1 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-3671 GENERAL DYNAMICS CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-1673581 - -------- ---------- State or Other Jurisdiction of I.R.S. Employer Incorporation or Organization Identification No. 3190 Fairview Park Drive, Falls Church, Virginia 22042-4523 - ------------------------------------------------ ---------- Address of principal executive offices Zip Code Registrant's telephone number, including area code (703) 876-3000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - ------------------- ------------------- Common Stock, $1.00 Par Value New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange 9.95% Debentures Due 2018 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ___ The aggregate market value of the voting stock held by nonaffiliates of the registrant was $4,725,449,330 at March 9, 1998, calculated in accordance with the Securities and Exchange Commission rules as to beneficial ownership. 126,236,874 shares of the registrant's common stock were outstanding at March 9, 1998 (adjusted for two-for-one stock split effected in the form of a 100 percent stock dividend declared on March 4, 1998 and payable on April 2, 1998 to shareholders of record on March 13, 1998). DOCUMENTS INCORPORATED BY REFERENCE: Parts I and II incorporate information from certain portions of the registrant's Annual Report to security holders for the fiscal year ended December 31, 1997 (1997 Shareholder Report). Part III incorporates information from certain portions of the registrant's definitive Proxy Statement for the 1998 annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year. ==============================================================================
2 GENERAL DYNAMICS CORPORATION INDEX <TABLE> <CAPTION> PART I PAGE ---- <S> <C> <C> Item 1. Business 1 Item 2. Properties 6 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 Supplementary Item. Executive Officers of the Company 8 PART II Item 5. Market for the Company's Common Equity and Related Shareholder Matters 10 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 8. Financial Statements and Supplementary Data 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 PART III Item 10. Directors and Executive Officers of the Registrant 10 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 11 Item 13. Certain Relationships and Related Transactions 11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11 SIGNATURES 12 </TABLE>
3 PART I ITEM 1. BUSINESS INTRODUCTION The primary business of General Dynamics (the company) is supplying weapons systems and services to the U.S. government and its international allies. The company is a Delaware corporation formed in 1952 as successor to the Electric Boat Company. Two of the company's primary operating units, General Dynamics Land Systems Inc. and Bath Iron Works Corporation, were acquired in 1982 and 1995, respectively. On January 1, 1997, the company acquired the assets of Defense Systems and Armament Systems, formerly operating units of Lockheed Martin Corporation. On October 1, 1997, the company acquired the assets of Advanced Technology Systems, formerly an operating unit of Lucent Technologies. On December 31, 1997, the company acquired the assets of Computing Devices International, formerly a division of Ceridian Corporation. During the period 1992 through 1994, the company divested its tactical military aircraft, missile systems and space launch systems businesses. The company currently operates in the following business segments: Marine, Combat Systems, Information Systems and Technology, and Other. Marine includes Electric Boat Corporation (Electric Boat), Bath Iron Works Corporation (BIW), and American Overseas Marine Corporation (AMSEA). Combat Systems includes General Dynamics Land Systems Inc. (Land Systems), General Dynamics Defense Systems, Inc. (Defense Systems), and General Dynamics Armament Systems, Inc. (Armament Systems). Information Systems and Technology includes General Dynamics Advanced Technology Systems, Inc. (ATS) and three operating units which comprised Computing Devices International: General Dynamics Information Systems, Inc. (GDIS), Computing Devices Canada, Ltd., and Computing Devices Company Ltd. in the United Kingdom. The Other business segment includes Freeman Energy Corporation (Freeman Energy), Material Service Corporation (Material Service), and Patriot I, II and IV Shipping Corporations (Patriots). Information on revenues, operating profit or loss and identifiable assets attributable to each of the company's business segments is included in Note R to the Consolidated Financial Statements on page 38 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 1997, and is incorporated herein by reference. A description of the company's products and services, competition, and other related information follows. PRODUCTS AND SERVICES MARINE <TABLE> <CAPTION> Net Sales (in millions) 1997 1996 1995 ------ ------ ------ <S> <C> <C> <C> Nuclear Submarines $1,321 $1,443 $1,567 Surface Combatants 839 791 246 Other 151 98 71 ------ ------ ------ $2,311 $2,332 $1,884 ====== ====== ====== </TABLE> Electric Boat designs and builds nuclear submarines for the U.S. Navy, having contracts for the design of the New Attack Submarine (NSSN), and for construction of the