UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 5, 2009
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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 incorporation or organization |
I.R.S. employer identification no. |
2941 Fairview Park Drive Suite 100 Falls Church, Virginia |
22042-4513 | |||
Address of principal executive offices | Zip code |
(703) 876-3000 | ||||
Registrants telephone number, including area code |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer þ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
385,090,596 shares of the registrants common stock, $1 par value per share, were outstanding at July 5, 2009.
PAGE | ||||
Item 1 - |
Consolidated Financial Statements | |||
Consolidated Balance Sheet | 3 | |||
Consolidated Statement of Earnings (Three Months) | 4 | |||
Consolidated Statement of Earnings (Six Months) | 5 | |||
Consolidated Statement of Cash Flows | 6 | |||
Notes to Unaudited Consolidated Financial Statements | 7 | |||
Item 2 - |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 27 | ||
Item 3 - |
Quantitative and Qualitative Disclosures About Market Risk | 41 | ||
Item 4 - |
Controls and Procedures | 41 | ||
42 | ||||
Item 1 - |
Legal Proceedings | 43 | ||
Item 1A - |
Risk Factors | 43 | ||
Item 4 - |
Submission of Matters to a Vote of Equity Holders | 43 | ||
Item 6 - |
Exhibits | 45 | ||
46 |
-2-
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions) |
(Unaudited)
2009 |
December 31
2008 |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and equivalents |
$ | 1,614 | $ | 1,621 | ||||
Accounts receivable |
3,649 | 3,469 | ||||||
Contracts in process |
4,408 | 4,341 | ||||||
Inventories |
2,138 | 2,029 | ||||||
Other current assets |
489 | 490 | ||||||
Total current assets |
12,298 | 11,950 | ||||||
Noncurrent assets: |
||||||||
Property, plant and equipment, net |
2,857 | 2,872 | ||||||
Intangible assets, net |
1,566 | 1,617 | ||||||
Goodwill |
11,739 | 11,413 | ||||||
Other assets |
398 | 521 | ||||||
Total noncurrent assets |
16,560 | 16,423 | ||||||
Total assets |
$ | 28,858 | $ | 28,373 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Short-term debt and current portion of long-term debt |
$ | 55 | $ | 911 | ||||
Accounts payable |
2,427 | 2,443 | ||||||
Customer advances and deposits |
3,862 | 4,154 | ||||||
Other current liabilities |
2,916 | 2,852 | ||||||
Total current liabilities |
9,260 | 10,360 | ||||||
Noncurrent liabilities: |
||||||||
Long-term debt |
3,860 | 3,113 | ||||||
Other liabilities |
4,737 | 4,847 | ||||||
Commitments and contingencies (See Note K) |
||||||||
Total noncurrent liabilities |
8,597 | 7,960 | ||||||
Shareholders equity: |
||||||||
Common stock |
482 | 482 | ||||||
Surplus |
1,414 | 1,346 | ||||||
Retained earnings |
14,201 | 13,287 | ||||||
Treasury stock |
(3,437 | ) | (3,349 | ) | ||||
Accumulated other comprehensive loss |
(1,659 | ) | (1,713 | ) | ||||
Total shareholders equity |
11,001 | 10,053 | ||||||
Total liabilities and shareholders equity |
$ | 28,858 | $ | 28,373 |
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
-3-
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended | ||||||||
(Dollars in millions, except per share amounts) |
July 5
2009 |
June 29
2008 |
||||||
Revenues: |
||||||||
Products |
$ | 5,593 | $ | 5,104 | ||||
Services |
2,507 | 2,199 | ||||||
8,100 | 7,303 | |||||||
Operating costs and expenses: |
||||||||
Products |
4,891 | 4,404 | ||||||
Services |
2,264 | 1,978 | ||||||
7,155 | 6,382 | |||||||
Operating earnings |
945 | 921 | ||||||
Interest, net |
(38 | ) | (12 | ) | ||||
Other, net |
| | ||||||
Earnings from continuing operations before income taxes |
907 | 909 | ||||||
Provision for income taxes, net |
286 | 268 | ||||||
Earnings from continuing operations |
621 | 641 | ||||||
Discontinued operations, net of tax |
(3 | ) | | |||||
Net earnings |
$ | 618 | $ | 641 | ||||
Earnings per share |
||||||||
Basic: |
||||||||
Continuing operations |
$ | 1.61 | $ | 1.61 | ||||
Discontinued operations |
(0.01 | ) | | |||||
Net earnings |
$ | 1.60 | $ | 1.61 | ||||
Diluted: |
||||||||
Continuing operations |
$ | 1.61 | $ | 1.60 | ||||
Discontinued operations |
(0.01 | ) | | |||||
Net earnings |
$ | 1.60 | $ | 1.60 | ||||
Supplemental information: |
||||||||
General and administrative expenses included in operating costs and expenses |
$ | 509 | $ | 451 | ||||
Dividends per share |
$ | 0.38 | $ | 0.35 |
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
-4-
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Six Months Ended | ||||||||
(Dollars in millions, except per share amounts) |
July 5
2009 |
June 29
2008 |
||||||
Revenues: |
||||||||
Products |
$ | 11,337 | $ | 9,964 | ||||
Services |
5,027 | 4,344 | ||||||
16,364 | 14,308 | |||||||
Operating costs and expenses: |
||||||||
Products |
9,939 | 8,614 | ||||||
Services |
4,575 | 3,912 | ||||||
14,514 | 12,526 | |||||||
Operating earnings |
1,850 | 1,782 | ||||||
Interest, net |
(77 | ) | (31 | ) | ||||
Other, net |
3 | 3 | ||||||
Earnings from continuing operations before income taxes |
1,776 | 1,754 | ||||||
Provision for income taxes, net |
562 | 540 | ||||||
Earnings from continuing operations |
1,214 | 1,214 | ||||||
Discontinued operations, net of tax |
(6 | ) | (1 | ) | ||||
Net earnings |
$ | 1,208 | $ | 1,213 | ||||
Earnings per share |
||||||||
Basic: |
||||||||
Continuing operations |
$ | 3.15 | $ | 3.04 | ||||
Discontinued operations |
(0.02 | ) | | |||||
Net earnings |
$ | 3.13 | $ | 3.04 | ||||
Diluted: |
||||||||
Continuing operations |
$ | 3.14 | $ | 3.01 | ||||
Discontinued operations |
(0.02 | ) | | |||||
Net earnings |
$ | 3.12 | $ | 3.01 | ||||
Supplemental information: |
||||||||
General and administrative expenses included in operating costs and expenses |
$ | 1,019 | $ | 881 | ||||
Dividends per share |
$ | 0.76 | $ | 0.70 |
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
-5-
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended | ||||||||
(Dollars in millions) |
July 5
2009 |
June 29
2008 |
||||||
Cash flows from operating activities: |
||||||||
Net earnings |
$ | 1,208 | $ | 1,213 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities |
||||||||
Depreciation of property, plant and equipment |
171 | 146 | ||||||
Amortization of intangible assets |
108 | 67 | ||||||
Stock-based compensation expense |
58 | 50 | ||||||
Excess tax benefit from stock-based compensation |
(1 | ) | (24 | ) | ||||
Deferred income tax provision |
86 | 26 | ||||||
Discontinued operations, net of tax |
6 | 1 | ||||||
(Increase) decrease in assets, net of effects of business acquisitions |
||||||||
Accounts receivable |
(149 | ) | (83 | ) | ||||
Contracts in process |
(77 | ) | (163 | ) | ||||
Inventories |
(115 | ) | (73 | ) | ||||
Increase (decrease) in liabilities, net of effects of business acquisitions |
||||||||
Accounts payable |
(18 | ) | (207 | ) | ||||
Customer advances and deposits |
(430 | ) | 548 | |||||
Other current liabilities |
(163 | ) | (27 | ) | ||||
Other, net |
79 | (18 | ) | |||||
Net cash provided by operating activities from continuing operations |
763 | 1,456 | ||||||
Net cash used by discontinued operations operating activities |
(9 | ) | (5 | ) | ||||
Net cash provided by operating activities |
754 | 1,451 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(170 | ) | (200 | ) | ||||
Business acquisitions, net of cash acquired |
(165 | ) | (66 | ) | ||||
Sales/maturities of available-for-sale securities |
154 | 1,186 | ||||||
Purchases of available-for-sale securities |
(107 | ) | (1,247 | ) | ||||
Other, net |
1 | 31 | ||||||
Net cash used by investing activities |
(287 | ) | (296 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayment of commercial paper, net |
(853 | ) | | |||||
Proceeds from fixed-rate notes, net |
747 | | ||||||
Dividends paid |
(283 | ) | (257 | ) | ||||
Purchases of common stock |
(109 | ) | (660 | ) | ||||
Proceeds from option exercises |
30 | 89 | ||||||
Repayment of fixed-rate notes |
| (500 | ) | |||||
Other, net |
(6 | ) | 22 | |||||
Net cash used by financing activities |
(474 | ) | (1,306 | ) | ||||
Net decrease in cash and equivalents |
(7 | ) | (151 | ) | ||||
Cash and equivalents at beginning of period |
1,621 | 2,891 | ||||||
Cash and equivalents at end of period |
$ | 1,614 | $ | 2,740 | ||||
Supplemental cash flow information: |
||||||||
Cash payments for: |
||||||||
Income taxes |
$ | 470 | $ | 516 | ||||
Interest |
$ | 51 | $ | 66 |
The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.
-6-
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts or unless otherwise noted)
A. | Basis of Preparation |
Basis of Consolidation and Classification
The unaudited Consolidated Financial Statements included in this Form 10-Q include the accounts of General Dynamics Corporation and our wholly owned and majority-owned subsidiaries. We eliminate all inter-company balances and transactions in the consolidated statements.
Consistent with defense industry practice, we classify assets and liabilities related to long-term production contracts as current, even though some of these amounts are not expected to be realized within one year. In addition, some prior-year amounts have been reclassified among financial statement accounts to conform to the current-year presentation.
Interim Financial Statements
The unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These rules and regulations permit some of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) to be condensed or omitted.
Operating results for the three- and six-month periods ended July 5, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
In our opinion, the unaudited Consolidated Financial Statements contain all adjustments, that are of a normal recurring nature, necessary for a fair presentation of our results for the three- and six-month periods ended July 5, 2009, and June 29, 2008.
We have evaluated material events and transactions that have occurred after the balance sheet date and concluded that no subsequent events have occurred through August 4, 2009, that require adjustment to or disclosure in this Form 10-Q.
These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.
B. | Acquisitions, Intangible Assets and Goodwill |
In 2009, we paid approximately $165 in cash to acquire one business in the Information Systems and Technology group that performs work for our classified customers.
In 2008, we acquired five businesses for an aggregate of approximately $3.2 billion in cash.
-7-
Aerospace
|
Jet Aviation of Zurich, Switzerland, on November 5. Jet Aviation performs aircraft completions and refurbishments for business jets and commercial aircraft, aircraft support services, and management and fixed-base operations (FBO) services for a broad global customer base. |
Combat Systems
|
AxleTech International (AxleTech) of Troy, Michigan, on December 19. AxleTech is a global manufacturer and supplier of highly engineered drive train components and aftermarket parts for heavy-payload military and commercial customers. |
Marine Systems
|
HSI Electric, Inc. (HSI), of Honolulu, Hawaii, on July 23. HSI is a marine and industrial electrical company specializing in electrical apparatus installation, maintenance, troubleshooting and repair. |
Information Systems and Technology
|
ViPS, Inc. (ViPS), a wholly owned subsidiary of HLTH Corporation, of Towson, Maryland, on July 22. ViPS is a leading provider of high-end healthcare technology solutions, including data management, analytics, decision support and process automation, that support both U.S. federal government agencies and commercial healthcare organizations. |
|
Integrated Defense Systems, Inc. (IDSI), of Glen Rock, Pennsylvania, on February 29. IDSI produces advanced filtering technologies and broadband power amplifiers for tactical communications applications for military and other government customers. |
We funded the above acquisitions using cash on hand and commercial paper borrowings. The operating results of these businesses have been included with our reported results since the respective closing dates of the acquisitions. The purchase prices of these businesses have been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill. Some of the estimates related to the Jet Aviation and AxleTech acquisitions were still preliminary at July 5, 2009. We are in the process of identifying and valuing intangible and other assets acquired. The completion of these analyses could result in an increase or decrease to the preliminary value assigned to these acquired assets, as well as to future periods amortization expense. We expect the analyses to be completed during 2009 without any material adjustments.
Intangible assets consisted of the following:
July 5 2009 | December 31 2008 | |||||||||||||||||||
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
|||||||||||||||
Contract and program intangible assets |
$ | 1,613 | $ | (676 | ) | $ | 937 | $ | 1,580 | $ | (613 | ) | $ | 967 | ||||||
Other intangible assets |
915 | (286 | ) | 629 | 892 | (242 | ) | 650 | ||||||||||||
Total intangible assets |
$ | 2,528 | $ | (962 | ) | $ | 1,566 | $ | 2,472 | $ | (855 | ) | $ | 1,617 |
-8-
Contract and program intangible assets represent primarily acquired backlog and probable follow-on work and related customer relationships. We amortize these assets over seven to 40 years. The weighted-average amortization life of these assets on July 5, 2009, was 15 years. Other intangible assets consist primarily of aircraft product design and customer lists, amortized over nine and 21 years, respectively, and software and licenses, amortized over three to 24 years. We amortize intangible assets on a straight-line basis unless the pattern of usage of the benefits indicates an alternative method is more representative of the usage of the asset.
Amortization expense was $54 and $108 for the three- and six-month periods ended July 5, 2009, and $34 and $67 for the three- and six-month periods ended June 29, 2008. We expect to record annual amortization expense over the next five years as follows:
2010 |
$ | 209 | |
2011 |
$ | 202 | |
2012 |
$ | 198 | |
2013 |
$ | 160 | |
2014 |
$ | 135 |
The changes in the carrying amount of goodwill by business group for the six months ended July 5, 2009, were as follows:
Aerospace |
Combat
Systems |
Marine
Systems |
Information
Systems and Technology |
Total
Goodwill |
||||||||||||
December 31, 2008 |
$ | 2,316 | $ | 2,638 | $ | 192 | $ | 6,267 | $ | 11,413 | ||||||
Acquisitions (a) |
141 | 13 | 1 | 135 | 290 | |||||||||||
Other (b) |
(25 | ) | 45 | | 16 | 36 | ||||||||||
July 5, 2009 |
$ | 2,432 | $ | 2,696 | $ | 193 | $ | 6,418 | $ | 11,739 |
(a) | Includes adjustments to preliminary assignment of fair value to net assets acquired. |
(b) | Consists of adjustments for foreign currency translation. |
C. | Earnings per Share and Comprehensive Income |
Earnings per Share
We compute basic earnings per share using net earnings for the period and the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and the issuance of restricted shares.
-9-
Basic and diluted weighted average shares outstanding were as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||
July 5
2009 |
June 29
2008 |
July 5
2009 |
June 29 2008 |
|||||
Basic weighted average shares outstanding |
385,035 | 398,491 | 385,440 | 399,625 | ||||
Dilutive effect of stock options and restricted stock |
1,978 | 3,280 | 1,337 | 3,189 | ||||
Diluted weighted average shares outstanding |
387,013 | 401,771 | 386,777 | 402,814 |
On January 1, 2009, we adopted FASB Staff Position (FSP) EITF 03-06-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities . FSP EITF 03-06-1 states that unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities that require calculation of earnings per share under the two-class method as specified in Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share . The two-class method is an earnings allocation methodology that determines earnings per share separately for each class of stock and participating security. Participants in our equity compensation plans who are granted restricted stock are allowed to retain cash dividends paid on nonvested shares. Therefore, our nonvested restricted stock awards qualify as participating securities under FSP EITF 03-06-1, and we are required to calculate earnings per share using the two-class method. However, the application of the two-class method had no measurable impact on our earnings per share for the three- and six-month periods ended July 5, 2009, and June 29, 2008.
Comprehensive Income
Our comprehensive income was $844 and $1.3 billion for the three- and six month periods ended July 5, 2009, respectively, and $628 and $1.2 billion for the three- and six month periods ended June 29, 2008, respectively. The primary components of our comprehensive income are net earnings and foreign currency translation adjustments of $209 and $46 for the three- and six month periods ended July 5, 2009, respectively, and $3 and $52 for the three- and six month periods ended June 29, 2008, respectively.
D. | Fair Value of Financial Instruments |
Our financial instruments include cash and equivalents, marketable securities and other investments; accounts receivable and accounts payable; short- and long-term debt; and derivative financial instruments. We did not have any significant non-financial assets or liabilities measured at fair value on July 5, 2009.
