FORM 10-Q

For the quarterly period ended October 3, 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

(Exact name of registrant as specified in its charter)

2941 Fairview Park Drive
Suite 100
Falls Church, Virginia		22042-4153
Address of principal executive offices		Zip code

(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            .

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

     200,287,628 shares of the registrant’s common stock, $1 par value per share, were outstanding at October 31, 2004.

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 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)

(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- and nine-month periods ended October 3, 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- and nine-month periods ended October 3, 2004, and September 28, 2003. Certain prior-year amounts have been reclassified to conform to the current-year presentation.

(B)

Acquisitions, Intangible Assets and Goodwill, Net

     During the first nine months of 2004, the company completed the following acquisitions for a total cost of approximately $500, which was paid in cash:

Information Systems and Technology

	•		TriPoint Global Communications, Inc., (TriPoint), of Newton, North Carolina, on September 17. TriPoint provides ground-based satellite and wireless communication equipment and integration services for video, voice and data applications.
	•		Spectrum Astro, Inc., (Spectrum Astro), of Gilbert, Arizona, on July 9. Spectrum Astro manufactures and integrates space systems, satellites and ground-support equipment.

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

Information Systems and Technology

	•		Digital System Resources, Inc., (DSR) of Fairfax, Virginia, on September 10. DSR provides surveillance and combat systems for submarines and surface ships.
	•		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.

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•

Creative Technology Incorporated (CTI) of Herndon, Virginia, on March 31. CTI supports the intelligence community and the Department of Defense by delivering systems and network engineering, integration, software development, and operations and technical consulting.

Combat Systems

	•		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.
	•		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.
	•		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.

     The operating results of these businesses are 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 Spectrum Astro and TriPoint acquisitions are still preliminary at October 3, 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 in the fourth quarter of 2004 for Spectrum Astro and the first quarter of 2005 for TriPoint.

     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 and are amortized over periods ranging from 5 to 21 years.

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     Amortization expense was $24 and $72 for the three- and nine-month periods ended October 3, 2004, and $27 and $47 for the three- and nine-month periods ended September 28, 2003. The company expects to record annual amortization expense over the next five years as follows:

     The changes in the carrying amount of goodwill by business group for the nine months ended October 3, 2004, were as follows:

(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.

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     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:

     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:

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(E)

Earnings Per Share

     Basic earnings per share for all periods presented is computed 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):

(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 $11 as of October 3, 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-

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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: