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General Dynamics Corporation

General Dynamics Corporation

2941 Fairview Park Drive, Suite 100
Falls Church, Virginia 22042-4513
U.S.A.
Telephone: (703) 876-3000
Fax: (703) 876-3125
Web site: http://www.gendyn.com

Public Company
Incorporated: 1925 as Electric Boat Company
Employees: 81,100
Sales: $24 billion (2006)
Stock Exchanges: New York
Ticker Symbol: GD
NAIC: 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; 336411 Aircraft Manufacturing; 336414 Guided Missile and Space Vehicle Manufacturing; 336611 Ship Building and Repairing; 336992 Military Armored Vehicle, Tank, and Tank Component Manufacturing

General Dynamics Corporation is a leading defense contractor, with over 60 percent of the companys net sales coming from contracts with the U.S. government. The companys largest operating unit based on revenue is Information Systems and Technology, which offers to both defense and commercial customers a wide range of technologies, including communication, computer, defense, electronic, information, and telecommunications systems. The Information Systems unit, which generated $9 billion in revenue in 2006, was created out of a series of acquisitions that began in 1997. The companys Combat Systems unit produces the M1 tank for the U.S. Army (a business purchased from Chrysler Corporation in 1982) as well as other land and amphibious assault vehicles; it also makes gun and ammunition handling systems, reactive armor, ordnance, and chemical and biohazard detection products. Revenues for the Combat Systems unit were $6 billion in 2006.

Marine Systems, which secured nearly $5 billion in revenue in 2006, is a leading supplier of combat vessels to the U.S. Navy, and includes Electric Boat Corporation (the founding company), maker of the Seawolf and Virginia-class submarines; Bath Iron Works (acquired in 1995), maker of destroyers and amphibious assault ships; and NASSCO, manufacturer of auxiliary and support ships for the U.S. Navy and oil tankers and dry cargo carriers for commercial markets. The companys Aerospace unit, responsible for $4.1 billion in revenue in 2006, consists of Gulfstream Aerospace (acquired in 1999), one of the worlds leading makers of business aircraft.

THE EARLY DECADES AS ELECTRIC BOAT

General Dynamics has a long history in weapons production, originating in the late 19th century with an Irish-American inventor named John Holland. Associated with the Fenians, a secret New York City organization sympathetic to the struggles of the Irish nationalists, Holland was commissioned to construct a submarine capable of destroying British naval vessels. While previous submarine designs had been attempted by other inventors, none were effective warships, and, in fact, several of Hollands first submarines sank. Moreover, his ill-conceived attempts at secrecy soon drew the attention of American law enforcement authorities, who prevented Holland from achieving his mission for the Fenians. Nevertheless, Holland remained interested in building a viable submarine, and, toward that end, he founded the Electric Boat Company in 1899, with financial backing from investors that later would include various members of Congress.

Once he developed a prototype, Holland had difficulty finding a market for his submarine, as the U.S. Navy was not initially interested in the project. Then, lawyer, financier, and battery and electronics magnate Isaac Leopold Rice offered to finance the development of subsequent Holland submarines in return for an interest in Electric Boat. Holland was persuaded to relinquish his patent rights and management authority to Rice, who successfully made sales to the U.S. Navy and several other foreign naval services. Holland effectively lost control of the company and found himself earning a salary of $90 per week as chief engineer, while the company he founded was selling submarines for $300,000 each.

Electric Boat gained a reputation for unscrupulous arms dealing in 190405, when it sold submarines to Japan and Russia, who were then at war. Holland submarines were also sold to the British Royal Navy through the English armaments company Vickers. Submarines, which had once been denounced in Britain as damned un-Englishconsidered too sly and cowardly for use in a proper gentlemans warwere now legitimized as genuine naval weapons by the worlds most powerful navy.

During this time, Holland lost patience with Rice and resigned in protest at being excluded from his companys affairs. A frail man plagued by a respiratory condition since birth, Holland died shortly thereafter in 1914. He was replaced as chief engineer by Lawrence Spear who, in close association with Vickers, redesigned the Holland submarine. Speed was improved, a conning tower and periscope replaced the Holland observation dome, and torpedo tubes were incorporated for the first time. The full potential of the submarine, however, was not fully recognized until World War I, when German U-boats caused serious disruptions in British shipping.

Isaac Rice died in 1915 and was replaced by his associate Henry Carse. Under Carse, Spear was given greater control over the companys operations. Electric Boat had a substantial backlog of profitable orders and was financially strong enough to purchase several companies, including Electro Dynamics (involved in ship propulsion), Elco Motor Yacht (builders of pleasure boats), and New London Ship & Engine of Groton, Connecticut (manufacturers of diesel engines and civilian ships). The companys name was changed to the Submarine Boat Corporation in 1917.

When the United States became involved in World War I, Carse made the crucial decision to devote the companys resources to the construction of disposable cargo vessels rather than submarines. Eventually realizing his mistake, Carse began to retool for submarine production; before the process could be completed, however, the war had ended, and the company had lost a great deal of money. Moreover, the U.S. Navy then decided to devote most of its reduced postwar budget to surface ships. Faced with bankruptcy, Carse reorganized the company, emphasized production of surface ships, and brought back the Electric Boat Company name in 1925.

On the eve of World War II, the business practices of Electric Boat came under investigation by the U.S. government and several independent groups; the company was accused of being a financial beneficiary of foreign wars. Electric Boat was also found to have inadvertently given design secrets to officials of the increasingly hostile government of Japan. In an investigation led by Senator Gerald Nye, Electric Boat was accused of profiteering, graft, and unethical business practices. Carse responded that because the U.S. Navy had suspended all major contracts for ten years, Electric Boat had been forced to deal with foreign governmentsmany of which were corruptin order to remain financially solvent.

COMPANY PERSPECTIVES

General Dynamics focuses on creating shareholder value while delivering superior products and services to military, other government and commercial customers. The company emphasizes excellence in program management and continual improvement in all of its operations. General Dynamics values ethical behavior and promotes a culture of integrity throughout all aspects of its business. This culture is evident in how the company deals with shareholders, employees, customers, partners and the communities in which it operates.

During this time, the German remilitarization and hostile Japanese activities forced the Roosevelt administration to reassess its position on military preparedness. Consequently, the government placed orders for submarines and PT (patrol/torpedo) boats from Electric Boat facilities at Groton and the Elco plant in New Jersey. The new orders led to the revitalization of Electric Boat, now led by John Jay Hopkins, appointed in 1937 by the retiring Lawrence Spear, who himself had taken over when Henry Carse retired. While Spear continued to offer advice from his retirement, Hopkins was thoroughly in charge and fully responsible for the companys strong reemergence.

Following the American declarations of war against the Axis powers, Electric Boat and its Elco Yacht and Electro Dynamic subsidiaries mobilized for production at full capacity. This sudden expansion in output caused a serious labor shortage, which was filled by women, who took jobs as welders and riveters. During the war, the Electric Boat companies produced hundreds of submarines, surface ships, and PT boats, contributing greatly to the success of island fighting in the Pacific. When the war ended in 1945, the Navy reduced its orders for new vessels. Only 4,000 of the companys 13,000 wartime employees were retained after the war, and Electric Boat stock fell in value from $30 per share to $10.

KEY DATES

1899:
Electric Boat Company is founded to build submarines.
1917:
Companys name is changed to Submarine Boat Corporation.
1925:
Company is reorganized and reincorporated as Electric Boat Company; expansion into surface ships begins.
1937:
John Jay Hopkins joins company and is instrumental in its revival through the production of hundreds of submarines, surface ships, and PT boats during World War II.
1947:
Canadair Limited is acquired.
1952:
General Dynamics Corporation is established as a successor to Electric Boat and as a parent company for Electric Boat and Canadair.
1954:
General Dynamics acquires Consolidated Vultee Aircraft, which becomes the Convair Division; Electric Boat launches the first nuclear submarine, the Nautilus.
1959:
General Dynamics and Material Services Corporation merge.
1971:
Company relocates its headquarters to St. Louis.
1976:
Canadair is sold back to the Canadian government.
1978:
Fort Worth Division begins production of the F-16 combat fighter.
1982:
General Dynamics purchases Chryslers battle tank division, which becomes the Land Systems Division.
1985:
Cessna Aircraft Company is acquired.
1991:
With end of Cold War, new CEO William A. Anders begins divestment program.
1992:
Cessna is sold to Textron Inc.; company headquarters is moved to Falls Church, Virginia.
1995:
Bath Iron Works, a major shipbuilder, is acquired.
1997:
The companys Information Systems and Technology unit is established.
1999:
General Dynamics completes two major acquisitions: Gulfstream Aerospace Corporation and information systems units of GTE Corporation.
2003:
Veridian Corporation is acquired in a $1.5 billion deal.
2006:
The company pays $2.1 billion for Anteon International Corporation.

DIVERSIFYING IN THE POSTWAR ERA

As a result, Hopkins initiated another reorganization of Electric Boat, which included a diversification into related commercial and defense industries. In 1947 Electric Boat purchased Canadair Limited from the Canadian government for $22 million. Canadair produced flying boats and modified DC-4s during the war, but had greatly diminished sales during peacetime. A series of events, including the Berlin Blockade, Soviet detonation of an atomic bomb, and the war in Korea, stimulated demand for new aircraft, including the T-33 trainers, F-86 Sabres, and DC-6s built under contract by Canadair. By the early 1950s, Canadairs success began overshadowing that of Electric Boat; some business advisers even suggested that Canadair purchase Electric Boat and operate it as a subsidiary. Instead, on February 21, 1952, a new parent company called General Dynamics Corporation was established to manage the operations of Canadair and Electric Boat.

With substantial profits from its Canadair subsidiary, General Dynamics purchased Consolidated Vultee Aircraft from the Atlas Corporation in 1954. Consolidated, which became General Dynamics Convair Division, manufactured a variety of civilian and military aircraft, including the 440 passenger liner, F-102 and F-106 fighters, Atlas and Centaur rockets, and the B-24, B-36, and B-58 Hustler bombers.

Convair led the development of the American nuclear aircraft program, enthusiastically supported by the Pentagon. CEO Hopkins was a strong advocate of nuclear power and its numerous applications, but the nuclear airplane, or N-bomber, was later found to be impractical, and the project was abandoned. Electric Boat enjoyed greater success with nuclear power; in 1954 it launched the first nuclear submarine, the Nautilus.

The companys development of commercial jetliners came near the end of Hopkins tenure. While Douglas and Boeing were developing their DC-8 and 707 passenger jets, Convair was unable to introduce its jetliner because the company was delayed by contractual obligations to TWA and its eccentric and intrusive majority shareholder Howard Hughes. Specifically, Convair was bound to incorporate numerous design changes suggested by Hughes. As the result of a financial crisis that postponed TWAs purchase of jetliners and eventually forced Hughes out of TWA, Convair was unable to recover from the delayed entry of its 680 and 880 models into the jetliner market. General Dynamics was forced to write off the entire passenger liner program with a $425 million loss.

The financial position of General Dynamics was so seriously weakened by the Convair jetliner program that the company was targeted for a takeover by Henry Crown, a Chicago construction materials magnate. Crown offered to merge his profitable Material Services Corporation with General Dynamics in exchange for a 20 percent share of the new companys stock, and the proposal was accepted in 1959. Two years later, Crown appointed Roger Lewis as chairperson of General Dynamics. Under Lewis, General Dynamics purchased the Quincy shipbuilding works from Bethlehem Steel in 1963 for $5 million. Quincy, then an outdated facility requiring costly improvements, held promise as a builder of surface ships.

In the early 1960s, the U.S. Defense Department invited American defense contractors to bid for the production of a new aircraft, the F-111, slated to replace the departments aging fleet of B-52 bombers. General Dynamics entered the competition in partnership with the Grumman Corporation, against a design submitted by Boeing. Even though many regarded the Boeing F-111 as the better built and the more capable plane, the General Dynamics/Grumman version was consistently declared superior by Pentagon officials and industry experts. An investigation of impropriety in the selection process was interrupted when President John F. Kennedy was assassinated in November 1963 and was not concluded until 1972.

General Dynamics continued to develop its version of the F-111 at its Convair facility in Fort Worth, Texas. The Air Force and Navy amended their design specifications and requested the addition of so many devices that the prototype could barely fly. With its utility as a replacement for the B-52 greatly diminished, the aircrafts role was reassessed, and the project was eventually identified by congressional critics as an example of gross mismanagement, organizational incompetence, and financial irresponsibility. The F-111 project consumed an inordinate amount of the defense budget and delayed by six years the introduction of Grummans similarand in many ways superiorF-14 Tomcat.

In 1966, Lewis removed Crown from the company by repossessing his 18 percent share of nonvoting company stock. Crown was paid $120 million for his shares, but lost control of both General Dynamics and Material Services Corporation. Over the next few years, Crown continued to purchase substantial numbers of shares of voting stock, expanding his interest until he emerged in 1970 with control over the board of directors. Lewis was summarily fired and replaced by David Lewis (no relation). Crown subsequently moved the company from New York to St. Louis in February 1971.

That year, the Electric Boat division of General Dynamics and its chief competitor, Newport News Shipbuilding, were awarded contracts to manufacture a new submarine, the 688, or Los Angeles class. Two years later, General Dynamics hired Takis Veliotis to take charge of the Quincy shipbuilding yard. Once in charge at Quincy, Veliotis concluded an agreement to build liquefied natural gas tankers in conjunction with a cold storage engineering firm called Frigitemp.

During this period, the Defense Department announced a $200 million competition for the production of a new jet fighter. Careful to avoid the problems that plagued the F-111, General Dynamics initiated its development of the F-16. The F-16 program closely followed its development and budget schedules, and the first prototype exceeded specifications.

Although it was apparently chosen over the Northrop F-17 Cobra, the F-16 faced an unexpected challenge from McDonnell Douglass independently developed F-15 Eagle. The lower-priced F-15 took a significant portion of the fighter market away from General Dynamics, whose Fort Worth Division began producing the F-16 in 1978. The U.S. government, however, compensated General Dynamics by promoting sales of the F-16 to NATO countries and other American allies. Canadair, which manufactured aircraft for Commonwealth countries, was sold back to the Canadian government in 1976 for $38 million.

The following year, Admiral Hyman G. Rickover publicly berated Electric Boat for poor workmanship and cost overruns on 18 Los Angeles class submarines. Rickover was particularly upset about the U.S. Navys contractual obligation to absorb a large portion of the overruns, which were running as high as $89 million per vessel. A dispute then arose between the Defense Department and Electric Boat, wherein Electric Boat threatened to halt production of the submarines unless its share of the losses were covered as well. General Dynamics sought the protection of Public Law 85-804, which was originally intended to protect strategic assets, such as Lockheed and Grumman, from bankruptcy due to cost overruns.

General Dynamics won a settlement from the Pentagon but soon realized that its problems at Groton were not merely financial. Productivity was seriously compromised by absenteeism and an employee turnover rate of 35 percent. Management lost control over inventories, and poor workmanship resulted in costly reconstruction. In October 1977, David Lewis transferred Takis Veliotis from Quincy to Groton, with instructions to reform the operation. Within months Veliotis had restored discipline, efficiency, and financial responsibility at Electric Boat.

ADDITION OF TANKS/LAND SYSTEMS

Veliotis left Electric Boat in 1981 to take a seat on the General Dynamics board of directors and to serve as international salesperson and company ambassador. Later that year, however, Veliotis resigned in protest over a dispute with David Lewis, whom Veliotis claimed had promised him the position of chief executive officer. Soon thereafter, Veliotis was indicted by government prosecutors for illegal business practices. He fled to Greece, maintaining that he had possession of damaging evidence of fraudulent overcharges made by General Dynamics.

In 1982, General Dynamics purchased the Chrysler Corporation battle tank division, with plants located in Warren, Michigan, and Lima, Ohio. The division, renamed Land Systems, had secured a government contract to build the Armys next main battle tank, the M-1. Developed in response to newer Soviet tanks such as the T-72, the M-1 was to be powered by a jet turbine and capable of speeds of up to 50 miles per hour. The M-1 also included a computer-guided gun-aiming mechanism designed to assure a high degree of accuracy while the tank was traveling over rough terrain at high speeds.

When the first M-1 prototypes were delivered from Land Systems, several basic design flaws were noticed by Pentagon officials. First, exhaust from the engine was so hot that infantry could not come near the tank for cover under fire. Moreover, the M-1 was fast but prone to breakdown, and it required so much fuel that logistical support became questionable. Finally, the M-1s ammunition bay was too small to carry more than 40 shells. Critics recommended that the M-1 project be canceled in favor of its predecessor, the durable, battletested M-60. During this same period, General Dynamics won a government contract to service and maintain TAKX supply ships for the American Rapid Deployment Force.

Also at this time, Lewis and other company officials were called to testify before a congressional subcommittee, which suggested that the company had overcharged the government for supplies and personal expenses. The proceedings initiated separate investigations by the Justice Department and the Internal Revenue Service. Soon after Admiral Rickover was involuntarily retired by Navy Secretary John Lehman, General Dynamics was awarded a government contract to manufacture a number of new boats, including the $500 million Ohioclass Trident submarine. The contract eliminated many of the companys disputed charges to the Pentagon and, as a result, led to the cessation of the congressional investigation. Wisconsin Senator William Proxmire criticized these developments by remarking that defense contractors like General Dynamics have so much leverage against the government they can flout the laws that govern smaller companies and individuals.

David Lewis retired in 1985 and was replaced by Stanley C. Pace, formerly head of TRW. Oliver Boileau, president of General Dynamics, was passed over for the position at the insistence of the board of directors and the Crown family, all of whom wished to see an end to the policies of Lewis and his protégé. Pace made several changes at General Dynamics, even before Lewis had left the company. He sold the Quincy shipyard and founded a new division called Valley Systems, established to win contracts for the Reagan administrations Strategic Defense Initiative. In 1985 he purchased Cessna Aircraft Co. Pace also helped clean up General Dynamics image by instituting an ethics program, which resulted in the firing of 27 employees.

TRANSFORMATION AFTER THE COLD WAR

Several external forces helped shape the conduct of business at General Dynamics in the late 1980s and early 1990s. The Soviet Unions collapse revealed it to be a much weaker military foe than had previously been believed. The subsequent end of the Cold War soon brought congressional and public pressure to cut domestic defense budgets. These factors compelled General Dynamics to transform itself into a smaller, more focused company with a higher concentration of international sales. The Persian Gulf conflict helped boost General Dynamics tank and F-16 fighter sales to Turkey, Egypt, and Saudi Arabia and opened Middle East markets to the military manufacturer.

In January 1991, William A. Anders was assigned to reorganize General Dynamics according to the new market realities. He assumed the chief executive office, while Stanley Pace took a seat on the companys board of directors. Anderss strategy in the face of industry changes was to cut employees, trim research and development, divest peripheral businesses, and reduce capital spending. By June 1992, Anders had cut 25 percent of the workforce (24,800 employees) and put $1.7 billion in assets up for sale. Gains from divestments were rolled back to shareholders, and, by 1993, almost $600 million in debt was paid, which helped boost the companys share price. General Dynamics, which had suffered a $578 million loss in 1990, recovered to realize a $305 million profit the following year.

Despite the improving financial picture, General Dynamics came under criticism from the Pentagon and Department of Defense for a lucrative executive Gain-Sharing plan that was tied to increases in the companys share price. In 1991 alone, as General Dynamics whittled away at its employee roster, Business Week reported that 25 top managers received $18 million in incentive bonuses. The company, meanwhile, relocated its headquarters from St. Louis to Falls Church, Virginia, in 1992.

Anders pronounced the transformation of General Dynamics complete in 1993s annual report. After selling its Missile Division to Hughes Aircraft Company for $450 million and Cessna Aircraft to Textron Inc. for $600 million, both deals coming in 1992, and its Fort Worth Division to Lockheed for $1.5 billion in 1993, as well as reaching an agreement to sell its Space Systems Division (which had been created out of Convair in 1985) to Martin-Marietta (a $209 million deal that was completed in 1994), the company emerged with two primary business segments: nuclear submarines and armored vehicles. The corporate workforce had shrunk from about 86,000 in 1991 to 30,500 in 1993, and debt decreased 94 percent during this period. Government contracts still comprised 94 percent of the companys annual sales, which remained essentially flat over the reorganization period. Operating earnings, however, increased by $98 million, from $211 million in 1991 to $309 million in 1993. That year, Anders relinquished the chief executive office to former president James Mellor and assumed General Dynamics chair as a transitional measure through April 1994.

Even after the special distributions to shareholders, the company still had more than $1 billion in cash and virtually no debt by late 1994. From this position of strength, Mellor began pursuing acquisitions of related niche businesses to build on General Dynamics two remaining units. In September 1995 the company acquired Bath Iron Works for $300 million from an investor group led by Prudential Insurance Co. As a result of the deal, General Dynamics owned two of the six major private naval shipyards in the United States: Electric Boats submarine facility in Groton, Connecticut, and Baths shipyard in Bath, Maine. Bath, which traced its origins back to the founding of Bath Iron Foundry in 1833, was under contract with the U.S. Navy to build 11 guided-missile AEGIS destroyers. Around the time of the acquisition, the Seawolf submarine program was nearly killed by Congress, an event that might have shut down Electric Boats shipyards. Despite objections that the Navy did not need a third Seawolf submarine, Electric Boat was awarded a $1.5 billion contract to build the final such sub, to be called the USS Jimmy Carter.

In 1996 the companys Land Systems Division was awarded a $217 million contract to build a new amphibious assault vehicle for the U.S. Marines. Eventual production of more than 1,000 of these vehicles was projected to be worth more than $4 billion through 2014. That same year, Bath was part of an alliance that won a contract to build 12, $800 million amphibious assault ships, the LDP-17, for the Navy. In January 1997 General Dynamics continued its acquisition program with the purchase of two businesses from Lockheed Martin Corporation for $450 million: Armament Systems, a maker of advanced gun and fire-control systems, and Defense Systems, producer of turrets and transmissions for combat vehicles. The bulk of these operations were combined within a new Armament Systems Division, which became part of General Dynamics Combat Systems unit alongside the Land Systems Division.

In mid-1997 Nicholas D. Chabraja took over as CEO from the retiring Mellor, having previously served as an executive vice-president and general counsel and having played a prominent role in the companys post Cold War transformation. He almost immediately faced a setback when the company, seeking to expand its position in the area of Army vehicles, was blocked from acquiring United Defense L.P., a maker of military vehicles, because of potential antitrust concerns. Undeterred, Chabraja shifted his immediate acquisition focus to a new niche area: electronics and systems integration, a growth area in which he felt General Dynamics had some expertise. Thus came the formation of a third company operating unit: the Information Systems and Technology unit (Marine Systems and Combat Systems being the other two). The new unit was built through a series of acquisitions that began in 1997. In October of that year Advanced Technology Systems was acquired from Lucent Technologies Inc. for $267 million. Advanced Technology produced undersea surveillance systems, signal processing, and vibration control systems. In December 1997 General Dynamics acquired Computing Devices International, a division of Ceridian Corporation, for $500 million. From this deal came three more pieces of the Information Systems puzzle: General Dynamics Information Systems, Inc.; Computing Devices Canada Ltd.; and the U.K.-based Computing Devices Company Ltd. In June 1998 the company acquired another systems integration business called Computer Systems & Communications Corporation.

Chabraja continued to look for acquisition targets in shipbuilding as well. In November 1998 General Dynamics spent $415 million to acquire NASSCO Holdings Incorporated, parent company of National Steel and Shipbuilding Company (NASSCO), which owned a Naval shipyard in San Diego. The addition of NASSCO helped diversify the line of ships built by the Marine Systems unit as the newly acquired company produced hospital ships and combat support ships for the U.S. Navy as well as commercial ships such as oil tankers. General Dynamics owned half of the six private yards that made Navy ships but when the company made an unsolicited $1.4 billion bid for Newport News Shipbuilding Inc. in early 1999, touting the potential cost savings of the combination, the Pentagon blocked the takeover attempt, citing the dominate position in shipbuilding that General Dynamics would thereby gain.

Once again hardly skipping a beat, General Dynamics concluded two large deals later in 1999. In July 1999 the company returned to the aviation market and also greatly increased the percent of revenues it generated from the commercial market with the acquisition of Gulfstream Aerospace Corporation, a leading maker of business jets, in a stock swap valued at about $5 billion. In September 1999 General Dynamics further bolstered its Information Systems and Technology unit through the $1.01 billion purchase of three business units from GTE Corporation. The units, reorganized within a new entity called General Dynamics Government Systems Corporation, specialized in command, control, communications, and intelligence systems; electronic defense systems; and information systems for defense, government, and industry. The acquisition spree helped propel revenues from the $4.97 billion mark of 1998 to $8.96 billion in 1999. Net income more than doubled, from $364 million to $888 million.

GENERAL DYNAMICS IN THE NEW MILLENNIUM

During 2000 NASSCO won a $650 million contract to build three double-hull oil tankers for BP Amoco plc. Also that year a joint venture between the Land Systems Division and General Motors Corporation was selected by the U.S. Army to build an eight-wheeled armored vehicle, the LAV III. The program had a total cost of $4 billion for about 2,100 units. General Dynamics reported net income of $901 million on sales of $10.36 billion for 2000. Early in 2001 the company acquired Primex Technologies Inc., maker of munitions, propellants, satellite propulsion systems, and electronics products, for $520 million. Primex was renamed General Dynamics Ordnance and Tactical Systems and was integrated into the Combat Systems unit.

The company made a second play for Newport News Shipbuilding in 2001. Competitor Northrop Grumman Corporation also put its hat in the ring and eventually gained approval from the Department of Defense, who had once again blocked General Dynamics bid. Undeterred, Chabraja continued to make acquisitions that would benefit the companys four operating unitsAerospace, Marine Systems, Information Systems & Technology, and Combat Systems. Motorolas Integrated Systems Group was purchased in an $825 million deal. Galaxy Aerospace and Spains Empresa Nacional Santa Barbara de Industrias Militarias were also acquired. Overall, General Dynamics had added 19 companies to its arsenal from 1994 to 2001.

The terrorist attacks of September 11, 2001, and the ensuing wars in Afghanistan and Iraq led to a sharp increase in military spending. In fact, during fiscal 2003 the Pentagon set forth a $122.6 billion budget proposal for weapons procurement and research and development. It proved to be the largest military spending increase in 20 years and General Dynamics stood to gain handsomely from the rise in government-related contracts.

In late 2002, the company announced plans to purchase General Motors Corp.s defense business. The $1.1 billion cash deal was completed in 2003 and secured General Dynamics position as the leading supplier of armored combat vehicles. Later that year, the company bolstered its Information Systems & Technology division with the $1.5 billion acquisition of Veridian Corp., a network security provider with contracts with the Defense Department and various intelligence agencies. General Dynamics Information Systems unit had grown significantly and had become its largest business segment based on revenue.

The companys focus on information technology came at a time when government spending was likely to shift away from heavy military machinery. A December 2005 Washington Post article explained, While Pentagon spending on major weapons is expected to slide in coming years, spending on information technologyincluding building computer networks and designing battlefield simulation softwareis on an upward trend, with $200 billion in contracts expected to be awarded next year. As such, the company continued to strengthen its holdings in this area. In 2006, General Dynamics bought Anteon International Corporation, an information technology specialist whose customers included defense, homeland security, and intelligence agencies.

Meanwhile, General Dynamics continued to benefit from demand for its large and small caliber ammunition and for its Stryker vehicle, which was used by the U.S. Army. In fact, revenues in its Combat Systems division were on the rise, growing by 14 percent in 2005 and then again by 19 percent in 2006. With total sales exceeding $24 billion and net income of $1.85 billion, General Dynamics management teamled by Chabrajawas confident it had a solid strategy in place to succeed in the years to come.

April Dougal Gasbarre
Updated, David E. Salamie; Christina Stansell Weaver

PRINCIPAL SUBSIDIARIES

American Overseas Marine Corporation; Bath Iron Works Corporation; Concord I Maritime Corporation; Concord II Maritime Corporation; Concord III Maritime Corporation; Concord IV Maritime Corporation; Concord V Maritime Corporation; Convair Aircraft Corporation; Convair Corporation; Eagle Enterprise Inc.; The Elco Company; Electric Boat Corporation; Electrocom Inc.; General Dynamics Armament and Technical Products Inc.; General Dynamics Government Systems Corporation; General Dynamics International Corporation; General Dynamics Land Systems Inc.; General Dynamics Marine Systems Inc.; General Dynamics Ordnance and Tactical Systems Inc.; General Dynamics Properties Inc.; General Dynamics Shared Resources Inc.; General Dynamics Worldwide Holdings Inc.; Gulfstream Aerospace Corporation; Material Service Resources Company; NASSCO Holdings Corporation; Patriot I Shipping Corporation; Patriot II Shipping Corporation; Patriot III Shipping Corporation; Patriot IV Shipping Corporation; Santa Barbara Sistemas S.A. (Spain).

PRINCIPAL OPERATING UNITS

Aerospace; Information Systems and Technology; Marine Systems; Combat Systems.

PRINCIPAL COMPETITORS

Lockheed Martin Corporation; Northrop Grumman Newport News; Raytheon Company; BAE Systems Inc.; The Dewey Electronics Corporation.

FURTHER READING

Air, Land, and Sea: Big Defense Backlog Suggests Better Days for General Dynamics, Barrons, August 30, 1982, pp. 37.

Berss, Marcia, Are We in the Wrong Business? No, Forbes, December 25, 1989, pp. 38.

Bremner, Brian, General Dynamics Takes a Tomahawk to Itself, Business Week, June 22, 1992, p. 36.

Byrne, Harlan S., Bloody but Unbowed: Despite the Flak, General Dynamics Is Stronger Than Ever, Barrons, November 4, 1985, pp. 6.

Chakravarty, Subrata N., Weve Got a Lot of Depth, Forbes, May 11, 1981, pp. 199.