last two Seawolf class attack submarines. Electric Boat entered into a Team Agreement with Newport News Shipbuilding and Drydock Company, providing that Electric Boat will be the prime contractor on construction contracts for the NSSN. In addition, Electric Boat performs a broad range of engineering work including advanced research and technology development, systems and component design evaluation, prototype development and logistics support to the operating fleet. Electric Boat also serves as ship integrator for certain components and subassemblies of the submarines, such as electronic equipment. BIW has contracts for the construction of 21 Arleigh Burke class destroyers (DDG 51) and plays a lead role in providing design, engineering, and ongoing life cycle support services for DDG 51 class ships. BIW is a member of a three-contractor team which was awarded a contract to design and build the Navy's new class of amphibious transport ships (LPD 17), and is a member of a three-contractor team recently formed to compete for the development, design, construction and life-cycle support of the U.S. Navy's next generation surface combatant ships (DD 21). 1
4 AMSEA provides ship management services for five of the U.S. Navy's Maritime Prepositioning Ships (MPS), nine of the U.S. Maritime Administration's Ready Reserve Force ships (RRF) and two U.S. Maritime Army War Reserve vessels (AWR-3). The MPS are under five-year contracts of which three were renewed in 1995, and two were renewed in 1996. These contracts are renewable through the year 2011. The RRF ships are in the last year of their five-year contracts. The MPS and AWR-3 vessels operate worldwide; the RRF vessels are located on the east, gulf and west coasts of the United States. COMBAT SYSTEMS <TABLE> <CAPTION> Net Sales (in millions) 1997 1996 1995 ------ ------ ------ <S> <C> <C> <C> Armored Vehicles $ 960 $ 889 $ 933 Ordnance 265 - - Other 284 137 117 ------ ------ ------ $1,509 $1,026 $1,050 ====== ====== ====== </TABLE> Land Systems designs and manufactures the M1 Series Abrams Main Battle Tank for the U.S. Army and various foreign governments. Land Systems also performs engineering and upgrade work, and provides support for existing armored vehicles. Production of the M1A2, the latest version of the M1, was initiated in 1992. Land Systems is currently in its second year of its five year multiyear contract with the U.S. Army to upgrade 120 tanks per year from the M1 to the M1A2 version. Land Systems is also under contract for the development of several other major armored vehicle programs. The first is the Advanced Amphibious Assault Vehicle program for which Land Systems was recently awarded a development contract, including prototype design and construction. Two prototypes are currently under contract with an option for a third. The second is the Heavy Assault Bridge program which is currently under development and is expected to enter production late in this decade. The third is the Crusader Self-Propelled Howitzer development program of which the company's share is approximately 25 percent. Land Systems will complete production of the Single Channel Ground and Airborne Radio System in late 1998 under a contract with the U.S. Army. Armament Systems designs, develops and produces advanced gun and ammunition handling systems based on the Gatling principal for applications on various platforms. Armament Systems is also a leader in the production of ammunition products and operates the Milan Army Ammunition Plant in Milan, Tennessee, for the U.S. Army. Defense Systems builds light armored vehicles, and turrets and transmissions for armored vehicles for both the U.S. Army and foreign governments. As part of a restructuring plan being implemented in 1998, these product lines are being transferred to Land Systems. The remaining business of Defense Systems, the design and manufacture of missile guidance and fire control systems for the U.S. Navy, will be reported in the Marine segment beginning in 1998. INFORMATION SYSTEMS AND TECHNOLOGY This segment was formed effective January 1, 1998, following the acquisitions of ATS and Computing Devices International. The net sales of ATS for the fourth quarter of 1997 were reported in the Marine segment. ATS provides both fixed and mobile undersea fiber-optic surveillance systems as well as special purpose signal and information processors for the U.S. Navy. ATS also provides vibration reduction technologies for the elimination of radiant noise and engine fatigue on various platforms. ATS designs command, communications, control and intelligence systems and network architecture solutions for the NSSN and the LPD 17. ATS also builds power feed and terminal transmission equipment for the commercial undersea fiber-optic market. GDIS provides world class information processing systems for airborne, land-based, seaborne, and space-based platforms, as well as information management services for the U.S. government and a number of allied nations. The company also provides contract manufacturing services for a number of defense and commercial electronics contractors. Computing Devices Canada, Ltd. is the systems integrator on the Iris program, whose objective is to modernize and fully digitize the tactical command, control and communications systems of the Canadian land forces. In addition, it provides advanced systems products in the areas of maritime surveillance, land based vectronics and display systems. Computing Devices Company Ltd. in the United Kingdom provides and supports electronics technology for airborne, ground and naval systems, and has the second largest share of the European Fighter Aircraft. 2