The carrying values of cash and equivalents, accounts receivable and payable, and short-term debt (commercial paper) on the Consolidated Balance Sheet approximate their fair value. The following table presents the fair values of our other financial assets and liabilities on July 5, 2009, and December 31, 2008, and the basis for determining their fair values:
-10-
Financial assets (liabilities) |
Fair
Value |
Quoted Prices
in Active Markets for Identical Assets |
Significant
Other Observable Inputs |
|||||||||
July 5, 2009 |
||||||||||||
Marketable securities* |
$ | 88 | $ | 88 | $ | | ||||||
Other investments* |
104 | 104 | | |||||||||
Derivatives* |
(37 | ) | | (37 | ) | |||||||
Long-term debt |
(4,033 | ) | (4,033 | ) | | |||||||
December 31, 2008 |
||||||||||||
Marketable securities* |
$ | 143 | $ | 143 | $ | | ||||||
Other investments* |
98 | 98 | | |||||||||
Derivatives* |
(77 | ) | | (77 | ) | |||||||
Long-term debt |
(3,168 | ) | (3,168 | ) | |
* | Reported on the Consolidated Balance Sheet at fair value. |
E. Contracts in Process
Contracts in process represents recoverable costs and, where applicable, accrued profit related to long-term contracts that have been inventoried until the customer is billed, and consisted of the following:
July 5
2009 |
December 31
2008 |
|||||
Contract costs and estimated profits |
$ | 14,187 | $ | 12,904 | ||
Other contract costs |
1,051 | 1,078 | ||||
15,238 | 13,982 | |||||
Less advances and progress payments |
10,830 | 9,641 | ||||
Total contracts in process |
$ | 4,408 | $ | 4,341 |
Contract costs consist primarily of labor and material costs and related overhead and general and administrative (G&A) expenses. Contract costs also include contract recoveries for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs, which totaled approximately $30 on July 5, 2009, and approximately $40 on December 31, 2008. We record revenue associated with these matters only when recovery can be estimated reliably and realization is probable. Contract costs on December 31, 2008, included approximately $215 associated with our contract to provide Pandur II wheeled vehicles to the Czech Republic. In the first quarter of 2009, we signed a renegotiated contract with the Czech Republic for the purchase of 107 vehicles, including 17 previously completed vehicles. Under the terms of the revised contract, we billed and collected the majority of the December 31, 2008, contracts-in-process balance and expect to recover the remaining balance over the course of the revised contract.
-11-
Other contract costs represent amounts recorded under GAAP that are not currently allocable to government contracts, such as a portion of our estimated workers compensation, other insurance-related assessments, pension and other post-retirement benefits, and environmental expenses. Some of these liabilities are discounted at contractual rates agreed to with our U.S. government customers. These costs will become allocable to contracts generally when they are paid. We expect to recover these costs through ongoing business, including existing backlog and probable follow-on contracts. This business base includes numerous contracts for which we are the sole source or are one of two suppliers on long-term U.S. defense programs. However, if the backlog in the future does not support the continued deferral of these costs, the profitability of our remaining contracts could be adversely affected. We expect to bill substantially all of our July 5, 2009, contracts-in-process balance, with the exception of these other contract costs, during the next 12 months.
F. | Inventories |
Inventories represent primarily commercial aircraft components and consisted of the following:
July 5
2009 |
December 31
2008 |
|||||
Raw materials |
$ | 1,138 | $ | 1,001 | ||
Work in process |
831 | 876 | ||||
Pre-owned aircraft |
125 | 100 | ||||
Other |
44 | 52 | ||||
Total inventories |
$ | 2,138 | $ | 2,029 |
G. | Debt |
Debt consisted of the following:
Interest Rate |
July 5
2009 |
December 31
2008 |
|||||||
Fixed-rate notes due: |
|||||||||
August 2010 |
4.500 | % | $ | 700 | $ | 700 | |||
July 2011 |
1.800 | % | 747 | | |||||
May 2013 |
4.250 | % | 999 | 999 | |||||
February 2014 |
5.250 | % | 996 | 995 | |||||
August 2015 |
5.375 | % | 400 | 400 | |||||
Commercial paper, net of unamortized discount |
0.270 | % | 50 | 905 | |||||
Other |
Various | 23 | 25 | ||||||
Total debt |
3,915 | 4,024 | |||||||
Less current portion |
55 | 911 | |||||||
Long-term debt |
$ | 3,860 | $ | 3,113 |
-12-
Fixed-rate Notes
On July 5, 2009, we had outstanding $3.8 billion aggregate principal amount of fixed-rate notes. This included $750 of two-year fixed-rate notes issued on June 24, 2009, and $1 billion of five-year fixed-rate notes issued on December 15, 2008, pursuant to a Form S-3 Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 on December 8, 2008. The fixed-rate notes are fully and unconditionally guaranteed by several of our 100-percent-owned subsidiaries. We have the option to redeem the notes prior to their maturity in whole or in part at 100 percent of the principal plus any accrued but unpaid interest and any applicable make-whole amounts. See Note N for condensed consolidating financial statements.
Commercial Paper
On July 5, 2009, we had $50 of commercial paper outstanding at an average yield of approximately 0.27 percent with an average maturity of five days. We have approximately $1.8 billion in bank credit facilities that provide backup liquidity to our commercial paper program. These credit facilities consist of an $815 million 364-day facility expiring in July 2010 and a $975 multi-year facility expiring in December 2011. These facilities are required by rating agencies to support the A1/P1 rating of our commercial paper issuances. Our commercial paper issuances and the bank credit facilities are guaranteed by several of our 100-percent-owned subsidiaries. Additionally, a number of our international subsidiaries have available local bank credit facilities aggregating approximately $1.2 billion.
Other
On July 5, 2009, other debt consisted primarily of a capital lease arrangement and debt assumed in connection with our acquisitions of SNC TEC in January 2007 and AxleTech in December 2008.
Our financing arrangements contain a number of customary covenants and restrictions. We were in compliance with all material covenants on July 5, 2009.
-13-
H. | Liabilities |
A summary of significant liabilities, by balance sheet caption, follows:
July 5
2009 |
December 31
2008 |
|||||
Salaries and wages |
$ | 627 | $ | 613 | ||
Retirement benefits |
594 | 566 | ||||
Workers compensation |
499 | 469 | ||||
Other (a) |
1,196 | 1,204 | ||||
Total other current liabilities |
$ | 2,916 | $ | 2,852 | ||
Retirement benefits |
$ | 3,098 | $ | 3,063 | ||
Customer deposits on commercial contracts |
1,036 | 1,174 | ||||
Deferred income taxes |
107 | 99 | ||||
Other (b) |
496 | 511 | ||||
Total other liabilities |
$ | 4,737 | $ | 4,847 |
(a) | Consists primarily of income tax liabilities, dividends payable, environmental remediation reserves, warranty reserves, liabilities of discontinued operations and insurance-related costs. |
(b) | Consists primarily of liabilities for warranty reserves and workers compensation. |
I. | Income Taxes |
Our net deferred tax asset (liability) was included in the Consolidated Balance Sheet as follows:
July 5
2009 |
December 31
2008 |
|||||||
Current deferred tax asset |
$ | 56 | $ | 57 | ||||
Current deferred tax liability |
(48 | ) | (62 | ) | ||||
Noncurrent deferred tax asset |
42 | 111 | ||||||
Noncurrent deferred tax liability |
(107 | ) | (99 | ) | ||||
Net deferred tax (liability) asset |
$ | (57 | ) | $ | 7 |
On November 27, 2001, we filed a refund suit in the U.S. Court of Federal Claims, titled General Dynamics v. United States, for the years 1991 to 1993. We added the years 1994 to 1998 to the litigation on June 23, 2004. The suit sought recovery of refund claims that were disallowed by the Internal Revenue Service (IRS) at the administrative level. On December 30, 2005, the court issued its opinion regarding one of the matters in the case. The court held that we could not treat the A-12 contract as complete for federal income tax purposes in 1991, the year the contract was terminated. (See Note K for more information regarding the A-12 contract.) On the other issues in the case, we reached a settlement in 2008 with the U.S. Department of Justice acting on behalf of the United States. As a result of the settlement, we reduced our tax provision in the second quarter of 2008 by $35, or $0.09 per share. In the fourth quarter of 2008, we received a refund of $45, including taxable interest, and the court dismissed the case.
-14-
The IRS has examined all of our consolidated federal income tax returns through 2004. The IRS commenced its examination of our 2005 and 2006 income tax returns in October 2007, and we expect this examination to conclude in the third quarter of 2009. We have recorded liabilities for tax contingencies for all years that remain open to review. We do not expect the resolution of tax matters for these years to have a material impact on our results of operations, financial condition or cash flows.
With respect to income tax uncertainties, based on all known facts and circumstances and current tax law, we believe the total amount of unrecognized tax benefits on July 5, 2009, is not material to our results of operations, financial condition or cash flows. We also believe that the total amount of unrecognized tax benefits on July 5, 2009, if recognized, would not have a material impact on our effective tax rate. We further believe that there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will significantly increase or decrease over the next 12 months producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.
J. | Derivative Instruments and Hedging Activities |
On January 1, 2009, we adopted SFAS 161, Disclosures about Derivative Instruments and Hedging Activities an Amendment of FASB Statement No. 133 . SFAS 161 requires enhanced disclosures related to these financial instruments, including qualitative disclosures about our hedging objectives and strategies.
We are exposed to market risk, primarily from foreign currency exchange rates, interest rates, commodity prices and investments. We may use derivative financial instruments to hedge some of these risks as described below. We do not use derivatives for trading or speculative purposes.
Foreign Currency Risk
Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and inter-company transactions denominated in foreign currencies. We periodically enter into derivative financial instruments, principally foreign currency forward purchase and sale contracts with terms of less than three years. These instruments are designed to fix, or limit the adverse impact on, the amount of firmly committed and forecasted foreign currency-denominated payments, receipts and inter-company transactions related to our ongoing business and operational financing activities.
Interest Rate Risk
Our financial instruments subject to interest rate risk include variable-rate commercial paper and short-term investments. However, the risk associated with these instruments is not material.
Commodity Price Risk
We are subject to risk of rising labor and commodity prices, primarily on long-term fixed-price contracts. To the extent possible, we include terms in our contracts that are designed to protect us from this risk. Some of the protective terms included in our contracts are considered derivatives but are not accounted for separately because they are clearly and closely related to the host contract. We have not entered into any material commodity hedging contracts but may do so as circumstances warrant. We do not believe that changes in labor or commodity prices will have a material impact on our results of operations or cash flows.
-15-
Investment Risk
Our investment policy allows for purchases of fixed-income securities with an investment-grade rating and a maximum maturity of one year. We held $1.7 billion in cash and equivalents and marketable securities to be
used for general corporate purposes on July 5, 2009. Our marketable securities have an average duration of one month and an average credit rating of AA. Historically, we have not experienced material gains or losses on these instruments due to
Hedging Activities
On July 5, 2009, and December 31, 2008, we had $2.1 billion and $2.4 billion, respectively, in notional forward foreign exchange contracts outstanding. We recognize derivative financial instruments on the Consolidated Balance Sheet at fair value (see Note D). The fair value of these derivative contracts recognized in the Consolidated Balance Sheet consisted of the following:
July 5
2009 |
December 31
2008 |
|||||||
Other current assets: |
||||||||
Designated as cash flow hedges under SFAS 133 |
$ | 22 | $ | 40 | ||||
Not designated as cash flow hedges under SFAS 133 |
4 | 11 | ||||||
Other current liabilities: |
||||||||
Designated as cash flow hedges under SFAS 133 |
(54 | ) | (119 | ) | ||||
Not designated as cash flow hedges under SFAS 133 |
(9 | ) | (9 | ) | ||||
Total |
$ | (37 | ) | $ | (77 | ) |
We had no material derivative financial instruments designated as fair value or net investment hedges on July 5, 2009, or December 31, 2008.
Changes in the fair value of derivative financial instruments are recorded in operating costs and expenses in the Consolidated Statement of Earnings or in accumulated other comprehensive income (AOCI) within shareholders equity on the Consolidated Balance Sheet, depending on whether the derivative is designated and qualifies for hedge accounting. Gains and losses related to derivatives that qualify as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities , are deferred in AOCI until the underlying transaction is reflected in earnings. We adjust derivative financial instruments not designated as cash flow hedges to market value each period and record the gain or loss in the Consolidated Statement of Earnings. The gains and losses on these instruments generally offset losses and gains on the assets, liabilities and other transactions being hedged. Gains and losses resulting from hedge ineffectiveness are recognized in the Consolidated Statement of Earnings for all derivative financial instruments, regardless of designation.
Net gains and losses recognized in earnings and AOCI, including gains and losses related to hedge ineffectiveness, were not material for the three- and six-month periods ended July 5, 2009, and June 29, 2008. We do not expect the amount of gains and losses in AOCI that will be reclassified to earnings during the next 12 months to be material.
-16-
Foreign Currency Financial Statement Translation
We translate foreign-currency balance sheets from our international business units functional currency (generally the respective local currency) to U.S. dollars at the end-of-period exchange rates, and earnings statements at the average exchange rates for each period. We do not hedge the fluctuation in reported revenues and earnings resulting from the translation of these international operations income statements into U.S. dollars. The impact of translating our international operations revenues and earnings into U.S. dollars was not material to our results of operations for the three- and six-month periods ended July 5, 2009, or June 29, 2008.
K. | Commitments and Contingencies |
Litigation
Termination of A-12 Program. In January 1991, the U.S. Navy terminated our A-12 aircraft contract for default. The A-12 contract was a fixed-price incentive contract for the full-scale development and initial production of the Navys carrier-based Advanced Tactical Aircraft. We and McDonnell Douglas, the contractors, were parties to the contract with the Navy. (McDonnell Douglas is now owned by The Boeing Company.) Both contractors had full responsibility to the Navy for performance under the contract, and both are jointly and severally liable for potential liabilities arising from the termination. As a consequence of the termination for default, the Navy demanded the contractors repay $1.4 billion in unliquidated progress payments. The Navy agreed to defer collection of that amount pending a decision by the U.S. Court of Federal Claims (the trial court) on the contractors challenge to the termination for default, or a negotiated settlement.
On December 19, 1995, the trial court issued an order converting the termination for default to a termination for convenience. On March 31, 1998, a final judgment was entered in favor of the contractors for $1.2 billion plus interest.
On July 1, 1999, the U.S. Court of Appeals for the Federal Circuit (the appeals court) remanded the case to the trial court for determination of whether the governments default termination was justified. On August 31, 2001, following the trial on remand, the trial court upheld the default termination of the A-12 contract. In its opinion, the trial court rejected all of the governments arguments to sustain the default termination except for the governments schedule arguments, as to which the trial court held that the schedule the government unilaterally imposed was reasonable and enforceable, and that the government had not waived that schedule. On the sole ground that the contractors were not going to deliver the first aircraft on the date provided in the unilateral schedule, the trial court upheld the default termination and entered judgment for the government.
On January 9, 2003, an appeal was argued before a three-judge panel of the appeals court. On March 17, 2003, the appeals court vacated the trial courts judgment and remanded the case to the trial court for further proceedings. The appeals court found that the trial court had misapplied the controlling legal standard in concluding the termination for default could be sustained solely on the basis of the contractors inability to complete the first flight of the first test aircraft by December 1991. Rather, the appeals court held that to uphold a termination for default, the trial court would have to determine that there was no reasonable likelihood that the contractors could perform the entire contract effort within the time remaining for performance.
-17-
On May 3, 2007, the trial court issued a decision upholding the governments default termination. We appealed the trial courts decision. On June 2, 2009, a three-judge panel of the appeals court affirmed the trial courts decision. We intend to petition the appeals court for a rehearing of its decision, either by the panel or by the full appeals court. We continue to believe that the law and facts support a determination that the governments default termination was not justified.
If, contrary to our expectations, the default termination is ultimately sustained, the contractors could collectively be required to repay the government as much as $1.4 billion for progress payments received for the A-12 contract, plus interest, which was approximately $1.4 billion at July 5, 2009. This would result in a liability to us of half of the total, or approximately $1.4 billion pretax. Our after-tax charge would be approximately $790, or $2.04 per share, to be recorded in discontinued operations. Our after-tax cash cost would be approximately $705. We believe we have sufficient resources to satisfy our obligation if required.
Other. Various claims and other legal proceedings incidental to the normal course of business are pending or threatened against us. While we cannot predict the outcome of these matters, we believe any potential liabilities in these proceedings, individually or in the aggregate, will not have a material impact on our results of operations, financial condition or cash flows.