Coulam, Robert F., The Illusion of Choice: The F-111 and the Problem of Weapons Acquisition Reform, Princeton, N.J.: Princeton University Press, 1977.

Crock, Stan, General Dynamics Sounds the Charge, Business Week, May 19, 1997, pp. 136.

Curley, John, General Dynamics Is Facing the Issue of How to Grow As Defense Outlays Slow, Wall Street Journal, April 8, 1985.

_____, On the Defensive: Business Is Just Fine at General Dynamics, Yet Troubles Abound, Wall Street Journal, May 18, 1984.

Dobrzynski, Judith H., et al., General Dynamics Under Fire: Inside the Dynasty That Controls General Dynamics, Business Week, March 25, 1985, pp. 70.

Ellis, James E., General Dynamics: All Cleanup Up with No Place to Grow, Business Week, August 22, 1988, pp. 70.

_____, Layoffs on the Line, Bonuses in the Executive Suite, Business Week, October 21, 1991, p. 34.

Frank, Allan Dodds, The One That Got Away, Forbes, January 16, 1984, pp. 31.

Franklin, Roger, The Defender: The Story of General Dynamics, New York: Harper & Row, 1986, 385 p.

General Dynamics: Striking It Rich on Defense, Business Week, May 3, 1982, pp. 102.

General Dynamics: The Tangled Tale of Takis Veliotis, Business Week, June 25, 1984, pp. 114.

General Dynamics: Winning in the Aerospace Game, Business Week, May 3, 1976, p. 86.

Goodwin, Jacob, Brotherhood of Arms: General Dynamics and the Business of Defending America, New York: Random House, 1985, 419 p.

Greenberger, Robert S., General Dynamics Temporarily Barred from New U.S. Work After Indictment, Wall Street Journal, December 4, 1985.

Karp, Jonathan, General Dynamics Agrees to Buy Alvis, Wall Street Journal, March 12, 2004, p. A8.

_____, General Dynamics to Acquire IT Firm Anteon for $2.1 Billion, Wall Street Journal, December 15, 2005, p. B5.

Merle, Renae, General Dynamics Finds Profits on Battlefield, Washington Post, July 20, 2006, p. D1.

_____, General Dynamics to Buy Veridian for $1.5 Billion, Washington Post, June 10, 2003, p. E1.

_____, Wartime Spending a Mixed Blessing for General Dynamics, Washington Post, January 25, 2007, p. D4.

Merle, Renae, and Ellen McCarthy, General Dynamics to Buy Anteon; Deal Is a Nod to Pentagons Increased Spending on Information Technology, Washington Post, December 15, 2005, p. D1.

Miller, William H., Defense Conversion: The Fourth Time Around, Industry Week, April 4, 1994, pp. 2022.

Mintz, John, Attempting to Get Back on Course: Failure of Rocket Launch Shakes General Dynamics, Washington Post, April 6, 1993, p. D1.

_____, General Dynamics Flies a Little Lighter, Washington Post, March 2, 1993, p. D1.

_____, General Dynamics to Buy Shipyard for $300 Million, Washington Post, August 18, 1995, p. D1.

_____, Muscular or Moribund?: Its a Matter of Opinion When It Comes to the Fate of General Dynamics, Washington Post, December 26, 1994, p. F1.

Pasztor, Andy, General Dynamics May Have to Rethink Game Plan, Wall Street Journal, August 28, 1997, p. B4.

_____, General Dynamics to Build Through Acquisitions, Wall Street Journal, May 18, 1999, p. A4.

_____, General Dynamics to Press Ahead on Acquisition Trail, Wall Street Journal, April 15, 1999, p. B12.

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General Dynamics Corporation

General Dynamics Corporation

3190 Fairview Park Drive
Falls Church, Virginia 22042-4253
U.S.A.
Telephone: (703) 876-3000
Fax: (703) 876-3125
Web site: http://www.gendyn.com

Public Company
Incorporated: 1925 as Electric Boat Company
Employees: 43,400
Sales: $10.36 billion (2000)
Stock Exchanges: New York Chicago Pacific
Ticker Symbol: GD
NAIC: 334419 Other Electronic Component Manufacturing; 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; 335312 Motor and Generator Manufacturing; 336411 Aircraft Manufacturing; 336413 Other Aircraft Parts and Auxiliary Equipment Manufacturing; 336414 Guided Missile and Space Vehicle Manufacturing; 336611 Ship Building and Repairing; 336992 Military Armored Vehicle, Tank, and Tank Component Manufacturing

General Dynamics Corporation is a leading defense contractor, with nearly 60 percent of the companys net sales coming from contracts with the U.S. government. The companys largest operating unit is Marine Systems, which accounts for about one-third of sales, is the leading supplier of combat vessels to the U.S. Navy, and includes Electric Boat Corporation (the founding company), maker of the Seawolf and Virginia-class submarines; and Bath Iron Works (acquired in 1995), maker of destroyers and amphibious assault ships. The Combat Systems unit, which generates about 12 percent of net sales, produces the M1 tank for the U.S. Army (a business purchased from Chrysler Corporation in 1982) as well as other land and amphibious assault vehicles; it also makes gun and ammunition handling systems, reactive armor, and ordnance. Accounting for nearly one-quarter of sales is the Information Systems and Technology unit, which offers to both defense and commercial customers a wide range of technologies, including communication, computer, defense, electronic, information, and telecommunications systems. The Information Systems unit was created out of a series of acquisitions that began in 1997. Generating the bulk of General Dynamics revenues from commercial customers is its Aerospace unit, which consists of Gulfstream Aerospace (acquired in 1999), one of the worlds leading makers of business aircraft. Approximately 30 percent of overall revenues are derived from the operations of Gulfstream.

The Early Decades As Electric Boat

General Dynamics has a long history in weapons production, originating in the late 19th century with an Irish-American inventor named John Holland. Associated with the Fenians, a secret New York City organization sympathetic to the struggles of the Irish nationalists, Holland was commissioned to construct a submarine capable of destroying British naval vessels. While previous submarine designs had been attempted by other inventors, none were effective warships, and, in fact, several of Hollands first submarines sank. Moreover, his ill-conceived attempts at secrecy soon drew the attention of American law enforcement authorities, who prevented Holland from achieving his mission for the Fenians. Nevertheless, Holland remained interested in building a viable submarine, and, toward that end, he founded the Electric Boat Company in 1899, with financial backing from investors that later would include various members of Congress.

Once he developed a prototype, Holland had difficulty finding a market for his submarine, as the U.S. Navy was not initially interested in the project. Then, lawyer, financier, and battery and electronics magnate Isaac Leopold Rice offered to finance the development of subsequent Holland submarines in return for an interest in Electric Boat. Holland was persuaded to relinquish his patent rights and management authority to Rice, who successfully made sales to the U.S. Navy and several other foreign naval services. Holland effectively lost control of the company and found himself earning a salary of $90 per week as chief engineer, while the company he founded was selling submarines for $300,000 each.

Electric Boat gained a reputation for unscrupulous arms dealing in 1904-05, when it sold submarines to Japan and Russia, who were then at war. Holland submarines were also sold to the British Royal Navy through the English armaments company Vickers. Submarines, which had once been denounced in Britain as damned un-English considered too sly and cowardly for use in a proper gentlemans warwere now legitimized as genuine naval weapons by the worlds most powerful navy.

During this time, Holland lost patience with Rice and resigned in protest at being excluded from his companys affairs. A frail man plagued by a respiratory condition since birth, Holland died shortly thereafter in 1914. He was replaced as chief engineer by Lawrence Spear who, in close association with Vickers, redesigned the Holland submarine. Speed was improved, a conning tower and periscope replaced the Holland observation dome, and torpedo tubes were incorporated for the first time. The full potential of the submarine, however, was not fully recognized until World War I, when German U-boats caused serious disruptions in British shipping.

Isaac Rice died in 1915 and was replaced by his associate Henry Carse. Under Carse, Spear was given greater control over the companys operations. Electric Boat had a substantial backlog of profitable orders and was financially strong enough to purchase several companies, including Electro Dynamics (involved in ship propulsion), Elco Motor Yacht (builders of pleasure boats), and New London Ship & Engine of Groton, Connecticut (manufacturers of diesel engines and civilian ships). The companys name was changed to the Submarine Boat Corporation in 1917.

When the United States became involved in World War I, Carse made the crucial decision to devote the companys resources to the construction of disposable cargo vessels rather than submarines. Eventually realizing his mistake, Carse began to retool for submarine production; before the process could be completed, however, the war had ended, and the company had lost a great deal of money. Moreover, the U.S. Navy then decided to devote most of its reduced postwar budget to surface ships. Faced with bankruptcy, Carse reorganized the company, emphasized production of surface ships, and brought back the Electric Boat Company name in 1925.

On the eve of World War II, the business practices of Electric Boat came under investigation by the U.S. government and several independent groups; the company was accused of being a financial beneficiary of foreign wars. Electric Boat was also found to have inadvertently given design secrets to officials of the increasingly hostile government of Japan. In an investigation led by Senator Gerald Nye, Electric Boat was accused of profiteering, graft, and unethical business practices. Carse responded that, because the U.S. Navy had suspended all major contracts for ten years, Electric Boat had been forced to deal with foreign governmentsmany of which were corruptin order to remain financially solvent.

During this time, the German remilitarization and hostile Japanese activities forced the Roosevelt Administration to reassess its position on military preparedness. Consequently, the government placed orders for submarines and PT (patrol/torpedo) boats from Electric Boat facilities at Groton and the Elco plant in New Jersey. The new orders led to the revitalization of Electric Boat, now led by John Jay Hopkins, appointed in 1937 by the retiring Lawrence Spear, who himself had taken over when Henry Carse retired. While Spear continued to offer advice from his retirement, Hopkins was thoroughly in charge and fully responsible for the companys strong reemergence.

Following the American declarations of war against the Axis powers, Electric Boat and its Elco Yacht and Electro Dynamic subsidiaries mobilized for production at full capacity. This sudden expansion in output caused a serious labor shortage, which was filled by women, who took jobs as welders and riveters. During the war, the Electric Boat companies produced hundreds of submarines, surface ships, and PT boats, contributing greatly to the success of island fighting in the Pacific. When the war ended in 1945, the Navy reduced its orders for new vessels. Only 4,000 of the companys 13,000 wartime employees were retained after the war, and Electric Boat stock fell in value from $30 per share to $10.

Diversifying in the Postwar Era As General Dynamics

As a result, Hopkins initiated another reorganization of Electric Boat, which included a diversification into related commercial and defense industries. In 1947 Electric Boat purchased Canadair Limited from the Canadian government for $22 million. Canadair produced flying boats and modified DC-4s during the war, but had greatly diminished sales during peacetime. A series of events, including the Berlin Blockade, Soviet detonation of an atomic bomb, and the war in Korea, stimulated demand for new aircraft, including the T-33 trainers, F-86 Sabres, and DC-6s built under contract by Canadair. By the early 1950s, Canadairs success began overshadowing that of Electric Boat; some business advisers even suggested that Canadair purchase Electric Boat and operate it as a subsidiary. Instead, on February 21, 1952, a new parent company called General Dynamics Corporation was established to manage the operations of Canadair and Electric Boat.

With substantial profits from its Canadair subsidiary, General Dynamics purchased Consolidated Vultee Aircraft from the Atlas Corporation in 1954. Consolidated, which became General Dynamics Convair Division, manufactured a variety of civilian and military aircraft, including the 440 passenger liner, F-102 and F-106 fighters, Atlas and Centaur rockets, and the B-24, B-36, and B-58 Hustler bombers.

Company Perspectives:

Strength on Your Side means that General Dynamics delivers what it promises. We intend to maintain financial, technological, and managerial strength to benefit our shareholders, our customers, and our employees.

Convair led the development of the American nuclear aircraft program, enthusiastically supported by the Pentagon. CEO Hopkins was a strong advocate of nuclear power and its numerous applications, but the nuclear airplane, or N-bomber, was later found to be impractical, and the project was abandoned. Electric Boat enjoyed greater success with nuclear power; in 1954 it launched the first nuclear submarine, the Nautilus.

The companys development of commercial jetliners came near the end of Hopkins tenure. While Douglas and Boeing were developing their DC-8 and 707 passenger jets, Convair was unable to introduce its jetliner because the company was delayed by contractual obligations to TWA and its eccentric and intrusive majority shareholder Howard Hughes. Specifically, Convair was bound to incorporate numerous design changes suggested by Hughes. As the result of a financial crisis that postponed TWAs purchase of jetliners and eventually forced Hughes out of TWA, Convair was unable to recover from the delayed entry of its 680 and 880 models into the jetliner market. General Dynamics was forced to write off the entire passenger liner program with a $425 million loss.

The financial position of General Dynamics was so seriously weakened by the Convair jetliner program that the company was targeted for a takeover by Henry Crown, a Chicago construction materials magnate. Crown offered to merge his profitable Material Services Corporation with General Dynamics in exchange for a 20 percent share of the new companys stock, and the proposal was accepted in 1959. Two years later, Crown appointed Roger Lewis as chairperson of General Dynamics. Under Lewis, General Dynamics purchased the Quincy shipbuilding works from Bethlehem Steel in 1963 for $5 million. Quincy, then an outdated facility requiring costly improvements, held promise as a builder of surface ships.

In the early 1960s, the U.S. Defense Department invited American defense contractors to bid for the production of a new aircraft, the F-111, slated to replace the Departments aging fleet of B-52 bombers. General Dynamics entered the competition in partnership with the Grumman Corporation, against a design submitted by Boeing. Even though many regarded the Boeing F-111 as the better built and the more capable plane, the General Dynamics/Grumman version was consistently declared superior by Pentagon officials and industry experts. An investigation of impropriety in the selection process was interrupted when President Kennedy was assassinated in November 1963 and was not concluded until 1972.

General Dynamics continued to develop its version of the F-111 at its Convair facility in Fort Worth, Texas. The Air Force and Navy amended their design specifications and requested the addition of so many devices that the prototype could barely fly. With its utility as a replacement for the B-52 greatly diminished, the aircrafts role was reassessed, and the project was eventually identified by congressional critics as an example of gross mismanagement, organizational incompetence, and financial irresponsibility. The F-111 project consumed an inordinate amount of the defense budget and delayed by six years the introduction of Grummans similarand in many ways superiorF-14 Tomcat.

In 1966, Lewis removed Crown from the company by repossessing his 18 percent share of nonvoting company stock. Crown was paid $120 million for his shares, but lost control of both General Dynamics and Material Services Corporation. Over the next few years, Crown continued to purchase substantial numbers of shares of voting stock, expanding his interest until he emerged in 1970 with control over the board of directors. Lewis was summarily fired and replaced by David Lewis (of no relation). Crown subsequently moved the company from New York to St. Louis in February 1971.

