UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended April 4, 2004

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

(703) 876-3000

3190 Fairview Park Drive
Falls Church, Virginia 22042

     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 [  ].

     199,053,358 shares of the registrant’s common stock, $1 par value per share, were outstanding at May 2, 2004.

GENERAL DYNAMICS CORPORATION

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GENERAL DYNAMICS CORPORATION

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

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GENERAL DYNAMICS CORPORATION

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

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GENERAL DYNAMICS CORPORATION

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

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GENERAL DYNAMICS CORPORATION

(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 accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. Operating results for the three-month period ended April 4, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 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, 2003.

     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-month periods ended April 4, 2004, and March 30, 2003. Certain prior-year amounts have been reclassified to conform to the current-year presentation.

(B)

Acquisitions, Intangible Assets and Goodwill, Net

     During 2003, the company completed the following acquisitions for a total cost of approximately $3 billion, which was paid in cash:

•		General Motors Defense (GM Defense) of London, Ontario, a business unit of General Motors Corporation, on March 1. GM Defense manufactures wheeled armored vehicles and turrets.
•		Creative Technology Incorporated (CTI) of Herndon, Virginia, on March 31. CTI supports the intelligence community and Department of Defense by delivering systems and network engineering, integration, software development and operations and technical consulting.
•		Veridian Corporation (Veridian) of Arlington, Virginia, on August 11. Veridian provides the Department of Defense, the Department of Homeland Security and the intelligence community with network security and enterprise protection; intelligence, surveillance and reconnaissance systems development and integration; decision support; information systems development and integration; chemical, biological and nuclear detection capabilities; network and enterprise management services; and large-scale systems engineering.
•		Intercontinental Manufacturing Company (IMCO) of Garland, Texas, a division of Datron, Inc., on September 4. IMCO develops and manufactures aircraft bomb bodies for the U.S. armed services.
•		Digital System Resources, Inc., (DSR) of Fairfax, Virginia, on September 10. DSR is a provider of surveillance and combat systems for submarines and surface ships.
•		Steyr Daimler Puch Spezialfahrzeug Aktiengesellschaft & Company KG (Steyr) of Vienna, Austria, on October 2. Steyr develops and manufactures armored combat vehicles, including the Pandur family of wheeled combat vehicles and the Ulan tracked infantry fighting vehicle.

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     The operating results of these businesses have been included with those of the company from their respective closing dates. The purchase prices of these 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 Steyr acquisition are still preliminary at April 4, 2004. The company is awaiting the completion of the appraisals of assets acquired, and the identification and valuation of intangible assets acquired. The company expects these analyses to be completed during the second quarter of 2004.

     In March 2004, the company agreed on terms of a cash offer to acquire Alvis plc. The offer is valued at approximately $550. The boards of directors of both companies have approved the transaction, which is subject to regulatory approval and the tender of a majority of the outstanding shares. The company expects the transaction to be completed in the second half of 2004. Alvis manufactures main battle tanks, armored infantry vehicles, armored personnel carriers and light armored vehicles in the United Kingdom, Scandinavia and South Africa.

     In March 2004, the company entered into a definitive agreement to acquire Spectrum Astro, Inc., of Gilbert, Arizona, a privately held space systems integrator for the U.S. government. Spectrum Astro’s capabilities include manufacturing and integration of spacecraft subsystem hardware, software and ground-support equipment. The acquisition is subject to regulatory approval and is expected to close in the second quarter of 2004.

     Intangible assets consisted of the following:

     The company amortizes contract and program intangible assets on a straight-line basis over periods ranging from 8 to 40 years. Other intangible assets consist primarily of aircraft product design, customer lists, software and licenses, which are amortized over periods ranging from 5 to 21 years.

     Amortization expense was $23 for the three-month period ended April 4, 2004, and $10 for the three-month period ended March 30, 2003. The company expects to record annual amortization expense over the next five years as follows:

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     The changes in the carrying amount of goodwill by business group for the three months ended April 4, 2004, were as follows:

(a)		Includes adjustments to preliminary assignment of fair value to net assets acquired.
(b)		Consists of adjustments for currency translation.

(C)

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.

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

(a)

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

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     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.

(D)

Comprehensive Income

     Comprehensive income consisted of the following:

(E)

Earnings Per Share

     Basic earnings per share for all periods presented is computed using net earnings for the respective periods 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):

(a)

Excludes the following outstanding options to purchase shares of common stock because the options’ exercise price was greater than the average market price for the shares: three months ended April 4, 2004: 2,108; three months ended March 30, 2003: 4,495.

