GENERAL DYNAMICS CORP (Form: 10-K405, Received: 03/29/2002 15:26:36)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

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

For the transition period from to

Commission file number 1-3671

GENERAL DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)


Delaware State or Other Jurisdiction of Incorporation or Organization		13-1673581 I.R.S. Employer Identification No.

3190 Fairview Park Drive, Falls Church, Virginia Address of principal executive offices		22042-4523 Zip Code

Registrant’s telephone number, including area code (703) 876-3000

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class Common Stock, Par Value $1.00 Per Share		Name of Each Exchange on Which Registered New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. X

The aggregate market value of the voting common equity held by nonaffiliates of the registrant was $16,531,716,743 at March 7, 2002.

201,285,731 shares of the registrant’s common stock were outstanding at March 7, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:

Parts I and II incorporate information from certain portions of the registrant’s Annual Report to security holders for the fiscal year ended December 31, 2001 (the 2001 Annual Report).

Part III incorporates information from certain portions of the registrant’s definitive proxy statement for the 2002 annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year.

Certain sections of this Annual Report on Form 10-K contain forward-looking statements, which 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: the company’s successful execution of internal performance plans; general U.S. and international political and economic conditions; changing priorities or reductions in the U.S. government defense budget; termination of government contracts due to unilateral government action; changing customer demand or preferences for business aircraft; reliance on a large fleet customer for a significant portion of the firm aircraft contracts backlog and the majority of the options backlog; performance issues with key suppliers and subcontractors; the status or outcome of legal and/or regulatory proceedings; and the timing and occurrence (or non-occurrence) of circumstances beyond the company’s control. 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.

PART I

ITEM 1. BUSINESS

Business Overview

The company is a Delaware corporation formed in 1952 as successor to the Electric Boat Company. The company’s businesses include information and communications technology, land and amphibious combat systems, naval and commercial shipbuilding, and business aviation. These are high technology businesses that use design, manufacturing and program management expertise together with advanced technology and the integration of complex systems as part of their everyday operations.

In the mid 1990’s, the company began a series of acquisitions that expanded its core businesses in the defense industry, broadened its expertise in systems integration and C4ISR (command and control, communications, computers, intelligence, surveillance and reconnaissance) systems, and added business aviation products and services to the company’s offerings. Since January 1, 1997, the company has acquired 21 businesses, including five acquisitions during 2001. In late January, the company acquired Primex Technologies, Inc., renamed Ordnance and Tactical Systems, expanding the company’s market position in ordnance manufacturing to include medium- and large- caliber ammunition. This acquisition also expanded the company’s portfolio in what it believes to be the high growth areas of missile and precision-guided munitions through existing subcontract relationships. In mid-February, the company acquired four aircraft service and maintenance facilities from BBA North America. These operations now conduct business as General Dynamics Aviation Services, and are located in Dallas, Las Vegas, Minneapolis and West Palm Beach. In early June, the company acquired substantially all of the assets of Galaxy Aerospace Company LP. This acquisition broadened the Gulfstream product line with the mid-size Gulfstream 100 and the super mid-size Gulfstream 200 – creating market-entry, add-on and move-up opportunities for a wider range of customers. In late July, the company acquired Spain’s leading defense manufacturer, Empresa Nacional Santa Bárbara de Industrias Militares, S.A., of Madrid, Spain, and Santa Bárbara Blindados, S.A., of Seville. The new combined entity, renamed Santa Bárbara Sistemas, S.A., produces combat vehicles and munitions and is expected to enhance the company’s export abilities into Europe, North Africa and South America. Also, at the end of September, the company acquired Integrated Information Systems Group from Motorola, Inc. Renamed Decision Systems, this business provides technologies, products and systems that strengthen the company’s position in what management believes to be rapidly growing information assurance, communications and situational awareness markets here and abroad.

The company operates in four primary business groups: Information Systems and Technology, Combat Systems, Marine Systems, and Aerospace. The company also owns certain commercial operations, which are identified for reporting purposes as Other. Information on revenues, operating profit and identifiable assets attributable to each of the company’s reportable business groups is included in Note S to the Consolidated Financial Statements on page 46 of the 2001 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference. A description of the company’s products and services by business group, competition and other related information is provided below.

Industry Overview

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. Historically, a significant portion of the company’s sales has been to the U.S. government and its agencies. As a result, funding for the company’s products and services is generally linked to trends in U.S. and international defense spending.

Following a period of budget decreases in the post-Cold War era, the U.S. defense budget, as appropriated by Congress, has increased in recent years. The Bush Administration submitted to Congress a $328 billion fiscal 2002 defense budget that reflected an 11 percent increase over the fiscal 2001 defense budget submitted by the Clinton Administration, representing the first double-digit increase since Operation Desert Storm. The 2003 U.S. defense budget proposal President Bush sent to Congress calls for increased procurement spending of $68.7 billion in 2003, reaching $98.9 billion by 2007. The company expects that the U.S. defense budgets for research, development, test and evaluation, and procurement, both of which fund the company’s programs, will grow proportionately with the overall level of defense spending. While the ultimate distribution of the defense budget remains uncertain, the company believes it is well positioned to benefit from the increase in defense spending.

The company expects to see long-term growth in the business aviation sector as well. The addition of the mid- and super mid-size aircraft should allow the company to increase its sales in the business aviation market. The company also expects to increase its penetration of the special mission aircraft markets for U.S. and international defense forces. The future success of the company’s commercial aircraft business is dependent on a number of factors, some of which are beyond the company’s control. These factors include general economic conditions, price and demand pressures in the market, the company’s ability to continue to achieve efficiencies necessary to realize expected margins, and the company’s ability to meet planned timetables for the development, certification and delivery of new product offerings.

Products and Services

INFORMATION SYSTEMS AND TECHNOLOGY

The Information Systems and Technology group provides defense and commercial customers with infrastructure and systems integration skills required to process, communicate and manage information effectively. The group has market-leading positions in the design, deployment and maintenance of wireline and wireless voice and data networks; C4ISR systems; telecommunications system security; encryption; fiber optics; and lifecycle management and support. The group’s collective expertise in systems design and in key platform subsystems helps the company’s Combat Systems, Marine Systems and Aerospace business groups to improve their products while maintaining a prime systems integration role.

Net sales for the Information Systems and Technology group as a percentage of the company’s consolidated net sales were 23 percent in both 2001 and 2000 and 16 percent in 1999. Net sales (in millions) for the group were $2,800, $2,388 and $1,422, in 2001, 2000 and 1999, respectively.

The company’s Canadian and U.K. domiciled operations are part of this business group. In 2001, the U.K. operation commenced work on the BOWMAN contract, a $2.4 billion program to design and implement a secure digital voice and data communications system for the U.K. armed forces.

The Information Systems and Technology group is pursuing new opportunities in networks and C4ISR systems for defense customers, as well as selected opportunities in the international and commercial markets.

COMBAT SYSTEMS

The Combat Systems group provides systems integration, design, development, production and support for armored vehicles, armaments, munitions and components. Its product lines include a full spectrum of armored vehicles; unmanned systems; suspensions, engines and transmissions; medium-caliber guns; ammunition handling systems, turrets and turret drive systems; medium- and large-caliber ammunition; missile components and propellants; space propulsion systems and reactive armor.

Net sales for the Combat Systems group were 18 percent, 12 percent and 14 percent of the company’s consolidated net sales for 2001, 2000 and 1999, respectively. Net sales (in millions) by major products and services were as follows:


	Year Ended December 31

	2001		2000		1999

Armored vehicles and related services	$	1,169	$	783	$	929
Armament and munitions		1,041		490		361

	$	2,210	$	1,273	$	1,290

Armored vehicles and related services

The company designs and manufactures the M1 Series Abrams Main Battle Tank for the U.S. Army and various foreign governments. The company also performs engineering and upgrade work, and provides support for existing armored vehicles. The company recently completed a five-year multiyear contract with the Army under which 580 tanks were upgraded from the M1 to the M1A2 and M1A2 System Enhancement Package (SEP) configurations. The company is currently in production on a follow-on contract to upgrade an additional 307 tanks to the M1A2 SEP configuration. As of December 31, 2001, 265 tanks remain to be upgraded, with deliveries scheduled through 2004.

The company is under contract with the Marine Corps for the systems development and demonstration phase of the Advanced Amphibious Assault Vehicle (AAAV). Under this phase, the company expects to complete the design and development of the AAAV, manufacture 10 new prototypes, refurbish three early development prototypes and prepare for the production phase of the program.

The company and General Motors Canada Ltd. have entered into a joint venture to equip the U.S. Army’s Brigade Combat Teams with an eight-wheeled armored vehicle called the Stryker. Pursuant to the joint venture, the company will share in the development, testing, evaluation and production of 2,131 vehicles.

In Spain, the company is under contracts to provide to the Spanish army 235 Leopard main battle tanks, built under license from a German company, and 48 Pizarro tracked infantry fighting vehicles.

Armament and munitions

The company provides a total range of armament system capabilities including design, development, production and lifecycle management. Products include medium- and large-caliber ammunition, propellants, armament and satellite propulsion products. The company provides systems management and has produced over 300,000 rockets, warheads and motors for the Army’s 2.75-inch Hydra 70 rocket system. Also, the company manufactures single- and multi-barrel medium-caliber gun systems, individual- and crew-served weapons, and reactive armor tiles for the Bradley Fighting Vehicle.

MARINE SYSTEMS

The Marine Systems group provides the U.S. Navy with combat vessels, including nuclear submarines, surface combatants and auxiliary ships. The group also provides ship management services for the U.S. government and builds commercial ships.

Net sales for the Marine Systems group were 30 percent, 33 percent and 34 percent of the company’s consolidated net sales for 2001, 2000 and 1999, respectively. Net sales (in millions) by major products and services were as follows:


		Year Ended December 31

		2001		2000		1999

Nuclear submarines and related
	services	$	1,964	$	1,831	$	1,460
Surface combatants			940		930		1,021
Auxiliary and commercial ships			708		652		607

		$	3,612	$	3,413	$	3,088

Nuclear submarines and related services

The company designs, builds and supports nuclear submarines for the Navy. The company has construction contracts for the first four ships of the Virginia -class submarine and the third of three Seawolf -class attack submarines. Construction work on the Virginia -class submarine is shared equally with Newport News Shipbuilding Inc.

In addition to nuclear submarine design and construction, the company performs a broad range of engineering work, including advanced research and technology development, systems and component design evaluation, prototype development and logistics support for the operating fleet. The company also serves as ship integrator for certain components and subassemblies of the submarines, such as electronic equipment.

The company will also have design, engineering and construction management responsibilities for the conversion of four Trident- class SSBN submarines to cruise missile SSGNs. As SSGNs, these submarines will be delivery platforms for cruise missiles, special operations forces and advanced payloads and sensors.

Surface combatants

The company has been awarded contracts to date for the construction of 27 Arleigh Burke -class destroyers (DDG-51) and plays a lead role in providing design, engineering and ongoing lifecycle support services for these ships. The company is also a member of a three-contractor team that was awarded a contract to design and build the Navy’s new San Antonio -class of amphibious assault ships. The company has a contract for the construction of the third ship of the class, the LPD-19.

During the fourth quarter of 2001, the Navy canceled its DD-21 program and transferred its investment in technology development to DD(X), the next generation family of combatants. In February 2002, a team led by the company, formerly the prime contractor for the design phase of the previous DD-21 program, submitted a proposal for the DD(X). It is anticipated that a design will be selected and an award made for the research and design work on the DD(X) in the spring of 2002.

Auxiliary and commercial ships

The company designs, builds and repairs ships for the Navy and commercial customers. The company has been awarded contracts to date for the design and construction of eight strategic sealift ships and two dry-cargo combat logistics ships for the Navy. Contracts with commercial customers include the construction of two cargo ships and four double-hull crude oil tankers. The company also manages 23 ready-reserve, fast sealift and prepositioning ships for the U.S. government.

AEROSPACE

The Aerospace group designs, develops, manufactures, markets, and provides maintenance and support services for technologically advanced business jet aircraft. The group also supplies special mission aircraft to governments. Gulfstream has delivered more than 1,300 aircraft for customers around the world and offers a range of aircraft products and services, including the Gulfstream IV-SP, the Gulfstream V and the Gulfstream V-SP. Certification and initial customer deliveries of the Gulfstream V-SP are expected in the fourth quarter of 2002. The mid-size Gulfstream 100 and super mid-size Gulfstream 200 were added to the group’s offering with its acquisition of the assets of Galaxy Aerospace Company LP in June 2001.

Net sales for the Aerospace group were 27 percent, 29 percent and 32 percent of the company’s consolidated net sales for 2001, 2000 and 1999, respectively. Net sales (in millions) by major products and services were as follows:


	Year Ended December 31

	2001		2000		1999

New aircraft	$	2,694	$	2,353	$	2,251
Aircraft services and pre-owned aircraft		571		676		658

	$	3,265	$	3,029	$	2,909

New aircraft

Aerospace’s products include the Gulfstream IV-SP, which serves the large-cabin business jet aircraft market and the Gulfstream V, which serves the ultra-long range market. The company believes the Gulfstream IV-SP and Gulfstream V offer the best combination of large cabin size, fast cruising speed and technologically advanced avionics of any large business jet aircraft in both the long and ultra-long range market segments. The Gulfstream V-SP, which will also serve the ultra-long range market, will offer increased range, increased mission flexibility for both ultra-long range and high-speed long-range flights, reduced takeoff field length, and increased cabin and baggage space.

In 2001, the Aerospace group introduced the mid-size Gulfstream 100 and the super mid-size Gulfstream 200. These two aircraft models have expanded the company’s product offering so that it now includes a broad range of aircraft priced from $12 million to $46 million.

Aircraft services and pre-owned aircraft

The Aerospace group also provides worldwide aircraft maintenance services and technical support for both Gulfstream and other business aircraft. The company provides an integrated network of company-owned service centers, authorized third-party service providers, worldwide parts depots, worldwide service representatives and 24 hour-a-day technical/aircraft on-the-ground support.

The Aerospace group routinely accepts pre-owned aircraft in trade to facilitate the sale of new Gulfstream aircraft. These aircraft are then resold by the company in the pre-owned market.

OTHER

The company’s Other businesses consist of a coal mining operation, an aggregates operation and a leasing operation for liquefied natural gas tankers. Net sales for these businesses represented approximately two percent of the company’s consolidated net sales in each of the last three years. Net sales (in millions) were $276, $253 and $250, in 2001, 2000 and 1999, respectively.

Competition

Virtually all of the products produced and sold by the company are highly engineered and require sophisticated manufacturing and system integration techniques and capabilities. Additionally, the product and program needs of the company’s government and commercial customers regularly change and evolve. The company’s ability to successfully compete is highly dependent on the technical excellence and reliability of the company’s products and services, its reputation for integrating complex systems, the ability of the company’s leadership team to successfully manage the company’s businesses and respond to the changing needs of the company’s customers, and the cost competitiveness of the company’s products and services.

DEFENSE CONTRACTS

U.S. and global defense industry consolidation continues to intensify competition as the number of defense contractors decreases. As a result of this consolidation, the company frequently is a partner with, or subcontractor to, a defense supplier on one project, while simultaneously competing against that contractor for another award. These strategic partnerships and relationships improve the company’s ability to obtain new business, but also make it crucial for the company to differentiate itself from its competitors.

BUSINESS AIRCRAFT

The business aircraft market is generally divided into segments based on the cabin size and range of the aircraft. Aerospace offers its aircraft products in the mid-size, the super mid-size and the long and ultra-long range large-cabin segments. The Gulfstream IV-SP competes in the large-cabin business aircraft market segment with the Dassault Falcon 900C and 900EX. The Gulfstream V and Gulfstream V-SP compete in the ultra-long range business aircraft market segment against the Bombardier Global Express. Two competitors announced new products during 2001 that will compete with the Gulfstream IV-SP and Gulfstream V. The Bombardier Global 5000 has an expected market introduction in 2004, and the Dassault Falcon 7X is expected to be introduced in 2006.

One of the company’s newest aircraft products, the Gulfstream 100, competes in the mid-cabin market segment against the Raytheon Hawker 800XP aircraft and the Bombardier LearJet 60 aircraft. The Gulfstream 100 has the fastest speed and longest range as compared to these two competitive aircraft. The Gulfstream 200 competes in a new market segment — the super mid-cabin market. The Gulfstream 200 was introduced in the market in late 1999, two years ahead of two new competitive products – Bombardier’s Continental due for customer delivery in 2002 and Raytheon’s Hawker Horizon due for customer delivery in 2003.

The company believes that it competes favorably in its markets on the basis of the performance characteristics of its aircraft, the quality and timeliness of the service it provides, as well as its innovative marketing programs. In addition, the company was able to certify the Gulfstream V significantly in advance of its competition and has maintained a substantial market lead. The company believes that the introduction of the second generation of the ultra-long range business jet, the Gulfstream V-SP, will enable the company to maintain or increase its position in this important market segment. Further, the company believes its aircrafts’ operating costs are comparable to or lower than those of its competitors and that its products are competitively priced.

Customers

Historically, the majority of the company’s sales were to the U.S. government and its agencies. In 2001, 60 percent of the company’s net sales were to the U.S. government, either as a prime contractor or as a subcontractor; 30 percent of the company’s net sales were to U.S. commercial customers and six percent to international commercial customers; and the remaining four percent were directly to international defense customers.

U.S. GOVERNMENT

Net sales to the U.S. government include Foreign Military Sales (FMS), which are sales to foreign governments through the U.S. government, whereby the company contracts with and receives payment from the U.S. government and the U.S. government assumes the risk of collection from the customer. U.S. government sales (in millions) were as follows:


		Year Ended December 31

		2001		2000		1999

Domestic		$	7,138	$	6,056	$	5,104
FMS			181		124		99

	Total U.S. government	$	7,319	$	6,180	$	5,203

Percent of net sales			60%		60%		58%

The company’s U.S. government products and programs must compete with the products and programs of other defense contractors. The funding of government programs is dependent on congressional appropriations and administrative allotment of funds, and may be affected by changes in government policies resulting from various military and political developments. In addition, funding for defense programs competes with nondefense spending of the U.S. government. A shift in government defense spending to other programs in which the company is not involved or a reduction in defense spending generally could negatively impact the company’s revenues and earnings.

The company acts as a prime contractor or subcontractor for many different government programs. U.S. government defense contracts typically involve long lead times for design and development, and are subject to significant changes in contract scheduling. Congress generally appropriates funds on a fiscal year basis even though a program may continue for several years. Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations. The termination or reduction of funding for a government program would result in a loss of anticipated future revenues attributable to that program.

The company’s U.S. government business is performed under both cost-reimbursement (sometimes referred to as “cost-type”) and fixed-price contracts. Contracts for research, engineering, prototypes, repair and maintenance are often cost-reimbursement arrangements, under which the customer reimburses the company for allowable costs and pays a predetermined fee. A large percentage of the company’s production contracts are fixed-price arrangements, pursuant to which the company agrees to perform a specific scope of work for a fixed amount. For the year ended December 31, 2001, cost-type and fixed-price contracts accounted for approximately 42 percent and 58 percent, respectively, of the company’s defense business.

Cost-reimbursement and fixed-price contracts present their own advantages and disadvantages for the company. Cost-type arrangements generally involve lower risk for the company, and sometimes involve fee schedules that allow the company to obtain increased payments for satisfying certain performance criteria. However, not all of the company’s costs are recoverable under these types of contracts, and the government typically has the right to object to the company’s costs as not allowable or unreasonable, which can increase the company’s risk. Fixed-price arrangements generally provide the company with greater profit potential if it can complete the work for less than the contract amount. However, fixed-price contracts also expose the company to increased risk of potential cost overruns.

U.S. COMMERCIAL

Commercial sales (in millions) to domestic customers were $3,664, $3,209 and $2,790 in 2001, 2000 and 1999, respectively. The majority of the company’s commercial sales were for Gulfstream aircraft to national and multinational corporations. The aircraft are operated by customers in a wide spectrum of industries and customer groups including: pharmaceuticals, consumer goods, high technology, energy, industrial manufacturing, finance, insurance, real estate, mining, transportation, communications, public utilities and the retail trade, as well as individuals.

The company has an agreement with an unaffiliated customer who purchases aircraft from the company for use in its fractional ownership program, Executive Jet International (Executive Jet), a unit of Berkshire Hathaway and the leader in the fractional market. Sales to Executive Jet were approximately nine percent of Aerospace sales in both 2001 and 2000 and approximately eight percent of Aerospace sales in 1999.

INTERNATIONAL

Direct international sales (in millions) to both defense and commercial customers were $1,180, $967 and $966 in 2001, 2000 and 1999, respectively. These sales represented approximately ten percent of the company’s consolidated net sales in each of the past three years. International defense sales were derived primarily from the company’s international operations; international commercial sales were related primarily to the export of business aircraft. The company owns operations located in Canada, the U.K. and Spain. For the year ended December 31, 2001, sales and operating earnings from international operations were three percent and one percent of consolidated sales and operating earnings, respectively. Identifiable assets of operations domiciled outside the U.S. were seven percent, four percent and six percent of total identifiable assets at December 31, 2001, 2000 and 1999, respectively. At December 31, 2001, these assets consisted primarily of cash and intangible assets, including goodwill.

For information regarding sales by geographic region, see Note S to the Consolidated Financial Statements on page 46 of the 2001 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.

