General Dynamics Corporation: history, mergers, and defense industry operations

¶ … extended overview of General Dynamics Corporation. A throughout view of its history, activities, technologic development, its mergers and divestitures, as well as short summary of its financials will be summarized within this paper.

Company overview

General Dynamics represents today a market leader within the aerospace and defense industry, designer of products and services aiming at meeting the needs of most demanding customers all over the world, thus creating great value for its shareholders.

With a global base of more than 83,500 employees, General Dynamics operates today in four main segments: Aerospace, Combat Systems, Marine Systems and Information Systems and Technology. Its customers are represented by the national security entities of the U.S. And its allies, their defense and intelligence communities and select commercial organizations within these countries, to which the company is offering the best results in fulfilling their mission-critical requirements.

Its headquarters are located in Falls Church, Virginia.

The company as it stands today has been formed by a significant number of mergers and divestures, becoming in 2008 the fifth largest contractor of defence products and services in the world (Defense News).

3. Company History

The end of 19th century and the first half of the 20th century

The Electric Boat

The beginnings of General Dynamics can be traced to Holland Torpedo Boat Company, ownership of John Philip Holland. At the end of 19th century, the company developed and subsequently built at Lewis Nixon's Crescent Shipyard (Elizabethport, New Jersey) the U.S. Navy's first submarines. It was there that the revolutionary submarine boat named Holland VI was build, with its keel being actually laid down in 1896. After its official launch on 17 May 1897, the submarine was finally purchased by the Navy and subsequently renamed USS Holland. On 12 October 1900, USS Holland was officially commissioned and became the U.S. Navy first submarine, being known later as the SS-1.

The Navy has placed orders for more submarines afterwards, and they were developed and assembled at a fast pace at two locations on both coasts. It was these submarines that were known as the Adder Class - or the a-Class, and formed the first fleet of underwater craft of the U.S. At the beginning of the 20th century.

There were various issues that made Holland part with his company and sell his ownership interest to Isaac Leopold Rice, financier who renamed the new firm as the "Electric Boat Company" on 7 February 1899. Thus, Holland found himself as chief engineering within the company he created years before, earning a $90 dollars a week, while the submarines sold for $300,000 each. In April 1904, Holland resigned from the company, and Rice became Electric Boat's first President, until just prior to his death in November 1915.

During Rice presidency, Electric Boat had gained an unfortunate reputation for unscrupulous arms dealing during 1904 and 1905, when it sold submarines to both Japanese Navy and the Imperial Russian Navy, powers in state of war at that time. Other powers buying Electric Boat's submarines were the English armaments company Vickers - for the British Royal Navy, as well as the Royal Netherlands Navy. It was like this that the new pioneering craft, which has been originally developed by the Holland Torpedo Boat Company, was legitimized as genuine naval weapons by some of the most powerful navies in the world

In the wind-down following the Second World War, the company, despite being cash-fluid, was lacking demand, and its workforce shrank from 13,000 to 4,000 by the year 1946. In a vivid desire to diversify activity, the President and CEO, at that time - John Jay Hopkins - started to look for companies that would pertain to the same market as Electric Boat

Canadair

In his research, Hopkins found that Canadair, company owned by the government of Canada, was confronting the same type of post-war problems and it was up for sale.

In 1946 Hopkins purchased the company for only $10 million, a very good deal, as only the factory alone had been calculated by the Canadian government to worth more than $22 million, without considering the value of the planes and spare parts contracts the company had ongoing.

At the time of the purchase, Canadair had its production line and inventory system in a total disorder, and for this reason, Hopkins hired Canadian-born H. Oliver West, mass-production specialist, to take over on the role of president and make Canadair profitable again. Indeed, shortly after the takeover, the effects seen were significant, Canadair having begun the delivery of its new version of DC-4, called Canadair North Star. Additionally, it was also able to deliver such aircrafts well in advance of the contracted delivery times to companies such as Canadian Pacific Airlines, British Overseas Airways Corporation (BOAC) and Trans-Canada Airlines.

The 50's and the birth of General Dynamics

Once with the Cold War increase in defense spending, Canadair won many contracts with the Canadian military for their Royal Canadian Air Force, thus becoming a major aerospace company. The orders included Canadair Argus long-range maritime reconnaissance and transport aircraft, the Canadair T-33 trainer and the Canadair F-86 Sabre, which "was to become the RCAF's (Royal Canadian Air Force's) most famous and unanimously well-liked, operational fighter. RCAF Sabre squadrons were a force to be reckoned with in the European skies" (Canada's Air Force).

Between 1950 and 1958, the company built 1,815 F-86 Sabre.

The birth of General Dynamics - once with the increased aircraft production at Canadair becoming significant to the company, Hopkins decided that the name of the company, "Electric Boat," was not appropriate any longer. Thus, on 24th of April 1952, the company's name was officially changed into "General Dynamics."