5 OTHER <TABLE> <CAPTION> Net Sales (in millions) 1997 1996 1995 ------ ------ ------ <S> <C> <C> <C> Aggregates $ 110 $ 87 $ - Coal Mining 107 111 116 Other 25 25 17 ------ ------ ------ $ 242 $ 223 $ 133 ====== ====== ====== </TABLE> Material Service is engaged in the mining and sale of aggregates (e.g. stone, sand and gravel) for use in the construction of highways and other infrastructure projects, and for commercial and residential building construction primarily in northern and central Illinois. This business is cyclical and seasonal in nature. Freeman Energy mines coal, producing approximately 5 million tons in each of the last three years. Freeman Energy owns or leases rights to over 600 million tons of coal reserves in Illinois. Patriots are financing subsidiaries that lease liquefied natural gas tankers to a nonaffiliated company. COMPETITION Historically, competition for U.S. government defense contracts was characterized by a number of major companies competing for a variety of weapon system contracts. The customer's procurement policy generally required competitive bids based on strict product specifications. In addition, the customer often awarded contracts to more than one company in order to ensure competition on subsequent contracts. In recent years, because of reduced defense spending, the industry has consolidated through mergers and acquisitions to maintain critical mass resulting in fewer and larger competitors. With fewer but more complex programs in competition, companies frequently have formed strategic alliances to pursue these programs. The Department of Defense faces challenges due to the reduction in available procurement funds as it must address industrial base issues while assessing competing needs between and among the various branches of the service. Finally, Congress continues to be very influential in its role of selecting which programs to fund and at what level based on limited budget dollars. As a result, the defense procurement policy is evolving and will be affected by these various and sometimes conflicting factors. A discussion of competition on individual programs is included in Management's Discussion and Analysis of the Results of Operations and Financial Condition on pages 18 through 23 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K and incorporated herein by reference. U.S. GOVERNMENT CONTRACTS The company's net sales to the U.S. government include Foreign Military Sales (FMS). FMS are sales to foreign governments through the U.S. government, whereby the company contracts with and receives payment from the U.S. government and the U.S. government assumes the risk of collection from the customer. Historically, the company's largest FMS sales are M1 tanks and related services, including training in operation and maintenance, and other logistical support. U.S. government sales were as follows (dollars in millions): <TABLE> <CAPTION> Year Ended December 31 ---------------------------- 1997 1996 1995 ------ ------ ------ <S> <C> <C> <C> Domestic $3,485 $3,051 $2,422 FMS 166 261 476 ------ ------ ------ Total U.S. government $3,651 $3,312 $2,898 ====== ====== ====== Percent of net sales 90% 92% 94% </TABLE> 3
6 All U.S. government contracts are terminable at the convenience of the U.S. government, as well as for default. Under contracts terminable at the convenience of the U.S. government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. Contracts which are terminated for default generally provide that the U.S. government only pays for the work it has accepted and may require the contractor to pay for the incremental cost of reprocurement and may hold the contractor liable for damages. In 1991, the U.S. Navy terminated for default a contract with the company and McDonnell Douglas Corporation for the full-scale development of the U.S. Navy's A-12 aircraft. On February 23, 1998, a final judgment was entered in favor of the contractors for $1,200 million plus interest. The U.S. government has filed a notice of appeal. For further discussion, see Note O to the Consolidated Financial Statements on page 34 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K and incorporated herein by reference. Companies engaged in supplying goods and services to the U.S. government are dependent on congressional appropriations and administrative allotment of funds, and may be affected by changes in U.S. government policies resulting from various military and political developments. U.S. government defense contracts typically involve long lead times for design and development, and are subject to significant changes in contract scheduling. Often the contracts call for successful design and production of very complex and technologically advanced items. FOREIGN SALES AND OPERATIONS The major portion of sales and operating earnings of the company for the past three years was derived from operations in the United States. Although the company purchases supplies from and