Environmental
We are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. We are directly or indirectly involved in environmental investigations or remediation at some of our current and former facilities, and at third-party sites that we do not own but where we have been designated a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency. Based on historical experience, we expect that a significant percentage of the total remediation and compliance costs associated with these facilities will continue to be allowable contract costs and, therefore, reimbursed by the U.S. government.
As required, we provide financial assurance for certain sites undergoing or subject to investigation or remediation. Where applicable, we seek insurance recovery for costs related to environmental liabilities. We do not record insurance recoveries before collection is considered probable. Based on all known facts and analyses, as well as current U.S. government policies relating to allowable costs, we do not believe that our liability at any individual site, or in the aggregate, arising from such environmental conditions, will be material to our results of operations, financial condition or cash flows. We also do not believe that the range of reasonably possible additional loss beyond what has been recorded would be material to our results of operations, financial condition or cash flows.
Other
Letters of Credit. In the ordinary course of business, we have entered into letters of credit and other similar arrangements with financial institutions and insurance carriers totaling approximately $1.8 billion on July 5, 2009. From time to time in the ordinary course of business, we guarantee the payment or performance obligations of our subsidiaries arising under certain contracts. We are aware of no event of default that would require us to satisfy these guarantees.
-18-
Government Contracts. As a government contractor, we are subject to U.S. government audits and investigations relating to our operations, including claims for fines, penalties, and compensatory and treble damages. Based on currently available information, we believe the outcome of such ongoing government disputes and investigations will not have a material impact on our results of operations, financial condition or cash flows.
Aircraft Trade-ins. In connection with orders for new aircraft in funded contract backlog, our Aerospace group has offered options to some customers to trade in aircraft as partial consideration in the new-aircraft transaction. These options were historically structured as predetermined minimum trade-in options with a fair value determined at contract signing. As the groups contract backlog grew and the period from contract signing to scheduled entry into service extended, all new trade-in commitments were structured to establish the fair market value of the trade-in aircraft at a date generally 120 or fewer days preceding delivery of the new aircraft to the customer. At that time, the customer is required to either exercise the option or allow its expiration. Any excess of the pre-established trade-in price above the fair market value at the time the new aircraft is delivered is treated as a reduction of revenue in the new-aircraft sales transaction.
In the first six months of 2009, one fair market value trade-in option was exercised in connection with orders for new aircraft. Three aircraft scheduled for delivery in 2009 have fair market value trade-in options outstanding, none of which has been exercised by the customer. Beyond these commitments, additional fair market value trade-in options remain outstanding for aircraft scheduled to deliver from 2010 through 2013. Two options offered at a predetermined minimum trade-in price remained unexercised on July 5, 2009. These commitments, totaling $48, are associated with aircraft scheduled to deliver in 2010. The estimated decline in fair market value from the date of commitment through July 5, 2009, for these two aircraft is not material.
Product Warranties. We provide product warranties to our customers associated with certain product sales, particularly business-jet aircraft. We record estimated warranty costs in the period in which the related products are delivered. The warranty liability recorded at each balance sheet date is based on the number of months of warranty coverage remaining for products delivered and the average historical monthly warranty payments, and is included in other current liabilities and other liabilities on the Consolidated Balance Sheet.
The changes in the carrying amount of warranty liabilities for the six-month periods ended July 5, 2009, and June 29, 2008, were as follows:
Six Months Ended |
July 5
2009 |
June 29
2008 |
||||||
Beginning balance |
$ | 221 | $ | 237 | ||||
Warranty expense |
38 | 35 | ||||||
Payments |
(29 | ) | (22 | ) | ||||
Adjustments (a) |
(2 | ) | (38 | ) | ||||
Ending balance (b) |
$ | 228 | $ | 212 |
(a) | Includes warranty liabilities assumed in connection with acquisitions, foreign exchange translation adjustments and reclassifications. |
(b) | Warranty obligations incurred in connection with long-term production contracts are accounted for within the contract estimates at completion (EACs) and are excluded from the above amounts. |
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L. | Retirement Plans |
We provide defined-benefit pension and other post-retirement benefits, as well as defined-contribution benefits, to eligible employees.
Net periodic pension and other post-retirement benefit costs for the three- and six-month periods ended July 5, 2009, and June 29, 2008, consisted of the following:
Pension Benefits |
Other Post-retirement Benefits |
|||||||||||||||
Three Months Ended |
July 5
2009 |
June 29
2008 |
July 5
2009 |
June 29
2008 |
||||||||||||
Service cost |
$ | 52 | $ | 51 | $ | 2 | $ | 4 | ||||||||
Interest cost |
122 | 111 | 16 | 17 | ||||||||||||
Expected return on plan assets |
(143 | ) | (149 | ) | (8 | ) | (7 | ) | ||||||||
Recognized net actuarial loss (gain) |
7 | 1 | (2 | ) | | |||||||||||
Amortization of prior service credit |
(11 | ) | (12 | ) | | | ||||||||||
Net periodic cost |
$ | 27 | $ | 2 | $ | 8 | $ | 14 | ||||||||
Pension Benefits |
Other Post-retirement Benefits |
|||||||||||||||
Six Months Ended |
July 5
2009 |
June 29
2008 |
July 5
2009 |
June 29
2008 |
||||||||||||
Service cost |
$ | 104 | $ | 102 | $ | 4 | $ | 8 | ||||||||
Interest cost |
245 | 222 | 32 | 33 | ||||||||||||
Expected return on plan assets |
(287 | ) | (298 | ) | (16 | ) | (14 | ) | ||||||||
Recognized net actuarial loss (gain) |
14 | 2 | (4 | ) | 1 | |||||||||||
Amortization of prior service (credit) cost |
(23 | ) | (24 | ) | | 1 | ||||||||||
Net periodic cost |
$ | 53 | $ | 4 | $ | 16 | $ | 29 |
Our contractual arrangements with the U.S. government provide for the recovery of contributions to our pension plans covering employees working in our government contracting businesses. With respect to post-retirement benefit plans, our government contracts provide for the recovery of contributions to a Voluntary Employees Beneficiary Association trust and, for non-funded plans, recovery of claims paid. The cumulative pension and post-retirement benefit cost for some of these plans exceeds our cost currently allocable to contracts. To the extent recovery of the cost is considered probable based on our backlog, we defer the excess in contracts in process on the Consolidated Balance Sheet until the cost is paid, charged to contracts and included in revenues. For other plans, the amount contributed to the plans, charged to contracts and included in revenues has exceeded the plans cumulative benefit cost. We have deferred recognition of these excess earnings to provide a better matching of revenues and expenses. These deferrals have been classified against the prepaid benefit cost related to these plans. (See Note E for discussion of our deferred contract costs.)
-20-
M. | Business Group Information |
We operate in four business groups: Aerospace, Combat Systems, Marine Systems and Information Systems and Technology. We organize and measure our business groups in accordance with the nature of products and services offered. These business groups derive their revenues from business aviation; combat vehicles, weapons systems and munitions; shipbuilding design and construction; and information systems, technologies and services, respectively. We measure each groups profit based on operating earnings. As a result, we do not allocate net interest, other income and expense items, and income taxes to our business groups.
Summary operating results for each of our business groups follows:
Revenues | Operating Earnings | |||||||||||||
Three Months Ended |
July 5
2009 |
June 29
2008 |
July 5
2009 |
June 29
2008 |
||||||||||
Aerospace |
$ | 1,415 | $ | 1,329 | $ | 215 | $ | 240 | ||||||
Combat Systems |
2,405 | 2,015 | 300 | 282 | ||||||||||
Marine Systems |
1,625 | 1,394 | 168 | 127 | ||||||||||
Information Systems and Technology |
2,655 | 2,565 | 284 | 292 | ||||||||||
Corporate* |
| | (22 | ) | (20 | ) | ||||||||
$ | 8,100 | $ | 7,303 | $ | 945 | $ | 921 | |||||||
Revenues | Operating Earnings | |||||||||||||
Six Months Ended |
July 5
2009 |
June 29
2008 |
July 5
2009 |
June 29
2008 |
||||||||||
Aerospace |
$ | 2,870 | $ | 2,608 | $ | 415 | $ | 476 | ||||||
Combat Systems |
4,812 | 4,012 | 579 | 541 | ||||||||||
Marine Systems |
3,294 | 2,772 | 331 | 249 | ||||||||||
Information Systems and Technology |
5,388 | 4,916 | 573 | 552 | ||||||||||
Corporate* |
| | (48 | ) | (36 | ) | ||||||||
$ | 16,364 | $ | 14,308 | $ | 1,850 | $ | 1,782 |
* | Corporate operating results include our stock option expense and a portion of the operating results of our commercial pension plans. |
-21-
N. | Condensed Consolidating Financial Statements |
The fixed-rate notes described in Note G are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain of our 100-percent-owned subsidiaries (the guarantors). The following condensed consolidating financial statements illustrate the composition of the parent, the guarantors on a combined basis (each guarantor together with its majority-owned subsidiaries) and all other subsidiaries on a combined basis.
Condensed Consolidating Statement of Earnings
Three Months Ended July 5, 2009 | Parent |
Guarantors
on a Combined Basis |
Other
Subsidiaries on a Combined Basis |
Consolidating
Adjustments |
Total
Consolidated |
|||||||||||||||
Revenues |
$ | | $ | 6,563 | $ | 1,537 | $ | | $ | 8,100 | ||||||||||
Cost of sales |
1 | 5,364 | 1,281 | | 6,646 | |||||||||||||||
General and administrative expenses |
21 | 386 | 102 | | 509 | |||||||||||||||
Operating earnings |
(22 | ) | 813 | 154 | | 945 | ||||||||||||||
Interest expense |
(39 | ) | | (4 | ) | | (43 | ) | ||||||||||||
Interest income |
| 1 | 4 | | 5 | |||||||||||||||
Other, net |
| (1 | ) | 1 | | | ||||||||||||||
Earnings from continuing operations before income taxes |
(61 | ) | 813 | 155 | | 907 | ||||||||||||||
Provision for income taxes |
(28 | ) | 275 | 39 | | 286 | ||||||||||||||
Discontinued operations, net of tax |
| | (3 | ) | | (3 | ) | |||||||||||||
Equity in net earnings of subsidiaries |
651 | | | (651 | ) | | ||||||||||||||
Net earnings |
$ | 618 | $ | 538 | $ | 113 | $ | (651 | ) | $ | 618 | |||||||||
Three Months Ended June 29, 2008 | ||||||||||||||||||||
Revenues |
$ | | $ | 6,428 | $ | 875 | $ | | $ | 7,303 | ||||||||||
Cost of sales |
| 5,218 | 713 | | 5,931 | |||||||||||||||
General and administrative expenses |
20 | 373 | 58 | | 451 | |||||||||||||||
Operating earnings |
(20 | ) | 837 | 104 | | 921 | ||||||||||||||
Interest expense |
(28 | ) | | (5 | ) | | (33 | ) | ||||||||||||
Interest income |
11 | 1 | 9 | | 21 | |||||||||||||||
Other, net |
(1 | ) | | 1 | | | ||||||||||||||
Earnings from continuing operations before income taxes |
(38 | ) | 838 | 109 | | 909 | ||||||||||||||
Provision for income taxes |
(46 | ) | 289 | 25 | | 268 | ||||||||||||||
Equity in net earnings of subsidiaries |
633 | | | (633 | ) | | ||||||||||||||
Net earnings |
$ | 641 | $ | 549 | $ | 84 | $ | (633 | ) | $ | 641 |
-22-
Condensed Consolidating Statement of Earnings
Six Months Ended July 5, 2009 | Parent |
Guarantors
on a Combined Basis |
Other
Subsidiaries on a Combined Basis |
Consolidating
Adjustments |
Total
Consolidated |
|||||||||||||||
Revenues |
$ | | $ | 13,226 | $ | 3,138 | $ | | $ | 16,364 | ||||||||||
Cost of sales |
8 | 10,851 | 2,636 | | 13,495 | |||||||||||||||
General and administrative expenses |
40 | 774 | 205 | | 1,019 | |||||||||||||||
Operating earnings |
(48 | ) | 1,601 | 297 | | 1,850 | ||||||||||||||
Interest expense |
(80 | ) | | (5 | ) | | (85 | ) | ||||||||||||
Interest income |
2 | 1 | 5 | | 8 | |||||||||||||||
Other, net |
| 2 | 1 | | 3 | |||||||||||||||
Earnings from continuing operations before income taxes |
(126 | ) | 1,604 | 298 | | 1,776 | ||||||||||||||
Provision for income taxes |
(70 | ) | 548 | 84 | | 562 | ||||||||||||||
Discontinued operations, net of tax |
| | (6 | ) | | (6 | ) | |||||||||||||
Equity in net earnings of subsidiaries |
1,264 | | | (1,264 | ) | | ||||||||||||||
Net earnings |
$ | 1,208 | $ | 1,056 | $ | 208 | $ | (1,264 | ) | $ | 1,208 | |||||||||
Six Months Ended June 29, 2008 | ||||||||||||||||||||
Revenues |
$ | | $ | 12,426 | $ | 1,882 | $ | | $ | 14,308 | ||||||||||
Cost of sales |
| 10,099 | 1,546 | | 11,645 | |||||||||||||||
General and administrative expenses |
36 | 721 | 124 | | 881 | |||||||||||||||
Operating earnings |
(36 | ) | 1,606 | 212 | | 1,782 | ||||||||||||||
Interest expense |
(61 | ) | | (10 | ) | | (71 | ) | ||||||||||||
Interest income |
23 | 2 | 15 | | 40 | |||||||||||||||
Other, net |
1 | 1 | 1 | | 3 | |||||||||||||||
Earnings from continuing operations before income taxes |
(73 | ) | 1,609 | 218 | | 1,754 | ||||||||||||||
Provision for income taxes |
(64 | ) | 552 | 52 | | 540 | ||||||||||||||
Discontinued operations, net of tax |
| (1 | ) | | | (1 | ) | |||||||||||||
Equity in net earnings of subsidiaries |
1,222 | | | (1,222 | ) | | ||||||||||||||
Net earnings |
$ | 1,213 | $ | 1,056 | $ | 166 | $ | (1,222 | ) | $ | 1,213 |
-23-
Condensed Consolidating Balance Sheet
July 5, 2009 | Parent |
Guarantors
on a Combined Basis |
Other
Subsidiaries on a Combined Basis |
Consolidating
Adjustments |
Total
Consolidated |
|||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and equivalents |
$ | 700 | $ | | $ | 914 | $ | | $ | 1,614 | ||||||||||
Accounts receivable |
| 1,675 | 1,974 | | 3,649 | |||||||||||||||
Contracts in process |
368 | 3,104 | 936 | | 4,408 | |||||||||||||||
Inventories |
||||||||||||||||||||
Raw materials |
| 901 | 237 | | 1,138 | |||||||||||||||
Work in process |
| 719 | 112 | | 831 | |||||||||||||||
Pre-owned aircraft |
| 125 | | | 125 | |||||||||||||||
Other |
| 21 | 23 | | 44 | |||||||||||||||
Other current assets |
119 | 137 | 233 | | 489 | |||||||||||||||
Total current assets |
1,187 | 6,682 | 4,429 | | 12,298 | |||||||||||||||
Noncurrent assets: |
||||||||||||||||||||
Property, plant and equipment |
137 | 4,299 | 1,049 | | 5,485 | |||||||||||||||
Accumulated depreciation of PP&E |
(33 | ) | (2,176 | ) | (419 | ) | | (2,628 | ) | |||||||||||
Intangible assets |
| 1,465 | 1,063 | | 2,528 | |||||||||||||||
Accumulated amortization of intangible assets |
| (746 | ) | (216 | ) | | (962 | ) | ||||||||||||
Goodwill |
| 7,784 | 3,955 | | 11,739 | |||||||||||||||
Other assets |
240 | 151 | 7 | | 398 | |||||||||||||||
Investment in subsidiaries |
25,146 | | | (25,146 | ) | | ||||||||||||||
Total noncurrent assets |
25,490 | 10,777 | 5,439 | (25,146 | ) | 16,560 | ||||||||||||||
Total assets |
$ | 26,677 | $ | 17,459 | $ | 9,868 | $ | (25,146 | ) | $ | 28,858 | |||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Short-term debt |
$ | 50 | $ | 1 | $ | 4 | $ | | $ | 55 | ||||||||||
Customer advances and deposits |
| 1,414 | 2,448 | | 3,862 | |||||||||||||||
Other current liabilities |
612 | 3,199 | 1,532 | | 5,343 | |||||||||||||||
Total current liabilities |
662 | 4,614 | 3,984 | | 9,260 | |||||||||||||||
