General Dynamics (GD) 10-Q 2005 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-3671

GENERAL DYNAMICS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	13-1673581
State or other jurisdiction of incorporation or organization	I.R.S. Employer Identification No.

2941 Fairview Park Drive Suite 100 Falls Church, Virginia	22042-4513
Address of principal executive offices	Zip code

(703) 876-3000

Registrant’s telephone number,

including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes   x    No  ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes   x    No ¨.

201,019,710 shares of the registrant’s common stock, $1 par value per share, were outstanding at July 31, 2005.

GENERAL DYNAMICS CORPORATION

INDEX

		PAGE
PART I - FINANCIAL INFORMATION
Item 1 -	Consolidated Financial Statements
	Consolidated Balance Sheet	3
	Consolidated Statement of Earnings (Three Months)	4
	Consolidated Statement of Earnings (Six Months)	5
	Consolidated Statement of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4 -	Controls and Procedures	38
FORWARD-LOOKING STATEMENTS		39
PART II - OTHER INFORMATION
Item 1 -	Legal Proceedings	40
Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 4 -	Submission of Matters to a Vote of Security Holders	41
Item 6 -	Exhibits	42
SIGNATURES		43

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GENERAL DYNAMICS CORPORATION

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

	July 3 2005			December 31 2004
	(Unaudited)
ASSETS
Current Assets:
Cash and equivalents	$	1,438		$	976
Accounts receivable		1,677			1,450
Contracts in process		3,082			2,890
Inventories		1,189			1,195
Assets of discontinued operations		10			412
Other current assets		473			408
Total Current Assets		7,869			7,331
Noncurrent Assets:
Property, plant and equipment, net		2,039			2,153
Intangible assets, net		896			948
Goodwill		6,442			6,429
Other assets		691			683
Total Noncurrent Assets		10,068			10,213
	$	17,937		$	17,544
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt and current portion of long-term debt	$	507		$	6
Accounts payable		1,462			1,505
Liabilities of discontinued operations		19			101
Other current liabilities		3,953			3,766
Total Current Liabilities		5,941			5,378
Noncurrent Liabilities:
Long-term debt		2,791			3,291
Other liabilities		1,629			1,686
Commitments and contingencies (See Note L)
Total Noncurrent Liabilities		4,420			4,977
Shareholders’ Equity:
Common stock, including surplus		1,086			998
Retained earnings		7,666			7,146
Treasury stock		(1,358	)		(1,206	)
Accumulated other comprehensive income		182			251
Total Shareholders’ Equity		7,576			7,189
	$	17,937		$	17,544

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.

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GENERAL DYNAMICS CORPORATION

CONSOLIDATED STATEMENT OF EARNINGS

(UNAUDITED)

(Dollars in millions, except per share amounts)

	Three Months Ended
	July 3 2005			July 4 2004
Net Sales	$	5,214		$	4,652
Operating costs and expenses		4,665			4,167
Operating Earnings		549			485
Interest expense, net		(29	)		(39	)
Other expense, net		—			(12	)
Earnings from Continuing Operations before Income Taxes		520			434
Provision for income taxes, net		176			144
Earnings from Continuing Operations	$	344		$	290
Discontinued operations, net of tax		1			10
Net Earnings	$	345		$	300
Earnings per Share - Basic
Continuing operations	$	1.71		$	1.46
Discontinued operations		0.01			0.05
Net Earnings	$	1.72		$	1.51
Earnings per Share - Diluted
Continuing operations	$	1.70		$	1.44
Discontinued operations		0.01			0.05
Net Earnings	$	1.71		$	1.49
Dividends Per Share	$	0.40		$	0.36
Supplemental Information:
General and administrative expenses included in operating costs and expenses	$	321		$	273

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.

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GENERAL DYNAMICS CORPORATION

CONSOLIDATED STATEMENT OF EARNINGS

(UNAUDITED)

(Dollars in millions, except per share amounts)

	Six Months Ended
	July 3 2005			July 4 2004
Net Sales	$	10,033		$	9,298
Operating costs and expenses		9,036			8,377
Operating Earnings		997			921
Interest expense, net		(63	)		(78	)
Other expense, net		(1	)		(12	)
Earnings from Continuing Operations before Income Taxes		933			831
Provision for income taxes, net		245			276
Earnings from Continuing Operations	$	688		$	555
Discontinued operations, net of tax		(7	)		14
Net Earnings	$	681		$	569
Earnings per Share - Basic
Continuing operations	$	3.43		$	2.79
Discontinued operations		(0.04	)		0.07
Net Earnings	$	3.39		$	2.86
Earnings per Share - Diluted
Continuing operations	$	3.40		$	2.77
Discontinued operations		(0.03	)		0.07
Net Earnings	$	3.37		$	2.84
Dividends Per Share	$	0.80		$	0.72
Supplemental Information:
General and administrative expenses included in operating costs and expenses	$	634		$	562

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.

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GENERAL DYNAMICS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(Dollars in millions)

	Six Months Ended
	July 3 2005			July 4 2004
Cash Flows from Operating Activities:
Earnings from Continuing Operations	$	688		$	555
Adjustments to reconcile Earnings from Continuing Operations to net cash provided by operating activities –
Depreciation, depletion and amortization of property, plant and equipment		119			113
Amortization of intangible assets		51			45
Deferred income tax provision		47			214
(Increase) decrease in assets, net of effects of business acquisitions –
Accounts receivable		(227	)		—
Contracts in process		(176	)		(9	)
Inventories		6			(79	)
Other current assets		(121	)		1
Increase (decrease) in liabilities, net of effects of business acquisitions –
Accounts payable		26			(65	)
Customer deposits		81			107
Billings in excess of costs and estimated profits		181			8
Other current liabilities		(5	)		(79	)
Other liabilities		(133	)		(36	)
Other, net		17			(105	)
Net Cash Provided by Operating Activities from Continuing Operations		554			670
Net Cash Provided by Discontinued Operations		3			15
Net Cash Provided by Operating Activities		557			685
Cash Flows from Investing Activities:
Proceeds from sale of assets, net		349			—
Capital expenditures		(95	)		(117	)
Business acquisitions, net of cash acquired		(37	)		(36	)
Other, net		(56	)		16
Net Cash Provided (Used) by Investing Activities		161			(137	)
Cash Flows from Financing Activities:
Purchases of common stock		(200	)		—
Dividends paid		(152	)		(134	)
Net repayments of commercial paper		—			(182	)
Net repayments of other debt		—			(45	)
Other, net		96			49
Net Cash Used by Financing Activities		(256	)		(312	)
Net Increase in Cash and Equivalents		462			236
Cash and Equivalents at Beginning of Period		976			861
Cash and Equivalents at End of Period	$	1,438		$	1,097
Supplemental Cash Flow Information:
Cash payments for:
Income taxes	$	268		$	78
Interest	$	72		$	79

The accompanying Notes to Unaudited Consolidated Financial Statements are an integral part of this statement.

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GENERAL DYNAMICS CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts or unless otherwise noted)

(A) Basis of Preparation

The term “company” or “General Dynamics” refers to General Dynamics Corporation and all of its wholly-owned and majority-owned subsidiaries. The unaudited Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. Operating results for the three- and six-month periods ended July 3, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2004.

In management’s opinion, the unaudited Consolidated Financial Statements contain all adjustments, that are of a normal recurring nature, necessary for a fair statement of the results for the three- and six-month periods ended July 3, 2005, and July 4, 2004. In 2004 and 2005, General Dynamics sold certain non-core businesses, as discussed in Note C. The unaudited Consolidated Financial Statements have been restated to reflect the results of operations of these businesses in discontinued operations. Additionally, some prior-year amounts have been reclassified among financial statement accounts to conform to the current-year presentation.

(B) Intangible Assets and Goodwill

Intangible assets consisted of the following:

	July 3 2005							December 31 2004
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized intangible assets:
Contract and program intangible assets	$	948	$	(241	)	$	707	$	987	$	(207	)	$	780
Other intangible assets		335		(146	)		189		298		(130	)		168
	$	1,283	$	(387	)	$	896	$	1,285	$	(337	)	$	948

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The company amortizes contract and program intangible assets on a straight-line basis over 5 to 40 years. Other intangible assets consist primarily of aircraft product design, customer lists, software and licenses and are amortized over 3 to 21 years.