Another purchase made by General Dynamics in the 50's was that of Convair. Continuing with its "cash-flush" status even after the purchase of Canadair, and encouraged by its big success, General Dynamics purchased Convair from Atlas Group in March 1953.

The sale was allowed by the government only after General Dynamics agreed to continue its operations out of the Fort Worth Airforce Plant 4, in Texas. This factory had been set up in order to facilitate the spread out of strategic aircraft production, and had been rented to Convair during the war, for their B-24 Liberator bombers' production. In the meantime, Fort Worth plant had become Convair's main production center.

With the same strategy applied in the case of Canadair, Convair continue its activity as an independent division of General Dynamics, and introduced aircrafts such as F-106 Delta Dart interceptor, the B-58 Hustler and other crafts such as the Convair 880 and 990 airliners during the next decade. In this same period, Convair had also introduced the Atlas, "the first operational intercontinental ballistic missile" (Wikipedia).

Issues with Management Churn appeared at the end of the decade. During 1957, Hopkins fell very ill, and it was eventually replaced later in the year by France Pace. In the meantime, John Naish was the successor of Joseph McNarney as the president of Convair, while Henry Crown had become the largest shareholder of the company and merged his own Material Service Corporation General Dynamics in the year 1959.

The 80's

Changing Focus to Land Systems - in 1976, General Dynamics decided to sell the troubled Canadair back to the Canadian government, at the price of $38 million. By 1984, the company had four divisions: General Dynamics - Fort Worth, Convair - San Diego, General Dynamics - Pomona and General Dynamics - Electronics.

In the next year, a new reorganization created from the Convair Space Division the new Space System Division. It was also in 1985 that General Dynamics acquired Cessna.

The 90's

Still General Dynamic's largest shareholder, Henry Crown died on 15 August 1990. Following his death, the company started to divest rapidly the divisions that were considered to be underperformers. Consequently, Cessna was sold again to Textron in the first month of 1992, while the San Diego missile production division was sold to General Motors - Hughes Aerospace only five months after, in May 1992. The Fort Worth aircraft production was sold to Lockheed in March 1993, and the Space System Division was sold one year later to martin Marietta. During the same year, the remaining Convair Aircraft Structure unit was also sold to McDonnel Douglass, while the remains of the Convair Division have been closed in 1996. But this exist of General Dynamics from the world of aviation was not meant to last for long time. In 1999, the company acquired Gulfstream Aerospace.

In the period of its aviation divesture, General Dynamics concentrated on its land and sea products, purchasing the Chrysler defense division in 1982 and renaming it General Dynamics Land Systems.

The 2000's

Continuing its focus on the Land Systems, in 2003 the company acquired also General Motor's defense divisions and today is considered a major supplier of all types of armored vehicles, including names like M1 Abrams, LAV 25, Stryker and a large variety of such vehicles based on these chassis.

Government issues - the lawsuit and its settlement

It was on August 19, 2008 that General Dynamics finally agreed to pay $4 million in order to settle a lawsuit which had been brought by the U.S. government. The company was accused of having one of its units fraudulently billed the government for parts defectively manufactured and that had been used in U.S. military submarines and aircraft. The U.S. accused that from September 2001 until August 2003; General Dynamics had defectively manufactured or even failed to test several parts that have been used in the assembly of U.S. military aircraft (e.g. The C-141 Starlifter transport plane). The General Dynamics unit involved was based in Glen Cove, New York and closed in 2004 (Washington Post, p.D4).

4. Financials of General Dynamics

As the website of the company presents, several events affected the Stock Price of General Dynamic Shares:

History of Events affecting Cost Basis of General Dynamics Shares

Date Reflected in Stock Price

Detail on Event

09 March 1955

100% stock dividend

10 November 1956

50% stock dividend

10 January 1969

Cost basis of GD shares reduced 7.0553% (due to pay out of Liquid Carbonic shares)

19 February 1979

2.5 for 1 stock split

17 November 1980 for 1 stock split

30 March 1993

Cost basis of GD shares reduced 17.43% (due to $20 per share Special Distribution)

15 June 1993

Cost basis of GD shares reduced 18.4% (due to $18 per share Special Distribution)

22 September 1993

Cost basis of GD shares reduced 12.02% (due to $12 per share Special Distribution)

08 April 1994 for 1 stock split

02 April 1998 for 1 stock split (distributed in the form of a stock dividend, payable 24 March 2006)

Source: General Dynamics Corporation, retrieved online at http://www.gd.com/

These events can be noted on the graph below, showing the General Dynamics Stock Prices from 1972 until today. The graph was customized on the site of Morningstar, www.morningstar.com, a Institutional Equity Research Company, on its Charts section within Tools page.