Noncurrent liabilities: |
||||||||||||||||||||
Long-term debt |
3,841 | 10 | 9 | | 3,860 | |||||||||||||||
Other liabilities |
2,518 | 1,905 | 314 | | 4,737 | |||||||||||||||
Total noncurrent liabilities |
6,359 | 1,915 | 323 | | 8,597 | |||||||||||||||
Intercompany |
8,655 | (9,045 | ) | 390 | | | ||||||||||||||
Shareholders equity: |
||||||||||||||||||||
Common stock, including surplus |
1,896 | 6,132 | 3,602 | (9,734 | ) | 1,896 | ||||||||||||||
Retained earnings |
14,201 | 14,562 | 1,209 | (15,771 | ) | 14,201 | ||||||||||||||
Other shareholders equity |
(5,096 | ) | (719 | ) | 360 | 359 | (5,096 | ) | ||||||||||||
Total shareholders equity |
11,001 | 19,975 | 5,171 | (25,146 | ) | 11,001 | ||||||||||||||
Total liabilities and shareholders equity |
$ | 26,677 | $ | 17,459 | $ | 9,868 | $ | (25,146 | ) | $ | 28,858 |
-24-
Condensed Consolidating Balance Sheet
December 31, 2008 | Parent |
Guarantors
on a Combined Basis |
Other
Subsidiaries on a Combined Basis |
Consolidating
Adjustments |
Total
Consolidated |
|||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and equivalents |
$ | 746 | $ | | $ | 875 | $ | | $ | 1,621 | ||||||||||
Accounts receivable |
| 1,532 | 1,937 | | 3,469 | |||||||||||||||
Contracts in process |
402 | 2,675 | 1,264 | | 4,341 | |||||||||||||||
Inventories |
||||||||||||||||||||
Raw materials |
| 907 | 94 | | 1,001 | |||||||||||||||
Work in process |
| 785 | 91 | | 876 | |||||||||||||||
Pre-owned aircraft |
| 100 | | | 100 | |||||||||||||||
Other |
| 60 | (8 | ) | | 52 | ||||||||||||||
Other current assets |
190 | 33 | 267 | | 490 | |||||||||||||||
Total current assets |
1,338 | 6,092 | 4,520 | | 11,950 | |||||||||||||||
Noncurrent assets: |
||||||||||||||||||||
Property, plant and equipment |
133 | 4,199 | 1,008 | | 5,340 | |||||||||||||||
Accumulated depreciation of PP&E |
(30 | ) | (2,057 | ) | (381 | ) | | (2,468 | ) | |||||||||||
Intangible assets |
| 1,444 | 1,028 | | 2,472 | |||||||||||||||
Accumulated amortization of intangible assets |
| (690 | ) | (165 | ) | | (855 | ) | ||||||||||||
Goodwill |
| 7,646 | 3,767 | | 11,413 | |||||||||||||||
Other assets |
872 | (448 | ) | 97 | | 521 | ||||||||||||||
Investment in subsidiaries |
23,355 | | | (23,355 | ) | | ||||||||||||||
Total noncurrent assets |
24,330 | 10,094 | 5,354 | (23,355 | ) | 16,423 | ||||||||||||||
Total assets |
$ | 25,668 | $ | 16,186 | $ | 9,874 | $ | (23,355 | ) | $ | 28,373 | |||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Short-term debt |
$ | 905 | $ | 5 | $ | 1 | $ | | $ | 911 | ||||||||||
Customer advances and deposits |
| 1,771 | 2,383 | | 4,154 | |||||||||||||||
Other current liabilities |
542 | 3,090 | 1,663 | | 5,295 | |||||||||||||||
Total current liabilities |
1,447 | 4,866 | 4,047 | | 10,360 | |||||||||||||||
Noncurrent liabilities: |
||||||||||||||||||||
Long-term debt |
3,094 | 8 | 11 | | 3,113 | |||||||||||||||
Other liabilities |
2,513 | 1,991 | 343 | | 4,847 | |||||||||||||||
Total noncurrent liabilities |
5,607 | 1,999 | 354 | | 7,960 | |||||||||||||||
Intercompany |
8,561 | (8,972 | ) | 195 | 216 | | ||||||||||||||
Shareholders equity: |
||||||||||||||||||||
Common stock, including surplus |
1,828 | 6,134 | 3,091 | (9,225 | ) | 1,828 | ||||||||||||||
Retained earnings |
13,287 | 12,612 | 1,951 | (14,563 | ) | 13,287 | ||||||||||||||
Other shareholders equity |
(5,062 | ) | (453 | ) | 236 | 217 | (5,062 | ) | ||||||||||||
Total shareholders equity |
10,053 | 18,293 | 5,278 | (23,571 | ) | 10,053 | ||||||||||||||
Total liabilities and shareholders equity |
$ | 25,668 | $ | 16,186 | $ | 9,874 | $ | (23,355 | ) | $ | 28,373 |
-25-
Condensed Consolidating Statement of Cash Flows
Six Months Ended July 5, 2009 | Parent |
Guarantors
on a Combined Basis |
Other
Subsidiaries on a Combined Basis |
Consolidating
Adjustments |
Total
Consolidated |
||||||||||||||
Net cash provided by operating activities |
$ | (336 | ) | $ | 791 | $ | 299 | $ | | $ | 754 | ||||||||
Cash flows from investing activities: |
|||||||||||||||||||
Business acquisitions, net of cash acquired |
| (165 | ) | | | (165 | ) | ||||||||||||
Other, net |
52 | (136 | ) | (38 | ) | | (122 | ) | |||||||||||
Net cash used by investing activities |
52 | (301 | ) | (38 | ) | | (287 | ) | |||||||||||
Cash flows from financing activities: |
|||||||||||||||||||
Repayment of commercial paper, net |
(853 | ) | | | | (853 | ) | ||||||||||||
Proceeds from fixed-rate notes |
747 | | | | 747 | ||||||||||||||
Dividends paid |
(283 | ) | | | | (283 | ) | ||||||||||||
Other, net |
(82 | ) | (2 | ) | (1 | ) | | (85 | ) | ||||||||||
Net cash used by financing activities |
(471 | ) | (2 | ) | (1 | ) | | (474 | ) | ||||||||||
Cash sweep/funding by parent |
709 | (488 | ) | (221 | ) | | | ||||||||||||
Net decrease in cash and equivalents |
(46 | ) | | 39 | | (7 | ) | ||||||||||||
Cash and equivalents at beginning of period |
746 | | 875 | | 1,621 | ||||||||||||||
Cash and equivalents at end of period |
$ | 700 | $ | | $ | 914 | $ | | $ | 1,614 | |||||||||
Six Months Ended June 29, 2008 | |||||||||||||||||||
Net cash provided by operating activities |
$ | (46 | ) | $ | 1,513 | $ | (16 | ) | $ | | $ | 1,451 | |||||||
Cash flows from investing activities: |
|||||||||||||||||||
Purchases of available-for-sale securities |
(1,187 | ) | (27 | ) | (33 | ) | | (1,247 | ) | ||||||||||
Sales/maturities of available-for-sale securities |
1,163 | 23 | | | 1,186 | ||||||||||||||
Other, net |
(1 | ) | (207 | ) | (27 | ) | | (235 | ) | ||||||||||
Net cash used by investing activities |
(25 | ) | (211 | ) | (60 | ) | | (296 | ) | ||||||||||
Cash flows from financing activities: |
|||||||||||||||||||
Purchases of common stock |
(660 | ) | | | | (660 | ) | ||||||||||||
Repayment of fixed-rate notes |
(500 | ) | | | | (500 | ) | ||||||||||||
Dividends paid |
(257 | ) | | | | (257 | ) | ||||||||||||
Other, net |
113 | (1 | ) | (1 | ) | | 111 | ||||||||||||
Net cash used by financing activities |
(1,304 | ) | (1 | ) | (1 | ) | | (1,306 | ) | ||||||||||
Cash sweep/funding by parent |
1,398 | (1,301 | ) | (97 | ) | | | ||||||||||||
Net decrease in cash and equivalents |
23 | | (174 | ) | | (151 | ) | ||||||||||||
Cash and equivalents at beginning of period |
1,875 | | 1,016 | | 2,891 | ||||||||||||||
Cash and equivalents at end of period |
$ | 1,898 | $ | | $ | 842 | $ | | $ | 2,740 |
-26-
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except per share amounts or unless otherwise noted)
Business Overview
General Dynamics offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding
design and construction; and information systems, technologies and services. We operate through four business groups Aerospace, Combat Systems, Marine Systems, and Information Systems and Technology. Our primary customers are the U.S.
military, other U.S. government organizations, the armed forces of other nations, and a diverse base of corporate, government and individual owners of business aircraft. We operate in two primary markets: defense and business aviation. The majority
of our revenues derive from contracts with the U.S. military. The following discussion should be read in conjunction with our 2008 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, and with the unaudited Consolidated
Results of Operations
Consolidated Overview
Three Months Ended |
July 5
2009 |
June 29
2008 |
Variance | |||||||||||
Revenues |
$ | 8,100 | $ | 7,303 | $ | 797 | 10.9 | % | ||||||
Operating earnings |
945 | 921 | 24 | 2.6 | % | |||||||||
Operating margin |
11.7 | % | 12.6 | % | ||||||||||
Six Months Ended |
July 5
2009 |
June 29
2008 |
Variance | |||||||||||
Revenues |
$ | 16,364 | $ | 14,308 | $ | 2,056 | 14.4 | % | ||||||
Operating earnings |
1,850 | 1,782 | 68 | 3.8 | % | |||||||||
Operating margin |
11.3 | % | 12.5 | % |
General Dynamics revenues increased in the second quarter and first half of 2009 compared to the same periods in 2008, with contributions from each of our business groups. The Combat Systems group contributed the most substantial revenue growth on higher volume in its military vehicle programs and an acquisition in the groups weapons systems business. Revenues increased significantly in Marine Systems as a result of higher activity at all of the groups shipyards. In Information Systems and Technology, revenues were up in both the three- and six-month periods in all three of the groups U.S. operations. The acquisition of Jet Aviation generated the revenue growth in the Aerospace group.
In the second quarter of 2009, we generated the highest quarterly operating earnings in General Dynamics history. Operating earnings increased in both the second quarter and first six months of 2009 over the same periods in 2008, although at a lower rate than the revenue growth. As a result, overall operating margins decreased by 90 basis points in the second quarter and 120 basis points in the first six months of 2009. In the Marine Systems group, operating margins increased significantly in the second
-27-
quarter and first half of 2009 because of improved operating performance at each of the groups shipyards. Margins were lower compared to 2008 in the remainder of our business groups. Margins in the Combat Systems and Information Systems and Technology groups were impacted by an unfavorable shift in program mix. In the Aerospace group, margins were down primarily due to the addition of the lower-margin volume from the acquisition of Jet Aviation. The Aerospace groups margins in the first six months of 2009 were also impacted by write-downs of pre-owned aircraft inventories. Company-wide operating margins improved 70 basis points from the first quarter of 2009 to the second quarter on improved performance in each of our business units.
General and administrative (G&A) expenses as a percentage of sales for the first six months of 2009 and 2008 were 6.2 percent. We expect G&A expenses as a percentage of sales for the full-year 2009 to be approximately 6 percent.
Net cash provided by operating activities from continuing operations was $763 in the first half of 2009, compared with $1.5 billion in the same period in 2008. We used our cash to fund acquisitions and capital expenditures, repurchase our common stock, pay dividends and repay maturing debt. Our net debt debt less cash and equivalents and marketable securities was $2.2 billion at the end of the second quarter of 2009 compared with $2.3 billion at the end of 2008. Net debt decreased after giving effect to $283 of dividends paid, $257 of company-sponsored research and development, $170 of capital expenditures, $165 spent on acquisitions and $109 of share repurchases during the first six months of the year.
Net interest expense in the first six months of 2009 increased by $46 over the same period in 2008 to $77 due to the issuance of additional debt in 2008 and 2009 and lower interest income on a reduced invested cash balance. We expect full-year net interest expense of approximately $150.
Our effective tax rate for the six-month period ended July 5, 2009, was 31.6 percent compared with 30.8 percent in the same period in 2008. In the second quarter of 2008, the Joint Committee on Taxation of the Congress approved a proposed settlement between General Dynamics and the U.S. Department of Justice related to a tax refund suit. This resulted in a $35 or approximately $0.09 per-share benefit in the second quarter of 2008, which reduced the tax rate for the first half of 2008 by 200 basis points. We anticipate an effective tax rate of approximately 31.5 percent for the full-year 2009, compared with 31.2 percent in 2008. For additional discussion of tax matters, see Note I to the unaudited Consolidated Financial Statements.
Our total backlog as of July 5, 2009, was $67.6 billion, down 5 percent from $71.1 billion at the end of the first quarter. Funded backlog was $47.7 billion at the end of the second quarter compared to $49.2 billion at the end of the first quarter. The backlog at the end of the second quarter remained up more than 20 percent compared with the year-ago second quarter. Our total backlog does not include work awarded under unfunded indefinite delivery, indefinite quantity (IDIQ) contracts, unexercised options associated with existing firm contracts or options to purchase new aircraft, which we refer to collectively as estimated potential contract value. As of July 5, 2009, managements estimate of this potential contract value, which we expect to realize over the next 10 to 15 years, was approximately $17.7 billion, down slightly from $17.9 billion at the end of the first quarter.
-28-
Aerospace
Three Months Ended |
July 5
2009 |
June 29
2008 |
Variance | ||||||||||||
Revenues |
$ | 1,415 | $ | 1,329 | $ | 86 | 6.5 | % | |||||||
Operating earnings |
215 | 240 | (25 | ) | (10.4 | )% | |||||||||
Operating margin |
15.2 | % | 18.1 | % | |||||||||||
Aircraft deliveries (in units): |
|||||||||||||||
Green |
26 | 39 | (13 | ) | (33.3 | )% | |||||||||
Completion |
31 | 40 | (9 | ) | (22.5 | )% | |||||||||
Six Months Ended |
July 5
2009 |
June 29
2008 |
Variance | ||||||||||||
Revenues |
$ | 2,870 | $ | 2,608 | $ | 262 | 10.0 | % | |||||||
Operating earnings |
415 | 476 | (61 | ) | (12.8 | )% | |||||||||
Operating margin |
14.5 | % | 18.3 | % | |||||||||||
Aircraft deliveries (in units): |
|||||||||||||||
Green |
57 | 76 | (19 | ) | (25.0 | )% | |||||||||
Completion |
65 | 76 | (11 | ) | (14.5 | )% |
The Aerospace groups revenues increased in the second quarter and first half of 2009 over 2008 as a result of the addition of Jet Aviation, which was acquired in the fourth quarter of 2008. The global economic crisis has impacted Gulfstream in 2009. Revenues decreased 16 percent in the second quarter and 12 percent in the first half of 2009 compared to the same periods in 2008. Since late 2008, the business-jet market has experienced customer defaults on aircraft contracts, a decline in aircraft order activity and a glut of pre-owned aircraft inventory.
As a result of these conditions, the Aerospace group has produced and delivered fewer aircraft in 2009 than in 2008. In line with the revised production plan, new-aircraft revenues were down 20 percent in the second quarter and 14 percent in the first half of 2009 compared with the prior year. In addition, aircraft services revenues were down 21 percent organically in the quarter and 15 percent year-to-date in 2009, as customer deferrals of optional aircraft maintenance activities and intensified price competition have reduced the groups services volume in 2009. Pre-owned aircraft revenues increased in 2009 as the group sold two pre-owned aircraft for $57 in the first half of 2009 compared with two sales for $17 in the first half of 2008.
-29-
Market conditions also led to a decline in the groups operating earnings for the second quarter and first six months of 2009 compared to the prior-year periods. The net reduction in earnings consisted of the following factors:
Second Quarter | Six Months | |||||||
Aircraft manufacturing and completions |
$ | | $ | 18 | ||||
Pre-owned aircraft |
(3 | ) | (25 | ) | ||||
Aircraft services |
(4 | ) | 1 | |||||
Other |
(18 | ) | (55 | ) | ||||
Total decrease in operating earnings |
$ | (25 | ) | $ | (61 | ) |
Despite the decline in new aircraft deliveries in 2009, aircraft manufacturing and completion earnings were steady in the second quarter and increased in the first half of 2009 as a result of the addition of Jet Aviations completions business, a favorable mix of aircraft deliveries, liquidated damages received on defaulted aircraft contracts, and cost-reduction efforts at Gulfstream that resulted in improved manufacturing margins. The group continues to reduce costs through production improvements and operational efficiencies to maintain operating margins in the aircraft manufacturing process, including almost $45 of indirect cost savings in the first half of 2009. As a result, second quarter 2009 manufacturing margins at Gulfstream improved 360 basis points over the second quarter of 2008 and 150 basis points over the first quarter of 2009.