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     (F) Contracts in Process

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

     Contract costs include production costs and related overhead, such as general and administrative expenses, as well as contract recoveries for such matters as contract changes, negotiated settlements and claims for unanticipated contract costs, which totaled $20 as of April 4, 2004, and $21 as of December 31, 2003. The company records revenue associated with these matters as either income or as an offset against a potential loss only when recovery can be reliably estimated and realization is probable. Other contract costs represent amounts required to be 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 both existing backlog and probable follow-on contracts. This business base includes numerous contracts for which the company is the sole source or one of two suppliers on 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.

(G)

Inventories

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

(a)

Consists primarily of coal and aggregates.

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(H)

Debt

     Debt consisted of the following:

     As of April 4, 2004, the company had outstanding $3.1 billion aggregate principal amount of fixed-rate notes, which are registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the Securities Act). The fixed-rate 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.

     As of April 4, 2004, the company had outstanding $500 aggregate principal amount of three-year floating-rate notes due September 1, 2004, which are registered under the Securities Act. 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 1.37 percent for the three months ended April 4, 2004.

     The fixed-rate notes and the floating-rate notes are fully and unconditionally guaranteed by certain of the company’s 100-percent-owned subsidiaries. The notes are redeemable at the company’s option in whole or in part at any time 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 and any applicable make-whole amounts. See Note N for condensed consolidating financial statements.

     As of April 4, 2004, the company had no commercial paper outstanding. The company has $2 billion in bank credit facilities that serve as back-up liquidity facilities for its commercial paper issuances. These credit facilities consist of a $1 billion 364-day facility expiring in July 2004, which can be extended for one year at the company’s option when drawn, and a $1 billion multiyear facility expiring in July 2006. The company’s commercial paper issuances and the bank credit facilities are guaranteed by certain of the company’s 100-percent-owned subsidiaries. Additionally, certain international subsidiaries have available local bank credit facilities of approximately $200.

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     The senior notes are privately placed U.S.-dollar-denominated notes issued 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, that locked in the U.S.-dollar equivalent interest payments and principal repayment of these notes. As of April 4, 2004, the fair value of this currency swap was a $16 liability. The senior notes are backed by a parent company guarantee.

     The company assumed the term debt in connection with its acquisition of Primex Technologies, Inc., in 2001. Sinking fund payments of $5 are required in December of each of the years 2004 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 April 4, 2004, other debt consisted primarily of $39 related to various debt facilities assumed in the acquisition of Steyr and a $15 note payable to a Spanish insurance company. Annual principal payments on the note payable are $13 in 2004 and $1 in 2005 and 2006. Interest is payable each December at a rate of 3.85 percent annually. The debt assumed with the acquisition of Steyr is scheduled to be extinguished during the second quarter of 2004.

     Certain of the company’s financing arrangements contain a number of customary covenants and restrictions, including a minimum net worth threshold. The company was in compliance with all material covenants as of April 4, 2004.

(I)

Liabilities

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

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(J)

Income Taxes

     The company had a net deferred tax liability of $174 at April 4, 2004, and $0 at December 31, 2003. The current portion of the net deferred tax asset was $314 at April 4, 2004, and $333 at December 31, 2003, and is included in other current assets on the Consolidated Balance Sheet.

     In the first quarter of 2003, the company settled various outstanding state tax disputes, resulting in a net non-cash benefit of $15, or $.08 per share. The Internal Revenue Service (IRS) has commenced its examination of the company’s 1999 through 2002 income tax returns. 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.

     On November 27, 2001, the company filed a refund suit in the U.S. Court of Federal Claims, titled General Dynamics v. United States, for the years 1991 to 1993. The company anticipates that the years 1994 to 1998 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. The company has recognized no income from this matter.

(K)

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; 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 $1.4 billion 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.

     On December 19, 1995, the U.S. Court of Federal Claims 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. Court of Appeals for the Federal Circuit 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 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.

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     On November 30, 2001, the company filed its notice of appeal, and on January 9, 2003, the appeal was argued before a three-judge panel of the Court of Appeals. On March 17, 2003, the Court of Appeals vacated the Trial Court’s judgment and remanded the case to the Trial Court for further proceedings. The Court of Appeals found that the Trial Court 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 Court of Appeals 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. This is a determination the company does not believe is supported by the evidence. A government petition for rehearing in the Court of Appeals was denied on August 27, 2003, and the case was again remanded to the Trial Court for further proceedings.