subcontracts with foreign companies, it had no substantial operations in foreign countries until the acquisition of Computing Devices Canada, Ltd. and Computing Devices Company Ltd. Direct foreign sales were $132 million, $38 million and $29 million in 1997, 1996 and 1995, respectively. SUPPLIES Many items of equipment and components used in the production of the company's products are purchased from other manufacturers. The company is dependent upon suppliers and subcontractors for a large number of components and the ability of its suppliers and subcontractors to meet performance and quality specifications and delivery schedules. In some cases the company is dependent on one or a few sources, either because of the specialized nature of a particular item or because of domestic preference requirements pursuant to which it operates on a given project. All of the company's operations are dependent upon adequate supplies of certain raw materials, such as aluminum and steel, and on adequate supplies of fuel. Fuel or raw material shortages could also have an adverse effect on the company's suppliers, thus impairing their ability to honor their contractual commitments to the company. The company has not experienced serious shortages in any of the raw materials or fuel supplies that are necessary for its production programs. RESEARCH AND DEVELOPMENT Research and development activities in Marine and Combat Systems are conducted principally under U.S. government contracts. These research efforts are concerned with developing products for large systems development programs or performing work under research and development technology contracts. Beginning in 1996, the company experienced a decline in customer-sponsored expenditures for research and development due primarily to the NSSN program at Electric Boat moving to the design phase. In addition, the defense businesses engage in independent research and development, of which a significant portion is recovered through overhead charges to U.S. government contracts. The table below details expenditures for research and development (dollars in millions): <TABLE> <CAPTION> Year Ended December 31 ------------------------ 1997 1996 1995 ---- ---- ---- <S> <C> <C> <C> Company-sponsored $ 55 $ 38 $ 25 Customer-sponsored 58 89 178 ---- ---- ---- $113 $127 $203 ==== ==== ==== </TABLE> 4
7 BACKLOG Summary backlog information for each business segment follows: <TABLE> <CAPTION> December 31 1997 Backlog ------------------- Not Filled 1997 1996 in 1998 ------- ------- ------------ <S> <C> <C> <C> Marine $ 5,864 $ 7,566 $ 4,088 Combat Systems 2,323 2,057 968 Information Systems and Technology 805 - 268 Other 607 727 542 ------- ------- ------- Total Backlog $ 9,599 $10,350 $ 5,866 ======= ======= ======= Funded Backlog $ 6,796 $ 6,161 $ 3,342 ======= ======= ======= </TABLE> Total backlog represents the estimated remaining sales value of work to be performed under firm contracts. Funded backlog represents the portion of total backlog that has been appropriated by Congress and funded by the procuring agency. To the extent backlog has not been funded, there is no assurance that congressional appropriations or agency allotments will be forthcoming. Total backlog also includes amounts for long-term coal contracts. For further discussion, see Management's Discussion and Analysis of the Results of Operations and Financial Condition on pages 18 through 23 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K and incorporated herein by reference. ENVIRONMENTAL CONTROLS The 1990 Clean Air Act (Act) had a significant impact on Freeman Energy. The Act requires, among other things, a phased reduction in sulfur dioxide emissions by coal burning facilities. Virtually all of the coal in Freeman Energy's Illinois basin mines has medium or high sulfur content. Freeman Energy's two long-term contract customers have clean coal technologies which allow for utilization of Freeman Energy's coal under the new regulations. Freeman Energy has targeted customers with clean coal technology to mitigate the impact of regulations in the near term. The long-term impact of the Act is not known. Federal, state and local requirements relating to the discharge of materials into the environment and other factors affecting the environment have had and will continue to have an impact on the manufacturing operations of the company. Thus far, compliance with the requirements has been accomplished without material effect on the company's capital expenditures, earnings or competitive position. While it is expected that this will continue to be the case, the company cannot assess the possible effect of compliance with future requirements. Additional information relating to the impact of environmental controls is included under the caption "Environmental" in Note N to the Consolidated Financial Statements on page 33 of the 1997 Shareholder Report, filed as Exhibit 13 to this Annual Report on Form 10-K, and is incorporated herein by reference. PATENTS Numerous patents and patent applications are owned by the company and utilized in its development activities and manufacturing operations. In many cases, however, the U.S. government has an irrevocable, non-exclusive, royalty-free license, pursuant to which the government may use or authorize others to use the inventions