Given the state of the pre-owned market, the group wrote down the carrying value of its pre-owned aircraft inventory in the first quarter of 2009. The group has worked to minimize its exposure to pre-owned aircraft inventory in 2009 and as a result, limited its loss on the sale of pre-owned aircraft to $2 and had no additional inventory write-downs in the second quarter. The group had six pre-owned aircraft in inventory at the end of the second quarter, one of which is under contract for delivery in the third quarter.
Aircraft services earnings, which include Jet Aviations maintenance and repair activities, fixed-base operations and aircraft management services, were down slightly in the second quarter but remained steady in the first six months of 2009 compared with 2008. The group is experiencing competitive pressure on its aircraft services margins due to the market-wide reduction in maintenance and repair volume.
The groups operating earnings in 2009 were also impacted by severance costs associated with workforce reduction activities and intangible asset amortization related to the Jet Aviation acquisition. As a result, the groups overall operating margins were down 290 basis points in the quarter and 380 basis points in the first six months of 2009 compared to the same periods in 2008, with the first quarter of 2009 accounting for the majority of the first-half decline. Second-quarter 2009 operating margins were 150 basis points higher than the first quarter 2009.
We expect revenues in the Aerospace group for the full-year 2009 to be down approximately 5 percent compared with 2008 despite a full year of Jet Aviation results because of the impact of the reduced aircraft-production schedule. The groups quarterly revenues and operating margins are likely to decline in the second half of the year, particularly in the third quarter as a result of a planned workforce furlough. We expect the groups full-year operating margins to be down from 2008 to a range between 13.3 and 13.5 percent due to the addition of Jet Aviation, losses incurred to date in the pre-owned market and pressures on pricing in the groups services business.
-30-
Combat Systems
Three Months Ended |
July 5
2009 |
June 29
2008 |
Variance | |||||||||||
Revenues |
$ | 2,405 | $ | 2,015 | $ | 390 | 19.4 | % | ||||||
Operating earnings |
300 | 282 | 18 | 6.4 | % | |||||||||
Operating margin |
12.5 | % | 14.0 | % | ||||||||||
Six Months Ended |
July 5
2009 |
June 29
2008 |
Variance | |||||||||||
Revenues |
$ | 4,812 | $ | 4,012 | $ | 800 | 19.9 | % | ||||||
Operating earnings |
579 | 541 | 38 | 7.0 | % | |||||||||
Operating margin |
12.0 | % | 13.5 | % |
The Combat Systems group was our revenue growth leader in the second quarter and first half of 2009 compared to the same prior-year periods. Strong volume in the groups U.S. military vehicle business and the acquisition of AxleTech International (AxleTech) resulted in nearly 20 percent growth in the three- and six-month periods ended July 5, 2009. The groups organic growth was 14 percent for both periods. The increase in the groups revenues consisted of the following:
Second Quarter | Six Months | ||||||
U.S. military vehicles |
$ | 272 | $ | 529 | |||
Weapons systems |
121 | 210 | |||||
Munitions |
11 | 57 | |||||
European military vehicles |
(14 | ) | 4 | ||||
Total increase in revenues |
$ | 390 | $ | 800 |
The increase in U.S. military vehicle revenues was driven primarily by higher activity on the Stryker wheeled combat vehicle program, as well as several contracts in support of the Abrams main battle tank, including the System Enhancement Package (SEP) upgrade and M1A1 Abrams tank kits for Egypt. Revenues also increased because of the acquisition of AxleTech in the fourth quarter of 2008. In the groups munitions business, revenues were up in the second quarter and first half of 2009 from higher activity on munitions supply contracts for the United States and Canada. Revenues decreased slightly in the European military vehicle business compared to the second quarter of 2008 because of fewer deliveries on several vehicle production programs, including the Pandur wheeled armored vehicle contract for Portugal and the Piranha wheeled armored vehicle contracts for Belgium and Romania. In the first six months of 2009, revenues were steady in Europe as lower activity on vehicle production programs was offset by increased volume on arms and munitions and mobile bridge programs.
The Combat Systems groups operating earnings increased in the second quarter and first six months of 2009, though operating margins decreased 150 basis points in both periods. The groups margins in 2008 were unusually high because of a favorable program mix, most notably within the mine-resistant, ambush-protected (MRAP) vehicle program. Operating margins for the second quarter 2009 showed a 90 basis-point improvement over first quarter 2009, driven by productivity improvements across all of the North American operations.
We expect 2009 full-year revenue growth in Combat Systems of about 22 percent over 2008 with margins in the mid-12 percent range.
-31-
Marine Systems
Three Months Ended |
July 5
2009 |
June 29
2008 |
Variance | |||||||||||
Revenues |
$ | 1,625 | $ | 1,394 | $ | 231 | 16.6 | % | ||||||
Operating earnings |
168 | 127 | 41 | 32.3 | % | |||||||||
Operating margin |
10.3 | % | 9.1 | % | ||||||||||
Six Months Ended |
July 5
2009 |
June 29
2008 |
Variance | |||||||||||
Revenues |
$ | 3,294 | $ | 2,772 | $ | 522 | 18.8 | % | ||||||
Operating earnings |
331 | 249 | 82 | 32.9 | % | |||||||||
Operating margin |
10.0 | % | 9.0 | % |
The Marine Systems group generated significant increases in revenues and operating earnings in the second quarter and first six months of 2009 over the same prior-year periods. Each of the groups shipyards contributed to this revenue growth:
Second Quarter | Six Months | |||||
Multi-year Navy ship construction |
$ | 128 | $ | 366 | ||
Other Navy ship design and construction, engineering and repair |
81 | 110 | ||||
Commercial ship construction |
22 | 46 | ||||
Total increase in revenues |
$ | 231 | $ | 522 |
The groups multi-year ship-construction programs for the U.S. Navy include submarines (Virginia Class), combat-logistics ships (T-AKE) and destroyers (DDG-51 and DDG-1000). Increased activity on the Virginia-class program was the principal driver of the groups revenue growth in 2009. The group continued building the remaining five submarines under the Block II contract and ramp-up activities on the eight-ship Block III contract, which was awarded in the fourth quarter of 2008. The second Block II ship is scheduled for delivery in the third quarter of 2009, and deliveries on the Block II and III contracts are scheduled through 2019.
Activity on the groups 14-ship T-AKE program was down slightly in the second quarter but up year-to-date in 2009 as construction continued on the eighth through 11 th ships. The group delivered the seventh T-AKE in the first quarter of 2009, the eighth ship is scheduled for delivery in the third quarter of 2009 and deliveries of the remaining ships are scheduled through 2012.
-32-
Destroyer construction revenues were up as activity increased on the groups design and production contracts for the DDG-1000 next-generation destroyer, while the workload on the DDG-51 Arleigh Burke program decreased slightly, in line with our expectations. The group began construction of the first DDG-1000 in 2009 and continued work on the remaining four DDG-51s under contract, one of which delivered shortly after the end of the quarter. DDG-51 deliveries are scheduled through 2011.
In addition to the large, multi-ship programs, volume increased significantly in the second quarter and first half of 2009 on engineering and repair programs for the Navy. In commercial shipbuilding, volume was up on the groups five-ship product carrier program in the first half of the year. The first two ships under contract were delivered in the first half of 2009, and construction is in process on the remaining three ships. The third ship is scheduled to be delivered in the fourth quarter of 2009. The current construction plan includes deliveries through the fourth quarter of 2010.
Improved performance at each of the Marine Systems groups shipyards resulted in substantial operating earnings growth in 2009. Given the efficiencies achieved at all of the shipyards, the group increased earnings rates on several key programs in 2009, including the Virginia-class, DDG-51, DDG-1000 and commercial product carrier programs. As a result, the groups operating margins increased 120 basis points in the second quarter and 100 basis points in the first half of 2009 compared with 2008. This performance is particularly notable following 24 percent earnings growth and 100 basis points of margin improvement in the full-year 2008 over 2007. As the groups workload increases, we remain focused on achieving continued operational efficiencies across the shipyards.
We expect full-year 2009 revenue growth in the Marine Systems group of approximately 16 percent based on the groups significant increase in volume thus far in 2009. We expect full-year operating margins in the group to increase approximately 40 to 50 basis points compared to the 9.4 percent margins achieved in the full-year 2008.
Information Systems and Technology
Three Months Ended |
July 5
2009 |
June 29
2008 |
Variance | ||||||||||||
Revenues |
$ | 2,655 | $ | 2,565 | $ | 90 | 3.5 | % | |||||||
Operating earnings |
284 | 292 | (8 | ) | (2.7 | )% | |||||||||
Operating margin |
10.7 | % | 11.4 | % |
Six Months Ended |
July 5
2009 |
June 29
2008 |
Variance | |||||||||||
Revenues |
$ | 5,388 | $ | 4,916 | $ | 472 | 9.6 | % | ||||||
Operating earnings |
573 | 552 | 21 | 3.8 | % | |||||||||
Operating margin |
10.6 | % | 11.2 | % |
-33-
The Information Systems and Technology groups revenues increased in the second quarter and first six months of 2009 compared with the same periods in 2008. This included organic growth of 1 percent in the second quarter and 7 percent in the first half of 2009. Acquisitions in the groups IT services business provided the balance of the growth. The increase in the groups revenues derived from each of the groups market segments and consisted of the following:
Second Quarter | Six Months | |||||
Information technology (IT) and mission services |
$ | 38 | $ | 200 | ||
Tactical and strategic mission systems |
24 | 187 | ||||
Intelligence mission systems |
28 | 85 | ||||
Total increase in revenues |
$ | 90 | $ | 472 |
Revenues in the groups IT services business increased in both periods driven principally by additional volume from recent acquisitions. In the second quarter of 2009, organic revenues in the IT services business were down because of lower commercial wireless activity and decreased volume on the groups Network-Centric Solutions (NETCENTS) contract compared to the second quarter of 2008. Organic IT services revenues were up in the first six months of 2009 from increased volume on the groups IT infrastructure programs, including its New Campus East (NCE) contract for the National Geospatial Intelligence Agency and the Technology Operations and Maintenance Infrastructure Support (TOMIS) contract for the U.S. Bureau of Citizenship and Immigration.
Revenues in the tactical systems business in the second quarter were up primarily as a result of increased activity on several of the groups battle management systems programs. In the first half of 2009, tactical systems revenues increased from higher activity on several key U.S. military programs, including the Warfighter Information Network Tactical (WIN-T) program and the Common Hardware/Software III (CHS-3) program.
In the groups intelligence systems business, volume has increased in 2009 on several integrated combat systems contracts, cyber forensics programs and a contract to build the spacecraft for NASAs Landsat Data Continuity Mission.
Operating earnings in the Information Systems and Technology group were down slightly in the second quarter of 2009, but increased over the first half of 2008. The groups contract mix in 2009 includes a higher percentage of lower-margin services contracts. This shift resulted in a 70-basis-point decrease in the groups operating margins in the quarter and a 60-basis-point decrease year-to-date compared to 2008. The groups operating margins remained steady from the first quarter to the second quarter of 2009.
We expect Information Systems and Technology to generate revenue growth of approximately 8 percent for the full year 2009. Based on the groups scheduled program mix for 2009, we expect full-year operating margins to decline approximately 30 to 40 basis points compared to the 10.7 percent margins achieved in 2008.
-34-
Corporate
Corporate results consist primarily of compensation expense for stock options and a portion of the results from our commercial pension plans. Corporate operating expenses totaled $22 in the second quarter of 2009 compared with $20 in the
second quarter of 2008. Year-to-date Corporate operating expenses were $48 in the first six months of 2009 compared with $36 in the same period in 2008. The increase in both periods resulted primarily from higher stock option expense. We expect 2009
Backlog
The following table details the backlog and the total estimated contract value of each business group at the end of the second and first quarters of 2009:
July 5, 2009 | Funded | Unfunded |
Total
Backlog |
Estimated
Potential Contract Value |
Total
Estimated Contract Value |
||||||||||
Aerospace |
$ | 19,306 | $ | 570 | $ | 19,876 | $ | 1,633 | $ | 21,509 | |||||
Combat Systems |
11,494 | 1,364 | 12,858 | 2,451 | 15,309 | ||||||||||
Marine Systems |
8,645 | 15,724 | 24,369 | 1,241 | 25,610 | ||||||||||
Information Systems and Technology |
8,208 | 2,297 | 10,505 | 12,372 | 22,877 | ||||||||||
Total |
$ | 47,653 | $ | 19,955 | $ | 67,608 | $ | 17,697 | $ | 85,305 | |||||
April 5, 2009 | |||||||||||||||
Aerospace |
$ | 20,179 | $ | 590 | $ | 20,769 | $ | 2,071 | $ | 22,840 | |||||
Combat Systems |
11,746 | 2,724 | 14,470 | 2,112 | 16,582 | ||||||||||
Marine Systems |
9,431 | 16,031 | 25,462 | 1,208 | 26,670 | ||||||||||
Information Systems and Technology |
7,795 | 2,629 | 10,424 | 12,556 | 22,980 | ||||||||||
Total |
$ | 49,151 | $ | 21,974 | $ | 71,125 | $ | 17,947 | $ | 89,072 |
Defense Businesses
The total backlog for our defense businesses represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of this backlog includes items that have been authorized and appropriated by the Congress and funded by the customer, as well as commitments by international customers that are similarly approved and funded by their governments. The unfunded backlog for the defense businesses represents firm orders that do not meet these criteria. While there is no guarantee that future budgets and appropriations will provide funding for a given program, we have included in the backlog only firm contracts we believe are likely to receive funding. Our backlog does not include work awarded under unfunded indefinite delivery, indefinite quantity (IDIQ) contract awards or unexercised options. The estimated potential contract value represents managements estimate of the potential value we will receive under these arrangements.
IDIQ contracts are used when the customer has not defined the exact timing and quantity of deliveries that will be required at the time the contract is executed. These agreements, which set forth the majority of the contractual terms, including prices, are funded as delivery orders are placed. A significant portion of our IDIQ value represents contracts for which we have been designated as the
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sole-source supplier to design, develop, produce and integrate complex products and systems over several years for the military or other government agencies. Management believes the customers intend to fully implement these systems. The estimated potential contract value also includes our estimate of the value we will receive under multiple-award IDIQ contracts in which we are one of several companies competing for task orders under the contract. Because the value of these arrangements is subject to the customers future exercise of an indeterminate quantity of delivery orders, we recognize these contracts in backlog only when they are funded.
Contract options in our defense businesses represent agreements to perform additional work beyond the products and services associated with firm contracts, if the customer exercises the option. These options are negotiated in conjunction with a firm contract and provide the terms under which the customer may elect to procure additional units or services at a future date. We recognize unexercised options in backlog when the customer exercises the option and establishes a firm order.
Our defense businesses received $4.7 billion of new awards during the second quarter of 2009. The Information Systems and Technology group continued to generate particularly strong order activity in the quarter, achieving a book-to-bill ratio of 1.0 or higher for the seventh time in the past eight quarters. The quarter-end backlog reflects a reduction of approximately $930 for the U.S. Armys termination of the manned ground vehicle portion of the Future Combat Systems (FCS) program. The Army is currently considering its alternatives for combat vehicle modernization requirements, which we expect to provide additional opportunities for Combat Systems. The orders in the second quarter included several notable contract awards.
Combat Systems awards included the following:
|
Approximately $770 of orders for wheeled combat vehicles, including a $450 international order and a $320 order from the U.S. Army for the production of Stryker wheeled armored vehicles and related support. |
|
Approximately $75 from the Army for the production of M2HB machine guns. This contract has a potential value of approximately $400. |
Marine Systems awards included the following:
|
Approximately $410 from the U.S. Navy for our second Littoral Combat Ship (LCS). |
Information Systems and Technology awards included the following:
|
Approximately $180 in orders under the CHS-3 program, bringing the total contract value to $1.9 billion. CHS-3 provides commercial and ruggedized computers, network equipment and software to the U.S. armed forces and other U.S. federal agencies worldwide. |
|
Approximately $12 to develop the antenna feed for the next-generation military satellite communications terminals under the Armys Modernization of Enterprise Terminals (MET) program. This contract has a potential value of $200. |
|
Combined orders totaling approximately $375 under the BOWMAN communications program for the United Kingdom to upgrade the systems capabilities and provide long-term technical support, including repair, field services and spares. |
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Following the end of the quarter, the Information Systems and Technology group was selected as one of several awardees under two IDIQ programs. The group is one of three awardees under the Advanced Technical Exploitation Program (ATEP), which has a potential value of $600 among all awardees, to provide intelligence analysis, software systems development and support, and sensor exploitation research and development of space-based and airborne sensor data. The group was also one of four awardees to receive a contract under the U.S. Department of Homeland Security National Communications Systems (NCS) National Security and Emergency Preparedness Scientific, Engineering and Technical Assistance program to provide support to NCS national security/emergency preparedness (NS/EP) programs, including networking, emergency communications, national policy, operations, restoration protocols, industry and government guidelines, and pursuing new technical initiatives. The program has a potential value of $390 among all awardees.