Key Dates:

1899:
Electric Boat Company is founded to build submarines.
1917:
Companys name is changed to Submarine Boat Corporation.
1925:
Company is reorganized and reincorporated as Electric Boat Company; expansion into surface ships begins.
1937:
John Jay Hopkins joins company and is instrumental in its revival through the production of hundreds of submarines, surface ships, and PT boats during World War II.
1947:
Canadair Limited is acquired.
1952:
General Dynamics Corporation is established as a successor to Electric Boat and as a parent company for Electric Boat and Canadair.
1954:
General Dynamics acquires Consolidated Vultee Aircraft, which becomes the Convair Division; Electric Boat launches the first nuclear submarine, the Nautilus.
1959:
General Dynamics and Material Services Corporation merge.
1971:
Company relocates its headquarters to St. Louis.
1976:
Canadair is sold back to the Canadian government.
1978:
Fort Worth Division begins production of the F-16 combat fighter.
1982:
General Dynamics purchases Chryslers battle tank division, which becomes the Land Systems Division.
1985:
Cessna Aircraft Co. is acquired.
1991:
With end of Cold War, new CEO William A. Anders begins divestment program that reduces the company to two businesses by 1994: submarines and armored vehicles.
1992:
Cessna is sold to Textron Inc.; company headquarters is moved to Falls Church, Virginia.
1993:
The Fort Worth Division is sold to Lockheed Corporation.
1994:
The Space Systems Division is sold to Martin-Marietta.
1995:
Bath Iron Works, a major shipbuilder, is acquired.
1997:
The companys Information Systems and Technology unit begins to be built through a series of acquisitions.
1998:
National Steel and Shipbuilding Company, owner of a San Diego naval shipyard, is acquired.
1999:
General Dynamics completes two major acquisitions: Gulf stream Aerospace Corporation, maker of business jets, and three information systems units of GTE Corporation.

That year, the Electric Boat division of General Dynamics and its chief competitor, Newport News Shipbuilding, were awarded contracts to manufacture a new submarine, the 688, or Los Angeles class. Two years later, General Dynamics hired Takis Veliotis to take charge of the Quincy shipbuilding yard. Once in charge at Quincy, Veliotis concluded an agreement to build liquefied natural gas tankers in conjunction with a cold storage engineering firm called Frigitemp.

During this period, the Defense Department announced a $200 million competition for the production of a new jet fighter. Careful to avoid the problems that plagued the F-111, General Dynamics initiated its development of the F-16. The F-16 program closely followed its development and budget schedules, and the first prototype exceeded specifications.

Although it was apparently chosen over the Northrop F-17 Cobra, the F-16 faced an unexpected challenge from McDonnell Douglass independently developed F-15 Eagle. The lower-priced F-15 took a significant portion of the fighter market away from General Dynamics, whose Fort Worth Division began producing the F-16 in 1978. The U.S. government, however, compensated General Dynamics by promoting sales of the F-16 to NATO countries and other American allies. Canadair, which manufactured aircraft for Commonwealth countries, was sold back to the Canadian government in 1976 for $38 million.

The following year, Admiral Rickover publicly berated Electric Boat for poor workmanship and cost overruns on 18 Los Angeles class submarines. Rickover was particularly upset about the U.S. Navys contractual obligation to absorb a large portion of the overruns, which were running as high as $89 million per vessel. A dispute then arose between the Defense Department and Electric Boat, wherein Electric Boat threatened to halt production of the submarines unless its share of the losses were covered as well. General Dynamics sought the protection of Public Law 85-804, which was originally intended to protect strategic assets, such as Lockheed and Grumman, from bankruptcy due to cost overruns.

General Dynamics won a settlement from the Pentagon but soon realized that its problems at Groton were not merely financial. Productivity was seriously compromised by absenteeism and an employee turnover rate of 35 percent. Management lost control over inventories, and poor workmanship resulted in costly reconstruction. In October 1977, David Lewis transferred Takis Veliotis from Quincy to Groton, with instructions to reform the operation. Within months Veliotis had restored discipline, efficiency, and financial responsibility at Electric Boat.

Addition of Tanks/Land Systems: 1980s

Veliotis left Electric Boat in 1981 to take a seat on the General Dynamics board of directors and to serve as international salesperson and company ambassador. Later that year, however, Veliotis resigned in protest over a dispute with David Lewis, whom Veliotis claimed had promised him the position of chief executive officer. Soon thereafter, Veliotis was indicted by government prosecutors for illegal business practices. He fled to Greece, maintaining that he had possession of damaging evidence of fraudulent overcharges made by General Dynamics.

In 1982, General Dynamics purchased the Chrysler Corporation battle tank division, with plants located in Warren, Michigan, and Lima, Ohio. The division, renamed Land Systems, had already secured a government contract to build the Armys next main battle tank, the M-1. Developed in response to newer Soviet tanks such as the T-72, the M-1 was to be powered by a jet turbine and capable of speeds of up to 50 miles per hour. The M-1 also included a computer-guided gun-aiming mechanism designed to assure a high degree of accuracy while the tank was traveling over rough terrain at high speeds.

When the first M-1 prototypes were delivered from Land Systems, several basic design flaws were noticed by Pentagon officials. First, exhaust from the engine was so hot that infantry could not come near the tank for cover under fire. Moreover, the M-1 was fast but prone to breakdown, and it required so much fuel that logistical support became questionable. Finally, the M-1s ammunition bay was too small to carry more than 40 shells. Critics recommended that the M-1 project be canceled in favor of its predecessor, the durable, battle-tested M-60. During this same period, General Dynamics won a government contract to service and maintain TAKX supply ships for the American Rapid Deployment Force.

Also at this time, Lewis and other company officials were called to testify before a congressional subcommittee, which suggested that the company had overcharged the government for supplies and personal expenses. The proceedings initiated separate investigations by the Justice Department and the Internal Revenue Service. Soon after Admiral Rickover was involuntarily retired by Navy Secretary John Lehman, General Dynamics was awarded a government contract to manufacture a number of new boats, including the $500 million Ohio class Trident submarine. The contract eliminated many of the companys disputed charges to the Pentagon and, as a result, led to the cessation of the congressional investigation. Wisconsin Senator William Proxmire criticized these developments by remarking that defense contractors like General Dynamics have so much leverage against the government they can flout the laws that govern smaller companies and individuals.

David Lewis retired in 1985 and was replaced by Stanley C. Pace, formerly head of TRW. Oliver Boileau, president of General Dynamics, was passed over for the position at the insistence of the board of directors and the Crown family, all of whom wished to see an end to the policies of Lewis and his protégés. Pace made several changes at General Dynamics, even before Lewis had left the company. He sold the Quincy shipyard and founded a new division called Valley Systems, established to win contracts for the Reagan Administrations Strategic Defense Initiative. In 1985 he purchased Cessna Aircraft Co. Pace also helped clean up General Dynamics image by instituting an ethics program, which resulted in the firing of 27 employees.

Post-Cold War Transformation

Several external forces helped shape the conduct of business at General Dynamics in the late 1980s and early 1990s. The U.S.S.R.s collapse revealed it a much weaker military foe than had previously been believed. The subsequent end of the Cold War soon brought Congressional and public pressure to cut domestic defense budgets. These factors compelled General Dynamics to transform itself into a smaller, more focused company with a higher concentration of international sales. The Persian Gulf conflict helped boost General Dynamics tank and F-16 fighter sales to Turkey, Egypt, and Saudi Arabia and opened Middle East markets to the military manufacturer.

In January 1991, William A. Anders was assigned to reorganize General Dynamics according to the new market realities. He assumed the chief executive office, while Stanley Pace took a seat on the companys board of directors. Anderss strategy in the face of industry changes was to cut employees, trim research and development, divest peripheral businesses, and reduce capital spending. By June 1992, Anders had cut 25 percent of the workforce (24,800 employees) and put $1.7 billion in assets up for sale. Gains from divestments were rolled back to shareholders, and, by 1993, almost $600 million in debt was paid, which helped boost the companys share price. General Dynamics, which had suffered a $578 million loss in 1990, recovered to realize a $305 million profit the following year.

Despite the improving financial plcture, General Dynamics came under criticism from the Pentagon and Department of Defense for a lucrative executive Gain-Sharing plan that was tied to increases in the companys share price. In 1991 alone, as General Dynamics whittled away at its employee roster, Business Week reported that 25 top managers received $18 million in incentive bonuses. The company, meanwhile, relocated its headquarters from St. Louis to Falls Church, Virginia, in 1992.

Anders pronounced the transformation of General Dynamics complete in 1993s annual report. After selling its Missile Division to Hughes Aircraft Company for $450 million and Cessna Aircraft to Textron Inc. for $600 million, both deals coming in 1992, and its Fort Worth Division to Lockheed for $1.5 billion in 1993, as well as reaching an agreement to sell its Space Systems Division (which had been created out of Convair in 1985) to Martin-Marietta (a $209 million deal that was completed in 1994), the company emerged with two primary business segments: nuclear submarines and armored vehicles. The corporate workforce had shrunk from about 86,000 in 1991 to 30,500 in 1993, and debt decreased 94 percent during this period. Government contracts still comprised 94 percent of the companys annual sales, which remained essentially flat over the reorganization period. Operating earnings, however, increased by $98 million, from $211 million in 1991 to $309 million in 1993. That year, Anders relinquished the chief executive office to former president James Mellor and assumed General Dynamics chair as a transitional measure through April 1994.

Even after the special distributions to shareholders, the company still had more than $1 billion in cash and virtually no debt by late 1994. From this position of strength, Mellor began pursuing acquisitions of related niche businesses to build on General Dynamics two remaining units. In September 1995 the company acquired Bath Iron Works for $300 million from an investor group led by Prudential Insurance Co. As a result of the deal, General Dynamics owned two of the six major private naval shipyards in the United States: Electric Boats submarine facility in Groton, Connecticut, and Baths shipyard in Bath, Maine. Bath, which traced its origins back to the founding of Bath Iron Foundry in 1833, was under contract with the U.S. Navy to build 11 guided-missile AEGIS destroyers. Around the time of the acquisition, the Seawolf submarine program was nearly killed by Congress, an event that might have shut down Electric Boats shipyards. Despite objections that the Navy did not need a third Seawolf submarine, Electric Boat was awarded a $1.5 billion contract to build the final such sub, to be called the USS Jimmy Carter.

In 1996 the companys Land Systems Division was awarded a $217 million contract to build a new amphibious assault vehicle for the U.S. Marines. Eventual production of more than 1,000 of these vehicles was projected to be worth more than $4 billion through 2014. That same year, Bath was part of an alliance that won a contract to build 12, $800 million amphibious assault ships, the LDP-17, for the Navy. In January 1997 General Dynamics continued its acquisition program with the purchase of two businesses from Lockheed Martin Corporation for $450 million: Armament Systems, a maker of advanced gun and fire-control systems, and Defense Systems, producer of turrets and transmissions for combat vehicles. The bulk of these operations were combined within a new Armament Systems Division, which became part of General Dynamics Combat Systems unit alongside the Land Systems Division.

In mid-1997 Nicholas D. Chabraja took over as CEO from the retiring Mellor, having previously served as an executive vice-president and general counsel and having played a prominent role in the companys post-Cold War transformation. He almost immediately faced a setback when the company, seeking to expand its position in the area of Army vehicles, was blocked from acquiring United Defense L.P., a maker of military vehicles, because of potential antitrust concerns. Undeterred, Chabraja shifted his immediate acquisition focus to a new niche area: electronics and systems integration, a growth area in which he felt General Dynamics had some expertise. Thus came the formation of a third company operating unit: the Information Systems and Technology unit (Marine Systems and Combat Systems being the other two). The new unit was built through a series of acquisitions that began in 1997. In October of that year Advanced Technology Systems was acquired from Lucent Technologies Inc. for $267 million. Advanced Technology produced undersea surveillance systems, signal processing, and vibration control systems. In December 1997 General Dynamics acquired Computing Devices International, a division of Ceridian Corporation, for $500 million. From this deal came three more pieces of the Information Systems puzzle: General Dynamics Information Systems, Inc.; Computing Devices Canada Ltd.; and the U.K.-based Computing Devices Company Limited. In June 1998 the company acquired another systems integration business called Computer Systems & Communications Corporation.

Chabraja continued to look for acquisition targets in shipbuilding as well. In November 1998 General Dynamics spent $415 million to acquire NASSCO Holdings Incorporated, parent company of National Steel and Shipbuilding Company (NASSCO), which owned a Naval shipyard in San Diego. The addition of NASSCO helped diversify the line of ships built by the Marine Systems unit as the newly acquired company produced hospital ships and combat support ships for the U.S. Navy as well as commercial ships such as oil tankers. General Dynamics now owned half of the six private yards that made Navy ships but when the company made an unsolicited $1.4 billion bid for Newport News Shipbuilding Inc. in early 1999, touting the potential cost savings of the combination, the Pentagon blocked the takeover attempt, citing the dominate position in shipbuilding that General Dynamics would thereby gain.

Once again hardly skipping a beat, General Dynamics concluded two large deals later in 1999. In July 1999 the company returned to the aviation market and also greatly increased the percent of revenues it generated from the commercial market with the acquisition of Gulfstream Aerospace Corporation, a leading maker of business jets, in a stock swap valued at about $5 billion. In September 1999 General Dynamics further bolstered its Information Systems and Technology unit through the $1.01 billion purchase of three business units from GTE Corporation. The units, reorganized within a new entity called General Dynamics Government Systems Corporation, specialized in command, control, communications, and intelligence systems; electronic defense systems; and information systems for defense, government, and industry. The acquisition spree helped propel revenues from the $4.97 billion mark of 1998 to $8.96 billion in 1999. Net income more than doubled, from $364 million to $888 million.

During 2000 NASSCO won a $650 million contract to build three double-hull oil tankers for BP Amoco plc. Also that year a joint venture between the Land Systems Division and General Motors Corporation was selected by the U.S. Army to build an eight-wheeled armored vehicle, the LAV III. The program had a total cost of $4 billion for about 2,100 units. General Dynamics reported net income of $901 million on sales of $10.36 billion for 2000. Early in 2001 the company acquired Primex Technologies Inc., maker of munitions, propellants, satellite propulsion systems, and electronics products, for $520 million. Primex was renamed General Dynamics Ordnance and Tactical Systems and was integrated into the Combat Systems unit.

Principal Subsidiaries

American Overseas Marine Corporation; Bath Iron Works Corporation; CD Plus S.A.R.L. (France); Computer Systems & Communications Corporation; Concord I Maritime Corporation; Concord II Maritime Corporation; Concord III Maritime Corporation; Concord IV Maritime Corporation; Concord V Maritime Corporation; Convair Aircraft Corporation; The Elco Company; Electric Boat Corporation; Electrocom, Inc.; GDIC Corp.; General Dynamics Advanced Technology Systems, Inc.; General Dynamics Armament Systems, Inc.; General Dynamics (C.I.) Limited (Cayman Islands); General Dynamics Defense Systems, Inc.; General Dynamics Foreign Sales Corporation (Virgin Islands); General Dynamics Government Systems Corporation; General Dynamics Information Systems, Inc.; General Dynamics International Corporation; General Dynamics Land Systems Inc.; General Dynamics Limited (U.K.); General Dynamics Manufacturing Limited (Canada); General Dynamics Marine Services, Inc.; General Dynamics Properties, Inc.; General Dynamics Shared Resources, Inc.; Gulfstream Aerospace Corporation; Material Service Resources Company; NASSCO Holdings Incorporated; Patriot I Shipping Corp.; Patriot II Shipping Corp.; Patriot IV Shipping Corp.; S-C 1969 Credit Corporation.

