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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)

For the quarterly period ended June 30, 2002

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)

(703) 876-3000

     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 ______.

201,993,929 shares of the registrant’s common stock, $1 par value per share, were outstanding at July 28, 2002.

GENERAL DYNAMICS CORPORATION

INDEX

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GENERAL DYNAMICS CORPORATION
PART I – FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(Dollars in millions)

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)

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)

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)

The accompanying Notes to Unaudited 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)

(A)  Basis of Preparation

     The term “company” 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 generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Operating results for the three- and six-month periods ended June 30, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2001.

     In the opinion of the company, the unaudited consolidated financial statements contain all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three- and six-month periods ended June 30, 2002 and July 1, 2001.

(B)  New Accounting Standards

     The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146 (SFAS 146), “Accounting for Costs Associated with Exit or Disposal Activities” in June 2002. SFAS 146 nullifies previous guidance on this issue and requires a liability for a cost associated with an exit or disposal activity to be recognized and measured at its fair value in the period in which the liability is incurred. The company is required to adopt the provisions of this statement for exit or disposal activities initiated after December 31, 2002. The company does not expect the adoption of this standard to have a material impact on the company’s results of operations, financial condition or cash flows.

     The FASB issued SFAS 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” in April 2002. SFAS 145 clarifies guidance related to the reporting of gains and losses from extinguishment of debt and resolves inconsistencies related to the required accounting treatment of certain lease modifications. The provisions of this statement relating to extinguishment of debt are effective for financial statements issued for fiscal years beginning after May 15, 2002. The provisions of this statement relating to lease modifications are effective for transactions occurring after May 15, 2002. The company does not expect the adoption of this standard to have a material impact on the company’s results of operations, financial condition or cash flows.

     The FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in October 2001. SFAS 144 requires that long-lived assets to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell, including discontinued operations. The statement also broadens the definition of discontinued operations. The company adopted SFAS 144 on January 1, 2002. The adoption of this standard did not have a material impact on the company’s results of operations, financial condition or cash flows.

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     The FASB issued SFAS 143, “Accounting for Asset Retirement Obligations,” in August 2001. SFAS 143 requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred, and capitalize the cost by increasing the carrying amount of the related long-lived asset. The company is required to adopt SFAS 143 on January 1, 2003. The company does not expect the adoption of this standard to have a material impact on the company’s results of operations, financial condition or cash flows.

(C)  Comprehensive Income

     Comprehensive income was $272 and $214 for the three-month periods and $495 and $471 for the six-month periods ended June 30, 2002 and July 1, 2001, respectively. Comprehensive income consists primarily of net earnings ($263 and $227 for the three-month periods and $492 and $467 for the six-month periods ended June 30, 2002 and July 1, 2001, respectively), foreign currency translation adjustments and fair value adjustments for both a currency swap (see Note H) and available-for-sale securities.

(D)  Earnings Per Share

     Basic and diluted weighted-average shares outstanding were as follows (in thousands) for the three- and six-month periods ended June 30, 2002 and July 1, 2001:

(E)  Contracts in Process

     Contracts in process primarily represent costs and accrued profit related to defense contracts and programs and consisted of the following:

     Contract costs are net of advances and progress payments and include production costs and related overhead, such as general and administrative expenses. Other contract costs primarily represent amounts required to be recorded under accounting principles generally accepted in the United States 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. Recovery of these costs under contracts is considered probable based primarily on the costs priced in the company’s backlog, the majority of which relates to contracts for which the company is the sole source or one of two suppliers on

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long-term defense programs. If the level of 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.

(F)  Inventories

     Inventories consisted primarily of commercial aircraft components, as follows:

     Other inventories consisted primarily of coal and aggregates, which are stated at the lower of average cost or estimated net realizable value.

(G)  Intangible Assets and Goodwill, Net

     The company adopted SFAS 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. The provisions of SFAS 142 eliminate amortization of goodwill and identifiable intangible assets with indefinite lives. Intangible assets with a finite life will continue to be amortized over their useful life. The standard also requires an impairment assessment at least annually by applying a fair-value-based test. The company completed the required transitional goodwill impairment test during the first quarter of 2002, and no impairment of goodwill was identified.

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     The following table presents comparative earnings data as if SFAS 142 had been adopted January 1, 2001:

     The purchase prices of acquired businesses have been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess recorded as goodwill. Certain of the estimates related to the company’s acquisition of Advanced Technical Products, Inc. on June 14, 2002 are still preliminary at June 30, 2002. The company is awaiting the finalization of the appraisal of assets acquired and the identification and valuation of intangible assets acquired. The company expects this analysis to be completed during the fourth quarter of 2002.

     Upon adoption of SFAS 142, the company reclassified certain previously recognized identifiable intangible assets to goodwill in accordance with the definitions provided in the statement. The changes in the carrying amount of goodwill by business group for the six months ended June 30, 2002, were as follows:

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

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     Intangible assets consisted of the following:

     Contract and program intangibles are amortized on a straight-line basis over periods ranging from 8 to 40 years. Other intangible assets consisted primarily of aircraft product design, customer lists, software and licenses, which are amortized over periods ranging from 3 to 21 years.

