General Dynamics Corp. will collect most of the $244 million in overhead payments currently withheld by the Pentagon and will sue if the government tries to debar the company from further defense contracts, the company's chairman, David S. Lewis, said today.
At an annual stockholders meeting in this city 40 miles east of Los Angeles, the head of the nation's third-largest defense contractor strongly defended his company against charges that all of the $244 million represented improper charges for entertainment, travel and personal expenses.
He admitted there had been some "inappropriate charges" which were "extremely embarrassing to the company." But these represented "less than 1 percent of the total expenses of the company." He said strengthened company review procedures would prevent future improper billings.
Despite widespread publicity about General Dynamics' billing the government for country club dues, a chili cookoff and kennel fees for an executive's dog, the approximately 225 stockholders gathered at the company's Pomona plant seemed satisfied with Lewis' remarks. The board of directors recommended by Lewis was elected overwhelming and none of the dozen questions from the floor was critical of billings to the Pentagon.
"Nobody's perfect, but people who live in glass houses shouldn't throw stones," said one stockholder, an engineer from Chino, Calif., concerning Pentagon auditors who have criticized the company's procedures. He declined to give his name. Other shareholders, expressing concern about world peace, asked Lewis to try to move the company away from weapons production.
Emphasizing the company's financial strength in spite of the billing controversy, Lewis announced net first-quarter earnings of $92.7 million, a 20 percent increase over the first quarter of 1984. Per-share earnings were $2.19 on an average of 42.4 million shares outstanding compared with $1.52 on 51 million shares in the first quarter of last year.
Most General Dynamics divisions "have long-term production programs that should extend well into the 1990s," Lewis said. He added that "things do not look as bright" for the company's Quincy Shipbuilding Division in Massachusetts, which has been unable to find significant new business beyond next year when it completes five huge transports for the military's rapid deployment force.
Lewis said the fate of the $244 million in overhead payments being withheld by the Pentagon for allegedly improper billing would be determined in a series of negotiations with the government. Some items may not be allowed and some allowed charges may be reduced, but "we expect that the great majority of the $244 million will be paid back to General Dynamics, and that this issue will have no material effect on the financial performance of the company," Lewis said.
On April 24, Defense Department Inspector General Joseph H. Sherick told Congress he would recommend Lewis and Gorden E. MacDonald, the company's chief financial officer, be suspended or debarred from federal contracts because of the improper charges.
Such action would be "completely unwarranted and completely unfair," said Lewis, 67, who told reporters he had no plans to retire. "Our board has directly authorized management to follow all steps available through the federal courts to overturn any such action."