Supplies

The company is dependent upon suppliers and subcontractors for raw materials and a large number of components used in the production of its products. Fuel or material shortages could adversely impact the company’s suppliers, thus impairing their ability to honor their contractual commitments with the company. Although, in some cases, the company is dependent on one or a few sources, the company has not experienced difficulty in obtaining the resources necessary for its business operations.

Research and Development

The company’s defense and business aviation operations conduct independent research and development activities, which include bid and proposal work. The company’s defense businesses conduct research and development activities under U.S. government contracts. These research efforts have been and continue to be concerned with developing products for large systems development programs and performing work under research and development technology contracts.

Research and development activities of the company’s defense businesses represented the majority of company-sponsored expenditures in each of the past three years. A significant portion of these expenditures is recovered through overhead charges pursuant to U.S. government contracts. Research and development activities of the Aerospace group are internally funded product enhancement and product development programs for Gulfstream aircraft.

Research and development expenditures (in millions) were as follows:


	Year Ended December 31

	2001		2000		1999

Company-sponsored	$	203	$	143	$	103
Customer-sponsored		83		87		116

	$	286	$	230	$	219

Backlog

Summary backlog information (in millions) for each business group is as follows:


	December 31
													2001 Total
	2001						2000						Backlog Not
													Expected to Be
	Funded		Unfunded		Total		Funded		Unfunded		Total		Filled in 2002

Information Systems & Technology	$	4,745	$	226	$	4,971	$	1,845	$	97	$	1,942	$	2,860
Combat Systems		3,434		1,760		5,194		1,597		176		1,773		2,610
Marine Systems		6,702		3,358		10,060		7,247		3,964		11,211		7,588
Aerospace		4,198		2,075		6,273		3,336		1,034		4,370		3,645
Other		305		29		334		417		29		446		211

	$	19,384	$	7,448	$	26,832	$	14,442	$	5,300	$	19,742	$	16,914

For further discussion of backlog, see Management’s Discussion and Analysis of the Results of Operations and Financial Condition on pages 15 through 27 of the 2001 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.

DEFENSE BUSINESSES

Total backlog represents the estimated remaining sales value of work to be performed under firm contracts. Funded backlog for government programs represents the portion of total backlog that has been appropriated by Congress and funded by the procuring agency. To the extent backlog has not been funded, there is no assurance that congressional appropriations or agency allotments will be forthcoming.

AEROSPACE

Aerospace funded backlog represents orders for which the company has entered into definitive purchase contracts and has received non-refundable deposits from the customers. Unfunded aircraft backlog includes options to purchase new aircraft and agreements to provide future aircraft maintenance and support services.

Forty-eight percent of Aerospace funded backlog is with commercial customers other than Executive Jet. Backlog with Executive Jet represents 43 percent of Aerospace funded backlog. The remaining nine percent of Aerospace funded backlog is with government customers. Executive Jet represents the majority of Aerospace unfunded backlog. 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, which previously represented $2.5 billion of total backlog. Prior to the termination of the Avolar agreements, contracts with Avolar represented approximately $800 million of firm contracts backlog for 36 aircraft. The company believes that it will be able to re-market the aircraft previously under contract to Avolar.

Regulatory Matters

U.S. GOVERNMENT DEFENSE CONTRACTS

In 2001, 60 percent of the company’s net sales were to the U.S. government, either as a prime contractor or as a subcontractor. Generally, government contracts are subject to oversight audits by government representatives and contain provisions permitting termination, in whole or in part, at the government’s convenience or for default. If a contract is terminated at the convenience of the U.S. government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. Contracts which are terminated for default generally provide that the government only pays for the work it has accepted and may require the contractor to pay for the incremental cost of reprocurement and may hold the contractor liable for damages. Since the majority of the company’s revenues are dependent on the procurement, performance and payment under the company’s U.S. government contracts, the termination of one or more critical government contracts could have a negative impact on the company’s results of operations and financial condition.

The company’s government businesses are also subject to specific procurement regulations. Failure to comply with these regulations and requirements could lead to suspension or debarment, for cause, from government contracting or subcontracting for a period of time.

BUSINESS AIRCRAFT

The Aerospace group is subject to regulation by the Federal Aviation Administration in the U.S. and other similar aviation regulatory authorities throughout the world. For an aircraft to be manufactured and sold, the model must have received a Type Certificate from the appropriate aviation authority, and each individual aircraft must have also received a Certificate of Airworthiness. Maintenance facilities are also required to be licensed by aviation authorities. Aviation authorities have the power to require changes to aircraft if deemed necessary for safety purposes.

ENVIRONMENTAL

The company’s operations are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations relating to the discharge, treatment, storage, disposal, investigation and remediation of certain materials, substances and wastes. The company continually assesses its compliance status and management of other environmental matters. The company believes that its operations are in substantial compliance with all applicable environmental laws and regulations.

Operating and maintenance costs associated with environmental compliance and management of contaminated sites are a normal, recurring part of the company’s operations. These costs are not significant relative to total operating costs or cash flows and often are allowable costs under the company’s contracts with the U.S. government. These costs have not been material in the past and, based on information presently available to the company and on U.S. government policies relating to allowable costs in effect at this time, all of which are subject to change, the company does not expect continued compliance to have a material impact on the company’s results of operations or financial condition.

Under existing U.S. environmental laws, “Potentially Responsible Parties” (PRP) are jointly and severally liable, and therefore the company is potentially liable to the government or third parties for the full cost of remediating contamination at the company’s facilities or former facilities or at third-party sites where the company has been designated a PRP by the EPA or a state environmental agency. In the unlikely event that the company is required to fully fund the remediation of a site, the statutory framework would allow the company to pursue rights to contribution from other PRPs. Additional information relating to the impact of environmental controls is included in Item 3, “Legal Proceedings — Environmental” on page 17 of this Annual Report on Form 10-K.

Intellectual Property

The company is an established leader in the development of innovative products, manufacturing technologies and systems integration practices. In addition to owning a large portfolio of proprietary intellectual property, the company also licenses certain intellectual property rights of third parties, including the U.S. government. Additionally, in many cases, the U.S. government licenses the company’s patents, pursuant to which the government may use or authorize others to use the inventions covered by the patents. Although these intellectual property rights are important to the operation of the company’s business, no existing patent, license or other intellectual property right is of such importance that its loss or termination would, in the opinion of management, have a material impact on the company’s business.

Employees

As of December 31, 2001, the company had approximately 51,700 employees, of whom 32 percent were covered by collective bargaining agreements with various unions, the most significant of which are the International Association of Machinists and Aerospace Workers, the Marine Draftsmen’s Association, the Metal Trades Council of New London, Connecticut, and the United Auto Workers Union. Agreements covering approximately three percent of total employees are due to expire during 2002.

Executive Officers Of The Registrant

All executive officers of the company are elected annually. No executive officer of the company was selected pursuant to any arrangement or understanding between the officer and any other person. The name, age, offices and positions held for the last five years of the company’s executive officers as of March 7, 2002 were as follows:


Name, Position and Office	Age

David D. Baier — Vice President Taxes since August 1995		47
G. Kent Bankus — Vice President Government Relations since April 1993		59
W. W. Boisture, Jr. — Executive Vice President and Group Executive, Aerospace since July 1999; President and Chief Operating Officer, Gulfstream Aerospace Corporation since December 1998; Executive Vice President, Gulfstream Aerospace Corporation February 1994 — December 1998		57
Allan C. Cameron — Vice President of the company and President of Bath Iron Works since March 1996		56
Nicholas D. Chabraja — Chairman of the Board of Directors of the company and Chief Executive Officer since June 1997; Vice Chairman December 1996 — May 1997		59
Michael E. Chandler — Vice President of the company and President of General Dynamics Network Systems since August 2001; Vice President of the company and President of General Dynamics Worldwide Telecommunication Systems February 2000 — August 2001; President of General Dynamics Worldwide Telecommunication Systems September 1999 — February 2000; Vice President and General Manager, GTE Government Systems Worldwide Telecommunication Systems Division November 1997 — September 1999; Vice President and General Manager, GTE Government Systems Electronic Systems Division October 1995 — November 1997		57
Kenneth C. Dahlberg — Executive Vice President and Group Executive, Information Systems and Technology since March 2001; Executive Vice President for Business Development and President, Raytheon International January 2000 — March 2001; President and Chief Operating Officer, Raytheon Systems Company December 1997 — December 1999; President, Weapons Systems Segment, Hughes Aircraft Company September 1994 — December 1997		57
Gerard J. DeMuro — Vice President of the company and President of General Dynamics C4 Systems since August 2001; Vice President of the company and President of General Dynamics Communication Systems February 2000 — August 2001; President of General Dynamics Communication Systems September 1999 — February 2000; Vice President and General Manager, GTE Government Systems Communication Systems Division October 1997 — September 1999; Vice President and General Manager — MSE/TRITAC GTE Government Systems—Communication Systems Division October 1994 — October 1997		46
Larry R. Flynn — Vice President of the company and President of General Dynamics Aviation Services since October 2001; President, General Dynamics Aviation Services and Senior Vice President of Aircraft Services at Gulfstream Aerospace Corporation February 2001 – October 2001; Senior Vice President of Aircraft Services at Gulfstream Aerospace Corporation December 1998 – February 2001; Vice President, Service and Product Support at Gulfstream Aerospace Corporation June 1995 – December 1998		50
David H. Fogg — Vice President and Treasurer since March 1998; Staff Vice President and Treasurer November 1994 — March 1998		46
Mark A. Fried — Vice President of the company and President of General Dynamics Decision Systems since October 2001; Vice President and General Manager of the Integrated Information Systems Group division of Motorola, Inc. January 1997 – October 2001		55


Name, Position and Office	Age

Charles M. Hall — Vice President of the company and President of General Dynamics Land Systems since September 1999; Vice President, Production and Delivery, General Dynamics Land Systems March 1997 — September 1999; Vice President and General Manager, Domestic Operations, General Dynamics Land Systems January 1994 — March 1997		50
David K. Heebner — Vice President Strategic Planning since January 2000; Lieutenant General and Assistant Vice Chief of Staff , U.S. Army, July 1997 — November 1999; Director of Program Analysis and Evaluation, Office of the Chief of Staff, U.S. Army, August 1994 — July 1997		57
Preston A. Henne — Vice President of the company and Senior Vice President of Programs at Gulfstream Aerospace Corporation since October 2001; Senior Vice President of Programs at Gulfstream Aerospace Corporation September 1994 — October 2001		54
Kenneth A. Hill — Vice President Information Technology since April 1997; Staff Vice President Personnel Relations November 1994 — April 1997		52
Linda P. Hudson — Vice President of the company and President of General Dynamics Armament Systems since May 1999; Staff Vice President Business Development August 1997 — May 1999; President, Ordnance Systems January 1997 — August 1997		51
Joseph T. Lombardo — Vice President of the company and Senior Vice President of Operations at Gulfstream Aerospace Corporation since October 2001; Senior Vice President of Operations at Gulfstream Aerospace Corporation December 1998 — October 2001;Vice President of Co-Production at Gulfstream Aerospace Corporation June 1996 — December 1998		54
Michael J. Mancuso — Senior Vice President and Chief Financial Officer since March 1997; Vice President and Chief Financial Officer November 1994 — March 1997		59
Walter M. Oliver — Senior Vice President Human Resources and Administration since March 2002; Vice President Human Resources and Administration January 2001— March 2002; Senior Vice President Human Resources, Ameritech Corp., April 1994 — December 2000		56
Kendell M. Pease — Vice President Communications since May 1998; Rear Admiral and Chief Information Officer, U.S. Navy, August 1992 — May 1998		56