Amortization expense was $25 and $51 for the three- and six-month periods ended July 3, 2005, and $23 and $45 for the three- and six-month periods ended July 4, 2004. The company expects to record annual amortization expense over the next five years as follows:

2006	$	91
2007	$	90
2008	$	83
2009	$	83
2010	$	78

The changes in the carrying amount of goodwill by business group for the six months ended July 3, 2005, were as follows:

	December 31 2004		Acquisitions (a)		Dispositions			Other (b)			July 3 2005
Information Systems and Technology	$	3,905	$	58	$	—		$	—		$	3,963
Combat Systems		1,982		12		(3	)		(56	)		1,935
Marine Systems		193		—		—			—			193
Aerospace		348		2		—			—			350
Resources		1		—		—			—			1
	$	6,429	$	72	$	(3	)	$	(56	)	$	6,442

(a) Includes adjustments to preliminary assignment of fair value to net assets previously acquired.

(b) Consists of adjustments for currency translation.

(C) Discontinued Operations

In 2004, General Dynamics reviewed its businesses to identify operations that were not core to the company and could be divested. As a result, the company completed the sale of two businesses in the third quarter of 2004 and recognized an after-tax loss of $2. In the Information Systems and Technology group, the company sold its business specializing in the development of software products and customized solutions for the automotive and airline industries. In the Combat Systems group, the company sold its business specializing in the design and manufacture of electrical equipment for specialty vehicles.

Also in 2004, the company entered into definitive agreements to sell two additional businesses. The company entered into agreements to sell its aeronautical research and development business in the Information Systems and Technology group and its propulsion systems business in the Combat Systems group. These transactions closed in the first quarter of 2005. In addition to the 2004 activity, the company sold two more businesses in the first quarter of 2005. These included the facilities research and development business and the airborne electronics systems business in the Information Systems and

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Technology group. The company recognized an after-tax loss of $8 from the sale of these businesses in discontinued operations in 2005. The company received combined net proceeds from these transactions of $344 in 2005.

The financial statements for all periods have been restated to present the results of operations of these businesses in discontinued operations.

The summary of operating results from discontinued operations follows:

	Three Months Ended				Six Months Ended
	July 3 2005		July 4 2004		July 3 2005			July 4 2004
Net sales	$	—	$	110	$	46		$	224
Operating expenses		—		95		44			203
Operating earnings		—		15		2			21
Gain on disposal		1		—		33			—
Earnings before taxes		1		15		35			21
Tax provision		—		5		42			7
Earnings (loss) from discontinued operations	$	1	$	10	$	(7	)	$	14
Assets and liabilities of discontinued operations consisted of the following:
					July 3 2005			December 31 2004
Accounts receivable					$	—		$	35
Contracts in process						—			72
Property, plant and equipment, net						—			40
Intangible assets, net						—			74
Goodwill						—			148
Other assets						10			43
Assets of discontinued operations					$	10		$	412
Accounts payable						—			16
Other liabilities						19			85
Liabilities of discontinued operations					$	19		$	101

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(D) Equity Compensation Plans

The company accounts for its incentive compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations. The company measures compensation expense for stock options as the excess, if any, of the quoted market price of the company’s stock at the measurement date over the exercise price. The company records stock awards at fair value at the date of the award.

If compensation expense for stock options had been determined based on the fair value at the grant dates for awards under the company’s equity compensation plans, General Dynamics’ net earnings and net earnings per share would have been reduced to the pro forma amounts indicated as follows:

		Three Months Ended						Six Months Ended
		July 3 2005			July 4 2004			July 3 2005			July 4 2004
Net earnings, as reported		$	345		$	300		$	681		$	569
Add: Stock-based compensation expense included in reported net earnings, net of tax*			7			8			13			16
Deduct: Total fair value-based compensation expense, net of tax			(16	)		(14	)		(31	)		(28	)
	Pro forma	$	336		$	294		$	663		$	557
Net earnings per share - basic:	As reported	$	1.72		$	1.51		$	3.39		$	2.86
	Pro forma	$	1.67		$	1.48		$	3.30		$	2.80
Net earnings per share - diluted:	As reported	$	1.71		$	1.49		$	3.37		$	2.84
	Pro forma	$	1.66		$	1.46		$	3.28		$	2.78

* Represents restricted stock grants under the company’s Executive Compensation Plan and 1997 Incentive Compensation Plan.

The weighted average fair value of each stock option included in the preceding pro forma amounts was estimated using the Black-Scholes option pricing model and is amortized over the vesting period of the underlying options.

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(E) Comprehensive Income

Comprehensive income consisted of the following:

	Three Months Ended						Six Months Ended
	July 3       2005			July 4       2004			July 3       2005			July 4       2004
Net earnings	$	345		$	300		$	681		$	569
Foreign currency translation adjustments		(20	)		(58	)		(48	)		(38	)
Fair value adjustments on cash flow hedges		(12	)		—			(19	)		11
Other		(1	)		(3	)		(2	)		(3	)
Comprehensive income	$	312		$	239		$	612		$	539

(F) Earnings Per Share

General Dynamics computes basic earnings per share using net earnings for the respective period and the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and the issuance of contingently issuable shares.

Basic and diluted weighted average shares outstanding were as follows (in thousands):

	Three Months Ended		Six Months Ended
	July 3    2005	July 4 2004	July 3 2005	July 4 2004
Basic weighted average shares outstanding	200,708	199,199	200,633	198,819
Assumed exercise of stock options	1,448	1,647	1,439	1,685
Contingently issuable shares	43	172	43	172
Diluted weighted average shares outstanding	202,199	201,018	202,115	200,676

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(G) Contracts in Process

Contracts in process represent recoverable costs and, where applicable, accrued profit related to long-term government contracts and consisted of the following:

	July 3 2005		December 31 2004
Contract costs and estimated profits	$	23,913	$	21,191
Other contract costs		792		788
		24,705		21,979
Less advances and progress payments		21,623		19,089
	$	3,082	$	2,890

Contract costs consist primarily of production costs and related overhead, such as general and administrative expenses. Contract costs also include contract recoveries for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs, which totaled $42 as of July 3, 2005, and $37 as of December 31, 2004. The company records revenue associated with these matters only when recovery can be estimated reliably and realization is probable.

Other contract costs represent amounts recorded under GAAP that are not currently allocable to contracts, such as a portion of the company’s estimated workers’ compensation, other insurance-related assessments, retirement benefits and environmental expenses. These costs will become allocable to contracts when they are paid. The company expects to recover these costs through ongoing business, including existing backlog and probable follow-on contracts. This business base includes numerous contracts for which the company is the sole source or is one of two suppliers on long-term defense programs. However, if the backlog in the future does not support the continued deferral of these costs, the profitability of the company’s remaining contracts could be adversely affected.

(H) Inventories

Inventories represent primarily commercial aircraft components and consisted of the following:

	July 3     2005		December 31 2004
Work in process	$	660	$	648
Raw materials		435		392
Pre-owned aircraft		58		119
Other*		36		36
	$	1,189	$	1,195

* Consists primarily of coal and aggregates.

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(I) Debt

Debt consisted of the following:

	Maturity Dates	Interest Rates	July 3     2005		December 31 2004
Fixed-rate notes	2006-2015	2.125%-5.375%	$	3,095	$	3,095
Senior notes	2008	6.32%		150		150
Term debt	2008	7.50%		35		35
Other	Various	Various		18		17
				3,298		3,297
Less current portion				507		6
			$	2,791	$	3,291

As of July 3, 2005, General Dynamics had outstanding $3.1 billion aggregate principal amount of fixed-rate notes. The offer and sale of the fixed-rate notes was registered under the Securities Act of 1933, as amended (the Securities Act). The notes consist of the following:

• $500 aggregate principal amount of 2.125 percent notes maturing in 2006;

• $500 aggregate principal amount of 3.000 percent notes maturing in 2008;

• $700 aggregate principal amount of 4.500 percent notes maturing in 2010;

• $1 billion aggregate principal amount of 4.250 percent notes maturing in 2013; and

• $400 aggregate principal amount of 5.375 percent notes maturing in 2015.

The fixed-rate notes are fully and unconditionally guaranteed by several of the company’s 100-percent-owned subsidiaries. The company has the option to redeem the notes prior to their maturity in whole or in part at 100 percent of the principal plus accrued but unpaid interest and any applicable make-whole amounts. See Note O for condensed consolidating financial statements.

The senior notes are privately placed U.S. dollar-denominated notes issued by one of the company’s Canadian subsidiaries. Interest is payable semiannually at an annual rate of 6.32 percent, until maturity in September 2008. The subsidiary has a currency swap that fixes both the interest payments and principal at maturity of these notes. As of July 3, 2005, the fair value of this currency swap was a $34 liability, which offset the effect of changes in the currency exchange rate on the related debt. The senior notes are backed by a parent company guarantee.

The company assumed the term debt in connection with the acquisition of Primex Technologies, Inc., in 2001. Annual sinking fund payments of $5 are required in December 2005 through 2007, with the remaining $20 payable in December 2008. Interest is payable in June and December at the rate of 7.5 percent annually.

As of July 3, 2005, other debt consisted primarily of two capital lease arrangements totaling $9.

As of July 3, 2005, the company had no commercial paper outstanding but maintains the ability to access the market. The company has $2 billion in bank credit facilities that provide backup liquidity to the

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commercial paper program. These credit facilities consist of a $1 billion multiyear facility expiring in July 2006 and a $1 billion multiyear facility expiring in July 2009. The company’s commercial paper issuances and the bank credit facilities are guaranteed by several of the company’s 100-percent-owned subsidiaries. Additionally, a number of the company’s international subsidiaries have available local bank credit facilities of approximately $565.

The company’s financing arrangements contain a number of customary covenants and restrictions. In particular, the company’s bank credit facilities include a minimum net worth threshold, which the company exceeds by a margin in excess of $2 billion. The company was in compliance with all material covenants as of July 3, 2005.

(J) Liabilities

A summary of significant liabilities, by balance sheet caption, follows:

	July 3       2005		December 31 2004
Billings in excess of costs and estimated profits	$	1,184	$	1,003
Customer deposits on commercial contracts		674		653
Workers’ compensation		444		432
Salaries and wages		385		365
Retirement benefits		361		355
Other		905		958
Other current liabilities	$	3,953	$	3,766
Deferred U.S. federal income taxes	$	656	$	640
Retirement benefits		345		342
Customer deposits on commercial contracts		160		100
Accrued costs of disposed businesses		46		48
Other		422		556
Other liabilities	$	1,629	$	1,686

(K) Income Taxes

The company had a net deferred tax liability of $441 at July 3, 2005, and $432 at December 31, 2004. The current portion of the net deferred taxes was an asset of $188 at July 3, 2005, and $217 at December 31, 2004, and is included in other current assets on the Consolidated Balance Sheet.

On November 27, 2001, General Dynamics filed a refund suit in the U.S. Court of Federal Claims for the years 1991 to 1993. The company added the years 1994 to 1998 to this suit on June 23, 2004. The company anticipates that years 1999 to 2002 will be added to this suit. The suit seeks recovery of refund claims that were disallowed by the IRS at the administrative level. If the court awards a full recovery to the company, the refund could exceed $100, including after-tax interest. The company expects the litigation to take several years to resolve and has recognized no income from this matter.

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In the first quarter of 2005, the company and the IRS reached agreement on the examination of the company’s income tax returns for 1999 through 2002. As a result of the resolution of the 1999-2002 audit cycle, the company reassessed its tax contingencies during the first quarter and recognized a non-cash benefit of $66, or $.33 per share. The company has recorded liabilities for tax contingencies for open years. The company does not expect the resolution of tax matters for these years to have a material impact on its results of operations, financial condition or cash flows.

(L) Commitments and Contingencies

Litigation

Termination of A-12 Program. In January 1991, the Navy terminated the company’s A-12 aircraft contract for default. The A-12 contract was a fixed-price incentive contract for the full-scale development and initial production of the Navy’s carrier-based Advanced Tactical Aircraft. Both the company and McDonnell Douglas, now owned by The Boeing Company, (the contractors) were parties to the contract with the Navy. Both contractors had full responsibility to the Navy for performance under the contract, and both are jointly and severally liable for potential liabilities arising from the termination. As a consequence of the termination for default, the Navy demanded that the contractors repay $1.4 billion in unliquidated progress payments. The Navy agreed to defer collection of that amount pending a decision by the U.S. Court of Federal Claims on the contractors’ challenge to the termination for default, or a negotiated settlement.

On December 19, 1995, the U.S. Court of Federal Claims (the trial court) issued an order converting the termination for default to a termination for convenience. On March 31, 1998, a final judgment was entered in favor of the contractors for $1.2 billion plus interest.

On July 1, 1999, the U.S. Appeals court for the Federal Circuit (the appeals court) remanded the case to the trial court for determination of whether the government’s default termination was justified. On August 31, 2001, following the trial on remand, the trial court upheld the default termination of the A-12 contract. In its opinion, the trial court rejected all of the government’s arguments to sustain the default termination except for the government’s schedule arguments, as to which the trial court held that the schedule the government unilaterally imposed was reasonable and enforceable, and that the government had not waived that schedule. On the sole ground that the contractors were not going to deliver the first aircraft on the date provided in the unilateral schedule, the trial court upheld the default termination and entered judgment for the government.

On January 9, 2003, the company’s appeal was argued before a three-judge panel of the appeals court. On March 17, 2003, the appeals court vacated the trial court’s judgment and remanded the case to the trial court for further proceedings. The appeals court found that the trial court had misapplied the controlling legal standard in concluding that the termination for default could be sustained solely on the basis of the contractors’ inability to complete the first flight of the first test aircraft by December 1991. Rather, the appeals court held that in order to uphold a termination for default the trial court would have to determine that there was no reasonable likelihood that the contractors could perform the entire contract effort within the time remaining for performance. The company does not believe the evidence supports such a determination. Pursuant to the direction of the appeals court, the trial court held further proceedings on June 29 and 30, 2004. The matter is pending before the trial court for decision.

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If, contrary to the company’s expectations, the default termination is ultimately sustained, the contractors could collectively be required to repay the government as much as $1.4 billion for progress payments received for the A-12 contract, plus interest, which was approximately $1.2 billion at July 3, 2005. This would result in a liability for the company of approximately $1.3 billion pretax, or approximately $700 after-tax, to be taken as a charge against discontinued operations. The company believes it has sufficient resources to pay such an obligation if required.

Final Analysis. On May 28, 2003, Final Analysis Communication Systems, Inc. (FACS), a Maryland corporation, served the company with a complaint it filed in the U.S. District Court for the District of Maryland. On October 14, 2004, FACS filed a second amended complaint alleging that the company breached contracts among the company, FACS and FACS’ then-corporate parent, Final Analysis, Inc. (FAI), a Maryland corporation. FAI is currently a debtor in the Bankruptcy Court for the District of Maryland. FACS also alleged tort claims for fraud, tortious interference with contractual and business relations, fraudulent inducement, negligent misrepresentation and a claim for breach of warranty, but on April 4, 2005, the District Court granted the company’s motion for summary judgment on all such FACS claims. The second amended complaint alleges monetary damages in excess of $500, plus punitive damages. The company has denied liability to FACS and asserts counterclaims. The trial on this matter began on July 19, 2005, and is expected to conclude during the third quarter. The company believes the outcome of this matter will not have a material impact on its results of operations, financial condition or cash flows.

Other. Various claims and other legal proceedings incidental to the normal course of business are pending or threatened against the company. While it cannot predict the outcome of these matters, the company believes any potential liabilities in these proceedings, individually or in the aggregate, will not have a material impact on its results of operations, financial condition or cash flows.

Environmental

General Dynamics is subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. The company is directly or indirectly involved in environmental investigation or remediation at some of its current and former facilities, and at third-party sites not owned by the company but where it has been designated a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency. Based on historical experience, the company expects that a significant percentage of the total remediation and compliance costs associated with these facilities will continue to be allowable costs and, therefore, reimbursed by the U.S. government. As required, the company provides financial assurance for certain sites undergoing or subject to investigation or remediation. Where applicable, the company seeks insurance recovery for costs related to environmental liability. The company does not record insurance recoveries before collection is considered probable. Based on all known facts and analyses, as well as current U.S. government policies relating to allowable costs, the company does not believe that its liability at any individual site, or in the aggregate, arising from such sites at which there is a known environmental condition, or Superfund or other multi-party sites at which the company is a PRP, will be material to its results of operations, financial condition or cash flows. Nor does the company believe that the range of reasonably possible additional loss beyond what has been recorded would be material to its results of operations, financial condition or cash flows.

-16-

Other

In the ordinary course of business, General Dynamics has entered into letters of credit and other similar arrangements with financial institutions and insurance carriers totaling approximately $1.4 billion at July 3, 2005. The company, from time to time in the ordinary course of business, guarantees the payment or performance obligations of its subsidiaries arising under certain contracts. The company is aware of no event of default that would require it to satisfy these guarantees.

As a government contractor, the company is occasionally subject to U.S. government investigations relating to its operations, including claims for fines, penalties and compensatory and treble damages. The company believes, based on currently available information, that the outcome of such ongoing government disputes and investigations will not have a material impact on its results of operations, financial condition or cash flows.

On June 5, 2001, General Dynamics acquired substantially all of the assets of Galaxy Aerospace Company LP. Pursuant to the purchase agreement, the selling parties have the contractual right to receive additional payments, up to a maximum of approximately $300 through 2006, contingent on the achievement of specific revenue targets. No amounts have been paid to date, and based on current planned aircraft production rates, the company does not anticipate having to make any future payments under this agreement.