Source: Morningstar, www.morningstar.com,

The last Stock Quote information registered for the company looks as it follows:

10/10/08 4:01 P.M. ET

GD (Common Stock)

Exchange:NYSE (U.S. Dollar)

Price

Change

Today's Open

Intraday High

Previous Close

Intraday Low

52-Week High

52-Week High Date

52-Week Low

52-Week Low Date

PE Ratio

Market Cap

Shares Outstanding

Volume

Copyright © 2008 MarketWatch, Inc. All rights reserved.

Source: General Dynamics Corporation, retrieved online at http://www.gd.com/

The Financial Highlights of General Dynamics for the last three years show a continuous growth in company incomes, number of employees, as well as increased productivity (sales per employee).

Source: General Dynamics Corporation, retrieved online at http://www.gd.com/

Today, General Dynamics is a leading company within the business aviation segment, as well as in the land and expeditionary combat systems and vehicles, armaments, munitions; its shipbuilding and marine systems keep it also in a top position in the world, as well as its mission-critical information systems and technologies. With an increased number of employees, reaching 84,600 in October 2008, the company expects 2008 revenues to reach $29,5 billion.

Annex - from Wikipedia article General Dynamics Corporation, and HLTH pressreleases http://investor.shareholder.com/hlth/releasedetail.cfm?ReleaseID=313710

Acquisitions

1899 - Electric Boat was established.

1946 - Canadair purchased from the Canadian government

1952 - Electric Boat became General Dynamics.

1953 - Convair merged with General Dynamics.

1959 - Henry Crown acquires company and becomes majority shareholder.

1962-1963 - Convair-produced Mercury-Atlas rockets launches four manned Mercury missions into low Earth orbit, including John Glenn.

1971-1985 David S. Lewis, Jr., was chairman and chief executive officer. During his tenure, General Dynamics' revenues and earnings quadrupled.

1982 - Formed General Dynamics Combat Systems after the acquisition of Chrysler's combat systems.

1995 - Acquired Bath Iron Works from Prudential Insurance.

1996 - Acquired Teledyne Vehicle Systems

1997 - Acquired Lockheed Martin Defense Systems and Lockheed Martin Armament Systems.

1997 - Acquired Advanced Technology Systems, formerly an operating unit of Lucent Technologies.

1997 - Acquired Computing Devices International, formerly a division of Ceridian Corporation.

1998 - Acquired National Steel and Shipbuilding Company.

1999 - Acquired Gulfstream Aerospace from Forstmann Little.

1999 - Acquired GTE Government Systems, Communication Systems, Electronic Systems and Worldwide Telecommunication Systems Divisions.

2001 - Acquired Galaxy Aerospace Company from Israeli Aircraft Industries (IAI)

2001 - GD Decision Systems formed (and later merged with General Dynamics C4 Systems) after acquisition of Motorola's Integrated Information Systems Group.

2002 - Acquired Advanced Technical Products.

2003 - Acquired GM Defense from General Motors.

2003 - Acquired Steyr Daimler Puch Spezialfahrzeug (SSF) from an Austrian investor group, which bought the company in 1998 from the Steyr-Daimler-Puch-conglomerate. SSF is now part of "General Dynamics European Land Combat Systems" which includes also the Spanish Santa Barbara Sistemas and the Swiss MOWAG, and has its headquarters in Vienna, Austria.

2003 - Acquired Veridian and Digital Systems Resources.

2003 - Acquired Datron's Intercontinental Manufacturing Company (IMCO) Unit.

2004 - Acquired Spectrum Astro.

2005 - Acquired MAYA Viz Ltd., the primary developer of the U.S. Army's Command Post of the Future software into General Dynamics C4 Systems.

2005 - Acquired Tadpole Computer.

2005 - Acquired Itronix.

2006 - Acquired FC Business Systems.

2006 - Acquired Anteon International.

2007 - Acquired Mediaware International

2008 - Acquired ViPS, Inc.

2008 - Acquired Jet Aviation

Divestitures

Coal mining

Building materials

Limestone

Concrete

1967 - General Atomics to Gulf Oil

1976 - Canadair sold back to the Canadian government.

1981 - Following expropriation legislation passed by the government of the Province of Quebec, General Dynamics' Canadian subsidiary sold its 54.6% controlling interest in Asbestos Corporation Limited to the Quebec government-owned creation, Societe nationale de l'amiante (SNA).

1991 - Data Systems Division outsourced to Computer Sciences Corp.

1992 - Tactical Missiles Division to Hughes Aircraft Company.

1992 - Cessna to Textron.

1993 - Fort Worth Division, a producer of fixed-wing military aircraft, to Lockheed.

1993 - Space Systems Division to Martin Marietta.

1994 - Convair's aerostructures unit to McDonnell Douglas, (Convair closed in 1996).