David A. Savner — Senior Vice President and General Counsel, Secretary since May 1999; Senior Vice President — Law and Secretary April 1998 — May 1999; Senior Partner of Jenner & Block, LLC May 1987 — April 1998		57
William O. Schmieder — Vice President International since March 2001; Staff Vice President International January 2000 — March 2001; Vice President Business Development, Lockheed Martin Electronics & Missiles June 1997— December 1999; Vice President Programs, Lockheed Martin Corporation August 1994 — June 1997		54
Daniel P. Schmutte — Vice President of the company since February 1997 (to retire effective March 31, 2002); Vice President Operations August 1995 — February 1997		50
John W. Schwartz — Vice President and Controller since March 1998; Staff Vice President and Controller November 1994 — March 1998		45


Name, Position and Office	Age

John F. Stewart — Vice President of the company and President of General Dynamics Advanced Information Systems since August 2001; Vice President of the company and President of General Dynamics Electronic Systems February 2000 — August 2001; President of General Dynamics Electronic Systems September 1999 — February 2000; Vice President and General Manager, GTE Government Systems, Electronic Systems Division November 1997 — September 1999; Vice President and General Manager, GTE Government Systems, Information Operations December 1995 — November 1997		61
Michael W. Toner — Vice President of the company and President of Electric Boat Corporation since January 2000; Senior Vice President Electric Boat Corporation June 1998 — January 2000; Vice President, Innovation Electric Boat Corporation October 1995 — June 1998		58
Arthur J. Veitch — Executive Vice President and Group Executive, Combat Systems since March 2002; Senior Vice President and Group Executive, Combat Systems September 1999 — March 2002; Vice President of the company and President of General Dynamics Land Systems February 1997 — September 1999; Vice President of the company and Senior Operating Officer of General Dynamics Land Systems August 1995 — February 1997		56
Richard H. Vortmann — Vice President of the company and President of National Steel and Shipbuilding Company since February 1999; President, Chief Executive Officer and Chairman of the Board of National Steel and Shipbuilding Company April 1989 — February 1999		57
Joseph K. Walker — Vice President of the company and Senior Vice President of Sales and Marketing at Gulfstream Aerospace Corporation since October 2001; Senior Vice President of Worldwide Sales at Gulfstream Aerospace Corporation May 2001 — October 2001; Senior Vice President of Sales and Marketing at Gulfstream Aerospace Corporation December 1998 — May 2001; Vice President of International Sales at Gulfstream Aerospace Corporation October 1997 — December 1998; Vice President of North American Sales at Gulfstream Aerospace Corporation March 1995 — October 1997		48
Michael S. Wilson — Vice President of the company and President of General Dynamics Ordnance and Tactical Systems since October 2001; President of General Dynamics Ordnance and Tactical Systems January 2001 — October 2001; President of Ordnance and Tactical Systems division of Primex Corporation January 1997 — January 2001		55
John K. Welch — Executive Vice President and Group Executive, Marine Systems since March 2002; Senior Vice President and Group Executive, Marine Systems January 2000 — March 2002; Vice President of the company and President of Electric Boat Corporation October 1995 — January 2000		51

ITEM 2. PROPERTIES

Principal Business Groups. A summary of floor space (square feet in millions) at the main facilities of the Information Systems and Technology, Combat Systems, Marine Systems and Aerospace business groups follows:


		Company				Government
		Owned		Leased		Owned
		Facilities		Facilities		Facilities		Total

Information Systems and Technology:
General Dynamics Advanced Information Systems
	Pittsfield, MA (Labs)						0.9		0.9
	Bloomington, MN (Office)				0.5				0.5
	Greensboro, NC (Factory/Office)		0.1		0.3				0.4
	Mountain View, CA (Office/Factory)		0.2		0.1				0.3
	Annapolis Junction, MD (Office/Lab)				0.1		0.1		0.2
General Dynamics C4 Systems
	Taunton, MA (Office/Factory)		0.1		0.4				0.5
	Needham, MA (Office/Lab)		0.4						0.4
	Ottawa, Ontario (Office/Plant)		0.2		0.1				0.3
	Calgary, Alberta (Office)				0.2				0.2
General Dynamics Decision Systems
	Scottsdale, AZ (Office/Lab/Factory/Warehouse)		1.5						1.5
General Dynamics Network Systems
	Needham, MA (Office/Lab)		0.1						0.1
General Dynamics United Kingdom Limited
	South Wales, U.K. (Office)		0.1						0.1
	East Sussex, U.K. (Office)		0.1						0.1

Total Information Systems and Technology			2.8		1.7		1.0		5.5

Combat Systems:
General Dynamics Armament Systems
	Saco, ME (Plant/Office)		0.5						0.5
	Camden, AK (Plant/Office)		0.1		0.3				0.4
	Burlington, VT (Plant/Office)				0.3				0.3
General Dynamics Land Systems
	Lima, OH (Plant)						1.6		1.6
	Muskegon, MI (Plant)		1.0		0.1				1.1
	Sterling Heights, MI (Office/Warehouse)		0.6						0.6
	Scranton, PA (Plant)				0.3				0.3
	Woodbridge, VA (Office)		0.1						0.1
	Tallahassee, FL (Plant/Office)				0.1				0.1
	Anniston, AL (Plant/Warehouse)						0.1		0.1
	Imperial, CA (Plant/Warehouse)				0.1				0.1
	Westminster, MD (Plant/Office)				0.1				0.1
General Dynamics Ordnance and Tactical Systems
	Marion, IL (Plant/Office)				0.8				0.8
	Red Lion, PA (Plant/Office)		0.3						0.3
	St. Marks, FL (Plant/Office)		0.3						0.3
	Redmond, WA (Plant/Office)		0.2						0.2
	St. Petersburg, FL (Office)				0.1				0.1
	Anniston, AL (Plant/Office)				0.1				0.1


		Company				Government
		Owned		Leased		Owned
		Facilities		Facilities		Facilities		Total

Combat Systems:
Santa Bárbara Sistemas, S.A.
	Trubia, Spain (Plant)						1.0		1.0
	Murcia, Spain (Plant)						1.0		1.0
	Palencia, Spain (Plant)						0.9		0.9
	Granada, Spain (Plant)						0.7		0.7
	Oviedo, Spain (Plant)						0.5		0.5
	Sevilla, Spain (Office/Plant)						0.4		0.4
	La Coruña, Spain (Plant)						0.2		0.2

Total Combat Systems			3.1		2.3		6.4		11.8

Marine Systems:
Bath Iron Works Corporation
	Bath, ME (Shipyard)		1.1						1.1
Electric Boat Corporation
	Groton, CT (Shipyard)		2.8		0.1				2.9
	Quonset Point, RI (Plant/Warehouse)		0.4		1.1				1.5
National Steel and Shipbuilding Company
	San Diego, CA (Shipyard)		0.2		6.0				6.2

Total Marine Systems			4.5		7.2		0.0		11.7

Aerospace:
Gulfstream Aerospace Corporation
	Savannah, GA (Factory/Office)		1.4		0.1				1.5
	Long Beach, CA (Service/Completion Center)		0.3		0.1				0.4
	Dallas, TX (Service/Completion Center)		0.2		0.2				0.4
	Oklahoma City, OK (Factory)*				0.4				0.4
	Mexicali, Mexico (Factory)				0.2				0.2
	Fort Worth, TX (Completion Center)				0.2				0.2
	Appleton, WI (Service/Completion Center)		0.1						0.1
	Brunswick, GA (Service/Completion Center)				0.1				0.1
General Dynamics Aviation Services
	Westfield, MA (Service Center)		0.1						0.1
	Minneapolis, MN (Service Center)				0.1				0.1
	West Palm Beach, FL (Service Center)				0.1				0.1
	Las Vegas, NV (Service Center)				0.1				0.1

Total Aerospace			2.1		1.6		0.0		3.7

In February 2002, the company announced that it expects to close its Oklahoma City, OK facility before year-end 2002.

Other Properties. Freeman Energy operates two underground coal mines and one surface coal mine in Illinois. Coal preparation facilities and rail loading facilities are located at each mine sufficient for its output. Material Service operates several stone quarries, as well as sand and gravel pits and yards in the Chicago, Illinois and Indiana areas for its aggregates business.

The company owns approximately 260 acres of property in Rancho Cucamonga, California, of which approximately 93 acres is undeveloped.

General. The company believes that its main facilities are adequate for the present needs of the company and its subsidiaries and, as supplemented by planned improvements and construction, are expected to remain adequate for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

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.

The company is primarily engaged in providing products and services under contracts with the U.S. government and, to a lesser degree, under direct foreign sales contracts, some of which are funded by the U.S. government. These contracts are subject to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. government investigate whether the company’s operations are being conducted in accordance with these requirements. The company does not believe that the outcome of any such government investigations will have a material impact on the company’s results of operations or financial condition.

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 million 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 $1.2 billion 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 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.

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. The contractors have asked the Navy to confirm the deferral of payment through the pendency of the appeal. The contractors and the Navy have not yet reached an agreement with respect to this request.

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 million for progress payments received for the A-12 contract plus interest (approximately $970 million at December 31, 2001). In this outcome, the government contends the company’s liability would be approximately $1.2 billion pretax, $625 million after-tax to be taken as a charge against discontinued operations. The company has sufficient resources to pay such an obligation if required.

False Claims Act

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 has 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. 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.

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 facilities and former facilities, and at third-party sites not owned by the company but where the company has been designated a PRP by the EPA or a state environmental agency. The company is also involved in the investigation, cleanup and remediation of various conditions at sites it currently owns and operates or formerly owned or operated 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 the company’s facilities or former facilities will continue to be allowable costs, and therefore reimbursed by the U.S. government. Based on a site by site analysis, the company believes it has adequate accruals for any liability it may incur 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.

Other

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 or financial condition.

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

No matters were submitted to a vote of the company’s security holders during the fourth quarter of the year ended December 31, 2001.

PART II

ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The company’s common stock is listed on the New York Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange.

On October 25, 1999, the company issued 15,424 shares of common stock to James D. Caldwell in connection with the company’s acquisition of Caldwell’s Diving Company, Inc. and Cable Ventures Inc. (now known as it International Telecom USA, Inc.). In connection with this share issuance, the company claimed exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, based on the fact that the transaction did not involve any public offering of securities.