In addition, in July 2009, the Combat Systems group was chosen as the prime contractor and systems integrator for the Canadian governments LAV III upgrade program. While the Canadian government is in the process of defining the scope of the vehicle upgrades, the program has a potential value of more than $850. The U.S. Army also awarded the Combat Systems group orders totaling approximately $100 for Stryker and Abrams programs after the end of the quarter.
Aerospace
The Aerospace funded backlog represents orders for which we have definitive purchase contracts and deposits from the customer. The Aerospace unfunded backlog consists of agreements to provide future aircraft maintenance and support services. The Aerospace estimated potential contract value represents options to purchase new aircraft, including long-term agreements with fleet customers.
The pace of new-aircraft order activity increased substantially in the second quarter of 2009. The group achieved a new-aircraft book-to-bill ratio (orders divided by revenues) of 1.0 and, excluding the launch of the G650 in 2008, generated the highest quarterly order total since the second quarter of 2008. In particular, large-cabin orders have picked up considerably in recent months. This renewed order activity has helped to solidify the large-cabin backlog and, in turn, our production planning. Conversely, orders for mid-size aircraft have remained slow. The mid-size market has been influenced by large inventories of pre-owned aircraft and unsold newly built aircraft, resulting in considerable pricing pressure. We have managed mid-size production to prevent a build-up of unsold inventory and do not expect the pressures on the mid-size segment to have a material impact on the Aerospace groups 2009 results. We will continue to monitor this segment of the market as we develop our 2010 delivery plan.
The group also experienced a significant reduction in customer defaults in the second quarter of 2009. While new-aircraft orders outpaced defaults in the quarter, the defaults and deliveries led to a decline in the groups backlog to $19.9 billion from $20.8 billion in the first quarter. While risk remains in the groups backlog, particularly in the event of additional economic shocks, we will continue to work to mitigate any further backlog deterioration. We will also continue to assess aircraft production requirements and will modify the groups production and delivery schedule as necessary based on the state of the backlog and the business-jet market.
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Financial Condition, Liquidity and Capital Resources
We ended the second quarter of 2009 with a cash balance of $1.6 billion, the same balance that we had at the end of 2008. Our net debt was $2.2 billion, down slightly from $2.3 billion at the end of the year. Following is a discussion of the major components of our operating, investing and financing activities, as classified on the Consolidated Statement of Cash Flows, in the first half of 2009 and 2008.
Operating Activities
We generated cash from operating activities from continuing operations of $763 in the first half of 2009 compared with $1.5 billion in the same period in 2008. Operating cash flow in the first half of 2009 can be attributed primarily to net earnings, offset by the draw-down of customer deposits in the Aerospace group. In the first half of 2008, net earnings and a build-up of customer deposits associated with aircraft orders, including the introduction of the G650, were the major components of operating cash flow. Customer deposits are down in 2009 compared with 2008 due to the deterioration of global economic conditions and the resulting reduction in aircraft order activity.
As discussed further in Note K to the unaudited Consolidated Financial Statements, litigation on the A-12 contract termination has been ongoing since 1991. If, contrary to our expectations, the default termination ultimately is sustained, we, along with The Boeing Company, could collectively be required to repay the U.S. government as much as $1.4 billion for progress payments received for the A-12 contract, plus interest, which was approximately $1.4 billion at July 5, 2009. If this were the outcome, we would owe half of the total, or approximately $1.4 billion pretax. Our after-tax cash obligation would be approximately $705. We believe we have sufficient resources to pay such an obligation, if required.
Investing Activities
Net cash used for investing activities was $287 for the first six months of 2009, compared with $296 in the same period in 2008. The primary uses of cash in investing activities were business acquisitions and capital expenditures. We completed one acquisition for approximately $165 in the first half of 2009 and one acquisition for approximately $65 in the first half of 2008. See Note B to the unaudited Consolidated Financial Statements for further discussion of acquisition activity. We expect full-year capital expenditures to be less than 2 percent of revenues.
In the second quarter of 2009, we signed an agreement to acquire Axsys Technologies, Inc. (Axsys), of Rocky Hill, Connecticut, for $643. Axsys designs and manufactures high-performance electro-optical and infrared (EO/IR) sensors and systems and multi-axis stabilized cameras for customers including the U.S. military and homeland security agencies. We are awaiting regulatory and Axsys shareholder approval for the transaction and expect to close the acquisition in the third quarter of 2009. We plan to finance the acquisition using cash on hand.
Financing Activities
We used $474 for financing activities in the six-month period ended July 5, 2009, compared with $1.3 billion in the same period in 2008. Our typical financing activities are issuances and repayments of debt, payment of dividends and repurchases of common stock. Net cash from financing activities also includes proceeds received from stock option exercises.
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On June 24, 2009, we issued $750 of two-year fixed-rate debt pursuant to a Form S-3 Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 on December 8, 2008. We used the proceeds to repay borrowings under our commercial paper program and for other general corporate purposes.
Net repayments of commercial paper in the first six months of 2009 were $853, resulting in $50 of commercial paper outstanding at the end of the second quarter. We had no commercial paper outstanding at the end of the second quarter of 2008. In the first half of 2008, we repaid $500 of fixed-rate debt on the scheduled maturity date. We have approximately $1.8 billion in bank credit facilities that have not been drawn upon, but which back up our commercial paper program. There are no material repayments of long-term debt scheduled until the third quarter of 2010.
On March 4, 2009, our board of directors declared an increased quarterly dividend of $0.38 per share the 12th consecutive annual increase. The board had previously increased the quarterly dividend to $0.35 per share in March 2008.
In the first six months of 2009, we repurchased 2.1 million of our outstanding shares on the open market. In the first six months of 2008, we repurchased 8.3 million shares. As of July 5, 2009, approximately 2.7 million shares remained authorized for repurchase by our board of directors.
Free Cash Flow
Our free cash flow from operations for the first six months of 2009 was $593 compared with $1.3 billion for the same period in 2008. We define free cash flow from operations as net cash provided by operating activities from continuing operations less capital expenditures. We believe free cash flow from operations is a useful measure for investors, because it portrays our ability to generate cash from our core businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a performance measure in evaluating management. The following table reconciles free cash flow from operations with net cash provided by operating activities from continuing operations, as classified on the unaudited Consolidated Statement of Cash Flows:
Six Months Ended |
July 5
2009 |
June 29
2008 |
||||||
Net cash provided by operating activities from continuing operations |
$ | 763 | $ | 1,456 | ||||
Capital expenditures |
(170 | ) | (200 | ) | ||||
Free cash flow from operations |
$ | 593 | $ | 1,256 | ||||
Cash flows as a percentage of earnings from continuing operations: |
||||||||
Net cash provided by operating activities from continuing operations |
63 | % | 120 | % | ||||
Free cash flow from operations |
49 | % | 103 | % |
We expect to continue to generate funds from operations in excess of our short- and long-term liquidity needs. We believe we have adequate funds on hand and sufficient borrowing capacity to execute our financial and operating strategy.
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Additional Financial Information
Environmental Matters and Other Contingencies
For a discussion of environmental matters and other contingencies, see Note K to the unaudited Consolidated Financial Statements. We do not expect our aggregate liability with respect to these matters to have a material impact on our results of operations, financial condition or cash flows.
Application of Critical Accounting Policies
Managements Discussion and Analysis of our Financial Condition and Results of Operations is based on our unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to long-term contracts and programs, goodwill and other intangible assets, income taxes, pensions and other post-retirement benefits, workers compensation, warranty obligations, pre-owned aircraft inventory, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a full discussion of our critical accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2008.
New Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB), issued Statement of Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles A Replacement of FASB Statement No. 162. SFAS 168 establishes the FASB Accounting Standards Codification as the single source of authoritative U.S. GAAP. SFAS 168 and the Codification are effective in the third quarter of 2009. SFAS 168 does not otherwise modify existing GAAP.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). SFAS 167 changes the determination of whether a variable interest entity that is insufficiently capitalized or is not controlled through voting rights should be consolidated, and requires new disclosures regarding variable interest entities. SFAS 167 is effective in the first quarter of 2010. We do not expect the adoption of SFAS 167 to have a material effect on our results of operations, financial condition or cash flows.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes with respect to this item from the disclosure included in our Annual Report on Form 10-K for the year
ITEM 4. CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) on July 5, 2009. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, on July 5, 2009, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting that occurred during the quarter ended July 5, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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This quarterly report on Form 10-Q contains forward-looking statements that are based on managements expectations, estimates, understandings, projections and assumptions. Words such as expects, anticipates, plans, believes, scheduled, estimates and variations of these words and similar expressions are intended to identify forward-looking statements. These include but are not limited to projections of revenues, earnings, segment performance, cash flows, contingent liabilities, contract awards, aircraft production, deliveries and backlog stability. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve certain risks and uncertainties that 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:
|
general U.S. and international political and economic conditions, including the current U.S. recession and global economic downturn; |
|
changing priorities in the U.S. governments defense budget (including the outcome of supplemental defense spending measures, and changes in priorities in response to terrorist threats, continuing operations in Afghanistan and Iraq, and improved homeland security); |
|
termination or restructuring of government contracts due to unilateral government action; |
|
differences in anticipated and actual program performance, including the ability to perform under long-term fixed-price contracts within estimated costs, and performance issues with key suppliers and subcontractors; |
|
expected recovery on contract claims and requests for equitable adjustment; |
|
changing customer demand or preferences for business aircraft, including the effects of economic conditions on the business-aircraft market; |
|
potential for changing prices for energy and raw materials; and |
|
the status or outcome of legal and/or regulatory proceedings. |
All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the company or any person acting on the companys behalf are qualified by the cautionary statements in this section. We do not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.
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For information relating to legal proceedings, see Note K to the unaudited Consolidated Financial Statements contained in Part I, Item 1 of this quarterly report on Form 10-Q.
There have been no material changes with respect to this item from the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) | The Annual Meeting of Shareholders of the company, for which proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, was held on May 6, 2009. |
(b) | In an uncontested election, each of the following nominees was elected to the Board of Directors according to the following votes: |
For | Against | Abstain | ||||
Election of Directors: |
||||||
N.D. Chabraja |
334,975,931 | 12,245,517 | 1,196,610 | |||
J.S. Crown |
325,022,382 | 22,177,489 | 1,218,187 | |||
W.P. Fricks |
334,119,867 | 13,087,050 | 1,211,141 | |||
J.L. Johnson |
336,129,602 | 11,083,782 | 1,204,674 | |||
G.A. Joulwan |
333,705,379 | 13,435,891 | 1,276,788 | |||
P.G. Kaminski |
336,782,898 | 10,353,376 | 1,281,784 | |||
J.M. Keane |
338,843,392 | 8,318,673 | 1,255,993 | |||
D.J. Lucas |
339,023,885 | 8,138,122 | 1,256,051 | |||
L.L. Lyles |
336,639,407 | 10,506,489 | 1,272,162 | |||
J.C. Reyes |
338,655,134 | 8,481,440 | 1,281,484 | |||
R. Walmsley |
329,330,063 | 17,795,739 | 1,292,256 |
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(c) | The results of voting on Proposals 2 through 6 (as numbered in the companys 2009 Proxy Statement) were as follows: |
Proposal 2. Shareholders approved the General Dynamics 2009 Equity Compensation Plan.
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4.1 | Fifth Supplemental Indenture dated as of June 24, 2009, among the Company, the Guarantors (as defined therein) and The Bank of New York Mellon, as Trustee (incorporated herein by reference from the companys current report on Form 8-K, filed with the Commission June 24, 2009) | |
10.1* | General Dynamics 2009 Equity Compensation Plan, as amended (incorporated herein by reference from the companys registration statement on Form S-8 (No. 333-159038) filed with the Commission May 7, 2009) | |
10.2* | Form of Incentive Stock Option Agreement pursuant to the General Dynamics Corporation 2009 Equity Compensation Plan** | |
10.3* | Form of Non-Statutory Stock Option Agreement pursuant to the General Dynamics Corporation 2009 Equity Compensation Plan** | |
10.4* | Form of Restricted Stock Award Agreement pursuant to the General Dynamics Corporation 2009 Equity Compensation Plan** | |
10.5* | Form of Restricted Stock Unit Award Agreement pursuant to the General Dynamics Corporation 2009 Equity Compensation Plan** | |
10.6* | General Dynamics United Kingdom Share Save Plan (incorporated herein by reference from the companys registration statement on Form S-8 (No. 333-159045) filed with the Commission May 7, 2009) | |
31.1 | Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** | |
31.2 | Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** | |
32.1 | Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |
32.2 | Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |
101 | Interactive Data File** |
* | Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 6 of Form 10-Q. |
** | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
GENERAL DYNAMICS CORPORATION | ||
by |
/s/ John W. Schwartz |
|
John W. Schwartz | ||
Vice President and Controller | ||
(Authorized Officer and Chief Accounting Officer) |
Dated: August 4, 2009
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Exhibit 10.2
INCENTIVE STOCK OPTION AGREEMENT
PURSUANT TO THE GENERAL DYNAMICS CORPORATION
2009 EQUITY COMPENSATION PLAN
THIS OPTION AGREEMENT (the Agreement) dated as of [ ] (the Grant Date), is made between General Dynamics Corporation (the Company) and [ ] (the Optionee).
WHEREAS, the Company sponsors the General Dynamics Corporation 2009 Equity Compensation Plan (the Plan), pursuant to which the Company may grant Options to purchase shares of Common Stock;
WHEREAS, the Company desires to grant the Optionee an Incentive Stock Option to purchase the number of shares of Common Stock provided for herein; and
WHEREAS, the Company may also grant other Options to the Grantee on the Grant Date (such other Options, together with this Option, being hereinafter referred to as the Total Option Grant).
NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:
1. Grant of Option .
(a) Number of Shares; Type of Option . The Company hereby grants to the Optionee an Option to purchase [ ] shares of Common Stock (the Option Shares and, together with the shares of Common Stock subject to the Total Option Grant, the Total Option Shares) on the terms and conditions set forth in this Agreement. The Option is intended to be treated as an ISO. Incorporation of Plan by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement will be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement will have the definitions set forth in the Plan. The Committee will have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decisions will be binding and conclusive upon the Optionee and the Optionees legal representative in respect of any questions arising under the Plan or this Agreement. If there exists any inconsistency between the terms of this Agreement and the Plan, the terms contained in the Plan will govern. If there exists any inconsistency between the terms of the Option as provided for herein (including, but not limited to, terms relating to the number of Option Shares, the Stated Expiration Date, the exercise price and the exercisability of the Option) and the terms as indicated in the records maintained by Company, the terms as indicated in the records of the Company will govern.
2. Terms and Conditions .
1
(a) Exercise Price . The exercise price for the purchase of Option Shares upon the exercise of all or any portion of the Option will be $[ ] per share of Common Stock.
(b) Expiration Date . Subject to earlier expiration as provided in Section 2(e) below, the Option will expire at the close of business on the business day immediately preceding the [ ] anniversary of the date hereof (the Stated Expiration Date).
(c) Exercisability of Option . The Total Option Grant will become vested and exercisable with respect to one-half (1/2) of the Total Option Shares on the first anniversary of the Grant Date and with respect to the remaining Total Option Shares on the second anniversary of the Grant Date, in each case, only if the Optionee is employed as an employee of the Company as of the applicable vesting date or dies prior to the applicable vesting date while employed by the Company; provided, however, if, the Optionees employment is terminated as a result of one of the events specified in Section 2(e)(i) (other than death), then the Total Option Grant will become vested and exercisable on the anniversary of the Grant Date next following such termination of employment with respect to a number of Total Option Shares equal to the excess of (i) product of (A) the number of Total Option Shares and (B) a fraction, the numerator of which will be the number of days from January 1 of the year in which the Grant Date occurs to the last day of the month in which such termination of employment occurs and the denominator of which will be 730, such product to be rounded down to the nearest whole share over (ii) the number of Total Option Shares, if any, with respect to which the Total Option Grant had become vested and exercisable prior to such termination of employment (the Pro Rated Option Shares). To the extent that the Total Option Grant includes Options that are intended to be ISOs (the ISO Option Shares), the Total Option Shares that become vested and exercisable on the first anniversary of the Grant Date will all be ISO Option Shares, to the extent not inconsistent with Section 422 of the Code. The number of Pro Rated Option Shares that will be ISO Option Shares will be equal to the lesser of (i) the number of Pro Rated Option Shares or (ii) the number of ISO Option Shares that have not become vested and exercisable as of the date on which the Optionees employment terminates (the Pro Rated ISO Shares). The number of Pro Rated Option Shares that will be Total Option Shares subject to a Non-Statutory Stock Option will be equal to the excess, if any, of (i) the number of Pro Rated Option Shares over (ii) the number of Pro Rated ISO Shares. Notwithstanding the foregoing, in the event that within two (2) years following a Change in Control, the Optionees service with the Company and its affiliates is terminated (i) by the Company or any of its affiliates for any reason other than for Cause or (ii) by the Optionee for Good Reason, the Total Option Grant, to the extent then outstanding, will become immediately vested and exercisable.