As of July 3, 2005, in connection with orders for 21 Gulfstream aircraft in firm contract backlog, the company had offered customers trade-in options, which may or may not be exercised by the customers. If these options are exercised, the company will accept trade-in aircraft (both Gulfstream and competitor aircraft) at a predetermined minimum trade-in price as partial consideration in the new aircraft transaction. Any excess of the trade-in price above the fair market value is treated as a reduction of revenue upon recording of the new aircraft sales transaction. These option commitments last through 2007 and totaled $406 as of July 3, 2005, versus $301 at December 31, 2004. Beyond these commitments, additional aircraft trade-ins are likely to be accepted in connection with future orders for new aircraft.

The company provides product warranties to its customers associated with certain product sales, particularly business-jet aircraft. The company records estimated warranty costs in the period in which the related products are delivered. The warranty liability recorded at each balance sheet date is based on the estimated number of months of warranty coverage remaining for products delivered and the average historical monthly warranty payments, and is included in other current liabilities and other liabilities on the Consolidated Balance Sheet.

-17-

The changes in the carrying amount of warranty liabilities for the six-month periods ended July 3, 2005, and July 4, 2004, were as follows:

Six Months Ended	July 3 2005			July 4 2004
Beginning balance	$	199		$	181
Warranty expense		14			29
Payments		(22	)		(18	)
Adjustments*		(5	)		(3	)
Ending balance	$	186		$	189

* Represents foreign exchange translation adjustments.

(M) Retirement Plans

The company provides defined-benefit pension and other post-retirement benefits to certain eligible employees.

Net periodic pension and other post-retirement benefit costs for the three- and six-month periods ended July 3, 2005, and July 4, 2004, consisted of the following:

	Pension Benefits						Other Post-retirement Benefits
Three Months Ended	July 3 2005			July 4 2004			July 3 2005			July 4 2004
Service cost	$	62		$	55		$	4		$	4
Interest cost		100			100			17			18
Expected return on plan assets		(135	)		(133	)		(7	)		(7	)
Recognized net actuarial loss		1			1			3			3
Amortization of unrecognized transition obligation		—			—			—			2
Amortization of prior service cost		(1	)		8			—			—
Net periodic cost	$	27		$	31		$	17		$	20

	Pension Benefits						Other Post-retirement Benefits
Six Months Ended	July 3 2005			July 4 2004			July 3 2005			July 4 2004
Service cost	$	124		$	110		$	8		$	8
Interest cost		200			200			34			36
Expected return on plan assets		(270	)		(266	)		(14	)		(14	)
Recognized net actuarial loss		2			2			6			6
Amortization of unrecognized transition obligation		—			—			1			4
Amortization of prior service cost		(2	)		16			(1	)		(1	)
Net periodic cost	$	54		$	62		$	34		$	39

-18-

Pension Benefits. General Dynamics’ contractual arrangements with the U.S. government provide for the recovery of contributions to the company’s government plans. The amount contributed to certain plans, charged to contracts and included in net sales has exceeded the net periodic pension cost as determined under Statement of Financial Accounting Standards No. 87,Employers’ Accounting for Pensions. The company has deferred recognition of earnings resulting from this difference to provide a better matching of revenues and expenses. Similarly, pension settlements and curtailments under the government plans have also been deferred. These deferrals have been classified against the prepaid pension cost related to these plans.

Other Post-retirement Benefits. The company’s contractual arrangements with the U.S. government provide for the recovery of contributions to a Voluntary Employees’ Beneficiary Association trust and, for non-funded plans, recovery of claims paid. The net periodic post-retirement benefit cost exceeds the company’s cost currently allocable to contracts. To the extent recovery of the cost is considered probable based on the company’s backlog, the company defers the excess in contracts in process until such time that the cost is allocable to contracts.

The company adopted Financial Accounting Standards Board Staff Position (FSP) No. FAS 106-2,Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (which superseded FSP No. FAS 106-1) effective December 31, 2004. This FSP provides guidance on the accounting for the federal subsidy and other provisions of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The effects of these provisions resulted in a reduction of $65 in the company’s accumulated post-retirement obligation for benefits attributed to past service as of December 31, 2004, and an expected reduction of $8 in the company’s 2005 net periodic post-retirement benefit cost. The federal government will begin making the subsidy payments to employers in 2006.

(N) Business Group Information

General Dynamics operates in four primary business groups: Information Systems and Technology, Combat Systems, Marine Systems and Aerospace. The company organizes and measures its business groups in accordance with the nature of products and services offered. These business groups derive their revenues from mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation, respectively. The company also owns certain commercial operations that are identified for reporting purposes as Resources. The company measures each group’s profit based on operating earnings. As a result, the company does not allocate net interest, other income and expense items, and income taxes to its business groups.

-19-

Summary financial information for each of the company’s business groups follows:

	Net Sales				Operating Earnings
Three Months Ended	July 3 2005		July 4 2004		July 3 2005		July 4 2004
Information Systems and Technology	$	2,013	$	1,641	$	225	$	192
Combat Systems		1,118		998		123		111
Marine Systems		1,178		1,177		65		81
Aerospace		828		771		125		94
Resources(a)		77		65		11		7
	$	5,214	$	4,652	$	549	$	485
	Net Sales				Operating Earnings
Six Months Ended	July 3 2005		July 4 2004		July 3 2005		July 4 2004
Information Systems and Technology	$	3,765	$	3,284	$	422	$	361
Combat Systems		2,175		2,068		227		223
Marine Systems		2,388		2,457		114		179
Aerospace		1,581		1,377		226		160
Resources(a)		124		112		8		(2	)
	$	10,033	$	9,298	$	997	$	921
	Identifiable Assets
	July 3 2005		December 31 2004
Information Systems and Technology	$	6,699	$	6,576
Combat Systems		4,956		4,818
Marine Systems		2,210		2,092
Aerospace		2,566		2,612
Resources(a)		304		270
Corporate(b)		1,202		1,176
	$	17,937	$	17,544

(a) Resources includes the results of the company’s coal and aggregates operations, as well as a portion of the operating results of the company’s commercial pension plans.

(b) Corporate identifiable assets include cash and equivalents from domestic operations, assets of discontinued operations and a portion of the net prepaid pension cost related to the company’s commercial pension plans.

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(O) Condensed Consolidating Financial Statements

The fixed-rate notes described in Note I are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain 100-percent-owned subsidiaries of General Dynamics Corporation (the guarantors). The following condensed consolidating financial statements illustrate the composition of the parent, the guarantors on a combined basis (each guarantor together with its majority-owned subsidiaries) and all other subsidiaries on a combined basis as of July 3, 2005, and December 31, 2004, for the balance sheet, as well as the statements of earnings and cash flows for the three- and six-month periods ended July 3, 2005, and July 4, 2004.

Condensed Consolidating Statement of Earnings

Three Months Ended July 3, 2005	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Net Sales	$	—		$	4,510		$	704		$	—		$	5,214
Cost of sales		—			3,739			605			—			4,344
General and administrative expenses		—			286			35			—			321
Operating Earnings		—			485			64			—			549
Interest expense		(31	)		(1	)		(6	)		—			(38	)
Interest income		4			—			5			—			9
Other expense, net		—			(2	)		2			—			—
Earnings from Continuing Operations before Income Taxes		(27	)		482			65			—			520
Provision for income taxes		(16	)		161			31			—			176
Discontinued operations, net of tax		—			1			—			—			1
Equity in net earnings of subsidiaries		356			—			—			(356	)		—
Net Earnings	$	345		$	322		$	34		$	(356	)	$	345
Three Months Ended July 4, 2004
Net Sales	$	—		$	3,770		$	882		$	—		$	4,652
Cost of sales		1			3,145			748			—			3,894
General and administrative expenses		—			220			53			—			273
Operating Earnings		(1	)		405			81			—			485
Interest expense		(33	)		(2	)		(6	)		—			(41	)
Interest income		—			—			2			—			2
Other expense, net		(11	)		(1	)		—			—			(12	)
Earnings from Continuing Operations before Income Taxes		(45	)		402			77			—			434
Provision for income taxes		(20	)		134			30			—			144
Discontinued operations, net of tax		—			10			—			—			10
Equity in net earnings of subsidiaries		325			—			—			(325	)		—
Net Earnings	$	300		$	278		$	47		$	(325	)	$	300