The high and low sales prices of the company’s common stock and the cash dividends declared with respect to the company’s common stock for each quarterly period during the two most recent fiscal years are included in Note T to the Consolidated Financial Statements appearing on page 47 of the 2001 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.

There were approximately 17,900 holders of record of the company’s common stock at March 7, 2002.

ITEM 6. SELECTED FINANCIAL DATA

The “Selected Financial Data” appearing on page 52 of the 2001 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference in response to this item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The “Management’s Discussion and Analysis of the Results of Operations and Financial Condition” appearing on pages 15 through 27 of the 2001 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference in response to this item.

ITEM 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

The information appearing under the caption “Market Risk” on page 27 of the 2001 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference in response to this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements, Notes to Consolidated Financial Statements and Report of Independent Public Accountants appearing on pages 28 through 51 of the 2001 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2001, are incorporated herein by reference in response to this item.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required to be set forth herein, except for a list of the executive officers that is provided in Part I of this report, is included in the sections entitled “Re-Election of the Board of Directors of the Company” and “Other Information – Section 16(a) Beneficial Ownership Reporting Compliance” in the company’s definitive proxy statement for its 2002 annual shareholders meeting (the Proxy Statement), which sections are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required to be set forth herein is included in the section entitled “Executive Compensation” in the company’s Proxy Statement, which section is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required to be set forth herein is included in the sections entitled “Security Ownership of Management” and “Security Ownership of Certain Beneficial Owners” in the company’s Proxy Statement, which sections are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required to be set forth herein is included in the sections entitled “Re-Election of the Board of Directors of the Company – Transactions Involving Directors and the Company” and “Certain Transactions” in the company’s Proxy Statement, which sections are incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

The Report of Independent Public Accountants and Consolidated Financial Statements appearing in the 2001 Annual Report on the pages listed in the following index are included in this Annual Report on Form 10-K for the year ended December 31, 2001, as Exhibit 13, and are incorporated herein by reference.


		Page of
		2001
		Annual
		Report

Report of Independent Public Accountants			51
Consolidated Financial Statements:
	Consolidated Statement of Earnings		28
	Consolidated Balance Sheet		29
	Consolidated Statement of Cash Flows		30
	Consolidated Statement of Shareholders’ Equity		31
	Notes to Consolidated Financial Statements (A to U)		32 - 50

2. Financial Statement Schedules

No schedules are submitted because they are either not applicable or not required, or because the required information is included in the Consolidated Financial Statements or the Notes thereto.

3. Exhibits—See Index on pages 22 and 23 of this Annual Report on Form 10-K.

(b) Reports on Form 8-K

On October 1, 2001, the company reported to the Securities and Exchange Commission under Item 5, Other Events, that the company completed its acquisition of Motorola, Inc.’s Integrated Information Systems Group, renamed General Dynamics Decision Systems, for $825 million in cash.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	GENERAL DYNAMICS CORPORATION

	By: /s/ John W. Schwartz John W. Schwartz Vice President and Controller

March 29, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below on March 29, 2002, by the following persons on behalf of the Registrant and in the capacities indicated, including a majority of the directors.


/s/ Nicholas D. Chabraja Nicholas D. Chabraja		Chairman, Chief Executive Officer and Director (Principal Executive Officer)

/s/ Michael J. Mancuso Michael J. Mancuso		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

/s/ John W. Schwartz John W. Schwartz		Vice President and Controller (Principal Accounting Officer)

Julius W. Becton, Jr.*		Director

James S. Crown*		Director

Lester Crown*		Director

Charles H. Goodman*		Director

George A. Joulwan*		Director

Paul G. Kaminski*		Director

James R. Mellor*		Director

Carl E. Mundy, Jr.*		Director

Carlisle A. H. Trost*		Director

By David A. Savner pursuant to a Power of Attorney executed by the directors listed above, which Power of Attorney has been filed as an exhibit hereto and incorporated herein by reference thereto.

/s/ David A. Savner

David A. Savner
Secretary

INDEX TO EXHIBITS — GENERAL DYNAMICS CORPORATION
COMMISSION FILE NO. 1-3671

Exhibits listed below, which have been filed with the Commission pursuant to the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and which were filed as noted below, are hereby incorporated by reference and made a part of this report with the same effect as if filed herewith.


Exhibit
Number		Description

2.1		Asset Purchase Agreement between Motorola, Inc. and General Dynamics Corporation, dated August 6, 2001 (incorporated herein by reference from the company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2001, and filed with the Commission November 13, 2001)
3.1		Restated Certificate of Incorporation, effective August 2, 1999 (incorporated herein by reference from the company’s current report on Form 8-K filed with the Commission August 11, 1999)
3.2		Restated By-Laws, effective March 7, 2001 (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2000, and filed with the Commission March 29, 2001)
4.1		Indenture dated as of August 27, 2001 among General Dynamics Corporation, the Guarantors (as defined therein) and The Bank of New York, as Trustee (incorporated herein by reference from the company’s registration statement on Form S-4 (No. 333-77024) filed with the Commission January 18, 2002)
4.2		First Supplemental Indenture dated as of August 27, 2001 among General Dynamics Corporation, the Guarantors (as defined therein) and The Bank of New York, as Trustee (incorporated herein by reference from the company’s registration statement on Form S-4 (No. 333-77024) filed with the Commission January 18, 2002)
4.3		Registration Rights Agreement dated as of August 22, 2001 among General Dynamics Corporation, the Guarantors (as defined therein) and Bear Stearns & Co. Inc. (incorporated herein by reference from the company’s registration statement on Form S-4 (No. 333-77024) filed with the Commission January 18, 2002)
10.1*		Employment Agreement between the company and Nicholas D. Chabraja dated November 12, 1996 (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 1996, and filed with the Commission March 21, 1997)
10.2*		Consulting Agreement between the company and Paul G. Kaminski dated August 18, 1997 (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 1997, and filed with the Commission March 18, 1998)
10.3*		Retirement Benefit Agreement between the company and David A. Savner dated March 4, 1998 (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 1998, and filed with the Commission March 18, 1999)
10.4*		Retirement Benefit Agreement between the company and Michael J. Mancuso dated March 6, 1998 (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 1997, and filed with the Commission March 18, 1998)
10.5*		Successor Retirement Plan for Directors**
10.6*		General Dynamics Corporation Non-Employee Directors 1999 Stock Plan**

INDEX TO EXHIBITS — GENERAL DYNAMICS CORPORATION
COMMISSION FILE NO. 1-3671


Exhibit
Number		Description

10.7		Agreement and Plan of Merger between General Dynamics Corporation, Mars Acquisition Corporation and Primex Technologies, Inc. dated November 9, 2000 (incorporated herein by reference from the company’s quarterly report on Form 10-Q for the quarterly period ended October 1, 2000, and filed with the Commission November 13, 2000)
10.8*		General Dynamics Corporation Supplemental Savings and Stock Investment Plan (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2000, and filed with the Commission March 29, 2001)
10.9*		General Dynamics Corporation 1997 Incentive Compensation Plan, as amended and restated (incorporated herein by reference from the company’s quarterly report on Form 10-Q for the quarterly period ended July 1, 2001, and filed with the Commission August 14, 2001)
10.10*		Form of Severance Protection Agreement entered into by substantially all executive officers**
10.11*		Employment Agreement between the company and Kenneth C. Dahlberg dated February 13, 2001**
10.12*		Retirement Benefit Agreement between the company and W. William Boisture, Jr. dated May 16, 2001**
13		2001 Annual Report (pages 15 through 52)**
21		Subsidiaries**
23		Consent of Arthur Andersen LLP**
24		Power of Attorney of the Board of Directors**
99.1		Letter to the Securities and Exchange Commission regarding Arthur Andersen LLP representations to the company**
99.2		1999 Annual Report on Form 11-K for the General Dynamics Corporation Savings and Stock Investment Plan (incorporated herein by reference from the company’s annual report on Form 10-K/A for the year ended December 31, 1999, and filed with the Commission June 28, 2000)
99.3		1999 Annual Report on Form 11-K for the General Dynamics Corporation Hourly Employees’ Savings and Stock Investment Plan (incorporated herein by reference from the company’s annual report on Form 10-K/A for the year ended December 31, 1999, and filed with the Commission June 28, 2000)
99.4		2000 Annual Report on Form 11-K for the General Dynamics Corporation Savings and Stock Investment Plan (incorporated herein by reference from the company’s annual report on Form 10-K/A for the year ended December 31, 2000, and filed with the Commission June 29, 2001)
99.5		2000 Annual Report on Form 11-K for the General Dynamics Corporation Hourly Employees’ Savings and Stock Investment Plan (incorporated herein by reference from the company’s annual report on Form 10-K/A for the year ended December 31, 2000, and filed with the Commission June 29, 2001)

*		Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K.

**		Filed herewith

Exhibit 10.5

SUCCESSOR RETIREMENT PLAN FOR DIRECTORS

WHEREAS, General Dynamics Corporation (the “Corporation”) maintained a retirement plan for certain non-employee members of its Board of Directors (the “Directors Retirement Plan”);

WHEREAS, the Board of Directors of the Corporation (the “Board”) terminated the Directors Retirement Plan effective December 1, 1999;

NOW, THEREFORE, notwithstanding any provisions of the Directors Retirement Plan to the contrary, effective December 1, 1999, the following provisions shall govern the unpaid accrued benefits under the Directors Retirement Plan.

1. The value of the unpaid accrued benefits under the Directors Retirement Plan shall be deferred and paid under this Successor Retirement Plan (the “Plan”) according to the provisions described below.

2. As of December 1, 1999, each director listed on Schedule A attached hereto (each an “eligible director”) shall be given an irrevocable option to convert the entire actuarial lump sum value (as determined below) of such eligible director’s vested benefit in the Directors Retirement Plan into either (a) a deemed cash account or (b) a number of “phantom shares” of the Corporation’s common stock, par value $1.00 per share (the “Common Stock”) determined by dividing the actuarial lump sum value determined below by the average of the high and low market price of the Common Stock on the New York Stock Exchange on December 1, 1999. Such deemed amount of cash or phantom shares shall be credited to a Plan account established and maintained for each eligible director. The account shall not require segregation of any Corporation assets and shall at all times remain subject to the claims of the Corporation’s general creditors.

The actuarial lump sum value shall be determined as of December 1, 1999, which value shall assume the benefit is payable for life and that the eligible director would have retired at age 75 and began receiving annual payments guaranteed for the longer of ten years or the number of completed years of service as an outside director as of December 31, 1999, and based on the 1984 Unisex Pension Table with a one year setback and a discount rate of 7% per annum compound.