covered by the patents. Pursuant to similar arrangements, the government may consent to the company's use of inventions covered by patents. Patents and licenses are important in the operation of the company's business, as one of management's key objectives is developing and providing its customers with advanced technological solutions. EMPLOYEES At December 31, 1997, the company had approximately 29,000 employees (excluding contract labor), of whom 47 percent were covered by collective bargaining agreements with various unions, the most significant of which are the International Association of Machinists and Aerospace Workers, the Industrial Union of Marine and Shipbuilding Workers of America, the Metal Trades Council (MTC) of New London, Connecticut, the United Auto Workers Union, the Office and Professional Employees International Union and the United Mine Workers of America. Several agreements are due to expire during 1998, the most significant of which is the MTC. 5
8 ITEM 2. PROPERTIES A summary of floor space at the main facilities of the Marine, Combat Systems, and Information Systems and Technology segments follows (square feet in millions): <TABLE> <CAPTION> COMPANY GOVERNMENT OWNED LEASED FURNISHED FACILITIES FACILITIES FACILITIES TOTAL ---------- ---------- ----------- -------- <S> <C> <C> <C> <C> MARINE: Electric Boat Groton, Connecticut 2.6 .2 2.8 Quonset Point, Rhode Island 0.4 1.1 1.5 Avenel, New Jersey 0.4 0.4 Bath Iron Works Bath, Maine 1.1 1.1 East Brunswick, Maine 0.6 0.6 Portland, Maine 0.1 0.1 ---------- ---------- ----------- -------- TOTAL MARINE 5.1 1.4 0.0 6.5 ========== ========== =========== ======== COMBAT SYSTEMS: Land Systems Lima, Ohio 1.6 1.6 Muskegon, Michigan 1.0 0.1 1.1 Scranton, Pennsylvania 0.3 0.3 Woodbridge, Virginia 0.1 0.1 Tallahassee, Florida 0.1 0.1 Sterling Heights, Michigan 0.6 0.6 Anniston, Alabama 0.1 0.1 Imperial, California 0.1 0.1 Chesterfield, Michigan 0.1 0.1 Armament Systems Burlington, Vermont 0.6 0.6 Milan, Tennessee 3.9 3.9 Defense Systems Pittsfield, Massachusetts 0.1 0.8 0.9 ---------- ---------- ----------- -------- TOTAL COMBAT SYSTEMS 2.4 0.7 6.4 9.5 ========== ========== =========== ======== INFORMATION SYSTEMS AND TECHNOLOGY: GDIS Bloomington, Minnesota 0.5 0.5 Computing Devices Canada, Ltd. Ottawa, Ontario 0.2 0.1 0.3 Calgary, Alberta 0.2 0.2 ATS Greensboro, North Carolina 0.1 0.1 0.2 ---------- ---------- ----------- -------- TOTAL INFORMATION SYSTEMS AND TECHNOLOGY 0.5 0.7 0.0 1.2 ========== ========== =========== ======== </TABLE> 6
9 BIW began in 1997 a $200 million project to construct a fifteen acre land level transfer facility and manufacturing support center, and a 750-foot dry-dock in Bath, Maine to improve productivity. OTHER. Freeman Energy operates two underground mines and one surface mine in Illinois. Coal preparation facilities and rail loading facilities are located at each mine sufficient for its output. Material Service operates several stone quarries, as well as sand and gravel pits and yards in the Chicago, Illinois area for its aggregates business. REAL ESTATE HELD FOR DEVELOPMENT. As part of the sale of businesses, certain related properties were retained by the company. These properties have been segregated on the Consolidated Balance Sheet as real estate held for development. The company has retained outside experts to support the development of plans and marketing efforts which are intended to maximize the market value of these properties. The remaining properties include 232 acres in Kearny Mesa and 2,420 acres in Sycamore Canyon, both of which are in San Diego, California; and 308 acres in Rancho Cucamonga, California. Most of this property is undeveloped. The company owns 10,000 square feet of building space at Rancho Cucamonga and 200,000 square feet of building space at Sycamore Canyon. Most of the buildings at Kearny Mesa were demolished in 1997 in preparation for development activity. In 1997, two buildings and 55 acres in Rancho Cucamonga were sold. ITEM 3. LEGAL PROCEEDINGS The information under the captions "Litigation" and "Environmental" in Note N and the information in Note O to the Consolidated Financial Statements appearing on pages 33 through 34 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in response to this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the company's security holders during the fourth quarter of the year ended December 31, 1997. 7
10 SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE COMPANY The name, age, offices and positions held for the last five years of the company's executive officers who are not directors are as follows: <TABLE> <CAPTION> AGE AT DECEMBER 31 NAME, POSITION AND OFFICE 1997 ------------------------- ----------- <S> <C> David D. Baier -- Vice President Taxes since August 1995; Staff Vice President Taxes 43 March 1994 -- August 1995; Corporate Tax Counsel and Director of Planning and Litigation September 1991 -- March 1994 G. Kent Bankus -- Vice President Government Relations since April 1993; Staff Vice President 55 Aerospace Programs and Field Offices July 1991 -- April 1993 Edward C. Bruntrager -- Vice President and General Counsel since March 1994; Assistant General 50 Counsel January 1987 -- March 1994 Allan C. Cameron -- Vice President of the company and President of Bath Iron