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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
September 7, 2001(August 31, 2001)
GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-3671 13-1673581
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
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(Address of principal executive offices) (Zip Code)
(703) 876-3000
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Registrant's telephone number, including area code
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Item 5. Other Events
On August 31, 2001, the U.S. Court of Federal Claims refused to set
aside the government's 1991 default termination of the A-12 attack aircraft. In
its decision, the court said that the failure of the contractor team of General
Dynamics and The Boeing Company to meet the government's revised schedule
(unilaterally imposed by the government after it had waived the original
schedule) was sufficient basis - and the only basis - to terminate the contract
for default.
General Dynamics believes the decision is seriously flawed with regard
to enforceability of the unilateral schedule, and will pursue its right to
appeal.
Notwithstanding the ruling on schedule, the court acknowledged that as
early as September 1990, the Navy knew the contractors were targeting a March
1992 first flight - not the December 1991 date in the imposed schedule. "The
contractors assert that they heard no objection to the March date...they
continued to perform the contract with the March 1992 date in mind." Further,
the court wrote, "The U.S. Navy would have accepted dates well beyond the
March 1992 projection. ...we agree that the Navy would have been satisfied
with a September 1992 first flight. In fact, we have no doubt that the Navy
was satisfied with the entire program, if somewhat frustrated with the
contractors' pace."
In addition, the court found that the contractors were not in default in
fact on any of the other grounds that the government raised: it found that
aircraft weight and other technical specification issues had been resolved to
the Navy's satisfaction; that the contractors had not repudiated the contract;
and that they had the financial ability to execute the contract.
In their complaint, the contractors made certain allegations concerning
the government's "superior knowledge" of certain facts that, if known by the
contractors, would have altered their actions. These allegations served as a
defense to the termination for default, and would also have served as the basis
for claims against the government - but the court denied the contractors the
opportunity to prove these claims because the government invoked the state
secrets doctrine. The contractors believe this result is in serious error.
General Dynamics continues to believe strongly in the merits of its
case. If, contrary to the company's expectations, the default termination is
sustained on appeal, the contractors would be required to repay the government
approximately $1.35 billion plus interest (now approximately $0.9 billion) for
progress payments already received for the A-12 contract. In this outcome,
General Dynamics' liability would be approximately $1.1 billion pre-tax ($615
million after tax) to be taken as a charge against discontinued operations. The
Navy previously agreed to defer collection pending the court's decision.
The contractors have asked the Navy to confirm deferral of payment through
the pendency of the appeal. In the alternative, we will seek this relief through
the court.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL DYNAMICS CORPORATION
by /s/ John W. Schwartz
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John W. Schwartz
Vice President and Controller
(Authorized Officer and Chief Accounting Officer)
Dated: September 7, 2001
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