3. From December 1, 1999 until retirement, (a) amounts converted into the deemed cash account shall be credited with interest at prime rate (as set by The Northern Trust Company of Chicago, or its successor) on the last day of each calendar quarter and (b) amounts converted into phantom shares shall be adjusted upward or downward based on the value of Common Stock and shall be credited with stock dividend equivalents when the Corporation issues dividends on Common Stock.

4. Any dividend equivalents credited to an eligible director’s account shall be reinvested in phantom shares of the Common Stock based on the average of the high and low market price of Common Stock on the New York Stock Exchange on the payment date of the dividend with respect to which such dividend equivalents are credited.

5. Benefits under the Plan are payable upon retirement as provided in this Section. As of the eligible director’s retirement or death (if sooner), the Corporation shall determine the value of the eligible director’s account. If the eligible director had elected a deemed cash account, the value of such account shall be based on the method described in Section 3. If the eligible director had elected to take phantom shares, the eligible director’s account shall be valued as of the eligible director’s retirement date based on the average of the high and low market price of the Common Stock on the New York Stock Exchange as of that date. Prior to retirement (or such other period as the Board may, in its discretion, determine) an eligible director shall make an election in writing to receive the value of the eligible director’s account as determined above in either: (a) ten (10) installments with the first installment to be paid as soon as practical following the eligible director’s retirement date and the additional nine (9) installments to be paid annually on or about the eligible director’s anniversary of retirement, or (b) a lump sum payment which shall be paid within ten (10) business days of the director’s retirement. Any such election may be changed or revoked at any time prior to the eligible director’s retirement date shall be given effect (or such other period of time as the Board may, in its discretion, determine). If no election is made or if the election is determined to be invalid, payment shall be in such form as determined by the Board in its sole discretion. Payments under the Plan shall be in cash. If an eligible director elects to receive his account in annual installments, during the period he receives such annual installments his account shall be credited with interest at prime rate (as set by The Northern Trust Company of Chicago, or its successor) which interest shall be paid in full with the next installment payment.

6. No eligible director shall be entitled to any voting rights with respect to the phantom stock in the eligible director’s account. The phantom stock under the Plan does not have any of the rights of the Common Stock other than to receive dividend equivalents. In the event of any change in the outstanding shares of the Common Stock by reason of a stock split, dividend, combination or similar transaction, the phantom stock shall be automatically proportionally adjusted in an equitable manner.

7. All eligible director accounts are subject to the general creditors of the Corporation and are unfunded promises to pay amounts in the future. Such eligible director accounts may not be assigned nor alienated.

8. In the event of the death of an eligible director, any unpaid amounts in the eligible director’s account shall be paid to the eligible director’s designated beneficiary. If no beneficiary is designated, such amounts shall be paid to the eligible director’s estate. Amounts paid to a designated beneficiary or to an estate shall be in a lump sum.

9. The Board shall have complete power and authority to amend and terminate the Plan. The Board shall have complete power and authority to interpret and administer the Plan, to adopt, amend and rescind rules and regulations, and to establish terms and conditions, not inconsistent with the provisions of the Plan, for the administration and implementation of the Plan, provided, however, that the Board may not make any changes that would adversely affect the rights of an eligible director who retired prior to the date of the change without the consent of such director. No benefits shall be payable from this Plan if the Board determines in its sole discretion that a director is not entitled to such benefits.

Schedule A

Julius W. Becton, Jr.
James S. Crown
Charles H. Goodman
George A. Joulwan
Paul G. Kaminski
Carl E. Mundy, Jr.
Carlisle A. H. Trost

EXHIBIT 10.6

GENERAL DYNAMICS CORPORATION

NON-EMPLOYEE DIRECTORS 1999 STOCK PLAN

1. Purpose. The purpose of the General Dynamics Corporation Non-Employee Directors 1999 Stock Plan (the “Plan”) is to provide General Dynamics Corporation (the “Company”) with an effective means of attracting, retaining, and motivating directors of the Company.

2. Eligibility. Any member of the Board of Directors of the Company (the “Board”) who is not an employee of the Company (an “Eligible Director”) is eligible to participate in the Plan.

3. Administration. The Plan shall be administered by the Board. Except as otherwise expressly provided in the Plan, the Board shall have full power and authority to interpret and administer the Plan, to determine the Eligible Directors to receive awards and the amounts, types and terms of the awards, to adopt, amend, and rescind rules and regulations, and to establish terms and conditions, not inconsistent with the provisions of the Plan, for the administration and implementation of the Plan, provided, however, that the Board may not, after the date of any award, make any changes that would adversely affect the rights of a recipient under such award without the consent of the recipient. The determination of the Board on all matters shall be final and conclusive and binding on the Company and all participants.

4. Awards. Awards may be made by the Board in such amounts as it shall determine in cash, in the Company’s common stock, par value $1.00 per share (“Common Stock”), in options to purchase Common Stock of the Corporation (“Stock Options”), or in shares of Common Stock subject to certain restrictions (“Restricted Stock”), or any combination thereof. Further, an Eligible Director’s annual retainer may also be paid under the Plan in either cash or Common Stock or in a fifty percent (50%) and fifty percent (50%) combination thereof, as the Eligible Director may elect. There shall be 40,000 shares of Common Stock available for issuance in connection with awards under the Plan. If any award under the Plan shall expire, terminate, or be canceled for any reason without having been vested or exercised in full, the corresponding number of shares which were reserved for issuance in connection therewith shall again be available for the purposes of the Plan. Shares available under the Plan may be authorized and unissued shares or may be treasury shares.

5. Common Stock. In the case of awards or payments of retainers in Common Stock, the number of shares shall be determined by dividing the amount of the award or retainer elected to be received in Common Stock by the average of the highest and lowest quoted selling prices of the Company’s Common Stock on the New York Stock Exchange on the date of the award or retainer. The average is referred to throughout this Plan as the “fair market value.”

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6. Dividend Equivalents and Interest.

a. Dividends. If any award in Common Stock or Restricted Stock is to be paid on a deferred basis, the recipient may be entitled, on terms and conditions to be established by the Board, to receive a payment of, or credit equivalent to, any dividend payable with respect to the number of shares of Common Stock or Restricted Stock which, as of the record date for the dividend, has been awarded or made payable to the recipient but not delivered.

b. Interest. If any award in cash is to be paid on a deferred basis, the recipient may be entitled, on terms and conditions to be established by the Board, to accrue interest on the unpaid amount.

7. Restricted Stock Awards.

a. General. Restricted Stock represents awards made in Common Stock in which the shares granted may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated except upon passage of time, or upon satisfaction of other conditions, or both, in every case as provided by the Board. The recipient of an award of Restricted Stock shall be entitled to vote the shares awarded and to the payment of dividends on the shares from the date the award of shares is made; and, in addition, all Special Distributions (as defined in Section 9 hereof) thereon shall be credited to an account similar to the Account described in Section 9. The recipient of an award of Restricted Stock shall have a nonforfeitable interest in amounts credited to such account in proportion to the lapse of restrictions on the Restricted Stock to which such amounts relate. For example, when restrictions lapse on fifty percent (50%) of the Restricted Stock granted in an award, the holder of such Restricted Stock shall have a nonforfeitable interest in fifty percent (50%) of the amount credited to his account which is attributable to such Restricted Stock. The holder of Restricted Stock shall receive a payment in cash of any amount in his account as soon as practicable after the lapse of restrictions relating thereto.

b. Restricted Stock Performance Formula. Awards of Restricted Stock may be granted pursuant to the formula described in this Section, referred to herein as the “Restricted Stock Performance Formula.” The Board shall make an initial grant of shares of Restricted Stock (the “Initial Grant”). At the end of a specified performance period (determined by the Board), the number of shares in the Initial Grant shall be increased or decreased, based on the increase or decrease in the fair market value of a share of Common Stock during the performance period, by a number of shares equal to (a) the excess of the fair market value of a share of Common Stock on the last day of the performance period over the fair market value of a share of Common Stock on the grant date multiplied by (b) the number of shares of Restricted Stock subject to the Initial Grant and divided by (c) the fair market value of a share of Common Stock on the last day of the performance period. The number of shares of Common Stock so determined is added to (in the case of a higher fair market value) or subtracted from (in the case of a lower fair market value) the number of shares of Restricted Stock to be earned at that time. Once the number of shares of Restricted Stock has been adjusted, restrictions will continue to be imposed for a period of time determined by the Board.

8. Stock Option Awards.

a. Type of Options . Options shall be in the form of options which do not qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended.

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b. Purchase Price. The purchase price of the Common Stock under each option shall be determined by the Board, but shall not be less than 100 percent of the fair market value of the Common Stock on the date of the award of the option.

c. Terms and Conditions . The Board shall establish (i) the term of each option, (ii) the terms and conditions upon which and the times when each option shall be exercised, and (iii) the terms and conditions under which options may be exercised after termination as an Eligible Director for any reason for periods not to exceed three years after such termination.

d. Purchase by Cash or Stock . The purchase price of shares purchased upon the exercise of any stock option shall be paid (i) in full in cash, or (ii) in whole or in part (in combination with cash) in full shares of Common Stock owned by the optionee and valued at fair market value on the date of exercise, all pursuant to procedures approved by the Board.

e. Transferability . Options shall not be transferable other than by will or pursuant to the laws of descent and distribution. During the lifetime of the person to whom an option has been awarded, it may be exercisable only by such person or one acting in his stead or in a representative capacity. Upon or after the death of the person to whom an option is awarded, an option may be exercised by the optionee’s legatee or legatees under his last will, or by the option holder’s personal representative or distributee’s executive, administrator, or personal representative or designee in accordance with the terms of the option.

9. Adjustments for Special Distributions. The Board shall have the authority to change all Stock Options granted under this Plan to adjust equitably the purchase price thereof and the number and kind of shares or other property subject thereto to reflect a special distribution to shareholders or other extraordinary corporate action involving distributions or payments to shareholders (collectively referred to as “Special Distributions”). In the event of any Special Distribution, the Board may cause to be created a Special Distribution account (the “Account”) in the name of the individual to whom Stock Options have been granted hereunder (sometimes herein referred to as a “Grantee”) to which shall be credited an amount determined by the Board, or, in the case of non-cash Special Distributions, make appropriate comparable adjustments for, or payments to or for the benefit of, the Grantee.

Amounts credited to the Account in accordance with the preceding rules shall be credited with interest, accrued monthly, at an annual rate equal to the higher of Moody’s Corporate Bond Yield Average or the prime rate in effect from time to time, and such interest shall be credited in accordance with rules to be established by the Board. Notwithstanding the foregoing, at no time shall the Board permit the amount credited to the Grantee’s Account to exceed 90 percent of the purchase price of the Grantee’s outstanding Stock Options to which such amount relates. To the extent that any credit would cause the Account to exceed that limitation, such excess shall be distributed to the Grantee in cash.

Amounts credited to the Grantee’s Account shall be paid to the Grantee or, if the Grantee is deceased, his or her beneficiary at the time that the options to which it relates are exercised or expire, whichever occurs first.