Works since 51 March 1996; Executive Vice President and Chief Operating Officer of Bath Iron Works July 1994 -- March 1996; Facility Manager of Electric Boat May 1993 -- June 1994; Director of Operations of Electric Boat January 1989 -- May 1993 Gordon R. England -- Executive Vice President since March 1997; 60 President - Lockheed Fort Worth March 1993 - March 1995; Executive Vice President of the company and President - Aircraft Systems of the Fort Worth Division August 1992 -- March 1993 James I. Finley -Vice President of the company and President General Dynamics Information 51 Systems since January 1998; Vice President of Government Information Systems November 1995 - December 1997; Vice President Programs and Engineering, Westinghouse/United Technologies 1990 - October 1995 David H. Fogg -- Vice President and Treasurer since March 1998; Staff Vice President and Treasurer 42 November 1994 -- March 1998; Staff Vice President and Assistant Treasurer May 1994 -- November 1994; Corporate Director of Finance and Assistant Treasurer January 1994 -- May 1994; Corporate Director of Risk Management November 1991 -- January 1994 Paul A. Hesse -- Vice President Communications and Secretary since February 1996; Vice President 56 Communications May 1991 -- February 1996 Kenneth A. Hill - Vice President Information Technology since April 1997; Staff Vice President 48 Personnel Relations November 1994 - April 1997; Director Salaried Compensation March 1989 - November 1994 Raymond E. Kozen -- Vice President Planning and Analysis since March 1997; Staff Vice President 56 for Special Projects December 1987 -- March 1997 Kenneth J. Leenstra -- Vice President of the company and President of Armament Systems 60 since February 1997; President of Armament Systems - Lockheed Martin January 1990 -- January 1997 Michael J. Mancuso -- Senior Vice President and Chief Financial Officer 55 since March 1997; Vice President and Chief Financial Officer November 1994 -- March 1997; Vice President and Controller May 1994 -- November 1994; Division Vice President and Chief Financial Officer of Land Systems September 1993 -- May 1994; Vice President and Controller - Commercial Engine Business, Pratt & Whitney, United Technologies Corporation July 1992 -- September 1993 </TABLE> 8
11 <TABLE> <CAPTION> AGE AT DECEMBER 31 NAME, POSITION AND OFFICE 1997 ------------------------- ----------- <S> <C> Charles E. McQueary - Vice President of the company and President of Advanced Technology 58 Systems since October 1997; President - Advanced Technology Systems, AT&T/Lucent Technologies January 1994 - September 1997; Vice President Federal Systems Advanced Technologies, AT&T October 1987 - December 1993 David A. Savner -- Senior Vice President Law effective April 1998; Senior Partner 54 of Jenner & Block May 1987 -- March 1998 Daniel P. Schmutte -- Vice President of the company and President of Defense Systems 47 since February 1997; Vice President Operations August 1995 - February 1997; Staff Vice President and Assistant to the President/Chief Executive Officer June 1993 -- August 1995; Assistant to the President December 1990 -- June 1993 John W. Schwartz -- Vice President and Controller since March 1998; 41 Staff Vice President and Controller November 1994 -- March 1998; Corporate Director of Accounting July 1992 -- November 1994 David E. Scott - Vice President of the company and President of Computing Devices 52 Canada since February 1998; President Computing Devices Canada June 1997 - January 1998; Vice President Communications Division November 1990 - May 1997 James E. Turner, Jr. - President and Chief Operating Officer since June 1997; 63 Executive Vice President of the Marine Group October 1995 - June 1997; Executive Vice President of the company and President of Electric Boat April 1993 -- October 1995; Executive Vice President of the Marine, Land Systems and Services Group February 1991 -- April 1993 Arthur J. Veitch -- Vice President of the company and President of Land Systems since 51 February 1997; Vice President of the company and Senior Operating Officer of Land Systems August 1995 -- February 1997; Division Vice President and General Manager of the Convair Division August 1992 -- August 1995 John K. Welch -- Vice President of the company and President of Electric Boat since 47 October 1995; Division Vice President Programs and Planning of Electric Boat April 1994 -- October 1995; Division Vice President Program Management and Development of Electric Boat June 1989 -- April 1994 W. Peter Wylie -- Vice President Human Resources and Administration since August 1995; 58 Group Vice President - Hughes Missile Systems Company August 1992 -- December 1994; Division Vice President Human Resources of the company's Missiles and Electronics Group May 1991 -- August 1992 Michael W. Wynne -- Senior Vice President International, Planning and Development 53 since March 1997; Vice President and General Manager of Lockheed Martin, Martin Marietta Astronautics Division May 1994 -- February 1997; Vice President of the company and President of the Space Systems Division August 1992 -- May 1994 </TABLE> All executive officers of the company are elected annually. There are no family relationships, as defined, among any of the above executive officers. No executive officer of the company was selected pursuant to any arrangement or understanding between the officer and any other person. 9
