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 co