Principal Operating Units

Aerospace; Information Systems and Technology; Marine Systems; Combat Systems.

Principal Competitors

Lockheed Martin Corporation; Raytheon Company; The Boeing Company; Textron Inc.; Newport News Shipbuilding Inc.; Airbus Industrie; Bombardier Inc.; Dassault Aviation SA; Electronic Data Systems Corporation; Harris Corporation; L-3 Communications Holdings, Inc.; Litton Industries, Inc.; Racal Electronics Plc; United Defense Industries, Inc.

Further Reading

Air, Land, and Sea: Big Defense Backlog Suggests Better Days for General Dynamics, Barrons, August 30, 1982, pp. 37+ .

Berss, Marcia, Are We in the Wrong Business? No, Forbes, December 25, 1989, pp. 38+ .

Bremner, Brian, General Dynamics Takes a Tomahawk to Itself, Business Week, June 22, 1992, p. 36.

Byrne, Harlan S., Bloody but Unbowed: Despite the Flak, General Dynamics Is Stronger Than Ever, Barrons, November 4, 1985, pp. 6+ .

Chakravarty, Subrata N., We ve Got a Lot of Depth, Forbes, May 11, 1981, pp. 199+ .

Coulam, Robert F., The Illusion of Choice: The F-111 and the Problem of Weapons Acquisition Reform, Princeton, N.J.: Princeton University Press, 1977.

Crock, Stan, General Dynamics Sounds the Charge, Business Week, May 19, 1997, pp. 136+ .

Curley, John, General Dynamics Is Facing the Issue of How to Grow As Defense Outlays Slow, Wall Street Journal, April 8, 1985.

, On the Defensive: Business Is Just Fine at General Dynamics, Yet Troubles Abound, Wall Street Journal, May 18, 1984.

Dobrzynski, Judith H., et al., General Dynamics Under Fire: Inside the Dynasty That Controls General Dynamics, Business Week, March 25, 1985, pp. 70+ .

Ellis, James E., General Dynamics: All Cleanup Up with No Place to Grow, Business Week, August 22, 1988, pp. 70+ .

, Layoffs on the Line, Bonuses in the Executive Suite, Business Week, October 21, 1991, p. 34.

Frank, Allan Dodds, The One That Got Away, Forbes, January 16, 1984, pp. 31+ .

Franklin, Roger, The Defender: The Story of General Dynamics, New York: Harper & Row, 1986, 385 p.

General Dynamics: Striking It Rich on Defense, Business Week, May 3, 1982, pp. 102+ .

General Dynamics: The Tangled Tale of Takis Veliotis, Business Week, June 25, 1984, pp. 114+ .

General Dynamics: Winning in the Aerospace Game, Business Week, May 3, 1976, p. 86.

Goodwin, Jacob, Brotherhood of Arms: General Dynamics and the Business of Defending America, New York: Random House, 1985, 419 p.

Greenberger, Robert S., General Dynamics Temporarily Barred from New U.S. Work After Indictment, Wall Street Journal, December 4, 1985.

Miller, William H., Defense Conversion: The Fourth Time Around, Industry Week, April 4, 1994, pp. 2022+ .

Mintz, John, Attempting to Get Back on Course: Failure of Rocket Launch Shakes General Dynamics, Washington Post, April 6, 1993, p. D1.

, General Dynamics Flies a Little Lighter, Washington Post, March 2, 1993, p. D1.

, General Dynamics to Buy Shipyard for $300 Million, Washington Post, August 18, 1995, p. D1.

, Muscular or Moribund?: Its a Matter of Opinion When It Comes to the Fate of General Dynamics, Washington Post, December 26, 1994, p. F1.

Pasztor, Andy, General Dynamics May Have to Rethink Game Plan, Wall Street Journal, August 28, 1997, p. B4.

, General Dynamics to Build Through Acquisitions, Wall Street Journal, May 18, 1999, p. A4.

, General Dynamics to Press Ahead on Acquisition Trail, Wall Street Journal, April 15, 1999, p. B12.

Perry, Nancy J., General Dynamics Selling Strategy, Fortune, January 11, 1993, p. 56.

Rosenberg, Hilary, Throwing Away the Textbook, Financial World, October 1, 1982, pp. 12+ .

Smart, Tim, General Dynamics to Acquire Gulfstream, Washington Post, May 18, 1999, p. E1.

, Run Silent, Run Profits: Low-Key General Dynamics Is a Top Gun Again, Washington Post, November 16, 1998, p. F12.

, Virginia Shipbuilders Sale Scuttled, Washington Post, April 15, 1999, p. E1.

Squeo, Anne Marie, General Dynamics Looks Beyond Tanks to Technology, Wall Street Journal, July 25, 2000, p. B4.

Taylor, Robert E., Defense Firm, NASA Chief Are Indicted: General Dynamics and Aides Said to Have Charged Cost Overrun Improperly, Wall Street Journal, December 3, 1985.

Tyler, Patrick, Running Critical: The Silent War, Rickover and General Dynamics, New York: Harper & Row, 1987, 374 p.

Worthy, Ford S., Mr. Clean Charts a New Course at General Dynamics, Fortune, April 28, 1986, pp. 70+ .

Yenne, Bill, Into the Sunset: The Convair Story, Lyme, Conn.: Greenwich Publishing Group, 1995, 112 p.

April Dougal Gasbarre
update: David E. Salamie

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General Dynamics Corporation

General Dynamics Corporation

3190 Fairview Park Drive
Falls Church, Virginia 22042-4253
U.S.A.
(703) 876-3000
Fax: (703) 876-3125

Public Company
Incorporated: 1925 as Electric Boat Company
Employees: 30,500
Sales: $3.19 billion
Stock Index: New York Chicago Pacific
SICs: 3721 Aircraft; 3761 Guided Missiles and Space Vehicles; 3728 Aircraft Parts and Equipment, Nee.; 3812 Search and Navigation Equipment; 3483 Ammunition, Except for Small Arms, Nee; 3731 Ship Building and Repairing; 3795 Tanks and Tank Components

General Dynamics contribution to the defense industry, through the production of nuclear submarines and armored vehicles, was identified by the federal Department of Defense as crucial to the U.S. Defense Industrial Base. The company also maintained interests in coal mining, ship management, and ship financing.

General Dynamics has a long history in weapons production, originating in the late nineteenth century with an Irish-American inventor named John Holland. Associated with the Fenians, a secret New York City organization sympathetic to the struggles of the Irish nationalists, Holland was commissioned to construct a submarine capable of destroying British naval vessels. While previous submarine designs had been attempted by other inventors, none were effective warships, and, in fact, several of Hollands first submarines sank. Moreover, his ill-conceived attempts at secrecy soon drew the attention of American law enforcement authorities, who prevented Holland from achieving his mission for the Fenians. Nevertheless, Holland remained interested in building a viable submarine, and, toward that end, he founded the Electric Boat Company in 1899, with financial backing from investors that later would include various members of Congress.

Once he developed a prototype, Holland had difficulty finding a market for his submarine, as the U.S. Navy wasnt initially interested in the project. Then, lawyer, financier, and battery and electronics magnate Isaac Leopold Rice offered to finance the development of subsequent Holland submarines in return for an interest in Electric Boat. Holland was persuaded to relinquish his patent rights and management authority to Rice, who successfully made sales to the U.S. Navy and several other foreign naval services. However, Holland effectively lost control of the company and found himself earning a salary of $90 per week as chief engineer, while the company he founded was selling submarines for $300,000 each.

Electric Boat gained a reputation for unscrupulous arms dealing in 1904-05, when it sold submarines to Japan and Russia, who were then at war. Holland submarines were also sold to the British Royal Navy through the English armaments company Vickers. Submarines, which had once been denounced in Britain as damned un-Englishconsidered too sly and cowardly for use in a proper gentlemans warwere now legitimized as genuine naval weapons by the worlds most powerful navy.

During this time, Holland lost patience with Rice and resigned in protest at being excluded from his companys affairs. A frail man plagued by a respiratory condition since birth, Holland died shortly thereafter in 1914. He was replaced as chief engineer by Lawrence Spear who, in close association with Vickers, redesigned the Holland submarine. Speed was improved, a conning tower and periscope replaced the Holland observation dome, and torpedo tubes were incorporated for the first time. The full potential of the submarine, however, was not fully recognized until World War I, when German U-boats caused serious disruptions in British shipping.

Isaac Rice died in 1915 and was replaced by his associate Henry Carse. Under Carse, Spear was given greater control over the companys operations. Electric Boat had a substantial backlog of profitable orders and was financially strong enough to purchase several companies, including Electro Dynamics (involved in ship propulsion), Elco Motor Yacht (builders of pleasure boats), and New London Ship & Engine of Groton, Connecticut (manufacturers of diesel engines and civilian ships). The companys name was changed to the Submarine Boat Corporation.

When the United States became involved in World War I, Carse made the crucial decision to devote the companys resources to the construction of disposable cargo vessels rather than submarines. Eventually realizing his mistake, Carse began to retool for submarine production; however, before the process could be completed, the war had ended, and the company had lost a great deal of money. Moreover, the U.S. Navy then decided to devote most of its reduced postwar budget to surface ships. Faced with bankruptcy, Carse reorganized the company, emphasized production of surface ships, and brought back the Electric Boat name.

On the eve of World War II, the business practices of Electric Boat came under investigation by the U.S. government and several independent groups; the company was accused of being a financial beneficiary of foreign wars. Electric Boat was also found to have inadvertently given design secrets to officials of the increasingly hostile government of Japan. In an investigation led by Senator Gerald Nye, Electric Boat was accused of profiteering, graft, and unethical business practices. Carse responded that, because the U.S. Navy had suspended all major contracts for ten years, Electric Boat had been forced to deal with foreign governmentsmany of which were corruptin order to remain financially solvent.

During this time, the German re-militarization and hostile Japanese activities forced the Roosevelt Administration to reassess its position on military preparedness. Consequently, the government placed orders for submarines and PT (patrol/torpedo) boats from Electric Boat facilities at Groton and the Elco plant in New Jersey. The new orders led to the revitalization of Electric Boat, now led by John Jay Hopkins, appointed by the retiring Lawrence Spear, who himself had taken over when Henry Carse retired. While Spear continued to offer advice from his retirement, Hopkins was thoroughly in charge and fully responsible for the companys strong re-emergence.

Following the American declarations of war against the Axis powers, Electric Boat and its Elco Yacht and Electro Dynamic subsidiaries mobilized for production at full capacity. This sudden expansion in output caused a serious labor shortage, which was filled by women, who took jobs as welders and riveters. During the war, the Electric Boat companies produced hundreds of submarines, surface ships, and PT boats, contributing greatly to the success of island fighting in the Pacific. When the war ended in 1945, the Navy reduced its orders for new vessels. Only 4,000 of the companys 13,000 wartime employees were retained after the war, and Electric Boat stock fell in value from $30 per share to $10.

As a result, Hopkins initiated another reorganization of Electric Boat, which included a diversification into related commercial and defense industries. Electric Boat purchased Canadair from the Canadian government for $22 million. Canadair produced flying boats and modified DC-4s during the war, but had greatly diminished sales during peacetime. A series of events, including the Berlin Blockade, Soviet detonation of an atomic bomb, and the war in Korea, stimulated demand for new aircraft, including the T-33 trainers, F-86 Sabres and DC-6s built under contract by Canadair. By the early 1950s, Canadairs success began overshadowing that of Electric Boat; some business advisers even suggested that Canadair purchase Electric Boat and operate it as a subsidiary.

With substantial profits from its Canadair subsidiary, Electric Boat purchased Convair from the Atlas Corporation. Convair manufactured a variety of civilian and military aircraft, including the 440 passenger liner, F-102 and F-106 fighters, Atlas and Centaur rockets, and the B-24, B-36, and B-58 Hustler bombers. On February 21, 1952, a new parent company called General Dynamics was established to manage the operations of Convair, Canadair, and Electric Boat.

Convair led the development of the American nuclear aircraft program, enthusiastically supported by the Pentagon. CEO Hopkins was a strong advocate of nuclear power and its numerous applications, but the nuclear airplane, or N-bomber, was later found to be impractical, and the project was abandoned. Electric Boat enjoyed greater success with nuclear power; in 1955 it launched the first nuclear submarine, the Nautilus.

The companys development of commercial jetliners came near the end of Hopkins tenure. While Douglas and Boeing were developing their DC-8 and 707 passenger jets, Convair was unable to introduce its jetliner because the company was delayed by contractual obligations to TWA and its eccentric and intrusive majority shareholder Howard Hughes. Specifically, Convair was bound to incorporate numerous design changes suggested by Hughes. As the result of a financial crisis that postponed TWAs purchase of jetliners, and eventually forced Hughes out of TWA, Convair was unable to recover from the delayed entry of its 680 and 880 models into the jetliner market. General Dynamics was forced to write off the entire passenger liner program with a $425 million loss.

The financial position of General Dynamics was so seriously weakened by the Convair jetliner program that the company was targeted for a takeover by Henry Crown, a Chicago construction materials magnate. Crown offered to merge his profitable Material Services Corporation with General Dynamics in exchange for a 20 percent share of the new companys stock, and the proposal was accepted in 1959. Two years later, Crown appointed Roger Lewis as chairperson of General Dynamics. Under Lewis, General Dynamics purchased the Quincy shipbuilding works from Bethlehem Steel in 1963 for $5 million. Quincy was then an outdated facility requiring costly improvements but held promise as a builder of surface ships.

In the early 1960s, the U.S. Defense Department invited American defense contractors to bid for the production of a new aircraft, the F-lll, slated to replace the Departments aging fleet of B-52 bombers. General Dynamics entered the competition in partnership with the Grumman Corporation, against a design submitted by Boeing. Even though many regarded the Boeing F-lll as the better built and the more capable plane, the General Dynamics/Grumman version was consistently declared superior by Pentagon officials and industry experts. An investigation of impropriety in the selection process was interrupted when President Kennedy was assassinated in November 1963 and was not concluded until 1972.

General Dynamics continued to develop its version of the F-lll at its Convair facility in Fort Worth, Texas. The Air Force and Navy amended their design specifications and requested the addition of so many devices that the prototype could barely fly. With its utility as a replacement for the B-52 greatly diminished, the aircrafts role was reassessed, and the project was eventually identified by congressional critics as an example of gross mismanagement, organizational incompetence, and financial irresponsibility. The F-lll project consumed an inordinate amount of the defense budget and delayed by six years the introduction of Grummans similarand in many ways superiorF-14 Tomcat.

In 1966, Lewis removed Crown from the company by repossessing his 18 percent share of non-voting company stock. Crown was paid $120 million for his shares, but lost control of both General Dynamics and Material Services Corporation. Over the next few years, Crown continued to purchase substantial numbers of shares of voting stock, expanding his interest until he emerged in 1970 with control over the board of directors. Lewis was summarily fired and replaced by David Lewis (of no relation). Crown subsequently moved the company from New York to St. Louis in February 1971.