-21-

Condensed Consolidating Statement of Earnings

Six Months Ended July 3, 2005	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Net Sales	$	—		$	8,758		$	1,275		$	—		$	10,033
Cost of sales		(1	)		7,315			1,088			—			8,402
General and administrative expenses		—			558			76			—			634
Operating Earnings		1			885			111			—			997
Interest expense		(62	)		(3	)		(11	)		—			(76	)
Interest income		6			—			7			—			13
Other expense, net		3			(7	)		3			—			(1	)
Earnings from Continuing Operations before Income Taxes		(52	)		875			110			—			933
Provision for income taxes		(103	)		299			49			—			245
Discontinued operations, net of tax		—			(7	)		—			—			(7	)
Equity in net earnings of subsidiaries		630			—			—			(630	)		—
Net Earnings	$	681		$	569		$	61		$	(630	)	$	681
Six Months Ended July 4, 2004
Net Sales	$	—		$	7,597		$	1,701		$	—		$	9,298
Cost of sales		4			6,381			1,430			—			7,815
General and administrative expenses		—			452			110			—			562
Operating Earnings		(4	)		764			161			—			921
Interest expense		(68	)		(3	)		(10	)		—			(81	)
Interest income		—			—			3			—			3
Other expense, net		(24	)		1			11			—			(12	)
Earnings from Continuing Operations before Income Taxes		(96	)		762			165			—			831
Provision for income taxes		(50	)		267			59			—			276
Discontinued operations, net of tax		—			14			—			—			14
Equity in net earnings of subsidiaries		615			—			—			(615	)		—
Net Earnings	$	569		$	509		$	106		$	(615	)	$	569

-22-

Condensed Consolidating Balance Sheet

July 3, 2005	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
ASSETS
Current Assets:
Cash and equivalents	$	802		$	—		$	636		$	—		$	1,438
Accounts receivable		1			1,219			457			—			1,677
Contracts in process		91			2,524			467			—			3,082
Inventories
Work in process		—			633			27			—			660
Raw materials		—			416			19			—			435
Pre-owned aircraft		—			58			—			—			58
Other		—			36			—			—			36
Assets of discontinued operations		—			10			—			—			10
Other current assets		120			162			191			—			473
Total Current Assets		1,014			5,058			1,797			—			7,869
Noncurrent Assets:
Property, plant and equipment		139			3,482			479			—			4,100
Accumulated depreciation, depletion & amortization of PP&E		(25	)		(1,813	)		(223	)		—			(2,061	)
Intangible assets and goodwill		—			6,304			1,421			—			7,725
Accumulated amortization of intangible assets		—			(334	)		(53	)		���			(387	)
Other assets		58			517			116			—			691
Investment in subsidiaries		14,725			—			—			(14,725	)		—
Total Noncurrent Assets		14,897			8,156			1,740			(14,725	)		10,068
	$	15,911		$	13,214		$	3,537		$	(14,725	)	$	17,937
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	500		$	7		$	—		$	—		$	507
Liabilities of discontinued operations		—			19			—			—			19
Other current liabilities		216			3,712			1,487			—			5,415
Total Current Liabilities		716			3,738			1,487			—			5,941
Noncurrent Liabilities:
Long-term debt		2,596			37			158			—			2,791
Other liabilities		242			1,241			146			—			1,629
Total Noncurrent Liabilities		2,838			1,278			304			—			4,420
Shareholders’ Equity:
Common stock, including surplus		1,086			6,153			1,119			(7,272	)		1,086
Other shareholders’ equity		11,271			2,045			627			(7,453	)		6,490
Total Shareholders’ Equity		12,357			8,198			1,746			(14,725	)		7,576
	$	15,911		$	13,214		$	3,537		$	(14,725	)	$	17,937

-23-

Condensed Consolidating Balance Sheet

December 31, 2004	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
ASSETS
Current Assets:
Cash and equivalents	$	423		$	—		$	553		$	—		$	976
Accounts receivable		2			1,075			373			—			1,450
Contracts in process		63			2,157			670			—			2,890
Inventories
Work in process		—			620			28			—			648
Raw materials		—			376			16			—			392
Pre-owned aircraft		—			119			—			—			119
Other		—			35			1			—			36
Assets of discontinued operations		—			412			—			—			412
Other current assets		129			50			229			—			408
Total Current Assets		617			4,844			1,870			—			7,331
Noncurrent Assets:
Property, plant and equipment		134			3,314			719			—			4,167
Accumulated depreciation, depletion & amortization of PP&E		(22	)		(1,714	)		(278	)		—			(2,014	)
Intangible assets and goodwill		—			5,468			2,246			—			7,714
Accumulated amortization of intangible assets		—			(274	)		(63	)		—			(337	)
Other assets		32			543			108			—			683
Investment in subsidiaries		13,448			—			—			(13,448	)		—
Total Noncurrent Assets		13,592			7,337			2,732			(13,448	)		10,213
	$	14,209		$	12,181		$	4,602		$	(13,448	)	$	17,544
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	—		$	6		$	—		$	—		$	6
Liabilities of discontinued operations		—			101			—			—			101
Other current liabilities		201			3,443			1,627			—			5,271
Total Current Liabilities		201			3,550			1,627			—			5,378
Noncurrent Liabilities:
Long-term debt		3,095			38			158			—			3,291
Other liabilities		320			1,093			273			—			1,686
Total Noncurrent Liabilities		3,415			1,131			431			—			4,977
Shareholders’ Equity:
Common stock, including surplus		998			5,247			1,925			(7,172	)		998
Other shareholders’ equity		9,595			2,253			619			(6,276	)		6,191
Total Shareholders’ Equity		10,593			7,500			2,544			(13,448	)		7,189
	$	14,209		$	12,181		$	4,602		$	(13,448	)	$	17,544

-24-

Condensed Consolidating Statement of Cash Flows

Six Months Ended July 3, 2005	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments		Total Consolidated
Net Cash Provided by Operating Activities from Continuing Operations	$	(52	)	$	626		$	(20	)	$	—	$	554
Net Cash Provided by Discontinued Operations		—			3			—			—		3
Net Cash Provided by Operating Activities		(52	)		629			(20	)		—		557
Cash Flows from Investing Activities:
Proceeds from sale of assets, net		—			349			—			—		349
Other, net		(63	)		(107	)		(18	)		—		(188	)
Net Cash Provided by Investing Activities		(63	)		242			(18	)		—		161
Cash Flows from Financing Activities:
Purchases of common stock		(200	)		—			—			—		(200	)
Other, net		(56	)		—			—			—		(56	)
Net Cash Used by Financing Activities		(256	)		—			—			—		(256	)
Cash sweep by parent		750			(871	)		121			—		—
Net Increase in Cash and Equivalents		379			—			83			—		462
Cash and Equivalents at Beginning of Period		423			—			553			—		976
Cash and Equivalents at End of Period	$	802		$	—		$	636		$	—	$	1,438
Six Months Ended July 4, 2004
Net Cash Provided by Operating Activities from Continuing Operations	$	(77	)	$	730		$	17		$	—	$	670
Net Cash Provided by Discontinued Operations		—			15			—			—		15
Net Cash Provided by Operating Activities		(77	)		745			17			—		685
Cash Flows from Investing Activities:
Net Cash Used by Investing Activities		(23	)		(91	)		(23	)		—		(137	)
Cash Flows from Financing Activities:
Net repayments of commercial paper		(182	)		—			—			—		(182	)
Dividends paid		(134	)		—			—			—		(134	)
Other, net		9			—			(5	)		—		4
Net Cash Used by Financing Activities		(307	)		—			(5	)		—		(312	)
Cash sweep by parent		680			(654	)		(26	)		—		—
Net Increase in Cash and Equivalents		273			—			(37	)		—		236
Cash and Equivalents at Beginning of Period		180			—			681			—		861
Cash and Equivalents at End of Period	$	453		$	—		$	644		$	—	$	1,097

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GENERAL DYNAMICS CORPORATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

July 3, 2005

(Dollars in millions, except per share amounts)

Business Overview

General Dynamics designs, develops, manufactures and supports leading-edge technology products and services for mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company’s primary customers are the U.S. military, other government organizations, the armed forces of allied nations and a diverse base of corporate and industrial buyers. It operates through four primary business groups – Information Systems and Technology, Combat Systems, Marine Systems and Aerospace – and a small Resources group. The following discussion should be read in conjunction with the company’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission and with the unaudited Consolidated Financial Statements included herein.

Results of Operations

Consolidated Overview

General Dynamics’ net sales for the second quarter of 2005 were $5.2 billion, an increase of 12 percent over the second quarter of 2004. This increase resulted primarily from sales growth in the Information Systems and Technology and Combat Systems groups. Operating earnings for the second quarter of 2005 were up 13 percent to $549 compared with $485 in the same quarter in 2004. The major drivers of the rise in operating earnings were improved performance in the Aerospace group and increased volume in the Information Systems and Technology group.

Net sales grew 8 percent to $10 billion for the six-month period ended July 3, 2005, compared with the same period in 2004. Sales growth in the Information Systems and Technology, Aerospace and Combat Systems groups was offset in part by lower activity in the Marine Systems group. Operating earnings also rose 8 percent over the first six months of 2004, reaching $1 billion in the first half of 2005. The growth in operating earnings resulted from the increased volume and improved performance in the Information Systems and Technology and Aerospace groups, but was reduced by lower activity and contract losses in the Marine Systems group.

General Dynamics repeated the strong operating margin performance achieved in the first half of 2004 in the current period, generating margins of 10.5 percent in the second quarter and 9.9 percent in the first half of 2005. General and administrative (G&A) expenses as a percentage of net sales increased slightly to 6.3 percent in the first half of 2005 from 6.0 percent in the same period in 2004. The company expects G&A expenses as a percent of sales for the full year 2005 to be consistent with the full year 2004.

-26-

General Dynamics continued to generate strong cash flow from operations in the first six months of 2005. Net cash provided by operating activities was $557, compared with $685 in the same period in 2004. In addition, during the first half of 2005 the company generated $349 from the sale of several non-core businesses. The company used its cash to fund acquisitions and capital expenditures, repurchase its common stock and pay dividends.

The company’s effective tax rate for the six-month period ended July 3, 2005, was 26.3 percent compared with 33.2 percent for the first half of 2004. The company’s effective tax rate for the first half of 2005 was impacted favorably by the resolution of the company’s 1999-2002 federal income tax audit during the first quarter. This settlement resulted in a $66, or $.33 per-share non-cash benefit, which reduced the company’s effective tax rate for the first half of 2005 by 7 percent. Excluding the effect of the resolution of tax matters related to prior years, the company expects the effective tax rate for the full year to be consistent with the 2004 rate. For additional discussion of tax matters, as well as a discussion of the net deferred tax liability, see Note K to the unaudited Consolidated Financial Statements.

In 2004, the company reviewed its businesses to identify operations that were not core to the company and could be divested. In connection with this process, the company completed the sales of several small businesses in the first quarter of 2005. The company’s reported net sales exclude the revenues associated with these businesses. The company received $344 in cash, net of taxes, in the first half of 2005 from the sale of these businesses and recognized an after-tax loss of $8 in discontinued operations in the six-month period ended July 3, 2005, related to the divestiture activities. For additional discussion of these divestiture activities, see Note C to the unaudited Consolidated Financial Statements.

The company’s total backlog decreased slightly to $43.6 billion as of July 3, 2005, compared with $44.7 billion at the end of the first quarter of 2005, as the company executes the substantial backlog that has resulted from a number of significant awards over the past several quarters. The total backlog as of the end of the quarter increased 7 percent, and the funded backlog 14 percent, over the same point in 2004. New orders received during the second quarter of 2005 were $4.2 billion, including over $1 billion of order activity in the Aerospace group. The total backlog does not include work awarded under numerous indefinite delivery, indefinite quantity (IDIQ) contracts. The total potential value of these contracts, which may be realized over the next 15 years, was approximately $5.7 billion as of July 3, 2005.

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Information Systems and Technology

Three Months Ended	July 3 2005			July 4 2004			Variance
Net sales	$	2,013		$	1,641		$	372	23	%
Operating earnings		225			192			33	17	%
Operating margin		11.2	%		11.7	%
Six Months Ended	July 3 2005			July 4 2004			Variance
Net sales	$	3,765		$	3,284		$	481	15	%
Operating earnings		422			361			61	17	%
Operating margin		11.2	%		11.0	%

The Information Systems and Technology group generated significant growth in sales and operating earnings for both the three- and six-month periods ended July 3, 2005, compared with the same prior-year periods. The growth resulted from increased sales volume in each of the group’s principal markets, as well as from businesses acquired in the second half of 2004. Several significant programs led the group’s strong sales and earnings growth, including the following:

• Intelligence Information, Command-and-Control Equipment and Enhancements (ICE2), which supports critical intelligence and command-and-control systems and networks for U.S. defense and intelligence operations worldwide;

• The Mobile User Objective System (MUOS), which enables on-the-move satellite connectivity for U.S. and allied forces; and

• Common Hardware/Software III (CHS-3), which provides continually updated commercial and ruggedized computers, network hardware equipment and software to the U.S. armed forces and other federal agencies worldwide.

In addition to these early-stage contracts, continued growth on many of the group’s ongoing programs, including the BOWMAN contract for the United Kingdom’s armed forces and the Pentagon renovation program, contributed to the increase in sales and earnings in 2005.

Operating margins for the second quarter of 2005 were down somewhat from the same period in 2004 reflecting the variability that results from the timing and mix of contract performance phases and customer deliveries. Margins for the first six months of 2005 improved slightly over 2004 and have remained consistent through the first half of the year.

The company expects high-single-digit sales growth in the Information Systems and Technology group for the full year 2005. While margins may fluctuate from quarter to quarter as discussed above, the company expects the group’s full-year operating margins to remain in the low-double-digit range.

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Combat Systems

Three Months Ended	July 3 2005			July 4 2004			Variance
Net sales	$	1,118		$	998		$	120	12	%
Operating earnings		123			111			12	11	%
Operating margin		11.0	%		11.1	%
Six Months Ended	July 3 2005			July 4 2004			Variance
Net sales	$	2,175		$	2,068		$	107	5	%
Operating earnings		227			223			4	2	%
Operating margin		10.4	%		10.8	%

The Combat Systems group’s net sales and operating earnings improved in the second quarter of 2005 versus the second quarter of 2004 on the strength of several combat vehicle production programs, including the Stryker wheeled combat vehicle, the Leopard battle tank and the Pizarro Advanced Infantry Fighting Vehicle. The group also experienced increased sales on its M1A2 Abrams main battle tank upgrade program and its large and medium caliber munitions replenishment contracts. These increases were offset in part by lower activity on certain combat vehicle production programs due to either their completion or the timing of customer requirements, including the completion of the company’s Australian and New Zealand light armored vehicle contracts. The group’s operating margins for the quarter were consistent with the performance delivered in the same period in 2004.

The net sales growth in the Combat Systems group for the first six months of 2005 compared with the same period in 2004 resulted from an increase in activity on a number of combat vehicle programs, including Stryker, Leopard and the M1A2 Abrams upgrades. The group also experienced growing volume in its armaments and munitions businesses, including reactive armor and munitions replenishment contracts. Operating earnings for the six-month period ended July 3, 2005, were up slightly compared with the same period in 2004. Margins were down slightly due to a shift in product mix and the timing of deliveries in the group’s European business.

The company expects further revenue growth in the second half of the year for the Combat Systems group based on the cyclical nature of the group’s international businesses and the timing of customer requirements. For the full year 2005, the company expects that operating margins will be consistent with the average margins experienced in 2004.

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Marine Systems

Three Months Ended	July 3 2005			July 4 2004			Variance
Net sales	$	1,178		$	1,177		$	1		0	%
Operating earnings		65			81			(16	)	-20	%
Operating margin		5.5	%		6.9	%
Six Months Ended	July 3 2005			July 4 2004			Variance
Net sales	$	2,388		$	2,457		$	(69	)	-3	%
Operating earnings		114			179			(65	)	-36	%
Operating margin		4.8	%		7.3	%

The Marine Systems group’s net sales in the second quarter of 2005 were consistent with the same three-month period in 2004. Increased volume on the Virginia-class submarine program and the T-AKE combat logistics ships was offset by a decrease in activity on engineering and repair contracts, which experienced a surge of activity in the first half of 2004, and the completion of the Seawolf submarine program.

Net sales for the first six months of 2005 were down slightly compared with the same prior-year period. Declining volume on engineering and repair contracts, mature production programs and commercial production contracts more than offset increased activity on early-stage defense design and production contracts, including the Virginia-class, T-AKE and SSGN programs.

Operating earnings and margins decreased significantly in the second quarter and first half of 2005 versus the same periods in 2004. These declines resulted from losses incurred on some of the group’s programs and a shift in the mix of the group’s contracts from fixed-price production to cost-type design and production. In the first six months of 2005, the company recorded losses on two submarine maintenance and overhaul contracts totaling approximately $20. These losses resulted from customer-requested change orders that the group fulfilled prior to securing adequate contract protection. The company is negotiating with the customer to recover some of its costs incurred and does not expect to have this type of exposure on future contracts.

