General Dynamics

Last edited by Ian Elwood on July 11, 2008 - 3:21pm

Company Snapshot:

General Dynamics has long been one of the largest military contractors for the Pentagon and many foreign governments. The company’s roots go back to the pioneering work on military submarines by the Electric Boat Company, but it later expanded into surface ships, aircraft, tanks and, most recently, military information technology. It became best known for deadly products such as the Trident nuclear submarine, the F-16 fighter jet, the M-1 tank and the Tomahawk cruise missile.

Given its overwhelming dependence on military contracts, the company was hard hit by the decline in U.S. military spending after the end of the Cold War. It sold off many of its operations and considered disposing of the rest and shutting itself down. But the comeback of military spending via the Gulf War encouraged General Dynamics to hang on. Before long, it was buying new assets, focusing its military operations on shipbuilding (in part through the purchase of the historic Bath Iron Works) and armored vehicles such as the Strykers widely used in the war in Iraq. It also increased its commercial work through the purchase of corporate jet maker Gulfstream Aerospace. At the end of 2007, General Dynamics had a total contract backlog worth $47 billion.

General Dynamics has been embroiled in numerous controversies involving the quality of its work and cost overruns, though in recent years it has tried to improve its reputation while restructuring its activities.

Ownership status:

Publicly traded

Number of employees worldwide:

81,000

Chief executive officer:

Nicholas D. Chabraja

2008 Global Fortune 500 rank:

296

Website:

http://www.generaldynamics.com

Corporate accountability

Accountability overview:

General Dynamics has been embroiled in controversies since the early days of its Electric Board operation, which shocked many observers by selling submarines to both sides in a war between Japan and Russia. In the early 1940s the company was the target of a Congressional investigation of profiteering and unethical business practices, but the probe was cut short as the country started to ramp up military output. Later, an investigation concerning the suspicious success of General Dynamics and Grumman in a competition with Boeing on a plane to replace the B-52 was suspended after the assassination of President Kennedy.

In the 1970s the Electric Boat operation was severely criticized by Admiral Hyman Rickover for the poor quality of its work and the magnitude of its cost overruns. General Dynamics was also criticized for its work on the M-1 tank and Tomahawk cruise missile. A $57 billion deal to build the A-12 Navy attack plane along with McDonnell Douglas was scrapped by the Pentagon in 1991 over delays and cost overruns said to be caused by the companies.

Tensions between General Dynamics and the Navy reached a point in 1985 that the company was twice suspended for a period of time from obtaining new contracts. The first suspension was a response to overbilling disputes, while the second came after the company and four former or current executives were indicted on fraud charges relating to a contract with the Army to produce the Sergeant York antiaircraft gun. Among the revelations were that the company was billing the Pentagon for dog-kennel fees incurred by one executive and country-club dues paid by another (the case was later dismissed). A 1986 article in Fortune magazine noted that General Dynamics was “to many American newspaper readers the symbol of waste and corruption in military spending.”

In 1990 the U.S. Justice Department sued General Dynamics, charging that the company defrauded the Army on contracts for M-1 tanks. The company paid $8 million to settle the case.

In the mid-1990s there were numerous press reports suggesting that General Dynamics had bribed South Korean President Roh Tae Woo to bring about a deal in which his country agreed to spend $5 billion on the company’s F-16 fighter jets.

As part of its downsizing and refocusing, the company has also sought to clean up its act. General Dynamics has been involved in fewer scandals in recent years, though in 2004 it and General Motors signed a consent agreement to settle charges that they violated the Arms Export Control Act through the unauthorized export of technical data and defense services.

Labor:

The workers at Electric Boat have long been unionized. They are represented by United Auto Workers (UAW) Local 571 and other unions which bargain together through the Connecticut Metal Trades Council. Labor relations at the company were contentious during the 1980s. In 1983-84 more than 1,000 draftsmen at Electric Boat stayed on strike for 14 months, during which the company brought in replacement workers and the UAW launched a pressure effort it called the Campaign to Clean Up General Dynamics. When the demoralized workers finally ended the walkout, only 160 of the strikers were immediately rehired.

In 1988 some 10,000 workers at Electric Boat stayed on strike for more than 100 days in a dispute over wages. Again the company took a hard line, and the workers ended up accepting a contract very similar to management’s last offer before the walkout.

There have been no major labor disputes in the recent past, though the workforce has endured large layoffs. In 1994 the company agreed to pay $5.3 million in back wages to more than 1,000 Electric Boat employees who were improperly denied overtime pay.

When General Dynamics purchased Bath Iron Works in the mid-1990s, it inherited a contract with the International Association of Machinists covering about 5,000 workers, plus an independent union of designers that later affiliated with the UAW. In 2000 the Machinists at Bath struck the company for eight weeks over wages, benefits and job security issues.

Workers at General Dynamics Land Systems operations in Michigan, Ohio and Pennsylvania are also represented by the UAW. In 2001 they struck the company for two weeks before ratifying a new four-year contract that increased pay levels by about 12 percent over its duration, provided health insurance for retired workers and created new job security protections. In 2005 a similar settlement was reached on a five-year contract without a strike.