That year, the Electric Boat division of General Dynamics and its chief competitor, Newport News Shipbuilding, were awarded contracts to manufacture a new submarine, the 688, or Los Angeles class. Two years later, General Dynamics hired Takis Veliotis to take charge of the Quincy shipbuilding yard. Once in charge at Quincy, Veliotis concluded an agreement to build liquified natural gas tankers in conjunction with a cold storage engineering firm called Frigitemp.

During this period, the Defense Department announced a $200 million competition for the production of a new jet fighter. Careful to avoid the problems which plagued the F-111, General Dynamics initiated its development of the F-16. The F-16 program closely followed its development and budget schedules, and the first prototype exceeded specifications.

Although it was apparently chosen over the Northrop F-17 Cobra, the F-16 faced an unexpected challenge from McDonnell Douglas independently developed F-15 Eagle. The lower-priced F-15 took a significant portion of the fighter market away from General Dynamics. However, the U.S. government compensated General Dynamics by promoting sales of the F-16 to NATO countries and other American allies. Canadair, which manufactured aircraft for Commonwealth countries, was sold back to the Canadian government in 1976 for $38 million.

The following year, Admiral Rickover publicly berated Electric Boat for poor workmanship and cost overruns on 18 Los Angeles class submarines. Rickover was particularly upset about the U.S. Navys contractual obligation to absorb a large portion of the overruns, which were running as high as $89 million per vessel. A dispute then arose between the Defense Department and Electric Boat, wherein Electric Boat threatened to halt production of the submarines unless its share of the losses were covered as well. General Dynamics sought the protection of Public Law 85-804, which was originally intended to protect strategic assets, such as Lockheed and Grumman, from bankruptcy due to cost overruns.

General Dynamics won a settlement from the Pentagon but soon realized that its problems at Groton were not merely financial. Productivity was seriously compromised by absenteeism and an employee turnover rate of 35 percent. Management lost control over inventories, and poor workmanship resulted in costly reconstruction. In October 1977, David Lewis transferred Takis Veliotis from Quincy to Groton, with instructions to reform the operation. Within months Veliotis had restored discipline, efficiency, and financial responsibility at Electric Boat.

Veliotis left Electric Boat in 1981 to take a seat on the General Dynamics board of directors and to serve as international salesperson and company ambassador. Later that year, however, Veliotis resigned in protest over a dispute with David Lewis, whom Veliotis claimed had promised him the position of chief executive officer. Soon thereafter, Veliotis was indicted by government prosecutors for illegal business practices. He fled to Greece, maintaining that he had possession of damaging evidence of fraudulent overcharges made by General Dynamics.

In 1982, General Dynamics purchased the Chrysler battle tank division, with plants located in Warren, Michigan, and Lima, Ohio. The division, renamed Land Systems, had already secured a government contract to build the Armys next main battle tank, the M-l. Developed in response to newer Soviet tanks such as the T-72, the M-1 was to be powered by a jet turbine and capable of speeds of up to 50 miles per hour. The M-l also included a computer-guided gun-aiming mechanism designed to assure a high degree of accuracy while the tank was traveling over rough terrain at high speeds.

When the first M-l prototypes were delivered from Land Systems, several basic design flaws were noticed by Pentagon officials. First, exhaust from the engine was so hot that infantry could not come near the tank for cover under fire. Moreover, the M-l was fast but prone to breakdown, and it required so much fuel that logistical support became questionable. Finally, the M-ls ammunition bay was too small to carry more than 40 shells. Critics recommended that the M-1 project be canceled in favor of its predecessor, the durable, battle-tested M-60. During this same period, General Dynamics won a government contract to service and maintain TAKX supply ships for the American Rapid Deployment Force.

During this time, Lewis and other company officials were called to testify before a congressional subcommittee, which suggested that the company had overcharged the government for supplies and personal expenses. The proceedings initiated separate investigations by the Justice Department and the Internal Revenue Service. Soon after Admiral Rickover was involuntarily retired by Navy Secretary John Lehman, General Dynamics was awarded a government contract to manufacture a number of new boats, including the $500 million Ohio class Trident submarine. The contract eliminated many of the companys disputed charges to the Pentagon and, as a result, led to the cessation of the congressional investigation. Wisconsin Senator William Proxmire criticized these developments by remarking that defense contractors like General Dynamics have so much leverage against the government they can flout the laws that govern smaller companies and individuals.

David Lewis retired in 1985 and was replaced by Stanley C. Pace, formerly head of TRW. Oliver Boileau, president of General Dynamics, was passed over for the position at the insistence of the board of directors and the Crown family, all of whom wished to see an end to the policies of Lewis and his proteges. Pace made several changes at General Dynamics, even before Lewis had left the company. He sold the Quincy shipyard and founded a new division called Valley Systems, established to win contracts for the Reagan Administrations Strategic Defense Initiative. Pace also helped clean up General Dynamics image by instituting an ethics program, which resulted in the firing of 27 employees.

Several external forces helped shape the conduct of business at General Dynamics in the late 1980s and early 1990s. The USSRs collapse revealed it a much weaker military foe than had previously been believed. The subsequent end of the Cold War soon brought Congressional and public pressure to cut domestic defense budgets. These factors compelled General Dynamics to transform itself into a smaller, more focused company with a higher concentration of international sales. The Persian Gulf conflict helped boost General Dynamics tank and F-16 fighter sales to Turkey, Egypt, and Saudi Arabia and opened Middle East markets to the military manufacturer.

In January 1991, William A. Anders was assigned to reorganize General Dynamics according to the new market realities. He assumed the chief executive office, while Stanley Pace took a seat on the companys board of directors. Anders strategy in the face of industry changes was to cut employees, trim research and development, divest peripheral businesses, and reduce capital spending. By June 1992, Anders had cut 25 percent of the work force (24,800 employees) and put $1.7 billion in assets up for sale. Gains from divestments were rolled back to shareholders, and, by 1993, almost $600 million in debt was paid, which helped boost the companys share price. General Dynamics, which had suffered a $578 million loss in 1990, recovered to realize a $305 million profit the following year.

Despite the improving financial picture, General Dynamics came under criticism from the Pentagon and Department of Defense for a lucrative executive Gain-Sharing plan that was tied to increases in the companys share price. In 1991 alone, as General Dynamics whittled away at its employee roster, Business Week reported that 25 top managers received $18 million in incentive bonuses.

Anders pronounced the transformation of General Dynamics complete in 1993s annual report. After selling its Texas aircraft operations to Lockheed for $1.5 billion, the company emerged with two primary business segments: nuclear submarines and armored vehicles. The corporate work force had shrunk from about 86,000 in 1991 to 30,500 in 1993, and debt decreased 94 percent during the period. Government contracts still comprised 94 percent of the companys annual sales, which remained essentially flat over the reorganization period. Operating earnings, however, increased by $98 million, from $211 million in 1991 to $309 million in 1993. That year, Anders relinquished the chief executive office to former president James Mellor and assumed General Dynamics chair as a transitional measure through April 1994.

Principal Subsidiaries:

Electric Boat Division; Land Systems Division; American Overseas Marine Corporation; Freeman Energy Corporation.

Further Reading:

Coulam, Robert F., The Illusion of Choice: The F-lll and the Problem of Weapons Acquisition Reform, Princeton, N.J.: Princeton University Press, 1977.

Ellis, James E., Layoffs on the Line, Bonuses in the Executive Suite, Business Week, October 21, 1991, p. 34.

Franklin, Roger, The Defender: The Story of General Dynamics, New York: Harper, 1986.

Goodwin, Jacob, Brotherhood of Arms: General Dynamics and the Business of Defending America, New York: Random House, 1985.

Tyler, Patrick. Running Critical: The Silent War, Rickover and General Dynamics, New York: Harper, 1987.

updated by April Dougal Gasbarre

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General Dynamics Corporation

General Dynamics Corporation

Pierre Laclede Center
St. Louis, Missouri 63105
U.S.A.
(314) 889-8200

Public Company
Incorporated:
29 May 1925 as Electric Boat Company
Employees: 92,600
Sales: $8.892 billion
Market value: $3.273 billion
Stock Index: New York

General Dynamics is one of several American companies that manufacture aircraft. It is one of two submarine builders and the only manufacturer of battle tanks in the United States. The company has a long history in weapons production, a history that originates with an Irish-American inventor named John Holland.

Holland was associated with the Fenians, a secret organization founded in New York City which was sympathetic to Irish nationalists trying to end British domination of Ireland. The Fenians commissioned Holland to construct a submarine capable of destroying British naval vessels. Previous submarine designs had been attempted by other inventors, but none were effective warships. Several of Hollands first submarines sank. Before long his ill-conceived attempts at secrecy alerted American law enforcement authorities who prevented Holland from achieving his mission for the Fenians. In order to continue his work, Holland sought and later won support from various members of Congress. He arranged financial backing and on February 7, 1899 founded the Electric Boat Company.

Despite Hollands good relationship with government officials, Electric Boat was unable to interest the U.S. Navy. Then a lawyer-financier and battery and electronics magnate named Isaac Leopold Rice offered to finance the development of subsequent Holland submarines in return for an interest in Electric Boat. Holland was persuaded to relinquish his patent rights and management authority to Rice, who successfully made sales to the U.S. Navy and several other foreign naval services. Holland effectively lost control of the company and found himself earning a salary of $90 per week as chief engineer while the company he founded was selling submarines for $300,000 each.

Electric Boat gained a reputation for unscrupulous arms dealing in 1904-05 when it sold submarines to both Japan and Russia, who were at war. Holland submarines were sold to the British Royal Navy through the English armaments company Vickers (ironic, considering the companys Fenian beginnings). Submarines, which had once been denounced in Britain as damned un-English, as too sly and cowardly for a proper gentlemans war, were now legitimized as genuine naval weapons by the worlds most powerful navy.

Holland lost patience with Rice and resigned in protest at being excluded from his companys affairs. A frail man plagued by a respiratory condition since birth, Holland died shortly afterward in 1914. He was replaced as chief engineer by Lawrence Spear who, in close association with Vickers, redesigned the Holland submarine. Speed was improved, a conning tower and periscope replaced the Holland observation dome, and torpedo tubes were incorporated for the first time. The full potential of the submarine, however, was not fully recognized until World War I, when German U-boats caused serious disruptions in British shipping.

Isaac Rice died in 1915 and was replaced by his associate Henry Carse. Spear, who never liked Rice, was given greater control over the companys operations under Carse. Electric Boat had a substantial backlog of profitable orders and was financially strong enough to purchase several companies, including Electro Dynamics (involved in ship propulsion), Elco Motor Yacht (builders of pleasure boats), and New London Ship & Engine of Groton, Connecticut (manufacturers of diesel engines and civilian ships). The companys name was changed to the Submarine Boat Corporation.

When the United States became involved in World War I, Carse made the crucial decision to devote the companys resources to the construction of disposable cargo vessels rather than submarines. Then, having realized his mistake, he began to retool for submarine production, but before the process could be completed the war had endedas a result, the company lost a great deal of money. Then, the Navy decided to devote most of its reduced post-war budget to surface ships. Faced with bankruptcy, Carse reorganized the company, emphasized production of surface ships, and brought back the Electric Boat name.

On the eve of World War II, the business practices of Electric Boat came under investigation by the U.S. government and a number of independent groups; it was accused of being a financial beneficiary of foreign wars. Electric Boat was also found to have inadvertently given design secrets to officials of the increasingly hostile government of Japan. In an investigation led by Senator Gerald Nye, Electric Boat was accused of profiteering, graft, and unethical business practices. Carse responded that, because the U.S. Navy had suspended all major contracts for 10 years, Electric Boat had been forced to deal with foreign governments (many of which were corrupt) in order to remain financially solvent.

The German re-militarization and hostile Japanese activities forced the Roosevelt Administration to reassess its position on military preparedness. Consequently, the government placed orders for submarines and PT (patrol/torpedo) boats from Electric Boat facilities at Groton and the Elco plant in New Jersey. The new orders led to the revitalization of Electric Boat, now led by a man named John Jay Hopkins. Hopkins was appointed by the retiring Lawrence Spear, who himself had taken over when Henry Carse retired. While Spear continued to offer advice from his retirement, Hopkins was thoroughly in charge and fully responsible for the companys strong re-emergence.

Electric Boat and its Elco Yacht and Electro Dynamic subsidiaries mobilized for production at full capacity following the American declarations of war against the Axis powers. The sudden expansion in output caused a serious labor shortage which necessitated the hiring of women as welders and riveters.

The Electric Boat companies produced hundreds of submarines, surface ships and PT boats during the war, contributing greatly to the success of island fighting in the Pacific. When the war ended in 1945, the Navy reduced its orders for new vessels. Only 4000 of the companys 13,000 wartime employees were retained after the war, and Electric Boat stock fell in value from $30 per share to $10.

Hopkins initiated another reorganization of Electric Boat, which included a diversification into related commercial and defense industries. Electric Boat purchased Canadair from the Canadian government for $22 million. (Canadair produced flying boats and modified DC-4s during the war, but had greatly diminished in importance during peacetime.) A series of events, including the Berlin Blockade, Soviet detonation of an atomic bomb, and the war in Korea, stimulated demand for new aircraft, including the T-33 trainers, F-86 Sabres and DC-6s built under contract by Canadair. By the early 1950s, Canadairs importance overshadowed Electric Boat; their business advisers even suggested that Canadair purchase Electric Boat and operate it as a subsidiary.

With substantial profits from its Canadair subsidiary, Electric Boat purchased Convair from the Atlas Corporation. Convair manufactured a variety of civilian and military aircraft, including the 440 passenger liner, F-102 and F-106 fighters, Atlas and Centaur rockets, and the B-24, B-36, and B-58 Hustler bombers. On February 21, 1952, a new parent company called General Dynamics was established to manage the operations of Convair, Canadair, and Electric Boat.

Convair led the development of the American nuclear aircraft program, enthusiastically supported by the Pentagon. Hopkins was a strong advocate of nuclear power and its numerous applications, but the nuclear airplane, or N-bomber, was later found to be impractical, and the project was abandoned. Electric Boat enjoyed greater success with nuclear power; in 1955 it launched the first nuclear submarine, the Nautilus.

The companys development of commercial jetliners came near the end of Hopkins tenure. While Douglas and Boeing were developing their DC-8 and 707 passenger jets, Convair was unable to introduce its jetliner because the company was delayed by contractual obligations to TWA and its eccentric and intrusive majority shareholder Howard Hughes. Specifically, Convair was bound to incorporate numerous design changes suggested by Hughes. As the result of a financial crisis that postponed TWAs purchase of jetliners, and eventually forced Hughes out of TWA, Convair was unable to recover from the delayed entry of its 680 and 880 models into the jetliner market. General Dynamics was forced to write off the entire passenger liner program with a $425 million loss.

The financial position of General Dynamics was so seriously weakened by the Convair jetliner program that the company was targeted for a takeover by Henry Crown, a Chicago construction materials magnate. Crown offered to merge his profitable Material Services Corporation with General Dynamics in exchange for a 20% share of the new companys stock. The proposal was accepted in 1959.