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The Account shall for all purposes be deemed to be an unfunded promise to pay money in the future in certain specified circumstances. As to amounts credited to the Account, a Grantee shall have no rights greater than the rights of a general unsecured creditor of the Company, and amounts credited to the Grantee’s Account shall not be assignable or transferable other than by will or the laws of descent and distribution, and such amounts shall not be subject to the claims of the Grantee’s creditors.

10. Adjustments and Reorganizations. The Board may make such adjustments to awards granted under the Plan (including the terms, exercise price, and otherwise) as it deems appropriate in the event of changes that impact the Company, the Company’s share price, or share status.

In the event of any merger, reorganization, consolidation, change of control, recapitalization, separation, liquidation, stock dividend, stock split, extraordinary dividend, spin-off, split-up, rights offering, share combination, or other change in the corporate structure of the Company affecting the Common Stock, the number and kind of shares that may be delivered under the Plan shall be subject to such equitable adjustment as the Board may deem appropriate. Except as otherwise provided by the Board, all authorized shares, share limitations, and awards under the Plan shall be proportionately adjusted to account for any increase or decrease in the number of issued shares of Common Stock resulting from any stock split, stock dividend, reverse stock split, or any similar reorganization or event. Notwithstanding anything in this Plan to the contrary, all awards outstanding hereunder shall become fully vested upon the occurrence of a change in control.

In the preceding paragraph, “change of control” means any of the following events:

a. An acquisition (other than directly from the Company) of any voting securities of the Company by any Person (as used in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and including any “group” as such term is used in such sections) who immediately after such acquisition is the Beneficial Owner (as used in Rule 13d-3 promulgated under the Exchange Act) of 40 percent or more of the combined voting power of the Company’s then outstanding voting securities; provided that, in determining whether a change of control has occurred, voting securities which are acquired by (i) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or any subsidiary of the Company, (ii) the Company or any subsidiary of the Company, (iii) any Person that, pursuant to Rule 13d-1 promulgated under the Exchange Act, is permitted to, and actually does, report its beneficial ownership of voting securities of the Company on Schedule 13G (or any successor Schedule) (a “13G Filer”) provided that, if any 13G Filer subsequently becomes required to or does report its Beneficial Ownership of voting securities of the Company on Schedule 13D (or any successor Schedule) then such Person shall be deemed to have first acquired, on the first date on which such Person becomes required to or does so file, Beneficial Ownership of all voting securities of the Company Beneficially Owned by it on such date, or (iv) any person in connection with a Non-Control Transaction (as hereinafter defined), will not constitute an acquisition which results in a change of control

b. Consummation of:

(i) a merger, consolidation, or reorganization involving the Company or any direct or indirect subsidiary of the Company, unless:

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(A) the stockholders of the Company immediately before such merger, consolidation, or reorganization will own, directly or indirectly, immediately following such merger, consolidation, or reorganization, at least 50 percent of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation, or reorganization (the “Surviving Company”) or any parent thereof in substantially the same proportion as their ownership of the voting securities of the Company immediately before such merger, consolidation, or reorganization; and

(B) the individuals who were members of the Board immediately prior to the execution of the agreement providing for such merger, consolidation, or reorganization constitute a majority of the members of the Board of Directors of the Surviving Company or any parent thereof; and

(C) no person (other than the Company, any subsidiary of the Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, any Schedule 13G Filer, the Surviving Company, any subsidiary or parent of the Surviving Company, or any person who, immediately prior to such merger, consolidation, or reorganization, was the Beneficial Owner of 40 percent or more of the then outstanding voting securities of the Company) is the Beneficial Owner of 40 percent or more of the combined voting power of the Surviving Company’s then outstanding voting securities;

(D) a transaction described in clauses (A) through (C) above is referred to herein as a “Non-Control Transaction;”

(ii) the complete liquidation or dissolution of the Company; or

(iii) a sale or other disposition of all or substantially all of the assets of the Company (other than a sale or other disposition to an entity (A) of which at least 50 percent of the combined voting power of the outstanding voting securities are owned, directly or indirectly, by stockholders of the Company in substantially the same proportion as their ownership of the voting securities of the Company, (B) a majority of whose board of directors is comprised of individuals who were members of the Board immediately prior to the execution of the agreement providing for such sale or other disposition and (C) of which no Person (other than the Company, any Subsidiary of the Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, any Schedule 13G Filer, the Surviving Corporation, any Subsidiary or parent of the Surviving Corporation, or any Person who, immediately prior to such merger, consolidation or reorganization, was the Beneficial Owner of 40 percent or more of the then outstanding voting securities of the Company) has Beneficial Ownership of 40 percent or more of the combined voting power of the entity’s outstanding voting securities.

c. Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the effective date of the Plan whose election, or nomination for election by Company stockholders, was approved by a vote of two-thirds of

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the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (including, but not limited to, a consent solicitation).

d. Notwithstanding the foregoing, a change of control will not be deemed to occur solely because any person (a “Subject Person”) acquires beneficial ownership of more than the permitted amount of the outstanding voting securities of the Company as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increases the proportional number of shares beneficially owned by the Subject Person, provided that if a change of control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional voting securities which increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person, then a change of control will be deemed to have occurred.

11. Tax Withholding. In the event that federal, state or local tax laws provide withholding requirements that apply to Eligible Directors, the Company shall withhold amounts paid under the Plan as required by any such law.

12. Expenses. The expenses of administering the Plan shall be borne by the Company.

13. Amendments. The Board shall have complete power and authority to amend the Plan, provided that the Board shall not amend the Plan in any manner that requires shareholder approval under applicable law without such approval No amendment to the Plan may, without the consent of the individual to whom the award shall theretofore have been awarded, adversely affect the rights of an individual under the award.

14. Effective Date of the Plan. The Plan shall become effective on December 1, 1999, the date of its adoption by the Board.

15. Termination. The Board may terminate the Plan or any part thereof at any time, provided that no termination may, without the consent of the individual to whom any award shall theretofore have been made, adversely affect the rights of an individual under the award.

16. Other Actions. Nothing contained in the Plan shall be deemed to preclude other compensation plans which may be in effect from time to time or be construed to limit the authority of the Company to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Company (a) to award options for proper corporate purposes otherwise than under the Plan to an employee or other person, firm, corporation, or association, or (b) to award options to, or assume the option of, any person in connection with the acquisition, by purchase, lease, merger, consolidation, or otherwise, of the business and assets (in whole or in part) of any person, firm, corporation, or association.

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EXHIBIT 10.10

SEVERANCE PROTECTION AGREEMENT

SEVERANCE PROTECTION AGREEMENT dated ___________, by and between General Dynamics Corporation, a Delaware corporation (the “Company”), and ___________________ (the “Executive”).

The Board of Directors of the Company (the “Board”) recognizes that the possibility of a Change in Control (as hereinafter defined) of the Company exists and that the threat or occurrence of a Change in Control may result in the distraction of its key management personnel because of the uncertainties inherent in such a situation.

The Board has determined that it is essential and in the best interests of the Company and its stockholders to retain the services of the Executive in the event of the threat or occurrence of a Change in Control and to ensure the Executive’s continued dedication and efforts in such event without undue concern for the Executive’s personal financial and employment security.

In order to induce the Executive to remain in the employ of the Company, particularly in the event of the threat or occurrence of a Change in Control, the Company desires to enter into this Agreement to provide the Executive with certain benefits in the event the Executive’s employment is terminated as a result of, or in connection with, a Change in Control.

NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows:

Section 1. Definitions. For purposes of this Agreement, the following terms have the meanings set forth below:

“Accounting Firm” has the meaning set forth in Section 5.2.

“Accrued Compensation” means an amount which includes all amounts earned or accrued by the Executive through and including the Termination Date but not paid to the Executive on or prior to such date, including (a) all base salary, (b) reimbursement for all reasonable and necessary expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date, (c) all vacation pay and (d) all bonuses and incentive compensation (other than the Pro Rata Bonus).

“Base Amount” means the greater of the Executive’s annual base salary (a) at the rate in effect on the Termination Date and (b) at the highest rate in effect at any time during the 180-day period prior to a Change in Control, and will include all amounts of the Executive’s base salary that are deferred under any qualified or non-qualified employee benefit plan of the Company or any other agreement or arrangement.

“Beneficial Owner” has the meaning as used in Rule 13d-3 promulgated under the Securities Exchange Act. The term “Beneficially Owned” has a correlative meaning.

“Board” means the Board of Directors of the Company.

“Bonus Amount” means the current portion of the annual bonus awarded pursuant to the incentive compensation plan, and paid or payable at the conclusion of each fiscal year. The term excludes the equity incentive program portion of the incentive compensation plan and the Pro Rata Bonus.

“Cause” for the termination of the Executive’s employment with the Company will be deemed to exist if the Executive has been convicted of a felony or if the Board determines by a resolution adopted in good faith by at least two-thirds of the Board that the Executive has (a) intentionally and continually failed to perform in all material respects the Executive’s reasonably assigned duties with the Company (other than a failure resulting from the Executive’s incapacity due to physical or mental disability or illness or from the Executive’s assignment of duties that would constitute Good Reason for the Executive’s termination of employment with the Company) which failure has continued for a period of at least 30 days after a written notice of demand for performance has been delivered to the Executive specifying the manner in which the Executive has failed in all material respects to so perform or (b) intentionally engaged in conduct which is demonstrably and materially injurious to the Company; provided that no termination of the Executive’s employment will be for Cause as set forth in clause (b) hereof unless (i) there has been delivered to the Executive a written notice specifying in reasonable detail the conduct of the Executive of the type described in clause (b) and (ii) the Executive has been provided an opportunity to be heard in person by the Board (with the assistance of the Executive’s counsel if the Executive so desires). No act, nor failure to act, on the Executive’s part will be considered intentional unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive’s action or failure to act was in or not opposed to the best interests of the Company.

“Change in Control” means any following events:

(a) An acquisition (other than directly from the Company) of any voting securities of the Company by any Person immediately after which such Person is the Beneficial Owner of 40% or more of the combined voting power of the Company’s then outstanding voting securities; provided that in determining whether a Change in Control has occurred, voting securities which are acquired by (i) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or any Subsidiary of the Company, (ii) the Company or any Subsidiary of the Company or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined), will not constitute an acquisition which results in a Change in Control.

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(b) Consummation by the Company of:

(i)       a merger, consolidation or reorganization involving the Company, unless:

        (A)       the stockholders of the Company, immediately before such merger, consolidation or reorganization, will own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least 50% of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation or reorganization (the “Surviving Corporation”) in substantially the same proportion as their ownership of the voting securities of the Company immediately before such merger, consolidation or reorganization;

        (B)       the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least 50% of the members of the board of directors of the Surviving Corporation; and

        (C)       no Person (other than the Company, any Subsidiary of the Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, any Subsidiary of the Surviving Corporation, or any Person who, immediately prior to such merger, consolidation or reorganization, was the Beneficial Owner of 20% or more of the then outstanding voting securities of the Company) is the Beneficial Owner of 20% or more of the combined voting power of the Surviving Corporation’s then outstanding voting securities.