(d) Method of Exercise . The exercise price for any shares purchased pursuant to the exercise of all or part of the Option will be paid in accordance with Section 10(d) of the Plan.
(e) Exercise Following Termination . Notwithstanding anything in this Agreement to the contrary, the Option will expire upon the Optionees termination of employment; provided, however that to the extent the Option is exercisable at the time of such termination or may become exercisable following such termination pursuant to the first sentence of Section 2(c) above, the Option will expire as follows:
(i) Death; Disability; Retirement; Divestiture . Three (3) years (but in no event later than the Stated Expiration Date) following the Optionees termination of
2
employment due to death, total and permanent disability, Retirement or as a result of a divestiture or discontinued operation of a division or a Subsidiary with which the Optionee was associated. For purposes of this Agreement, Retirement means, (A) with respect to an employee who is not an elected officer of the Company on the date on which the employees employment with the Company terminates, the termination of employment after the attainment of age 55 with at least five (5) or more years of continuous service and (B) with respect to an employee who is an elected officer of the Company on the date on which the employees employment with the Company terminates, termination of employment after attaining age 55 with the consent of the Chief Executive Officer of the Company.
(ii) Lay-Off . One (1) year (but in no event later than the Stated Expiration Date) following the Optionees termination of employment if the Optionees employment terminates due to lay-off (other than as a result of a divestiture or discontinued operation of a division or a Subsidiary).
(iii) Other than Death; Disability; Retirement; Divestiture; Lay-Off . Ninety (90) days (but in no event later than the Stated Expiration Date) following the Optionees termination of employment for any reason (other than those set forth in clauses (i) and (ii) above).
(f) Nontransferability . The Option granted hereunder is not transferable by the Optionee otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionees guardian or legal representative. The terms of the Option will be binding upon the beneficiaries, executors, administrators, heirs and successors of the Optionee.
3. Miscellaneous .
(a) No Right to Continued Employment . Nothing in the Plan or in this Agreement will confer upon the Optionee any right to continue in the employ of the Company nor interfere with or restrict in any way the right of the Company, which is hereby expressly reserved, to remove, terminate or discharge the Optionee at any time for any reason whatsoever, with or without cause.
(b) Modification; Entire Agreement; Waiver . No change, modification or waiver of any provision of this Agreement will be valid unless the same is agreed to in writing by the parties hereto. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supercede all prior communications, representations and negotiations in respect thereof. The failure of the Company to enforce, at any time, any provision of this Agreement will in no way be construed to be a waiver of such provision or of any other provision hereof.
(c) Bound by Plan and Other Related Documents . By accepting this Option, the Optionee acknowledges that the Optionee has received a copy of the Plan and General Dynamics Corporate Policy 03-103, Detection and Prevention of Insider Trading in General Dynamics Corporation Securities (the Trading Policy) and has had an opportunity to review the Plan and the Trading Policy and agrees to be bound by all the terms and provisions of the Plan and the Trading Policy.
3
(d) Successors . The terms of this Agreement will be binding upon and inure to the benefit of the Company, its successors and assigns, and of the beneficiaries, executors, administrators, heirs and successors of the Optionee.
4
Exhibit 10.3
NON-STATUTORY STOCK OPTION AGREEMENT
PURSUANT TO THE GENERAL DYNAMICS CORPORATION
2009 EQUITY COMPENSATION PLAN
THIS OPTION AGREEMENT (the Agreement) dated as of [ ] (the Grant Date) is made between General Dynamics Corporation (the Company) and [ ] (the Optionee).
WHEREAS, the Company sponsors the General Dynamics Corporation 2009 Equity Compensation Plan (the Plan), pursuant to which the Company may grant Options to purchase shares of Common Stock;
WHEREAS, the Company desires to grant the Optionee a Non-Statutory Stock Option to purchase the number of shares of Common Stock provided for herein; and
WHEREAS, the Company may also grant other Options to the Grantee on the Grant Date (such other Options, together with this Option, being hereinafter referred to as the Total Option Grant).
NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:
1. Grant of Option .
(a) Number of Shares; Type of Option . The Company hereby grants to the Optionee an Option to purchase [ ] shares of Common Stock (the Option Shares and, together with the shares of Common Stock subject to the Total Option Grant, the Total Option Shares) on the terms and conditions set forth in this Agreement. The Option is intended to be a Non-Statutory Stock Option.
(b) Incorporation of Plan by Reference, Etc . The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement will be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement will have the definitions set forth in the Plan. The Committee will have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decisions will be binding and conclusive upon the Optionee and the Optionees legal representative in respect of any questions arising under the Plan or this Agreement. If there exists any inconsistency between the terms of this Agreement and the Plan, the terms contained in the Plan will govern. If there exists any inconsistency between the terms of the Option as provided for herein (including, but not limited to, terms relating to the number of Option Shares, the Stated Expiration Date, the exercise price and the exercisability of the Option) and the terms as indicated in the records maintained by Company, the terms as indicated in the records of the Company will govern.
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2. Terms and Conditions .
(a) Exercise Price . The exercise price for the purchase of Option Shares upon the exercise of all or any portion of the Option will be $[ ] per share of Common Stock.
(b) Expiration Date . Subject to earlier expiration as provided in Section 2(e) below, the Option will expire at the close of business on the business day immediately preceding the fifth [ ] anniversary of the date hereof (the Stated Expiration Date).
(c) Exercisability of Option . The Total Option Grant will become vested and exercisable with respect to one-half (1/2) of the Total Option Shares on the first anniversary of the Grant Date and with respect to the remaining Total Option Shares on the second anniversary of the Grant Date, in each case, only if the Optionee is employed as an employee or serves as a director of the Company as of the applicable vesting date or dies prior to the applicable vesting date while employed by the Company or serving as a director of the Company; provided, however, if, the Optionees employment or service as a director is terminated as a result of one of the events specified in Section 2(e)(i) (other than death), then the Total Option Grant will become vested and exercisable on the anniversary of the Grant Date next following such termination with respect to a number of Total Option Shares equal to the excess of (i) product of (A) the number of Total Option Shares and (B) a fraction, the numerator of which will be the number of days from January 1 of the year in which the Grant Date occurs to the last day of the month in which such termination occurs and the denominator of which will be 730, such product to be rounded down to the nearest whole share over (ii) the number of Total Option Shares, if any, with respect to which the Total Option Grant had become vested and exercisable prior to such termination (the Pro Rated Option Shares). To the extent that the Total Option Grant includes Options that are intended to be ISOs (the ISO Option Shares), the Total Option Shares that become vested and exercisable on the first anniversary of the Grant Date will all be ISO Option Shares, to the extent not inconsistent with Section 422 of the Code. The number of Pro Rated Option Shares that will be ISO Option Shares will be equal to the lesser of (i) the number of Pro Rated Option Shares or (ii) the number of ISO Option Shares that have not become vested and exercisable as of the date on which the Optionees employment or service as a director terminates (the Pro Rated ISO Shares). The number of Pro Rated Option Shares that will be Total Option Shares subject to a Non-Statutory Stock Option will be equal to the excess, if any, of (i) the number of Pro Rated Option Shares over (ii) the number of Pro Rated ISO Shares. Notwithstanding the foregoing, in the event that within two (2) years following a Change in Control, the Optionees service with the Company and its affiliates is terminated (i) by the Company or any of its affiliates for any reason other than for Cause or (ii) by the Optionee for Good Reason, the Total Option Grant, to the extent then outstanding, will become immediately vested and exercisable.
(d) Method of Exercise . The exercise price for any shares purchased pursuant to the exercise of all or part of the Option will be paid in accordance with Section 10(d) of the Plan.
(e) Exercise Following Termination . Notwithstanding anything in this Agreement to the contrary, the Option will expire upon the Optionees termination of employment or service as a director; provided, however that to the extent the Option is exercisable at the time of such termination or may become exercisable following such termination pursuant to the first sentence of Section 2(c) above, the Option will expire as follows:
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(i) Death; Disability; Retirement; Divestiture . Three (3) years (but in no event later than the Stated Expiration Date) following the Optionees termination of employment or service as a director due to death, total and permanent disability, Retirement or as a result of a divestiture or discontinued operation of a division or a Subsidiary with which the Optionee was associated. For purposes of this Agreement, Retirement means, (A) with respect to an employee who is not an elected officer of the Company on the date on which the employees employment with the Company terminates, the termination of employment after the attainment of age 55 with at least five (5) or more years of continuous service and (B) with respect to an employee who is an elected officer of the Company on the date on which the employees employment with the Company terminates, termination of employment after attaining age 55 with the consent of the Chief Executive Officer of the Company.
(ii) Lay-Off . One (1) year (but in no event later than the Stated Expiration Date) following the Optionees termination of employment if the Optionees employment terminates due to lay-off (other than as a result of a divestiture or discontinued operation of a division or a Subsidiary).
(iii) Other than Death; Disability; Retirement; Divestiture; Lay-Off . Ninety (90) days (but in no event later than the Stated Expiration Date) following the Optionees termination of employment or service as a director for any reason (other than those set forth in clauses (i) and (ii) above).
(f) Nontransferability . The Option granted hereunder is not transferable by the Optionee otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionees guardian or legal representative. The terms of the Option will be binding upon the beneficiaries, executors, administrators, heirs and successors of the Optionee.
3. Miscellaneous .
(a) No Right to Continued Employment . Nothing in the Plan or in this Agreement will confer upon the Optionee any right to continue in the employ of the Company nor interfere with or restrict in any way the right of the Company, which is hereby expressly reserved, to remove, terminate or discharge the Optionee at any time for any reason whatsoever, with or without cause.
(b) Modification; Entire Agreement; Waiver . No change, modification or waiver of any provision of this Agreement will be valid unless the same is agreed to in writing by the parties hereto. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supercede all prior communications, representations and negotiations in respect thereof. The failure of the Company to enforce, at any time, any provision of this Agreement will in no way be construed to be a waiver of such provision or of any other provision hereof.
(c) Bound by Plan and Other Related Documents . By accepting this Option, the Optionee acknowledges that the Optionee has received a copy of the Plan and General Dynamics Corporate Policy 03-103, Detection and Prevention of Insider Trading in General
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Dynamics Corporation Securities (the Trading Policy) and has had an opportunity to review the Plan and the Trading Policy and agrees to be bound by all the terms and provisions of the Plan and the Trading Policy.
(d) Successors . The terms of this Agreement will be binding upon and inure to the benefit of the Company, its successors and assigns, and of the beneficiaries, executors, administrators, heirs and successors of the Optionee.
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Exhibit 10.4
RESTRICTED STOCK AWARD AGREEMENT
PURSUANT TO THE GENERAL DYNAMICS CORPORATION
2009 EQUITY COMPENSATION PLAN
This Restricted Stock Award Agreement (the Agreement) is entered into as of [ ], (the Grant Date), by and between General Dynamics Corporation (the Company) and [ ] (the Grantee).
WHEREAS, the Company sponsors the General Dynamics Corporation 2009 Equity Compensation Plan (the Plan), pursuant to which the Company may grant shares of Restricted Stock; and
WHEREAS, the Company desires to grant the Grantee a Restricted Stock award.
NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:
1. Number of Shares . The Grantee is hereby granted [ ] shares of Restricted Stock, subject to the restrictions set forth herein.
2. Terms of Restricted Stock . The grant of Restricted Stock provided in Section 1 hereof will be subject to the following terms, conditions and restrictions:
(a) Incidents of Ownership . Subject to the restrictions set forth in the Plan and this Agreement, the Grantee will possess all incidents of ownership of the Restricted Stock granted hereunder, including the right to receive dividend equivalents with respect to such shares and the right to vote such shares.
(b) Restricted Period . Except as may otherwise be provided herein, the restrictions on transfer of the Restricted Stock will lapse on the first day of January on which the New York Stock Exchange is open for business of the fourth calendar year following the calendar year in which the Grant Date occurs (the Restricted Period) provided that the Grantee is employed by the Company or is serving as a director of the Company on such date or dies prior to such date while employed by the Company or serving as a director of the Company. Upon the lapse of restrictions relating to the Restricted Stock, the Company, in its sole discretion, may either issue to the Grantee or the Grantees personal representative a stock certificate representing, or deposit in such Grantees or the Grantees personal representatives brokerage account via electronic transfer, one share of Common Stock, free of the restrictive legend described in Section 3 hereof, in exchange for each whole share of Restricted Stock with respect to which such restrictions have lapsed. If certificates representing such Restricted Stock have previously been delivered to the Grantee or shares have previously been deposited in such Grantees brokerage account, the Grantee will return such certificates or shares to the Company, complete with any necessary signatures or instruments of transfer, prior to the issuance by the Company of such unlegended shares of Common Stock.
(c) Transfer Restrictions . Shares of Restricted Stock, and any interest therein, may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the lapse of restrictions set forth in the Plan and this Agreement applicable thereto, as set forth in this Section 2.
(d) Incorporation of Plan by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement will be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement will have the definitions set forth in the Plan. The Committee will have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decisions will be binding and conclusive upon the Grantee and the Grantees legal representative in respect of any questions arising under the Plan or this Agreement. If there exists any inconsistency between the terms of this Agreement and the Plan, the terms contained in the Plan will govern. If there exists any inconsistency between the terms of the Restricted Stock as provided for herein (including, but not limited to, terms relating to the number of shares of Restricted Stock or the termination of the Restricted Period) and the terms as indicated in the records maintained by Company, the terms as indicated in the records of the Company will govern.
3. Certificate; Restrictive Legend . The Grantee agrees that any certificate issued for Restricted Stock prior to the lapse of any outstanding restrictions relating thereto will be inscribed with the following legend:
This certificate and the shares of stock represented hereby are subject to the terms and conditions, including forfeiture provisions and restrictions against transfer (the Restrictions), contained in the General Dynamics Corporation Equity Compensation Plan and an agreement entered into between the registered owner and the Company. Any attempt to dispose of these shares in contravention of the Restrictions, including by way of sale, assignment, transfer, pledge, hypothecation or otherwise, will be null and void and without effect.
4. Termination of Employment or Service as a Director .
(a) General . In the event that (i) the Grantee ceases to be employed by the Company or ceases to be a director of the Company for any reason (other than due to death, total and permanent disability, Retirement (as defined below), divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, or lay-off), prior to the end of the Restricted Period or (ii) the Grantee ceases to be employed by the Company on account of lay-off prior to December 31st of the calendar year following the calendar year in which the Grant Date occurs (the Determination Date), the Restricted Stock will be automatically forfeited by the Grantee on the date of such termination. For purposes of this Agreement, Retirement means, (A) with respect to an employee who is not an elected officer of the Company on the date on which the employees employment with the Company terminates, the termination of employment after the attainment of age 55 with at least five (5) or more years of continuous service and (B) with respect to an employee who is an elected officer of the Company on the date on which the employees employment with the Company terminates, termination of employment after attaining age 55 with the consent of the Chief Executive Officer of the Company.
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(b) Certain Terminations . In the event that the Grantee ceases to be employed by the Company or ceases to be a director of the Company due to total and permanent disability, Retirement, divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, prior to the Determination Date, then the restrictions on transfer will lapse on the last day of the Restricted Period with respect to a number of shares of Restricted Stock equal to product of (i) the total number of shares of Restricted Stock granted hereunder and (ii) a fraction, the numerator of which will be the number of days from January 1 of the year in which the Grant Date occurs to the last day of the month in which such termination occurs and the denominator of which will be 730, such product to be rounded down to the nearest whole share (the Pro Rated Restricted Stock), and the remaining shares of Restricted Stock will be automatically forfeited by the Grantee as of the date of such termination. In the event that the Grantee ceases to be employed by the Company or ceases to serve as a director of the Company due to total and permanent disability, Retirement, divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, or lay-off, in each case, on or after the Determination Date, then the restrictions on transfer will lapse on the last day of the Restricted Period with respect to all of the shares of Restricted Stock granted hereunder. Notwithstanding the foregoing, all of the shares of Restricted Stock will be automatically forfeited by the Grantee if the Grantee causes Harm (as defined below) to the Company during the Restricted Period. For purposes of this Agreement, Harm includes, but is not limited to, any actions that adversely affect the Companys financial standing, reputation, or products, or any actions involving personal dishonesty, a felony conviction related to the Company, or any material violation of any confidentiality or non-competition agreement with the Company.