In the early 1960s the U.S. Defense Department invited American defense contractors to bid for the production of a new aircraft, the F-111, with which the Department intended to replace its aging fleet of B-52 bombers. General Dynamics entered the competition in partnership with the Grumman Corporation, against a design submitted by Boeing. Even though the Boeing F-III was considered to be the better built and the more capable plane, the General Dynamics/Grumman version was consistently declared superior by Pentagon officials and industry experts. An investigation of impropriety in the selection process was interrupted when President Kennedy was assassinated in November of 1963, and was not concluded until 1972.

General Dynamics continued to develop its version of the F-111 at its Convair facility in Fort Worth, Texas. The Air Force and Navy amended their design specifications and requested the addition of so many devices that the prototype could barely fly. The F-111s utility as a replacement for the B-52 was greatly diminished. When the aircrafts role was reassessed, the project was identified by congressional critics as an example of gross mismanagement, organizational incompetency, and financial irresponsibility. The F-111 project consumed an inordinate amount of the defense budget and delayed by six years the introduction of Grummans similar (and in many ways superior) F-14 Tomcat.

Under Roger Lewis, whom Crown had appointed chairman in 1961, General Dynamics purchased the Quincy shipbuilding works from Bethlehem Steel in 1963 for five million dollars. Quincy was an outdated facility requiring costly improvements, but held promise as a builder of surface ships.

Despite his having been appointed by Crown, Lewis removed Crown from the company in 1966 by repossessing his 18% share of non-voting company stock. Crown was paid $120 million for his shares, but lost control of both General Dynamics and Material Services Corporation. Thereafter, over a period of years, Crown continued to purchase substantial numbers of shares of voting stock, expanding his interest until he emerged in 1970 with control over the board of directors. Roger Lewis was summarily fired and replaced by David Lewis (of no relation). Crown subsequently moved the company from New York to St. Louis in February of 1971.

In 1971 the Electric Boat division of General Dynamics and its chief competitor, Newport News Shipbuilding, were awarded contracts to manufacture a new submarine, the 688, or Los Angeles class. Two years later General Dynamics hired a successful but ruthless businessman named Takis Veliotis to take charge of the Quincy yard. Once in charge at Quincy, Veliotis concluded an agreement to build liquified natural gas tankers in conjunction with a cold storage engineering firm called Frigitemp.

During this period the Defense Department announced a $200 million competition for the production of a new jet fighter. Careful to avoid the problems which plagued the F-111, General Dynamics initiated its development of the F-16. The F-16 program closely followed its development and budget schedules, and the first prototype exceeded specifications.

Although it was apparently chosen over the Northrop F-17 Cobra, the F-16 faced an unexpected challenge from McDonnell Douglas independently developed F-15 Eagle. The lower-priced F-15 took a significant portion of the fighter market away from General Dynamics. However, the U.S. government compensated General Dynamics by promoting sales of the F-16 to NATO countries and other American allies. Canadair, which manufactured aircraft for Commonwealth countries, was sold back to the Canadian government in 1976 for $38 million.

The following year Admiral Rickover publicly berated Electric Boat for poor workmanship and cost overruns on 18 Los Angeles class submarines. Rickover was particularly upset about the U.S. Navys contractual obligation to absorb a large portion of the overruns, which were running as much as $89 million per vessel. A dispute then arose between the Defense Department and Electric Boat, wherein Electric Boat threatened to halt production of the submarines unless its share of the losses were covered as well. General Dynamics sought the protection of Public Law 85-804, which was originally intended to protect strategic assets such as Lockheed and Grumman from bankruptcy due to cost overruns.

General Dynamics won a settlement from the Pentagon, but soon realized that its problems at Groton were not merely financial. Productivity was seriously compromised by absenteeism and an employee turnover rate of 35%. Management lost control over inventories, and poor workmanship resulted in costly reconstruction. In October of 1977 David Lewis transferred Takis Veliotis from Quincy to Groton, with instructions to reform the operation. Within months Veliotis had restored discipline, efficiency and financial responsibility at Electric Boat.

Veliotis left Electric Boat in 1981 to take a seat on the board of directors, and to serve as international salesman and company ambassador. Later that year, however, Veliotis resigned in protest over a dispute with David Lewis, who Veliotis claimed had promised him the position of chief executive officer. The dispute deteriorated until Veliotis was indicted by government prosecutors for illegal business practices. He fled to Greece; he still claims to have damaging evidence of fraudulent overcharges made by General Dynamics.

In 1982 General Dynamics purchased the Chrysler battle tank division, with plants located in Warren, Michigan and Lima, Ohio. The division, renamed Land Systems, had already secured a government contract to build the Armys next main battle tank, the M-1. Developed in response to newer Soviet tanks such as the T-72, the M-1 was to be powered by a jet turbine and capable of speeds of up to 50 miles per hour. The M-1 also included a computer-guided gun aiming mechanism designed to assure a high degree of accuracy while the tank was traveling over rough terrain at high speeds.

When the first M-1 prototypes were delivered from Land Systems, a number of basic design flaws were noticed by Pentagon officials. Exhaust from the engine was so hot that infantry could not come near the tank for cover under fire. The M-1 was fast but prone to breakdown, and it required so much fuel that logistical support became questionable. Finally, the M-1s ammunition bay was too small to carry more than 40 shells. Critics recommended that the M-1 project be cancelled in favor of its predecessor, the durable, battle-tested M-60. During this same period General Dynamics won a government contract to service and maintain TAKX supply ships for the American Rapid Deployment Force.

David Lewis and other company officials were called to testify before a congressional subcommittee about their alleged overcharges for simple items, such as hammers and coffee pots, as well as about billings for personal expenses. The proceedings initiated separate investigations by the Justice Department and the Internal Revenue Service.

Soon after Admiral Rickover was involuntarily retired by Navy Secretary John Lehman, General Dynamics was awarded a government contract to manufacture a number of new boats, including the $500 million Ohio class Trident submarine. The contract eliminated many of the companys disputed charges to the Pentagon and, as a result, led to the cessation of the congressional investigation. Wisconsin Senator William Proxmire criticized these developments by remarking that Defense contractors like General Dynamics have so much leverage against the government they can flout the laws that govern smaller companies and individuals.

David Lewis retired in 1985 and was replaced by Stanley C. Pace, formerly head of TRW. Oliver Boileau, president of General Dynamics, was passed over for the position at the insistence of the board of directors and the Crown family, all of whom wished to see an end to the policies of Lewis and his proteges. Pace made a number of changes at General Dynamics, even before Lewis had left the company. He sold the Quincy shipyard and founded a new division called Valley Systems, established to win contracts for the Reagan Administrations Strategic Defense Initiative.

The future of General Dynamics under Pace is hard to predict. The companys position as one of the worlds largest defense contractors guarantees for it some degree of stability. Although the company may lose money under adverse conditions, the United States government views General Dynamics as an indispensable resource, essential to national security.

Principal Subsidiaries

Datagraphix Inc.; Material Service Corp.; General Dynamics (hereafter GD) Manufacturing Ltd.; GD Export Sales Corp.; GD International Corp.; GD International Services Inc.; GD Services Co.; Pantheon Inc.; Electrocom Inc.; Fore River Railroad Corp.; GD Financial Corp.; GD Credit Corp.; Braintree Equity and Maritime Corp.; Patriot Shipping Corp.; General Dynamics Land Systems, Inc.; Mines SNA, Inc.

Further Reading

The Illusion of Choice: The F-111 and the Problem of Weapons Acquisition Reform by Robert F. Coulam, Princeton, Princeton University Press, 1977; Brotherhood of Arms by Jacob Goodwin, New York, Random House, 1985; The Defender: The Story of General Dynamics by Roger Franklin, New York, Harper, 1986; Running Critical: The Silent War, Rickover and General Dynamics by Patrick Tyler, New York, Harper, 1987.

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General Dynamics Corporation

General Dynamics Corporation

founded: 1952



Contact Information:

headquarters: 3190 fairview park drivefalls church, va 22042-4523 phone: (703)876-3000 fax: (703)876-3125 toll free: (800)758-5804 url: http://www.generaldynamics.com

OVERVIEW

General Dynamics, the leading supplier of sophisticated defense systems in the United States, was formed in 1952 as a successor to the Electric Boat Company. The company's primary businesses are information and communications technology, land and amphibious combat systems, naval and commercial shipbuilding, and business aviation. Operations are conducted in four main business groups: Information Systems and Technology, Combat Systems, Marine Systems, and Aerospace. Information Systems specializes in data acquisition and processing, advanced electronics, and battlespace information networks and management systems. Combat Systems designs and manufactures land and amphibious combat machines and systems, such as armored vehicles, turrets, munitions, and gun systems. The Marine System division designs and builds submarines, battle ships, auxiliary ships, and large commercial ships. Aerospace, a division added in 1999 after the acquisition of Gulfstream Aerospace, specializes in the design and manufacturing of mid-size, large, and ultra-long range airplanes.

General Dynamic's most important customer is the U.S. military, which accounts for 59 percent of the company's business. Domestic commercial accounts total 30 percent of the company's revenues, and international defense and commercial customers bring in 11 percent of business, producing 5 percent and 6 percent, respectively. Headquartered in Falls Church, Virginia, General Dynamics employs approximately 52,000 people in the United States, Canada, Mexico, and the United Kingdom.

COMPANY FINANCES

General Dynamics' net sales totaled $12.2 billion in 2001, an increase of 17 percent over the $10.4 billion posted in 2000. Removing sales gained through acquisitions during the year, the company's net sales increased over 7 percent, with growth realized in all four main business segments. Information Systems and Technology grew its total sales from $2.4 billion in 2000 to $2.8 billion in 2001 primarily through increased business from acquisitions. Combat Systems' good organic growth, along with two key acquisitions during 2001, pushed total sales to $2.2 billion in 2001, up from $1.3 billion in 2000. Marine Systems increased total revenues by nearly $2 million, posting $3.6 billion in sales in 2001 compared to $3.4 billion in 2000. The Aerospace division pushed sales up from $3.0 billion in 2000 to $3.3 billion in 2001, primarily through acquisitions.

General Dynamics' total revenues for 2001 resulted in a net income of $943 million, up from $901 million in 2000. The company's cash balance increased from $177 million at year-end 2000 to $442 at year-end 2001. However, during the same time period company debt jumped from $336 million to $1.5 billion due primarily to significant investments in acquisitions during the year. Nonetheless, General Dynamics' debt load is 24 percent, well below the industry average of 45 percent. Stock prices opened January of 1999 at $59.75 per share; January of 2000 at $52.17; January of 2001 at $78.19; and January of 2002 at $79.50. By April of 2002, stock prices reached $94.15 per share. Because the company most often operates under long-term contracts, backlog amounts are significant. In 2001 total backlog amounted to $25.8 billion, of which $19.4 billion was already funded.



ANALYSTS' OPINIONS

Because General Dynamics' sales come predominately from the U.S. government and its agencies, funding for the company's products and services is generally linked to trends in U.S. and international defense spending. Prior to the terrorist attacks on New York and the Pentagon on September 11, 2001, the outlook for the defense industry was lackluster at best. However, when the markets reopened on September 17, defense sector stocks did not plunge in price, as did much of the market, instead posting a 15 to 20 percent gain. Although aggressive analysts predict that U.S. defense spending may increase as much as 30 percent or more by 2003, most analysts caution that the positive impact on the defense industry, although apparent, may not be as substantial if military efforts are directed at counter terrorism rather than traditional war machinery. However, because General Dynamics produces expendable goods, such as ammunition and bombs, as well as providing tactical-communications systems, analysts consider it safe to assume that it will experience growth, at least for the short- and medium-term future.



HISTORY

General Dynamics Corporation has its roots in the Electric Boat Company, founded by John Holland in 1899. Holland, an Irish-American inventor, was commissioned by a group of Irish nationalists to develop a submarine capable of sinking British naval ships. Although his plans to help the Irish nationalists were thwarted when his activities drew the attention of New York law enforcement officials, he continued to work on developing a viable submarine. Garnering some financial support from investors, Holland formed the Electric Boat Company, but he was unsuccessful in marketing his prototype. Eventually Isaac Leopold Rice, a wealthy businessman, agreed to provide substantial financial support to Electric Boat for an interest in the company. Consequently, Holland relinquished control of his company and gave up his patent rights to Rice, who in turn was able to negotiate sales to the U.S. Navy or several other foreign countries. By 1904 Holland was making $90 a week as chief engineer while his company, now firmly under Rice's control, was selling submarines for $300,000 each.

In 1905 Electric Boat came under government scrutiny for unscrupulously selling submarines to both Japan and Russia while the two countries were at war with each other. By 1914 the British Navy was purchasing submarines from Electric Boat, placing the submarine squarely in the arena of new, necessary war machinery. In the same year Holland resigned, frustrated over his lack of involvement and, as an Irishman, angered over the sales made to the British. He died within the year; Rice died the following year.

Under new chief engineer Lawrence Spear, the Holland submarine was redesigned for increased speed and added such features such as a periscope, conning tower, and torpedo tubes. With Henry Carse replacing Rice as the head of the company, Electric Boat made several acquisitions, including Electro Dynamics, Elco Motor Yacht, and New London Ship & Engine of Groton, Connecticut. Carse also renamed the company Submarine Boat Company. At the beginning of World War I, Carse moved away from building submarines to focus on the manufacturing of disposable cargo vessels. However, it was soon clear that the demand for submarines was greater. Carse moved to retool the company's operations, but by the time full production of submarines was achieved, the war had ended. The situation left the company on the verge of financial ruin. Carse once again reorganized, took back the name Electric Boat, and focused on the production of surface ships.

In the years following World War I, Electric Boat came under public scrutiny again when a congressional investigation concluded that the company had acted unethically by benefiting from sales to unscrupulous governments. Electric Boat countered that the sharp decline in orders from the U.S. Navy had forced the company to do business with less-than-ethical foreign governments in order to stay financially stable. The advent of World War II brought new life into the company. Government orders for submarines and patrol/torpedo, known as PT boats, skyrocketed. Operations at Groton and the New Jersey Elco plant swung into full force. The demand for labor necessitated the hiring of women to serve as welders and riveters. However, the prosperity lasted only as long as the war, and at its end in 1945, only 4,000 of the company's 13,000 employees were retained on its payrolls, and the stock price dropped quickly from $30 to $10 a share.

Needing to diversify, Electric Boat purchased Canadair from the Canadian government in 1945 for $22 million. As the Korean War approached Canadair filled increased orders for aircraft, such as T-33 trainers, F-86 Sabres, and DC-6s. Although Electric Boat was rather stagnant, proceeds from Canadair allowed the company to diversify once again, this time by acquiring Convair, which manufactured civilian and military airplanes. Convair subsequently became a leader in the development of nuclear-powered vessels. Although the idea for a nuclear-power aircraft was eventually abandoned as impractical, Convair was successful in launching its first nuclear submarine, the Nautilus, in 1955.

FAST FACTS: About General Dynamics Corporation


Ownership: General Dynamics is a publicly held company traded on the New York, Chicago, and Pacific Stock Exchanges.