12 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The company's common stock is listed on the New York Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange. The high and low market price of the company's common stock and the cash dividends declared for each quarterly period during the two most recent fiscal years are included in Note S to the Consolidated Financial Statements appearing on page 38 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, and are incorporated herein by reference. There were 21,046 common shareholders of record of the company's common stock at December 31, 1997. ITEM 6. SELECTED FINANCIAL DATA The information appearing on page 40 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in response to this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information appearing on pages 18 through 23 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in response to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information appearing on pages 24 through 40 of the 1997 Shareholder Report, included in this Annual Report on Form 10-K as Exhibit 13, is incorporated herein by reference in response to this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required to be set forth herein, except for a list of the executive officers other than directors that is provided in Part I of this report, is included under the caption "Election of Directors" in the company's definitive Proxy Statement which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required to be set forth herein is included under the captions "Board of Directors and Board Committees" and "Executive Compensation" in the company's definitive Proxy Statement which is incorporated herein by reference. 10
13 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required to be set forth herein is included under the captions "Election of Directors" and "Principal Shareholders" in the company's definitive Proxy Statement which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be set forth herein is included under the captions "Employment Agreements and Other Agreements" and "Transactions Involving Directors and Others" in the company's definitive Proxy Statement which is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The Report of Independent Public Accountants and Consolidated Financial Statements appearing in the 1997 Shareholder Report on the pages listed in the following index are included in this Annual Report on Form 10-K as Exhibit 13, and are incorporated herein by reference. <TABLE> <CAPTION> Page of 1997 Shareholder Report ------ <S> <C> Report of Independent Public Accountants 39 Consolidated Financial Statements: Consolidated Statement of Earnings 24 Consolidated Balance Sheet 25 Consolidated Statement of Cash Flows 26 Consolidated Statement of Shareholders' Equity 27 Notes to Consolidated Financial Statements (A to S) 28-38 </TABLE> 2. Financial Statement Schedules No schedules are submitted because they are either not applicable or not required, or because the required information is included in the financial statements or the notes thereto. 3. Exhibits--See Index on pages 13 and 14 of this Annual Report on Form 10-K. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the fourth quarter of 1997. 11
14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENERAL DYNAMICS CORPORATION By: /s/ John W. Schwartz ------------------------ John W. Schwartz Vice President and Controller March 18, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 18, 1998, by the following persons on behalf of the Registrant and in the capacities indicated, including a majority of the directors. <TABLE> <S> <C> /s/ Nicholas D. Chabraja Chairman, Chief Executive Officer and Director - ------------------------ (Principal Executive Officer) Nicholas D. Chabraja /s/ James E. Turner, Jr. President and Chief Operating Officer - ------------------------ James E. Turner, Jr. /s/ Michael J. Mancuso Senior Vice President and Chief Financial Officer - ---------------------- (Principal Financial Officer) Michael J. Mancuso /s/ John W. Schwartz Vice President and Controller - -------------------- (Principal Accounting Officer) John W. Schwartz Julius W. Becton, Jr.* Director James S. Crown* Director Lester Crown* Director Charles H. Goodman* Director George A. Joulwan* Director Paul G. Kaminski* Director James R. Mellor* Director Gordon R. Sullivan* Director Carlisle A. H. Trost* Director </TABLE> *By Paul A. Hesse pursuant to Power of Attorney executed by the directors listed above, which Power of Attorney has been filed with the Securities and Exchange Commission. /s/ Paul A. Hesse ----------------- Paul A. Hesse Secretary 12