In the first quarter of 2005, the company experienced schedule delays on its contract to build four double-hull oil tankers due primarily to adverse weather conditions at the shipyard. These conditions caused labor and material cost growth, resulting in an additional loss of $19 on the program in the first quarter. The program’s estimates at completion remained firm in the second quarter. As a result, the company did not record any losses on this program in the second quarter of 2005. The third and fourth ships are scheduled to be delivered in the fourth quarter of 2005 and the third quarter of 2006, respectively. Management continues to monitor closely the estimates to complete the program in order to mitigate the risk that will remain until the final ship is delivered.

The Marine Systems group’s operating margins improved markedly in the second quarter over the first quarter of 2005, and the company expects continued performance improvement in the group over time on gradually declining volume, assuming no further deterioration in the commercial tanker program.

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Aerospace

Three Months Ended	July 3 2005			July 4 2004			Variance
Net sales	$	828		$	771		$	57	7	%
Operating earnings		125			94			31	33	%
Operating margin		15.1	%		12.2	%
Aircraft deliveries (in units):
Green		21			20
Completion		22			18
Six Months Ended	July 3 2005			July 4 2004			Variance
Net sales	$	1,581		$	1,377		$	204	15	%
Operating earnings		226			160			66	41	%
Operating margin		14.3	%		11.6	%
Aircraft deliveries (in units):
Green		41			37
Completion		37			30

The Aerospace group’s net sales for the second quarter of 2005 increased moderately over the same period in 2004. The group delivered one additional green aircraft and four additional completions in the second quarter of 2005. In addition, the group delivered a more favorable mix of new aircraft and began to experience improved pricing on its aircraft deliveries. The effects of these increases were reduced by lower sales of pre-owned aircraft. Operating earnings and margins in the same period increased significantly over 2004 as a result of the improved pricing, the favorable mix of deliveries and the ongoing benefits of the group’s cost containment activities.

The group experienced strong sales growth in the first half of 2005 compared with 2004 as green aircraft deliveries increased over 10 percent and completions increased over 20 percent. Improved pricing and higher aircraft services volume also contributed to the sales growth. Like the second quarter, earnings and margins in the first six months of 2005 were up substantially over 2004 due to the increased volume, significantly reduced costs and pricing improvements.

The company expects the Aerospace group’s volume to increase steadily in the second half of the year. The company expects a gradual increase in the group’s full-year margins over the level achieved in 2004, though the margin rate from quarter to quarter may fluctuate based on the mix of aircraft deliveries. (See Notes H and L to the unaudited Consolidated Financial Statements for additional information regarding the Aerospace group’s aircraft inventories and trade-in commitments.)

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Resources

Three Months Ended	July 3 2005		July 4 2004			Variance
Net sales	$	77	$	65		$	12	18	%
Operating earnings		11		7			4	57	%
Six Months Ended	July 3 2005		July 4 2003			Variance
Net sales	$	124	$	112		$	12	11	%
Operating earnings		8		(2	)		10	500	%

The Resources group’s net sales and operating earnings increased significantly in the three- and six-month periods ended July 3, 2005, compared with the same periods in 2004 due to higher volume and improved performance in the group’s coal mining and aggregates businesses. Operating earnings in the first six months of 2005 were also impacted by favorable adjustments to certain of the group’s coal-related liabilities.

Backlog

The following table details the backlog and the total estimated contract value of each business group at the end of the second and first quarters of 2005:

July 3, 2005	Funded		Unfunded		Total Backlog		IDIQ Contract Value		Total Estimated Contract Value
Information Systems and Technology	$	7,174	$	2,033	$	9,207	$	5,592	$	14,799
Combat Systems		7,902		2,394		10,296		90		10,386
Marine Systems		9,654		6,957		16,611		—		16,611
Aerospace		4,977		2,199		7,176		—		7,176
Resources		202		58		260		—		260
Total	$	29,909	$	13,641	$	43,550	$	5,682	$	49,232
April 3, 2005
Information Systems and Technology	$	7,466	$	2,598	$	10,064	$	5,723	$	15,787
Combat Systems		8,060		2,099		10,159		89		10,248
Marine Systems		10,396		6,849		17,245		—		17,245
Aerospace		4,725		2,209		6,934		—		6,934
Resources		228		58		286		—		286
Total	$	30,875	$	13,813	$	44,688	$	5,812	$	50,500

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Defense Businesses

The total backlog for the company’s defense businesses represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of this backlog includes items that have been authorized and appropriated by the Congress and funded by the customer, as well as commitments by international customers that are also approved and funded by their governments. The unfunded backlog represents firm orders for which funding has not been appropriated. The backlog does not include work awarded under IDIQ contracts. IDIQ contract value represents management’s estimate of the future contract value under existing indefinite delivery, indefinite quantity contracts. Because the value in these arrangements is subject to the customer’s future exercise of an indeterminate quantity of delivery orders, these contracts are recognized in the backlog only when funded.

The company received several notable contract awards during the second quarter of 2005, including the following:

The Combat Systems group received orders worth approximately $150 for the production of Hydra-70 rockets, motors and warheads. These orders are part of a five-year requirements contract with an estimated value of $900.

The company was awarded modifications to several of its contracts under the U.S. Army’s Future Combat Systems (FCS) program. The Combat Systems group was awarded a $282 modification to its $2 billion contract for the engineering development and demonstration of a family of manned ground vehicles for the FCS program. The modification extends the contract through 2012. The Combat Systems group also received a modification valued at approximately $50 under its contract to develop the autonomous navigation system for FCS ground vehicles. In addition, the Information Systems and Technology group was awarded a modification worth $154 to accelerate technology development of the integrated computer system (ICS) two years earlier than originally planned. The modification brings the total ICS contract value to approximately $430.

The Combat Systems group received an order worth approximately $140 under the Stryker wheeled combat vehicle production program for 99 Stryker vehicles to meet additional Army requirements.

The Combat Systems group was awarded a contract worth $141 to upgrade 60 M1A2 Abrams tanks to the M1A2 System Enhancement Program (SEP) configuration. Through this program, the company retrofits M1A2 tanks with an enhanced electronics package that is designed to improve the tank’s effectiveness.

The Information Systems and Technology group received an order from the Army to integrate up to 500 Land Warrior soldier ensembles into a Stryker experimental battalion. Land Warrior is an integrated fighting system that uses technology to enhance individual soldiers’ tactical awareness, lethality and survivability. This $30 award is part of a contract valued at approximately $260. In the first quarter of 2005, the Army merged the Land Warrior program with its Future Force Warrior program under a contract managed by General Dynamics to expedite the fielding of this integrated system.

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The company also has received several significant contract awards since the end of the second quarter, including the following:

The Information Systems and Technology group received a $169 contract to design, manufacture and deliver 25 12-meter antennas for an advanced radio telescope array at an international astronomy facility.

The Information Systems and Technology group received a contract from the Royal Netherlands Navy worth approximately $115 to supply the New Integrated Marines Communications and Information Systems (NIMCIS). NIMCIS is a two-year program to equip the Royal Netherlands Marine Corps with the BOWMAN communications system, which the company is currently providing to the U.K. armed forces.

Aerospace

The Aerospace funded backlog includes orders for which the company has definitive purchase contracts and deposits from the customer. The Aerospace unfunded backlog consists of options to purchase new aircraft and agreements to provide future aircraft maintenance and support services.

The group continued to experience strong order activity in the second quarter of 2005 amid improving market conditions, as orders exceeded sales for the fourth consecutive quarter. A significant portion of the Aerospace backlog is with an unaffiliated customer, NetJets Inc. (NetJets), a unit of Berkshire Hathaway and the leader in the fractional aircraft market. NetJets purchases the aircraft for use in its fractional ownership program. As of the end of the second quarter of 2005, backlog with NetJets for all aircraft types represented 35 percent of the Aerospace funded backlog and 90 percent of the Aerospace unfunded backlog.

Financial Condition, Liquidity and Capital Resources

Operating Activities

General Dynamics continued to generate strong cash flow from operating activities in the first half of 2005. Net cash provided by operating activities was $557 for the six-month period ended July 3, 2005, compared with $685 in the same period in 2004. Net earnings was the primary driver of the company’s strong cash flows from operations in the first half of both 2005 and 2004. In 2004, cash flows were favorably impacted by a refund of 2003 income taxes.

Free cash flow from operations for the first six months of 2005 was $462 versus $568 for the same period in 2004. Management defines free cash flow from operations as net cash provided by operating activities less capital expenditures. Management believes free cash flow from operations is a useful measure for investors, because it portrays the company’s ability to generate cash from its core businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing the company’s outstanding shares and paying dividends. The following table reconciles the free cash flow from operations with net cash provided by operating activities, as classified on the unaudited Consolidated Statement of Cash Flows:

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Six Months Ended	July 3 2005			July 4 2004
Net cash provided by operating activities	$	557		$	685
Capital expenditures		(95	)		(117	)
Free cash flow from operations	$	462		$	568
Cash flows as a percentage of net earnings:
Net cash provided by operating activities		82	%		120	%
Free cash flow from operations		68	%		100	%

With free cash flow from operations projected to approximate net earnings for the full year 2005, General Dynamics expects to continue to generate funds from operations in excess of its short- and long-term liquidity needs. Management believes that the company has adequate funds on hand and sufficient borrowing capacity to execute its financial and operating strategy.