     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 $1.1 billion at April 4, 2004. This would result in a liability for the company of approximately $1.2 billion pretax, $707 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 Services, Inc. (FACS), a Maryland corporation, served the company with a complaint it filed on January 30, 2003, in the United States District Court for the District of Maryland. On November 18, 2003, FACS filed an amended complaint alleging that the company breached contracts among the company, FACS and FACS’ then-corporate parent, Final Analysis, Inc., a Maryland corporation currently a debtor in the Bankruptcy Court for the District of Maryland. It also alleges tort claims for fraud, defamation and tortious interference with contractual and business relations. The amended complaint alleges monetary damages in excess of $500, plus punitive damages. On December 3, 2003 and March 22, 2004, the company filed its responses to the amended complaint. The company denies liability to FACS and asserts counterclaims. A trial date is set for October 26, 2004. The company believes the outcome of this matter will not have a material impact on its results of operations, financial condition or cash flows.

     Glen Cove. On August 8, 2003, a subsidiary of the company received a grand jury subpoena issued by the United States Attorney’s Office for the Eastern District of New York relating to its Glen Cove, New York operations for the period from January 1, 2000, to August 8, 2003. Such operations were acquired by the company in June, 2002. The company conducted an internal investigation of the Glen Cove operations through outside counsel and intends to fully cooperate with the government. As a result of its investigation, management made changes to the Glen Cove operations, and subsequently announced the facility’s closure effective year-end 2004. While the government investigation will continue for some additional period of time, 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 the company 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.

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     Environmental

     The company 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 responses 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 Environmental Protection Agency 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 known environmental condition, or Superfund or other multi-party sites at which the company is a PRP, is not material to its results of operations, financial condition or cash flows. Moreover, based on all known facts and analyses, the company does not 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.

     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 totaling $983 at April 4, 2004. The company, from time to time in the ordinary course of business, guarantees the payment or performance obligations of its subsidiaries arising under certain of their 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 from time to time 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 effect on its results of operations, financial condition or cash flows.

     On June 5, 2001, the company acquired substantially all of the assets of Galaxy Aerospace Company LP. The selling parties may receive additional payments, up to a maximum of approximately $300 through 2006, contingent on the achievement of specific revenue targets.

     As of April 4, 2004, in connection with orders for seven Gulfstream G550 and two Gulfstream G200 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 (principally Gulfstream 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 2005 and totaled $201 as of April 4, 2004, down from $229 at December 31, 2003. Beyond these commitments, additional aircraft trade-ins are likely to be accepted throughout the year in connection with future orders for new aircraft.

     The company provides product warranties to its customers associated with certain product sales, particularly business aircraft. The company has also offered, on a limited basis, a five-year maintenance program that supplements the standard product warranties on Gulfstream G200, Gulfstream G400 and Gulfstream G550 aircraft models. The company records estimated warranty costs in the period in which

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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.

     The changes in the carrying amount of warranty liabilities for the three-month period ended April 4, 2004, were as follows:

(L)

Retirement Plans

     The company provides defined benefit pension and other postretirement benefits to certain eligible employees.

     Net periodic pension and other postretirement benefit costs for the three-month periods ended April 4, 2004, and March 30, 2003, consisted of the following:

     Pension Benefits. The company’s 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 Postretirement Benefits. The company’s contractual arrangements with the U.S. government provide for the recovery of contributions to a VEBA and, for non-funded plans, recovery of claims paid. The net periodic postretirement 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.

     On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a Medicare prescription-drug benefit and a

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federal subsidy to sponsors of retiree health care plans. The FASB issued Staff Position (FSP) No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” in January 2004. FSP 106-1 permits a sponsor of a postretirement health care plan to make a one-time election to defer accounting for the effects of the Act until final authoritative guidance on the accounting for the federal subsidy is issued. The company has made the election to defer recognition of the effects of the Act.

(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 mission-critical information systems and technologies; land and expeditionary combat systems, 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, 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:

(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, deferred taxes, real estate held for development and a portion of the net prepaid pension cost related to the company’s commercial pension plans.

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(N)

Condensed Consolidating Financial Statements

     The fixed-rate notes and the floating-rate notes described in Note H 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 April 4, 2004, and December 31, 2003, for the balance sheet, as well as the statements of earnings and cash flows for the three-month periods ended April 4, 2004, and March 30, 2003.

Condensed Consolidating Statement of Earnings

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Condensed Consolidating Balance Sheet

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Condensed Consolidating Balance Sheet

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Condensed Consolidating Statement of Cash Flows