General Dynamics has had significant workplace health and safety problems at its facilities, especially Bath Iron Works, where the problems began before General Dynamics took over the business and continued after. Most recently, in December 2007, the U.S. Occupational Safety and Health Administration proposed fines of $441,500 for nearly five dozen “repeat, willful and serious violations” of health and safety regulations. In 2005 OSHA had proposed $124,000 in fines and in 1999 it sought $190,400, the latter covering repeat violations for unsafe scaffolds. In 1987 OSHA sought $615,000 in fines against General Dynamics for willfully underreporting injuries and illnesses at its submarine yard in Quonset Point, Rhode Island.

General Dynamics is associated with a major Supreme Court case involving reverse age discrimination. The company was sued for age discrimination when its Land Systems business negotiated a contract with the UAW that provided retiree health benefits only to workers who were above the age of 50 as of a certain date. In 2004 the high court ruled that age discrimination laws did not bar employers from favoring older workers over younger ones, even when those younger ones are 40 or older.

In a separate 1996 case, General Dynamics agreed to pay $2.5 million to settle an age discrimination class action brought by employees involved in the transfer of the company’s headquarters from St. Louis to Falls Church, Virginia. In 1990 the company had paid about $268,000 to settle a race discrimination case brought by African-American and female employees at an operation in San Diego. In 2002 the company's recently acquired subsidiary Gulfstream Aerospace agreed to pay $2.1 million to settle an age bias case brought by the Equal Employment Opportunity Commission on behalf of older workers who lost their jobs during layoffs at a facility in Savannah, Georgia.

In 2005 the company agreed to adopt a policy prohibiting discrimination based on sexual orientation after the two New York public pension funds filed a shareholder resolution on the issue.

Environment and product safety:

In January 2008 Electric Boat signed a consent order with the state of Connecticut and paid $75,000 to settle violations relating to the discharge of pollutants into the Thames River. The action came after the Connecticut Fund for the Environment, responding to a report in the Hartford Courant about lax enforcement of water pollution regulations by Connecticut officials, said it would sue various companies for violations.

Earlier environment controversies involving General Dynamics include a $13,600 fine imposed by the U.S. Environmental Protection Agency in 1998 for the improper disposal of PCB-contaminated clothing; a penalty of $105,000 paid in 1992 to settle hazardous waste violations at a company facility in Arizona; and a $50,000 fine paid to California in connection with a spill of hazardous waste at a company plant in San Diego.

Location(s)

Headquarters

2941 Fairview Park Drive Suite 100

Falls Church, VA, 22042

United States

See map: Google Maps

History

The roots of General Dynamics go back to 1899, when an inventor named John Holland founded Electric Boat Company in an effort to produce the first submarine that could serve as a warship. Holland, an Irish nationalist who hoped his vessels could be used in the struggle against the British, soon lost control of the company to his financial backer Isaac Leopold Rice, but he stayed on as chief engineer.

Electric Boat soon had warships for sale, and it wasn’t shy about selling them far and wide. The company, for instance, sold submarines to both sides during the Russo-Japanese War of 1904-05. Sales of Electric Board submarines to the British Royal Navy (through the English firm Vickers) helped to legitimize the underwater warships while also prompting the anti-British Holland to resign in protest.

It was not until World War I, however, that submarines became a significant military force with the German U-boat attacks on British shipping lanes. The U.S. Navy was slower to adopt the technology, so Electric Board decided to focus on surface ships instead.

On the eve of World War II, Electric Boat’s dealings with foreign governments were targeted in a Congressional investigation. The company was accused of profiteering and unethical business practices, but those issues melted away once the federal government began ramping up military production in anticipation of U.S. involvement in the war. Electric Boat received contracts for both submarine and PT (patrol/torpedo) boats. The company went on to produce hundreds of military vessels for the war effort.

Those orders quickly disappeared when the war ended, prompting the company to launch a diversification effort which included the purchase of aircraft manufacturer Canadair from the Canadian government in 1945. Canadair enjoyed great success in the following years, overshadowing Electric Boat’s operations. In 1952 a new parent company called General Dynamics Corporation was formed to oversee the operations of the two businesses. The company launched the first nuclear submarine, Nautilus, in 1954.

With its profits from Canadair, General Dynamics acquired Consolidated Vultee Aircraft (which became the company’s Convair division), but the company’s passenger aircraft business ran into serious difficulties. The financial fallout from this forced General Dynamics to succumb to a takeover by Chicago construction materials magnate Henry Crown.

The newly fortified company went on to acquire the Quincy shipbuilding works from Bethlehem Steel in 1963 and to win (together with Grumman) a Pentagon competition for a plane (the F-111) to replace the aging fleet of B-52s. The triumph of the General Dynamics/Grumman design over what was widely seen as Boeing’s superior entry raised questions of impropriety in the selection process. An investigation of the issue was suspended in the wake of the assassination of President Kennedy. Production of the F-111 was, critics charged, marked by mismanagement and financial irresponsibility.

In 1966 General Dynamics chairman Roger Lewis forced Crown out, but Crown then accumulated new holdings and regained control in 1970.

In 1971 the Pentagon awarded Electric Board and its competitor Newport News Shipbuilding contracts to build the new Los Angeles class of submarines. Two years later, General Dynamics entered a competition for a new jet fighter. Both efforts turned out badly for the company. Electric Boat was publicly criticized by Admiral Hyman Rickover for poor workmanship and major cost overruns. General Dynamics won the new Pentagon jet contract for its F-16, but the competing F-15 built by McDonnell Douglas took a significant chunk of the international market.

The production problems at Electric Boat were said to be cleared up when a manager named Takis Veliotis was put in charge, but Veliotis was later indicted on federal kickback charges, causing him to flee to Greece.

In 1982 General Dynamics acquired the battle tank division of Chrysler Corporation and soon thereafter received a contract to build the U.S. Army’s M-1 tank. When the first M-1 prototypes were delivered, serious design flaws were detected. The company was also the target of several investigations of overbilling, but all this did not prevent it from being awarded a major contract to build Trident nuclear submarines. General Dynamics also received new contracts for Tomahawk cruise missiles, but after production problems like those at Electric Boat, it was forced to share that business with McDonnell Douglas. The resulting competition brought down the cost per missile by about one third.

With the end of the Cold War, General Dynamics—then the second largest defense contractor—scaled back its military business and announced plans to reduce its 90,000-person workforce by about one third. In 1991 the company was stunned when then-Defense Secretary Dick Cheney scrapped a $57 billion procurement plan for the A-12 Navy attack plane, which General Dynamics was developing together with McDonnell Douglas. Cheney said he took the step—the largest termination of a weapons program by the Pentagon—because of delays and more than $1 billion in cost overruns caused by the companies. (The companies sued over the decision and seven years later were awarded $1.8 billion.)

General Dynamics was chosen by the Navy in 1991 to build its new Seawolf attack submarine, but that program was soon cancelled. Over the next few years, General Dynamics sold its missile-systems business to Hughes Aircraft, its tactical military aircraft business to Lockheed and its space launch systems business to Martin Marietta. In 1995 it acquired Bath Iron Works in Maine, giving it control of another of the country’s largest private naval shipyards. It went on to purchase National Steel and Shipbuilding Company, but the Pentagon blocked an attempted takeover of Newport News Shipbuilding in 1999.

General Dynamics acquired two major businesses from Lockheed dealing with combat vehicles, but an effort to further expand in that area by purchasing United Defense was blocked for antitrust reasons. In 1999 General Dynamics turned to the civilian aircraft business with the purchase of corporate jet maker Gulfstream Aerospace.

A second attempt to acquire Newport News Shipbuilding was thwarted by the federal government in 2001, but the following year General Dynamics agreed to pay $1.1 billion to purchase the military business of General Motors, solidifying its position as the leading supplier of armored combat vehicles such as the Stryker, which has been used widely during the war in Iraq. The company also became a significant provider of military and intelligence information systems with the acquisition of Veridian Corp. in 2003 and Anteon International in 2006. In 2003 General Dynamics received an $8.7 billion contract for the production of Virginia-class attack submarines.

Financial information

Stock ticker symbol:

Total revenue:

$27.2 billion

Fiscal year:

2007

Net Income:

$2.1 billion

Fiscal year:

2007

Major lines of business/segments:

General Dynamics divides its business into four segments:

Aerospace (17 percent of sales in 2006). This is the company’s Gulfstream Aerospace operation, which produces six kinds of corporate jets.

Combat Systems (25 percent of sales). This segment includes wheeled armored combat vehicles (including the Stryker), tracked battle tanks (including the M-1), guns and ammunition-handling systems (including high-speed Gatling guns, M2 heavy machine guns and MK19 grenade launchers), ammunition and ordnance, armor, mobile bridges and chemical and biohazard detection products.

Marine Systems (21 percent of sales). This includes the conversion of Trident ballistic-missile submarines to guided-missile submarines, production of fast-attack Virginia-class submarines and production of various kinds of surface ships.

Information Systems and Technology (37 percent of sales). This includes tactical and strategic mission systems for military customers, intelligence mission systems for military customers and information technology systems for the military, civilian government agencies and commercial customers.

In 2006, 68 percent of the company’s net sales were to the U.S. government; 16 percent were to U.S. commercial customers; 10 percent were directly to international defense customers; and the remaining 6 percent were to international commercial customers.

Additional descriptive data

Link to full list of subsidiaries:

http://www.sec.gov/Archives/edgar/data/40533/000119312507037776/dex21.htm

Specialized Information

Links to federal contract rankings in U.S.:

# 7 of Top Federal Prime Contractors: 2007 (Washington Technology)

# 4 on Government Executive magazine list

# 5 on FedSpending.org list