Ticker Symbol: GD

Officers: Nicholas D. Chabraja, Chmn. and CEO, 58, 2000 salary $950,000, 2000 bonus $1,750,000; W. William Boisture, Jr., EVP, 56, 2000 salary $400,000, 2000 bonus $450,000; Gordon R. England, EVP, 2000 salary $440,000, 2000 bonus $460,000; Michael J. Mancuso, SVP and CFO, 2000 salary $400,000, 2000 bonus $450,000

Employees: 49,000

Principal Subsidiary Companies: General Dynamics' operations world wide compete within one of four main business segments: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems. Larger units include: Bath Iron Works Corp. and the Electric Boat Corp.

Chief Competitors: General Dynamic Corporation's competitors include Boeing, ITT Industries, Lockheed Martin, Newport News Shipbuilding, Raytheon, and United Defense Industries.


On February 21, 1952, Electric Boat and its entities were reorganized. General Dynamics was formed as the holding company for Electric Boat, Canadair, and Convair. The company took a major blow in 1954 when Convair was unable to introduce its new jetliner due to contractual obligations imposed on it by TWA and its major shareholder, Howard Hughes. While competitors Douglas and Boeing were launching their DC-8 and 707 passenger jets, Convair was caught trying to fulfill numerous design changes required by Hughes. As a result, General Dynamics' passenger jetliner program cost the company a $425 million loss. Financially weakened by the ordeal, in 1959 General Dynamics agreed to merge with Material Services Corporation, owned by Henry Crown, a Chicago-based construction materials magnate, who then claimed a 20 percent share of the company.

During the 1960s General Dynamics won the bid to produce a new F-111 aircraft for the U.S. military, despite the fact that many believed the Boeing design was superior. After design changes requested by the Air Force and Navy were implemented, the originally flawed design was virtually unable to get off the ground and nowhere close to replacing the battle-tested B-52. The project was exorbitantly expensive, and congressional members sharply criticized the whole venture as a study of gross mismanagement, organizational incompetence, and an incredible waste of funding.

CHRONOLOGY: Key Dates for General Dynamics Corporation


1899:

John Holland forms the Electric Boat Company to develop a submarine prototype, but loses control of his company to electronics magnate Isaac Rice

1904:

Electric Boat comes under fire for selling submarines to Japan and Russia, who were at war with each other

1914:

The Holland submarine is redesigned, making it faster and adding a periscope and torpedo tubes for the first time

1918:

Facing bankruptcy, emphasis is shifted to surface ships in order to meet U.S. Navy demands

1945:

Stock drops from $30 to $10 and workforce falls from 13,000 to 400 after demand for submarines declines sharply at the close of World War II

1952:

After diversifying its production by acquiring two subsidiaries, Convair and Canadair, General Dynamics is formed as a parent company for Convair, Canadair, and Electric Boat

1955:

Launches its first nuclear-powered submarine, the Nautilus

1960:

Wins government bid to build F-111 to replace the aging fleet of B-52 bombers

1963:

Quincy shipbuilding works is purchased for $5 million from Bethlehem Steel

1971:

Wins government award to manufacture a new submarine, the 668, or Los Angeles, class

1977:

Electric Boat is accused of poor workmanship and cost overruns of as much as $89 million per submarine on 18 of its Los Angeles vessels

1978:

The F-16 fighter jet becomes a major product for the company

1982:

Chrysler battle tank division, renamed Land Systems, is purchased to build M-1 battle tanks

1990:

In the wake of the end of the Cold War after the collapse of the Soviet Union, General Dynamics suffers a loss of $578 for the year

1992:

Labor force is reduced by 25% and $1.7 billion of assets were put up for sale

1993:

Company reorganizes by limiting focus to nuclear submarines and armored vehicles, and workforce is dropped to 30,500, down from 86,000 three years earlier

1999:

Net income rebounds to $880 million on revenues of almost $9 billion

2001:

Employee base rebounds to 52,000 worldwide and revenues surpass $12 billion


In 1971 the Electric Boat division and its chief competitor, Newport News Shipbuilding, were awarded government contracts to manufacture the new 668, or Los Angeles, class submarine. The government also announced plans for a new fighter jet. Careful to avoid the problems encountered with the F-111, General Dynamic's F-16 model was awarded the contract and completed on schedule. However, the Defense Department chose to purchase McDonnell Douglas' independently produced F-15 Eagle, which rivaled the F-16 design and was cheaper. The government compensated General Dynamics by recommending the F-16 to its allies. In 1976 Canadair was repurchased by the Canadian government for $38 million.

Controversy stung General Dynamics again in 1977 when Admiral Rickover publicly denounced Electric Boat for its poor workmanship on 18 Los Angeles submarines. He was also angered by cost overruns totaling as much as $38 million per vessel, which the government was contractually obligated to absorb. The Defense Department threatened to withhold payment and Electric Boat countered by threatening to suspend production of the submarines. In the end, Electric Boat won a suit against the Defense Department. The situation lead to an overhaul of the management of Electric Boat.

In 1981 General Dynamics purchased the battle tank division of Chrysler for $336 million, renamed it as the Land Systems unit, and won a government contract to manufacture the new M-1 tank. The prototype received significant criticism for design flaws, such as exhaust heat that prohibited ground troops from seeking cover under fire; its tendency to breakdown; its excessive need for fuel; and an inadequately sized ammunitions bay. The tank's strong points included speeds of up to 50 miles per hour and a computer-guided aiming system that allowed accurate gunfire while traveling over rough terrain.

In 1982 General Dynamics executives were called to testify before a congressional hearing on matters related to alleged overcharging of the government by the company. Former company executive, Takis Veliotis, fled the country after coming under indictment for illegal business practices. In the midst of the investigation General Dynamics was awarded a new government contract, including the production of the Ohio class Trident submarine. Eventually the investigation was dropped. Throughout the 1980s and early 1990s, General Dynamics continued both to sell off certain assets and acquire new ones. Its main source of business continued to be the federal government.

During the 1990s, as the federal budget for defense spending decreased, General Dynamics looked for ways to cut costs. Between 1991 and 1993 the company's work force dropped from 86,000 to 30,500. It sold its Texas aircraft operations to Lockheed Martin for $1.5 billion in 1992 and purchased National Steel and Shipbuilding Company for $415 million in 1998. A 1999 bid to takeover Newport News Shipbuilding was blocked by the government. Instead, General Dynamics acquired GTE Government Systems Corporation for $1.05 billion and Gulfstream Aerospace Corporation for $4.8 billion. By the end of the 1990s, General Dynamics was showing signs of increased financial health, posting net profits of $880 million on revenues of nearly $9 billion in 1999.


STRATEGY

During the 1990s as defense spending was reduced, General Dynamics took significant steps to trim its operating expenses, cutting its workforce by nearly one third and selling off numerous businesses. By the time the cutbacks were complete, the company retained only Electric Boat and Land Systems. However, as the outlook improved, the company quickly and substantially retooled its business with 21 acquisitions between 1997 and 2001. Most of the purchases were closely linked with General Dynamics' core businesses. Then, in 1997 it took the bold step of buying aircraft manufacturer Gulfstream for $4.5 billion, making its first substantial move outside the defense sector. With its backlog soaring from $6 billion to $30 in 2001, General Dynamics has its production schedule packed for several years to come. Sales have returned to pre-1990 figures, but the additional benefit of a market capitalization of $17 billion, up from just $1 billion in 1990.



INFLUENCES

The defense industry, including General Dynamics, was adversely affected by decreases in U.S. military spending following the end of the Cold War in the early 1990s. Since the terrorist attacks of September 11, 2001, the tide has turned back in General Dynamics favor. President Bush submitted a request to Congress for $328 billion for defense spending in fiscal year 2002, an 11 percent increase. The president's 2003 proposal calls for an increase of $68.7 billion in military spending. Approximately one of every three dollars budgeted for the military ends up in the hands of defense contractors. Accordingly, General Dynamics expects growth rates proportional to budget increase. The company's commercial activities, based primarily on the development and production of commercial aircraft depends generally on the state of the economy and specifically on the state of the airline industry. Although the airlines were substantially weakened in the wake of the terrorist attacks, as the economy rebounds, General Dynamics anticipates continued productivity from its aerospace unit.



CURRENT TRENDS

General Dynamics has targeted all segment of its business for substantial growth. In 2001 the number of U.S. Navy's fleet of ships was at its lowest level since the early 1930s,but now the Marine division of the company plans to benefit from increased shipbuilding contracts as the Navy attempts to regain its numbers under the Bush Administration. The Combat Systems division was awarded a contract to build the U.S. Marine Corps' Advanced Amphibious Assault Vehicle, a $4 billion project that allows marines to move from sea to land. The Aerospace division earned a contract from the U.S. Air Force in 2002 to build as many as 20, C37-A Gulf-stream V and Gulfstream V-SPs to fly demanding military missions. The contract has a potential value of $1.6 billion. Finally, as military technology moves along the cutting edge, the Information Systems and Technology division is poised to lead the way. It is the company's fastest growing division and an increasing force in sales production.



PRODUCTS

The Aerospace group, a worldwide leader in design, development, manufacture, and marketing of mid-sized and intercontinental jet aircraft, is comprised of Gulf-stream Aerospace and General Dynamics Aviation Services. Gulfstream has produced over 1,200 aircraft since 1958. Its diverse product line includes the ultra-long range Gulfstream V, the Gulfstream 200, the Gulfstream 100, and the Gulfstream V-SP. General Dynamics Aviation Services provides services in the areas of airframes, avionics, engine repair, and aircraft refurbishment.

THE DEMISE OF THE A-12 PROJECT

In 1991 the U.S. Navy cancelled General Dynamics' contract to build the A-12 fighter jet because the project was so far behind schedule and over budget. As a result of the termination for default, the Navy demanded that General Dynamics and McDonnell Douglas, the other contractor for the project, repay $1.35 billion in payments already made. In turn, the two companies filed a challenge to the termination for default. In 1995 the U.S. Court of Federal Claims ruled in favor of the contractors with its decision that the termination for default was not supported and ruled the action as a termination of convenience. In the final decision in 1998 the court ordered the Navy to pay $1.2 billion plus interest.

The Navy appealed the decision, and in 1999 the Court of Appeals sent the case back to the Court of Federal Claims to further investigate whether the Navy's termination of the contract was justified. On August 31, 2001 the Court ruled that the contractors had failed to meet a reasonable schedule as was set out by the contract; therefore, the Court overturned the earlier ruling and upheld the termination by default. On November 30, 2001 General Dynamics filed an appeal. If the ruling is upheld, the contractors could be required to repay the Navy approximately $2.4 billion ($1.35 billion plus interest), of which General Dynamics would pay $1.2 billion.


Combat Systems engages in land and amphibious combat system development, production, and support. Its product line includes a full range of armored vehicles, light-wheeled reconnaissance vehicles, guns and ammunition handling systems, turret systems, and reactive armor and ordinance. Its business units are comprised of Armament Systems, Eagle Enterprise Inc., Land Systems (maker of the M-1 tank), Ordnance and Tactical Systems, and Santa Barbara Sistemas.

The Information Systems and Technology segment provides services in the area of information management and communications. Its two functionaries are Advanced Communication Systems, C4 Systems, Division Systems, Network Systems, and United Kingdom Limited.

Marine Systems operates a broad range of integration, design, engineering, and production services in naval shipbuilding and is the U.S. Navy's leading supplier of combat vessels, including nuclear submarines, surface combatants, and auxiliary ships. It businesses consist of American Overseas Marine, Bath Iron Works, Electric Boat, and NASSCO.

Major product lines for General Dynamics include the Virginia-class nuclear-powered attack submarine, Arleigh Burke-class Aegis destroyer, Abrams M1A2 digitized main battle tank, munitions and gun systems, advanced fiber-optics, high-security communication systems, and the Gulfstream IV-SP and Gulfstream V jets. The following are in production or testing stages: DD21 land attack destroyer, the U.S. Marine Corp Advanced Amphibious Assault Vehicle, and the next-generation of communication systems.



CORPORATE CITIZENSHIP

A variety of federal, state, local, and foreign environmental laws and regulations affect General Dynamics' operations related to the discharge, treatment, storage, and disposal of certain substances and wastes. The company systematically budgets for expenses related to ensuring ongoing assessment and compliance with all environmental laws.



GLOBAL PRESENCE

General Dynamics operates businesses outside the United States in the United Kingdom, Canada, and Spain. Sales in 2001 generated by these international locations totaled 3 percent of General Dynamics' consolidated sales and 1 percent of operating earnings. General Dynamic sales to international customers in 2001 added up to $1.2 billion, representing approximately 10 percent of the company's overall revenues. International defense sales were directly through defense contracts with U.S. allies, and international commercial sales were primarily related to the export of business aircraft.

EMPLOYMENT

General Dynamics employs approximately 52,000 individuals. Of that total, 32 percent are covered by collective bargaining agreements through various unions, including the International Association of Machinists and Aerospace Workers, the Marine Draftsmen's Association, and the United Auto Workers Union. The majority of positions are located within the United States, with limited international opportunities. Individual business units within the corporate structure are responsible for recruiting and hiring their own employees.


SOURCES OF INFORMATION

Bibliography

"airforce to buy up to 20 gulfstream jets." ap newswire, 13 march 2002.

buursma, ben, and brian edwards. "defense stocks offer some security; new budget will help sector in the long term." chicago tribune, 26 february 2002.

creswell, julie, and julie schlosser, and jessica sung. "armed and dangerous: defense stocks look like safe havens but will leave investors shell shocked."fortune, 13 march 2002.

dejong, andrea l., ed. ward's business directory of u.s. private and public companies. vol. 1. detroit: gale group, 1999.

"general dynamics." hoover's company profiles. available at http://www.hoovers.com.

kepos, paula, ed.international directory of company histories. vol. 10. detroit: st. james press, 1995.

pae, peter, "defense stocks still posting solid gains." los angeles times, 11 april 2002.

squeo, anne marie. "the contrarian: an industry outsider cuts against the grain at general dynamics—chabraja avoids satellites, glitzy missile defense, focuses on tanks, ships—a rainy-night test of mettle."the wall street journal, 13 march 2002.

——. "spending for defense: a special report. ready for battle: after a decade of hard times, military contractors are leaner, more focused—and eager to grab a piece of the coming spending boom." the wall street journal, 28 march 2002.


For an annual report:

on the internet at: http://www.generaldynamics.com.


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. general dynamic corporation's primary sics are:

3599 industrial machinery, not elsewhere classified

3679 electronic components, not elsewhere classified

3731 ship building and repairing

3732 boat building and repairing

3795 tanks and tank components

3812 search navigation & aeronautical systems

also investigate companies by their north american industry classification system codes, also known as naics codes. general dynamic corporation's primary naics codes are:

333319 other commercial and service industry machinerymanufacturing

334419 other electronic component manufacturing 334511 search, detection, navigation, guidance, aeronautical,and nautical system and instrument manufacturing

336611 ship building and repairing

336612 boat building

336992 military armored vehicle, tank, and tank componentmanufacturing

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