(c) Change in Control . Notwithstanding the foregoing, in the event that within two (2) years following a Change in Control, the Grantees service with the Company and its affiliates is terminated (i) by the Company or any of its affiliates for any reason other than for Cause or (ii) by the Grantee for Good Reason, any shares of Restricted Stock outstanding as of such date, will become immediately vested.
5. Tax Withholding . The Company will withhold from the shares of Restricted Stock otherwise deliverable hereunder such number of shares as it will determine is necessary to satisfy all applicable withholding tax obligations in respect of such shares, unless the Grantee has made alternative arrangements satisfactory to the Company with respect to such tax withholding obligations.
6. Miscellaneous .
(a) No Right to Continued Employment . Nothing in the Plan or in this Agreement will confer upon the Grantee any right to continue in the employ of the Company nor interfere with or restrict in any way the right of the Company, which is hereby expressly reserved, to remove, terminate or discharge the Grantee at any time for any reason whatsoever, with or without cause.
(b) Modification; Entire Agreement; Waiver . No change, modification or waiver of any provision of this Agreement will be valid unless the same is agreed to in writing by the parties hereto. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supercede all
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prior communications, representations and negotiations in respect thereof. The failure of the Company to enforce, at any time, any provision of this Agreement will in no way be construed to be a waiver of such provision or of any other provision hereof.
(c) Bound by Plan and Other Related Documents . By accepting the award of Restricted Stock, the Grantee acknowledges that the Grantee has received a copy of the Plan and General Dynamics Corporate Policy 03-103, Detection and Prevention of Insider Trading in General Dynamics Corporation Securities (the Trading Policy) and has had an opportunity to review the Plan and the Trading Policy and agrees to be bound by all the terms and provisions of the Plan and the Trading Policy.
(d) Successors . The terms of this Agreement will be binding upon and inure to the benefit of the Company, its successors and assigns, and of the beneficiaries, executors, administrators, heirs and successors of the Grantee.
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Exhibit 10.5
RESTRICTED STOCK UNIT AWARD AGREEMENT
PURSUANT TO THE GENERAL DYNAMICS CORPORATION
2009 EQUITY COMPENSATION PLAN
This Restricted Stock Unit Award Agreement (the Agreement) is entered into as of [ ], (the Grant Date), by and between General Dynamics Corporation (the Company) and [ ] (the Grantee).
WHEREAS, the Company sponsors the General Dynamics Corporation 2009 Equity Compensation Plan (the Plan), pursuant to which the Company may grant Restricted Stock Units (RSUs); and
WHEREAS, the Company desires to grant the Grantee an award of RSUs.
NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:
1. Number of RSUs . The Grantee is hereby granted RSUs over shares of Common Stock, subject to the restrictions set forth herein. Each RSU represents an unfunded, unsecured promise by the Company to deliver one share of the Companys common stock (Common Stock), subject to certain restrictions and the terms and conditions contained in this Agreement.
2. Nature and Settlement of Award . Settlement of the RSUs shall occur as soon as practicable after the Vesting Date (as provided in Section 3(b) below), but in any event, for Grantees who are U.S. taxpayers, within the period ending on the 15th day of the third month following the Vesting Date (defined below).
3. Terms of RSUs . The grant of RSUs provided in Section 1 hereof will be subject to the following terms, conditions and restrictions:
(a) No Shareholder Rights . The grant of RSUs does not entitle Grantee to any rights of a shareholder of Common Stock, including dividends or voting rights.
(b) Vesting Date . Except as may otherwise be provided herein, RSUs will vest on the first day of January on which the New York Stock Exchange is open for business of the fourth calendar year following the calendar year in which the Grant Date occurs (the Vesting Date) provided that the Grantee is employed by the Company or is serving as a director of the Company on such date or dies prior to such date while employed by the Company or serving as a director of the Company. Upon the vesting of the RSUs, the Company, in its sole discretion, may either issue to the Grantee or the Grantees personal representative a stock certificate representing, or deposit in such Grantees or the Grantees personal representatives brokerage account via electronic transfer, one share of Common Stock for each RSU that has vested.
(c) Dividend Equivalents . If the Company decides to pay dividend equivalents on the RSUs, such dividend equivalents will accrue and be notionally credited to the Grantees RSU account and paid out in the form of additional shares on the date that the RSUs are settled in
accordance with Section 2 and will in no circumstances be settled in cash; no dividend equivalents will be paid out prior to the Vesting Date. In no event shall fractional shares be issued; the Company will round down to the nearest share in settling any accrued dividend equivalents.
(d) Transfer Restrictions . Neither the RSUs nor any interest thereto may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of by the Grantee, except by will or the laws of descent and distribution, and any such purported sale, assignment, transfer, pledge, hypothecation or other disposition shall be void and unenforceable against the Company.
(e) Incorporation of Plan by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement will be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement will have the definitions set forth in the Plan. The Committee will have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decisions will be binding and conclusive upon the Grantee and the Grantees legal representative in respect of any questions arising under the Plan or this Agreement. If there exists any inconsistency between the terms of this Agreement and the Plan, the terms contained in the Plan will govern. If there exists any inconsistency between the terms of the RSUs as provided for herein (including terms relating to the number of shares of RSUs or the Vesting Date) and the terms as indicated in the records maintained by Company, the terms as indicated in the records of the Company will govern.
4. Termination of Employment or Service as a Director .
(a) General . In the event that (i) the Grantee ceases to be employed by the Company or ceases to be a director of the Company for any reason (other than due to death, total and permanent disability, Retirement (as defined below), divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, or lay-off), prior to the Vesting Date or (ii) the Grantee ceases to be employed by the Company on account of lay-off prior to December 31st of the calendar year following the calendar year in which the Grant Date occurs (the Determination Date), the RSUs will be automatically forfeited by the Grantee on the date of such termination. For purposes of this Agreement, in the event of involuntary termination of the Grantees employment (whether or not in breach of local labor laws), the Grantees right to receive RSUs and vest under the Plan, if any, will terminate effective as of the date that the Grantee is no longer actively employed and will not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of garden leave or similar period pursuant to local law); furthermore, in the event of involuntary termination of employment (whether or not in breach of local labor laws), the Grantees right to receive shares pursuant to the RSUs after termination of employment, if any, will be measured by the date of termination of the Grantees active employment and will not be extended by any notice period mandated under local law; the Committee shall have the exclusive discretion to determine when the Grantee is no longer actively employed for purposes of the Award. For purposes of this Agreement, Retirement means, (A) with respect to an employee who is not an elected officer of the Company on the date on which the employees employment with the Company terminates, the termination of employment after the attainment of age 55 with at least five (5) or more years of continuous service and (B) with respect to an employee who is an elected officer of the Company on the date on which the employees
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employment with the Company terminates, termination of employment after attaining age 55 with the consent of the Chief Executive Officer of the Company.
(b) Certain Terminations . In the event that the Grantee ceases to be employed by the Company or ceases to be a director of the Company due to total and permanent disability, Retirement, divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, prior to the Determination Date, then the RSUs will vest on the date of such cessation with respect to a number of RSUs equal to product of (i) the total number of RSUs granted hereunder (including any dividend equivalents that have been credited to the Grantees notional account as of the date of termination of employment) and (ii) a fraction, the numerator of which will be the number of days from January 1 of the year in which the Grant Date occurs to the last day of the month in which such termination occurs and the denominator of which will be 730, such product to be rounded down to the nearest whole share (the Pro Rated RSUs), and the remaining RSUs will be automatically forfeited by the Grantee as of the date of such termination. In the event that the Grantee ceases to be employed by the Company or ceases to serve as a director of the Company due to total and permanent disability, Retirement, divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, or lay-off, in each case, on or after the Determination Date, then RSUs will vest in full on the date of such cessation. Notwithstanding the foregoing, all of the RSUs will be automatically forfeited by the Grantee if the Grantee causes Harm (as defined below) to the Company prior to the Vesting Date. For purposes of this Agreement, Harm includes, any actions that adversely affect the Companys financial standing, reputation, or products, or any actions involving personal dishonesty, a felony conviction related to the Company, or any material violation of any confidentiality or non-competition agreement with the Company.
(c) Change in Control . Notwithstanding the foregoing, in the event that within two (2) years following a Change in Control, the Grantees service with the Company and its affiliates is terminated (i) by the Company or any of its affiliates for any reason other than for Cause or (ii) by the Grantee for Good Reason, any RSUs outstanding as of such date, will become immediately vested.
(d) Settlement of Awards . Settlement of the RSUs that have vested or partially vested pursuant to Sections 4(b) or (c) above shall occur as soon as practicable after such vesting, but in any event, for Grantees who are U.S. taxpayers, within the period ending on the 15th day of the third month following such vesting.
5. Tax Withholding . Regardless of any action the Company or the Grantees actual employer (the Employer) takes with respect to any or all income tax (including federal, state and local taxes), social insurance, payroll tax, payment on account or other tax-related withholding (Tax-Related Items), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantees responsibility and that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including the grant of the RSUs, the vesting of the RSUs, the conversion of the RSUs into shares of Common Stock, the subsequent sale of any shares acquired at vesting and the receipt of any dividends or dividend equivalents; and (ii) do not commit to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate the Grantees liability for Tax-Related Items.
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Prior to the issuance of shares pursuant to this award of RSUs, the Grantee shall pay, or make adequate arrangements satisfactory to the Company or to the Employer (in their sole discretion) to satisfy all withholding and payment on account obligations of the Company and/or Employer. In this regard, the Grantee authorizes the Company or the Employer to withhold all applicable Tax-Related Items legally payable by the Grantee from the Grantees wages or other cash compensation payable to the Grantee by the Company or the Employer or from any equivalent cash payment received upon vesting of the RSUs. Alternatively, or in addition, if permissible under local law, the Company or the Employer may, in their sole discretion, (i) sell or arrange for the sale of Shares to be issued on the vesting of the RSUs to satisfy the withholding or payment on account obligation, and/or (ii) withhold in shares, provided that the Company and the Employer shall withhold only the amount of shares necessary to satisfy the minimum withholding amount (or such other rate that will not result in a negative accounting impact). The Grantee shall pay to the Company or to the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of the Grantees receipt of this Award, the vesting of the RSUs, or the conversion of the vested RSUs into shares that cannot be satisfied by the means previously described. The Company may refuse to deliver shares to the Grantee if the Grantee fails to comply with the Grantees obligation in connection with the Tax-Related Items as described herein. If the Grantee fails to pay or make satisfactory arrangements to satisfy all withholding and payment on account obligations by the 15th day of the third month following the date on which the RSUs have vested, then the RSUs shall be forfeited.
6. Nature of Grant . In accepting the RSUs, the Grantee acknowledges that:
(a) the Plan is discretionary in nature and established voluntarily by the Company and may be modified, amended, suspended or terminated by the Company at any time, as provided in the Plan, and the award of RSUs is at the sole discretion of the Company and does not create any contractual or other right to receive future awards of RSUs, or benefits in lieu of RSUs even if RSUs have been awarded repeatedly in the past;
(b) the award of RSUs is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or to the Employer, and the RSUs are outside the scope of the Grantees employment contract, if any;
(c) the RSUs are not part of normal or expected compensation or salary for any purposes, including, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
(d) neither the award of RSUs nor any provision of this Agreement nor the Plan confer upon the Grantee any right with respect to employment or continuation of current employment, and in the event that the Grantee is not an employee of the Company, the RSUs shall not be interpreted to form an employment contract or relationship with the Company; and
(e) no claim or entitlement to compensation or damages arises from termination of the RSUs, and no claim or entitlement to compensation or damages shall arise from any diminution in value of the RSUs or shares received upon vesting of the RSUs resulting from termination of the Grantees employment by the Employer (for any reason whatsoever and whether
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or not in breach of local labor laws) and the Grantee irrevocably releases the Company and the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Agreement, the Grantee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim.
7. Data Privacy . The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in this document by and among, as applicable, the Employer, and the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantees participation in the Plan.
The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including his or her name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantees favor, for the purpose of implementing, administering and managing the Plan (Data). Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Grantees country or elsewhere and that the recipients country may have different data privacy laws and protections than the Grantees country. The Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee may elect to deposit any shares acquired upon vesting of the RSUs. Data will be held only as long as is necessary to implement, administer and manage the Grantees participation in the Plan. The Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Refusing or withdrawing his or her consent may affect the Grantees ability to participate in the Plan. For more information on the consequences of a refusal to consent or withdrawal of consent, the Grantee may contact his or her local human resources representative.
8. Miscellaneous .
(a) Modification; Entire Agreement; Waiver . No change, modification or waiver of any provision of this Agreement will be valid unless the same is agreed to in writing by the parties hereto. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supercede all prior communications, representations and negotiations in respect thereof. The failure of the Company to enforce at any time any provision of this Agreement will in no way be construed to be a waiver of such provision or of any other provision hereof. The Company reserves the right, however, to the extent the Company deems necessary or advisable in its sole discretion, to unilaterally alter or modify the awards to ensure all RSUs and the Agreements provided to Grantees who are U.S. taxpayers are made in such a manner that either qualifies for exemption
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from or complies with Section 409A (Section 409A) of the Internal Revenue Code of 1986, as amended (the Code); provided , however that the Company makes no representations that the RSUs will be exempt from or will comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to the RSUs.
(b) Bound by Plan and Other Related Documents . By accepting the award of RSUs, the Grantee acknowledges that the Grantee has received a copy of the Plan and General Dynamics Corporate Policy 03-103, Detection and Prevention of Insider Trading in General Dynamics Corporation Securities (the Trading Policy) and has had an opportunity to review the Plan and the Trading Policy and agrees to be bound by all the terms and provisions of the Plan and the Trading Policy.
(c) Successors . The terms of this Agreement will be binding upon and inure to the benefit of the Company, its successors and assigns, and of the beneficiaries, executors, administrators, heirs and successors of the Grantee.
(d) Choice of Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. For purposes of litigating any dispute that arises under this Award or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Virginia, and agree that such litigation shall be conducted in the courts of Virginia or the federal courts for the Eastern District of Virginia, and no other courts, where this award of RSUs is made and/or to be performed.
(e) Section 409A Compliance . To the extent applicable, it is intended that the Plan and the Agreement comply with or be exempt from the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. Accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, Grantee shall not be considered to have terminated employment with the Company for purposes of this Agreement and no payments shall be due to Grantee under Section 4(b) of this Agreement until Grantee would be considered to have incurred a separation from service from the Company within the meaning of Section 409A of the Code. For purposes of this Agreement, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A of the Code, and any payments described in this Agreement that are due within the short term deferral period as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. To the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement during the six-month period immediately following Grantees separation from service shall instead be paid on the first business day after the date that is six months following Grantees separation from service (or death, if earlier).
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(f) Severability . In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included.
(g) Language . If the Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different that the English version, the English version will control.
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Exhibit 31.1
CERTIFICATION BY CEO PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Jay L. Johnson, certify that:
1) | I have reviewed this quarterly report on Form 10-Q of General Dynamics Corporation; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors: |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Jay L. Johnson |
Jay L. Johnson |
President and Chief Executive Officer |
August 4, 2009
Exhibit 31.2
CERTIFICATION BY CFO PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, L. Hugh Redd, certify that:
1) | I have reviewed this quarterly report on Form 10-Q of General Dynamics Corporation; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors: |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ L. Hugh Redd |
L. Hugh Redd |
Senior Vice President and Chief Financial Officer |
August 4, 2009
Exhibit 32.1
CERTIFICATION BY CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of General Dynamics Corporation (the Company) on Form 10-Q for the quarter ended July 5, 2009, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Jay L. Johnson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Jay L. Johnson |
Jay L. Johnson |
President and Chief Executive Officer |
August 4, 2009
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION BY CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of General Dynamics Corporation (the Company) on Form 10-Q for the quarter ended July 5, 2009, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, L. Hugh Redd, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ L. Hugh Redd |
L. Hugh Redd |
Senior Vice President and Chief Financial Officer |
August 4, 2009
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.