     Amortization expense was $10 and $17 for the three- and six-month periods ended June 30, 2002 and $23 and $47 for the three- and six-month periods ended and July 1, 2001, respectively. The company expects to record annual amortization expense of approximately $34 in each of the next five years related to these intangible assets.

(H)  Debt

     Debt (excluding finance operations) consisted of the following:

     As of June 30, 2002, the company had $1,199 par value discounted commercial paper outstanding at an average yield of approximately 2.01 percent with an average term of approximately 75 days. The company’s lines of credit totaling $2,000, split evenly between a 364-day and a 5-year term facility, back the commercial paper program.

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     As of June 30, 2002, the company had outstanding $500 of three-year floating rate notes due September 1, 2004, that are registered under the Securities Act of 1933, as amended. Interest on the notes resets quarterly at three-month LIBOR plus 0.22 percent, and is payable each March, June, September and December. The notes had an average interest rate of 2.13 percent for the three months ended June 30, 2002. The notes are redeemable at the company’s option in whole or in part at any time after September 1, 2002, and prior to their maturity at 100 percent of the principal amount of the notes to be redeemed plus any accrued but unpaid interest on the date the notes are redeemed. These floating rate notes are guaranteed by certain of the company’s 100-percent owned subsidiaries. See Note N for condensed consolidating financial statements.

     The senior notes are privately placed U.S. dollar denominated notes held by one of the company’s Canadian subsidiaries. Interest is payable semi-annually at an annual rate of 6.32 percent, until maturity in September 2008. The subsidiary has a currency swap, which fixes its foreign currency variability on both the principal and interest components of these notes. As of June 30, 2002, the fair value of this currency swap was an $8 asset, which offset the effect of changes in the currency exchange rate on the related debt.

     The term debt was assumed in connection with the company’s acquisition of Primex Technologies, Inc. Sinking fund payments of $5 are required in December of each of the years 2002 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.

     The industrial development bonds were fully retired on April 12, 2002.

     As of June 30, 2002, other consisted of $21 drawn under a $78 line of credit that is scheduled for renewal during the third quarter of 2002, an $18 note payable to a Spanish government entity and three capital lease arrangements totaling $15.

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(I)  Liabilities

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

(J)  Income Taxes

     The company had a net deferred tax asset of $90 and $143 at June 30, 2002 and December 31, 2001, respectively. The current portion of the net deferred tax asset was $333 and $331 at June 30, 2002 and December 31, 2001, respectively, and was included in other current assets on the Consolidated Balance Sheet. Based on the level of projected earnings and current backlog, no material valuation allowance was required for the company’s deferred tax assets at June 30, 2002 and December 31, 2001.

     During the first quarter of 2001, the company reduced its liabilities for tax contingencies. The company recognized a non-cash benefit of $28, or $.14 per share, as a result of this adjustment.

     The Internal Revenue Service (IRS) has completed its examination of the company’s 1994 and 1995 income tax returns. The company has protested certain issues raised during the 1994 and 1995 examination to the IRS Appeals Division. The IRS has commenced its examination of the company’s 1996 through 1998 income tax returns. On November 27, 2001, the company filed a refund suit, titled General Dynamics v. United States, for the years 1991 to 1993 in the U.S. Court of Federal Claims. 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 litigation is expected to take several years to resolve. The company has recognized no income from this matter.

     The company has recorded liabilities for tax contingencies for open years. Resolution of tax matters for these years is not expected to have a material impact on the company’s results of operations, financial condition or cash flows.

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(K)  Commitments and Contingencies

     Litigation

     The company is subject to litigation and other legal proceedings arising out of the ordinary course of its business or arising under provisions relating to the protection of the environment. Claims made by and against the company regarding the development of the Navy’s A-12 aircraft are discussed in Note L.

     On May 7, 1999, a whistleblower suit was filed under seal against the company in the United States Bankruptcy Court for the District of South Carolina. The plaintiff alleges that the company violated the False Claims Act by omitting certain facts when it testified before Congress in 1995 concerning funding for the third Seawolf-attack submarine. The plaintiff seeks damages in the amount of the contract award for the third, Seawolf, subject to trebling under the False Claims Act. The Department of Justice declined to intervene in the case on the plaintiff’s behalf and the suit was unsealed in December 2000. The complaint has been removed to the United States District Court for the District of South Carolina. The Court directed discovery on the issue of whether the alleged omissions by the company were material to the government’s decision to award the third Seawolf to the company. The parties filed motions on this issue on March 15, 2002. A trial date has been set for November 4, 2002. The company believes that it has substantial legal and factual arguments that will result in either the dismissal of the case or a judgment in the company’s favor.

     Following UAL Corporation’s announcement on March 22, 2002 that it was closing its Avolar subsidiary, which was to engage in a fractional ownership program, the company terminated its agreements with Avolar. The company retained deposits totaling $50 related to this transaction. On May 28, 2002, United Biz Jet Holdings, Inc., a subsidiary of UAL Corporation, filed a claim against the company in the Circuit Court of Cook County, Illinois seeking the return of the Avolar deposits. The company believes that it has substantial defenses against this claim and that the outcome of this matter will not have a material impact on the company’s results of operations, financial condition or cash flows.

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

     Environmental

     The company’s operations are 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 responses at some of the company’s current and former facilities, and at third-party sites not owned by the company but where the company has been designated a “Potentially Responsible Party” (PRP) by the EPA or a state environmental agency. The company is also involved in the investigation, cleanup and remediation of various conditions at current and former company sites where the release of hazardous materials may have occurred. 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. Based on a site by site review and analyses by outside counsel and environmental consultants, the company believes that its liability at any individual site, or in the aggregate, arising from such sites at which there is a

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known environmental condition, or Superfund or other multi-party sites at which the company is a PRP is not material to the company’s results of operations, financial condition or cash flows. Moreover, based on all known facts and expert analyses, the company does not believe that the range of additional loss beyond what has been recorded that is reasonably possible would be material to the company’s results of operations, financial condition or cash flows.

     Other

     In the ordinary course of business, the company has entered into letters of credit and other similar arrangements with financial institutions and insurance carriers aggregating approximately $735 at June 30, 2002. The company, from time to time in the ordinary course of business, guarantees the payment or performance obligations of its subsidiaries arising under contracts entered into by the subsidiaries. The company is aware of no event of default that would require it to satisfy these guarantees.

     As of June 30, 2002, in connection with orders for 16 Gulfstream V-SPs, two Gulfstream Vs, two Gulfstream GIV-SPs and two Gulfstream 200 aircraft in firm contracts backlog, the company had offered customers trade-in options, which may or may not be exercised by the customers. Under these options, if exercised, the company will accept trade-in aircraft, primarily Gulfstream IVs/IV-SPs and Gulfstream Vs, at a guaranteed minimum trade-in price as partial consideration of the new aircraft transaction. Any excess of the trade-in price above the fair market value would be treated as a reduction of revenue upon recording of the new aircraft sales transaction. These option commitments last through 2004 and total $648 as of June 30, 2002.

(L)  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 new 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, each 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 $1,352 in unliquidated progress payments, but agreed to defer collection of the 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.

     The contractors filed a complaint on June 7, 1991 in the U.S. Court of Federal Claims contesting the default termination. In December 1994, the court issued an order vacating the termination for default. On December 19, 1995, following further proceedings, the 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 $1,200 plus interest.

     On July 1, 1999, the Court of Appeals found that the Trial Court erred in converting the termination for default to a termination for convenience without first determining whether a default existed. The Court of Appeals remanded the case for determination of whether the government’s default termination was justified. On August 31, 2001, following the trial on remand, the Trial Court issued an opinion upholding 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 one, schedule. With respect to the government’s schedule arguments, 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

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provided in the unilateral schedule, the Trial Court upheld the default termination and entered judgment for the government.

     The contractors filed post-trial motions seeking reconsideration by the Trial Court of its opinion and judgment. On October 4, 2001, the Trial Court denied the contractors’ post-trial motions. On November 30, 2001, the company filed its notice of appeal and during 2002, the contractors and the Navy filed their respective appellate briefs with the Court of Appeals.

     The company continues to believe strongly in the merits of its case. The company believes that in concluding to the contrary on remand, the Trial Court applied incorrect legal standards and otherwise erred as a matter of law. The company believes that it has substantial arguments on appeal to persuade the Court of Appeals to reverse the Trial Court’s judgment.

     If, contrary to the company’s expectations, the default termination is sustained on appeal, the contractors could be required to repay the government as much as $1,352 for progress payments received for the A-12 contract plus interest (approximately $1,010 at June 30, 2002). In this outcome, the government contends the company’s liability would be approximately $1.2 billion pretax, $640 after-tax to be taken as a charge against discontinued operations. The company has sufficient resources to pay such an obligation if required.

(M)  Business Group Information

     The company 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 information and communications technology, land and amphibious combat systems, naval and commercial shipbuilding, and business aviation, respectively. The company measures each group’s profit based on operating earnings. As a result, net interest, other income and expense items and income taxes have not been allocated to the company’s business groups.

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

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*     Other includes the results of the company’s coal, aggregates and finance operations, as well as the operating results of the company’s commercial pension plans.

**   Corporate identifiable assets include cash and equivalents from domestic operations, deferred taxes, real estate held for development and net prepaid pension cost related to the company’s commercial pension plans.

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(N)  Condensed Consolidating Financial Statements

     The floating rate notes 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 June 30, 2002 and December 31, 2001 for the balance sheet, as well as the statements of earnings and cash flows for the three and six-month periods ended June 30, 2002 and July 1, 2001.

Condensed Consolidating Statement of Earnings