As discussed further in Note L to the unaudited Consolidated Financial Statements, litigation on the A-12 program termination has been ongoing since 1991. If, contrary to the company’s expectations, the default termination is ultimately sustained, the company and The Boeing Company could collectively be required to repay the U.S. government as much as $1.4 billion for progress payments received for the A-12 contract, plus interest, which was approximately $1.2 billion at July 3, 2005. In this outcome, the government contends the company’s liability would be approximately $1.3 billion pretax, or approximately $700 after-tax. The company believes it has sufficient resources to pay such an obligation, if required, while still retaining ample liquidity.

Investing Activities

Investing activities provided net cash of $161 in the first half of 2005, and used cash of $137 in the same period in 2004. In the first half of 2005, the company completed the sales of several small, non-core businesses. The company received $349 in cash, net of tax payments, from these divestiture activities. The primary uses of cash in the first six months of 2005 and 2004 were capital expenditures and acquisitions.

Financing Activities

Net cash used by financing activities was $256 for the six-month period ended July 3, 2005, compared with $312 in the same period in 2004. The company’s typical financing activities include issuances and repayments of debt, payment of dividends and repurchases of common stock. In the first half of 2004, the company repaid $227 of its outstanding debt. The company made no debt payments in the first six months of 2005 and has virtually no maturing debt in the remainder of 2005.

On March 2, 2005, the company’s board of directors declared an increased regular quarterly dividend of $.40 per share – the eighth consecutive annual increase. The board had previously increased the regular quarterly dividend to $.36 per share in March 2004.

In the first six months of 2005, the company repurchased two million shares at an average price of about $102 per share. The company did not repurchase any shares during the first half of 2004. The company has approximately 2.5 million remaining shares authorized for repurchase as of July 3, 2005.

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Additional Financial Information

Environmental Matters and Other Contingencies

For a discussion of environmental matters and other contingencies, see Note L to the unaudited Consolidated Financial Statements. The company does not expect its liability, in the aggregate, with respect to these matters to have a material impact on its results of operations, financial condition or cash flows.

Application of Critical Accounting Policies

Management’s Discussion and Analysis of the company’s Financial Condition and Results of Operations is based on the company’s unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to long-term contracts and programs, goodwill and other intangible assets, income taxes, pensions and other post-retirement benefits, workers’ compensation, warranty obligations, pre-owned aircraft inventory, and contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. There were no significant changes in the company’s critical accounting policies during the second quarter of 2005.

New Accounting Standards

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004),Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123(R)). SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. SFAS 123(R) is effective in the first quarter of 2006. The company is analyzing the expected impact of adoption of this Statement and, based on available information, currently expects the adoption of SFAS 123(R) to reduce its net earnings by approximately $35 in 2006.

In March 2005, the FASB issued Interpretation No. (FIN) 47,Accounting for Conditional Asset Retirement Obligations – an Interpretation of FASB Statement No. 143. FIN 47 clarifies the definition of a conditional asset retirement obligation, as used in SFAS No. 143, as a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. The Interpretation is effective no later than December 31, 2005. The company is currently analyzing the expected impact of adoption of this Interpretation on it financial statements.

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In May 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS 154 requires retrospective application to prior period financial statements of a voluntary change in accounting principle and is effective in the first quarter of 2006. The company does not expect the adoption of SFAS 154 to have a material effect on its results of operations, financial condition or cash flows.

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GENERAL DYNAMICS CORPORATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

July 3, 2005

There were no material changes with respect to this item from the disclosure included in the company’s Annual Report on Form 10-K for the year ended December 31, 2004.

ITEM 4. CONTROLS AND PROCEDURES

The company’s management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of July 3, 2005. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of July 3, 2005, the company’s disclosure controls and procedures were effective.

There were no changes in the company’s internal controls over financial reporting that occurred during the quarter ended July 3, 2005, that have materially affected, or are reasonably likely to materially affect, the company’s internal controls over financial reporting.

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GENERAL DYNAMICS CORPORATION

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements, which include but are not limited to projections of revenues, earnings, segment performance, cash flows, contract awards, aircraft production, deliveries and backlog stability. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including, without limitation:

• General U.S. and international political and economic conditions;

• Changing priorities in the U.S. government’s defense budget (including changes in priorities in response to terrorist threats, continuing operations in Afghanistan and Iraq, and improved homeland security);

• Termination or restructuring of government contracts due to unilateral government action;

• Differences in anticipated and actual program performance, including the ability to perform under long-term fixed-price contracts within estimated costs, and performance issues with key suppliers and subcontractors;

• Changing customer demand or preferences for business aircraft, including the effects of economic conditions on the business-aircraft market;

• Potential for changing prices for energy and raw materials; and

• The status or outcome of legal and/or regulatory proceedings.

All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the company or any person acting on the company’s behalf are qualified by the cautionary statements in this section. The company does not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.

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GENERAL DYNAMICS CORPORATION

PART II - OTHER INFORMATION

July 3, 2005

ITEM 1. LEGAL PROCEEDINGS

For information relating to legal proceedings, see Note L to the unaudited Consolidated Financial Statements contained in Part I, Item 1 of this quarterly report on Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) The following table provides information about purchases made during the quarter ended July 3, 2005, of equity securities that are registered pursuant to Section 12 of the Exchange Act:

Issuer Purchases of Equity Securities

	a	b		c	d
Period	Total Number of Shares Purchased*	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Program
4/04/05 - 5/01/05	911,500	$	104.45	3,406,900	2,593,100
5/02/05 - 5/29/05	45,700		104.85	3,452,600	2,547,400
5/30/05 - 7/03/05	—		—	3,452,600	2,547,400
Total	957,200	$	104.46	3,452,600	2,547,400

* On February 5, 2003, the company’s board of directors authorized management to repurchase up to 6 million shares. The company has repurchased an aggregate of 3,452,600 shares of common stock in the open market pursuant to this repurchase program. Unless terminated earlier by resolution of the board of directors, the program will expire when an aggregate of 6 million shares have been repurchased.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) The Annual Meeting of Shareholders of the company, for which proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, was held on May 4, 2005.

(b) In an uncontested election, each of the following nominees was elected to the Board of Directors according to the following votes:

Matter	Votes Cast
	For	Withheld
Election of Directors:
N.D. Chabraja	137,644,496	42,726,074
J.S. Crown	134,097,752	46,272,818
L. Crown	137,507,046	42,863,524
W.P. Fricks	138,243,333	42,127,237
C.H. Goodman	137,884,518	42,486,052
J.L. Johnson	138,256,075	42,114,495
G.A. Joulwan	138,204,688	42,165,882
P.G. Kaminski	138,249,672	42,120,898
J.M. Keane	139,065,339	41,305,231
L.L. Lyles	138,262,459	42,108,111
C.E. Mundy, Jr.	138,239,157	42,131,413
R. Walmsley	139,054,878	41,315,692

(c) The results of voting on Proposals 2 through 4 (as numbered in the company’s 2005 Proxy Statement) were as follows:

Proposal 2. Shareholders approved KPMG LLP as the company’s independent auditors for 2005.

	For	Against	Abstain	Broker Non-votes
Approval of KPMG as Independent Auditors	178,669,975	530,860	1,169,735	—

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Proposal 3. A shareholder proposal recommending that the Board of Directors adopt a policy requiring a shareholder vote on the adoption of future severance agreements for senior executives did not receive a majority of the votes cast.

	For	Against	Abstain	Broker Non-votes
Shareholder Proposal with regard to Future Severance Agreements	67,722,756	95,547,382	1,623,943	15,476,489

Proposal 4. A shareholder proposal requesting that the company provide its shareholders a comprehensive report of its foreign sales of weapons-related products and services did not receive a majority of the votes cast.

	For	Against	Abstain	Broker Non-votes
Shareholder Proposal with regard to Foreign Military Sales	9,326,137	140,289,969	15,277,975	15,476,489

ITEM 6. EXHIBITS

Exhibits
31.1	Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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 hereunto duly authorized.

GENERAL DYNAMICS CORPORATION
by	/s/ John W. Schwartz
	John W. Schwartz
	Vice President and Controller
	(Authorized Officer and Chief Accounting Officer)

Dated: August 4, 2005

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