15 INDEX TO EXHIBITS <TABLE> <CAPTION> Note Exhibit Number Number Description - ------ ------ ----------- <S> <C> <C> (5) 3-1A --Restated Certificate of Incorporation, effective May 21, 1991 3-2D --Bylaws as amended effective October 1, 1997 (11) 4 --Letter re agreement to furnish copy of indenture (1) 10-1A --Amendment of Mining Leases between American National Bank and Trust of Chicago, Trustee, and La Salle National Bank, Trustee, to Freeman Coal Mining Corporation, dated January 1, 1960 (1) 10-1B --Amendatory Agreement between Freeman United Coal Mining Company and American National Bank and Trust Company, as Trustee, and La Salle National Bank, as Trustee, dated January 1, 1975 (3) 10-6A --General Dynamics Corporation Incentive Compensation Plan adopted February 3, 1988, approved by the shareholders on May 4, 1988 (4) 10-6B --General Dynamics Corporation Incentive Compensation Plan (as amended), approved by shareholders on May 1, 1991 (4) 10-7E --Facilities Contract DAAE07-90-E-A001 dated June 24, 1990, between General Dynamics Land Systems, Inc. and the United States relating to government-owned facilities and equipment at the Lima Army Tank Plant, Lima, Ohio (7) 10-8B --General Dynamics Corporation Retirement Plan for Directors adopted March 6, 1986, as amended May 5, 1993 (11) 10-14A --Lease Agreement dated December 20, 1996, between Electric Boat Corporation and the Rhode Island Economic Development Corporation (6) 10-18 --Employment Agreement between the company and James R. Mellor dated as of March 17, 1993 (9) 10-18A --Amendment to employment agreement between the company and James R. Mellor dated as of October 3, 1995 (11) 10-18B --Amendment to employment agreement between the company and James R. Mellor dated as of November 5, 1996 (6) 10-22 --Form of Agreement entered into in 1993 between the company and Corporate Officers who were being retained in employment with the company (8) 10-24 --Asset Purchase Agreement, dated August 17, 1995, between the company and Bath Iron Works Corporation (9) 10-25 --Lease Agreement dated January 14, 1982, between Bath Iron Works Corporation and the City of Portland, Maine, relating to pier facilities in the Portland, Maine harbor (9) 10-26 --Lease Agreement dated January 14, 1982, between Bath Iron Works Corporation and the State of Maine, relating to a dry dock facility in the Portland, Maine harbor (10) 10-28 --Asset Purchase and Sale Agreement, dated November 6, 1996, as amended December 20, 1996, between the company and Lockheed Martin Corporation (11) 10-29 --Employment agreement between the company and Nicholas D. Chabraja dated November 12, 1996 (11) 10-30 --General Dynamics Corporation Incentive Compensation Plan adopted February 5, 1997, approved by shareholders on May 7, 1997 10-31 --Retirement Benefit Agreement between the company and Gordon R. England dated February 14, 1997 10-32 --Credit Enhancement Agreement between Bath Iron Works Corporation and the City of Bath, Maine dated September 19, 1997, relating to the development program of facilities in Bath, Maine 10-33 --Retirement Benefit Agreement between the company and Michael J. Mancuso dated March 6, 1998 10-34 --Consulting agreement between the company and Paul G. Kaminski dated August 18, 1997 10-35 --Salary and benefit continuation agreement between the company and Michael W. Wynne dated February 7, 1997 </TABLE> 13
16 INDEX TO EXHIBITS <TABLE> <CAPTION> Note Exhibit Number Number Description - ------ ------ ----------- <S> <C> <C> 13 --1997 Shareholder Report (pages 18 through 40) 21 --Subsidiaries 23 --Consent of Independent Public Accountants 24 --Power of Attorney of the Board of Directors 27 --Financial Data Schedule 27A --Restated Financial Data Schedule for the nine months ended September 28, 1997 27B --Restated Financial Data Schedule for the six months ended June 29, 1997 27C --Restated Financial Data Schedule for the three months ended March 30, 1997 27D --Restated Financial Data Schedule for the year ended December 31, 1996 27E --Amended and Restated Financial Data Schedule for the nine months ended September 29, 1996 27F --Restated Financial Data Schedule for the six months ended June 30, 1996 27G --Restated Financial Data Schedule for the three months ended March 31, 1996 27H --Restated Financial Data Schedule for the year ended December 31, 1995 </TABLE> NOTES (1) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1980, and filed with the Commission March 31, 1981, and incorporated herein by reference. (2) Not used. (3) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1987, and filed with the Commission March 17, 1988, and incorporated herein by reference. (4) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1990, and filed with the Commission March 29, 1991, and incorporated herein by reference. (5) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1991, and filed with the Commission March 26, 1992, and incorporated herein by reference. (6) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1992, and filed with the Commission March 30, 1993, and incorporated herein by reference. (7) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1994, and filed with the Commission March 9, 1995, and incorporated herein by reference. (8) Filed as an exhibit to the company's current report on Form 8-K filed with the Commission September 28, 1995, and incorporated herein by reference. (9) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1995, and filed with the Commission March 21, 1996, and incorporated herein by reference. (10) Filed as an exhibit to the company's current report on Form 8-K filed with the Commission January 15, 1997, and incorporated herein by reference. (11) Filed as an exhibit to the company's annual report on Form 10-K for the year ending December 31, 1996, and filed with the Commission March 21, 1997, and incorporated herein by reference. 14