10-7E --Facilities Contract DAAE07-90-E-A001 dated June 24, 1990, between General Dynamics
Land Systems, Inc. and the United States relating to government-owned facilities and
equipment at the Lima Army Tank Plant, Lima, Ohio
* (7) 10-8B --General Dynamics Corporation Retirement Plan for Directors adopted March 6, 1986, as
amended May 5, 1993
(11) 10-14A --Lease Agreement dated December 20, 1996, between Electric Boat Corporation and the
Rhode Island Economic Development Corporation
* (6) 10-18 --Employment Agreement between the company and James R. Mellor dated as of
March 17, 1993
* (9) 10-18A --Amendment to employment agreement between the company and James R. Mellor dated as of
October 3, 1995
*(11) 10-18B --Amendment to employment agreement between the company and James R. Mellor dated as of
November 5, 1996
(9) 10-25 --Lease Agreement dated January 14, 1982, between Bath Iron Works Corporation and the
City of Portland, Maine, relating to pier facilities in the Portland, Maine harbor
(9) 10-26 --Lease Agreement dated January 14, 1982, between Bath Iron Works Corporation and the
State of Maine, relating to a dry dock facility in the Portland, Maine harbor
(10) 10-28 --Asset Purchase and Sale Agreement, dated November 6, 1996, as amended December 20,
1996, between the company and Lockheed Martin Corporation
*(11) 10-29 --Employment agreement between the company and Nicholas D. Chabraja dated
November 12, 1996
*(11) 10-30 --General Dynamics Corporation Incentive Compensation Plan adopted February 5, 1997,
approved by shareholders on May 7, 1997
*(12) 10-31 --Retirement Benefit Agreement between the company and Gordon R. England dated
February 14, 1997
(12) 10-32 --Credit Enhancement Agreement between Bath Iron Works Corporation and the City of Bath,
Maine dated September 19, 1997, relating to the development program of facilities in
Bath, Maine
*(12) 10-33 --Retirement Benefit Agreement between the company and Michael J. Mancuso dated
March 6, 1998
*(12) 10-34 --Consulting agreement between the company and Paul G. Kaminski dated August 18, 1997
(13) 10-36 --Stock Purchase Agreement dated as of October 8, 1998, between the company and NASSCO
Holdings Incorporated and the stockholders of NASSCO Holdings Incorporated
* 10-37 --Retirement Benefit Agreement between the company and David A. Savner dated March 4, 1998
16
19
INDEX TO EXHIBITS
Note Exhibit
Number Number Description
- ------ ------- -----------
10-38 --Lease Agreement dated January 1, 1991, between National Steel and Shipbuilding
Company and the San Diego Unified Port District, relating to facilities in the San
Diego, California harbor
10-38A --Amendment of Lease Agreement between National Steel and Shipbuilding Company and the
San Diego Unified Port District, dated December 6, 1994
10-39 --Capital Construction Fund Agreement, dated September 13, 1988, between National Steel
and Shipbuilding Company and the United States of America, represented by the Maritime
Administrator, Department of Transportation
10-39A --Capital Construction Fund Agreement-Addendum No. 1, dated September 13, 1988, between
National Steel and Shipbuilding Company and the United States of America, represented
by the Maritime Administrator, Department of Transportation
10-39B --Capital Construction Fund Agreement-Addendum No. 2, dated October 29, 1992, between
National Steel and Shipbuilding Company and the United States of America, represented
by the Maritime Administrator, Department of Transportation
10-39C --Capital Construction Fund Agreement-Addendum No. 3, dated August 27, 1993, between
National Steel and Shipbuilding Company and the United States of America, represented
by the Maritime Administrator, Department of Transportation
10-39D --Capital Construction Fund Agreement-Addendum No. 4, dated August 28, 1997, between
National Steel and Shipbuilding Company and the United States of America, represented
by the Maritime Administrator, Department of Transportation
10-39E --Capital Construction Fund Agreement-Addendum No. 5, dated October 29, 1997, between
National Steel and Shipbuilding Company and the United States of America, represented
by the Maritime Administrator, Department of Transportation
13 --1998 Annual Report (pages 20 through 44)
21 --Subsidiaries
23 --Consent of Independent Public Accountants
24 --Power of Attorney of the Board of Directors
27 --Financial Data Schedule
27-A --Amended Financial Data Schedule for the year ended December 31, 1997
27-B --Amended Financial Data Schedule for the nine months ended September 28, 1997
27-C --Amended Financial Data Schedule for the six months ended June 29, 1997
27-D --Amended Financial Data Schedule for the three months ended March 30, 1997
* Indicates a management contract or compensatory plan or arrangement required
to be filed pursuant to Item 14(c) of Form 10-K.
NOTES
(1) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1980, and filed with the Commission March 31,
1981, and incorporated herein by reference (Commission File No. 1-3671).
(2) Not used.
(3) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1987, and filed with the Commission March 17,
1988, and incorporated herein by reference (Commission File No. 1-3671).
(4) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1990, and filed with the Commission March 29,
1991, and incorporated herein by reference (Commission File No. 1-3671).
(5) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1991, and filed with the Commission March 26,
1992, and incorporated herein by reference (Commission File No. 1-3671).
17
20
NOTES, cont.
(6) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1992, and filed with the Commission March 30,
1993, and incorporated herein by reference (Commission File No. 1-3671).
(7) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1994, and filed with the Commission March 9,
1995, and incorporated herein by reference (Commission File No. 1-3671).
(8) Not used.
(9) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1995, and filed with the Commission March 21,
1996, and incorporated herein by reference (Commission File No. 1-3671).
(10) Filed as an exhibit to the company's current report on Form 8-K filed
with the Commission January 15, 1997, and incorporated herein by
reference (Commission File No. 1-3671).
(11) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1996, and filed with the Commission March 21,
1997, and incorporated herein by reference (Commission File No. 1-3671).
(12) Filed as an exhibit to the company's annual report on Form 10-K for the
year ending December 31, 1997, and filed with the Commission March 18,
1998, and incorporated herein by reference (Commission File No. 1-3671).
(13) Filed as an exhibit to the company's current report on Form 8-K filed
with the Commission November 25, 1998, and incorporated herein by
reference (Commission File No. 1-3671).
18