        (D)       a transaction described in clauses (A) through (C) above is referred to herein as a ''Non-Control Transaction”;

(ii)     the complete liquidation or dissolution of the Company; or

(iii)    an agreement for sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary of the Company).

(c) Notwithstanding the foregoing, a Change in Control will not be deemed to occur solely because any Person (a “Subject Person”) acquires Beneficial Ownership of more than the permitted amount of the outstanding voting securities of the Company as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional voting securities which increases

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the percentage of the then outstanding voting securities Beneficially Owned by the Subject Person, then a Change in Control will be deemed to have occurred.

(d) Notwithstanding anything contained in this Agreement to the contrary, if the Executive’s employment with the Company is terminated prior to a Change in Control and the Executive reasonably demonstrates that such termination (i) was at the request of a Person who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who subsequently effects a Change in Control or (ii) otherwise occurred in connection with, or in anticipation of, a Change in Control which subsequently occurs, then for all purposes of this Agreement, the date of such Change in Control with respect to the Executive will mean the date immediately prior to the date of such termination of the Executive’s employment.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” means General Dynamics Corporation, a Delaware corporation, and includes its Successors.

“Continuation Period” has the meaning set forth in Section 3.1(b)(iii).

“Determination” has the meaning set forth in Section 5.2.

“Disability” means a physical or mental disability or illness which substantially impairs the Executive’s ability to perform the Executive’s regular duties with the Company for a period of 180 consecutive days or for a period of 270 days in any 365-day period.

“Dispute” has the meaning set forth in Section 5.2.

“Excess Payment” has the meaning set forth in Section 5.3.

“Excise Tax” has the meaning set forth in Section 5.1.

“Final Determination” has the meaning set forth in Section 5.3.

“Good Reason” means the occurrence after a Change in Control of any of the events or conditions described in clauses (a) through (h) hereof:

(a) any (i) change in the Executive’s status, title, position or responsibilities (including reporting responsibilities) which, in the Executive’s reasonable judgment, represents an adverse change from the Executive’s status, title, position or responsibilities as in effect at any time within 180 days preceding the date of the Change in Control or at any time thereafter, (ii) assignment to the Executive of duties or responsibilities which, in the Executive’s reasonable judgment, are inconsistent with the Executive’s status, title, position or responsibilities as in effect at any time within 180 days preceding the date of the Change in Control or at any time thereafter, or (iii) removal of the Executive from or failure to reappoint or reelect the Executive to any of such offices or positions, in each

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case except in connection with the termination of the Executive’s employment for Disability, Cause, as a result of the Executive’s death or by the Executive other than for Good Reason;

        (b)       a reduction in the Executive’s base salary or any failure to pay the Executive any compensation or benefits to which the Executive is entitled within five days after the date when due;

        (c)       the imposition of a requirement that the Executive be based at any place outside a 30-mile radius of ______, except for reasonably required travel on Company business which is not materially greater in frequency or duration than prior to the Change in Control;

        (d)       the failure by the Company to (i) continue in effect (without reduction in benefit level or reward opportunities) any material compensation or employee benefit plan in which the Executive was participating at any time within 180 days preceding the date of the Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to the Executive or (ii) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and reward opportunities) to those provided for under each other employee benefit plan, program and practice in which the Executive was participating at any time within 1 80 days preceding the date of the Change in Control or at any time thereafter;

        (e)       the insolvency or the filing (by any party, including the Company) of a petition for bankruptcy with respect to the Company, which petition is not dismissed within 60 days;

        (f)       any material breach by the Company of any provision of this Agreement;

        (g)       any purported termination of the Executive’s employment for Cause by the Company which does not comply with the terms of this Agreement; or

        (h)       the failure of the Company to obtain, as contemplated in Section 6, an agreement, reasonably satisfactory to the Executive, from any Successor to assume and agree to perform this Agreement.

Any event or condition described in clauses (a) through (h) which occurs prior to a Change in Control but which the Executive reasonably demonstrates (a) was at the request of a Person who has indicated the intention or takes steps reasonably calculated to affect a Change in Control and who subsequently effects a Change in Control or (b) otherwise arose in connection with, or in anticipation of, a Change in Control which subsequently occurs, will constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control.

“Gross-Up Payment” has the meaning set forth in Section 5.1.

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“Notice of Termination” means a written notice from the Company of the termination of the Executive’s employment which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

“Person” has the meaning as used in Section 13(d) or 14(d) of the Securities Exchange Act, and will include any “group” as such term is used in such sections.

“Pro Rata Bonus” means an amount equal to the Bonus Amount multiplied by a fraction, the numerator of which is the number of days elapsed in the then fiscal year through and including the Termination Date and the denominator of which is 365.

“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Subsidiary” means any corporation with respect to which another specified corporation has the power under ordinary circumstances to vote or direct the voting of sufficient securities to elect a majority of the directors.

“Successor” means a corporation or other entity acquiring all or substantially all the assets and business of the Company, whether by operation of law, by assignment or otherwise.

“Supplemental Retirement Benefit” will mean the lump sum actuarial equivalent of the aggregate retirement benefit the Executive would have been entitled to receive under the Company’s supplemental and other retirement plans including the General Dynamics Corporation Retirement Plan for Salaried Employees (the “Pension Plan”). For purposes of the foregoing, the “actuarial equivalent” will be determined in accordance with the actuarial assumptions used for the calculation of benefits under the Pension Plan as applied immediately prior to the Termination Date in accordance with past practices.

“Termination Date” means (a) in the case of the Executive’s death, the Executive’s date of death, (b) in the case of the termination of the Executive’s employment with the Company by the Executive for Good Reason, the last day of the Executive’s employment, and (c) in all other cases, the date specified in the Notice of Termination; provided that if the Executive’s employment is terminated by the Company for Cause or due to Disability, the date specified in the Notice of Termination will be at least 30 days after the date the Notice of Termination is given to the Executive.

“Underpayment” has the meaning set forth in Section 5.3.

“Window Period” has the meaning set forth in Section 3.1(a).

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Section 2. Term of Agreement. This Agreement will commence as of the date hereof and will continue in effect until terminated by the Board of Directors, provided, however, that the term of this Agreement will in any case not expire prior to the expiration of 24 months after the occurrence of a Change in Control.

Section 3. Termination of Employment.

If, during the term of this Agreement, the Executive’s employment with the Company is terminated within 24 months following a Change in Control, the Executive will be entitled to the following compensation and benefits:

(a) If the Executive’s employment with the Company is terminated (i) by the Company for Cause or Disability, (ii) by reason of the Executive’s death or (iii) by the Executive other than for Good Reason and other than during the 60-day period commencing on the first anniversary of the date of the occurrence of a Change in Control (the “Window Period”), the Company will pay to the Executive the Accrued Compensation and, if such termination is other than by the Company for Cause, a Pro Rata Bonus.

(b) If the Executive’s employment with the Company is terminated for any reason other than as specified Section 3.1(a) or during the Window Period, the Executive will be entitled to the following:

        (i)       the Company will pay the Executive all Accrued Compensation and a Pro Rata Bonus;

        (ii)     the Company will pay the Executive as severance pay, and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment an amount in cash equal to                  times the sum of (A) the Base Amount and (B) the Bonus Amount;

        (iii)    for a period of 18 months (the “Continuation Period”), the Company will at its expense continue on behalf of the Executive and the Executive’s dependents and beneficiaries the life insurance, disability, medical, dental and hospitalization benefits provided (A) to the Executive at any time during the 180-day period prior to the Change in Control or at any time thereafter or (B) to other similarly situated executives who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 3.1(b)(iii) during the Continuation Period will be no less favorable to the Executive and the Executive’s dependents and beneficiaries than the most favorable of such coverages and benefits during any of the periods referred to in clauses (A) and (B) above. The Company’s obligation hereunder with respect to the foregoing benefits will be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the coverages

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and benefits of the combined benefit plans are no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 3.1(b) will not be interpreted so as to limit any benefits to which the Executive or the Executive’s dependents or beneficiaries may be entitled under any of the Company’s employee benefit plans, programs or practices following the Executive’s termination of employment, including retiree medical and life insurance benefits;

(iv) the Company will pay in a single payment an amount in cash equal to the excess of (A) the Supplemental Retirement Benefit determined as if (1) the Executive had remained employed by the Company for an additional year(s) of credited service, (2) the Executive’s annual compensation during such period had been equal to the Executive’s Base Salary and the Bonus Amount, (3) the Executive had been fully vested in the Executive’s benefit under each retirement plan in which the Executive was a participant, (3) the Company had made employer contributions to each defined contribution plan in which the Executive was a participant at the Termination Date in an amount equal to the amount of such contribution for the plan year immediately preceding the Termination Date and (4) the Executive had been fully vested in the Executive’s benefit under each retirement plan in which the Executive was a participant, over (B) the lump sum actuarial equivalent of the aggregate retirement benefit the Executive is actually entitled to receive under such retirement plans; and

(v) any restrictions on any outstanding restricted stock awards granted to the Executive will lapse and such restricted stock awards will become fully vested, all in-the-money stock options will become fully vested, and the Executive will have the right to require the Company to purchase, for cash, any out-of-the-money stock options held by the Executive at a price equal to the fair market value of such options on the date of purchase determined by the Company using the Black-Scholes option pricing model. For purposes of this Section 3.1(b)(v), a stock option will be deemed (A) to be in-the-money if, as of the date of determination, the New York Stock Exchange composite quotation for the Company’s Common Stock, as reported in the Wall Street Journal, as of the close of business, New York City time, on the immediately preceding trading day (the “Applicable Price”), exceeds the exercise price per share required to be paid by the holder upon the exercise of such option and (B) to be out-of-the-money if, as of the date of determination, the Applicable Price is equal to or less than such exercise price.

(c) The amounts provided for in Section 3.1(a) and Sections 3.1(b)(i), (ii) and (iv) will be paid in a single lump sum cash payment by the Company to the Executive within five days after the Termination Date.

(d) The Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such payment will be offset or reduced by the amount of any compensation or benefits

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provided to the Executive in any subsequent employment except as specifically provided in Section 3.1(b)(iii).

3.2. The compensation to be paid to the Executive pursuant to Sections 3.1(a), 3.1 (b)(i) and 3.1 (b)(ii) of this Agreement will be in lieu of any similar severance or termination compensation (i.e., compensation based directly on the Executive’s annual salary or annual salary and bonus) to which the Executive may be entitled under any other Company severance or termination agreement, plan, program, policy, practice or arrangement. With respect to any other compensation and benefit to be paid or provided to the Executive pursuant to this Section 3, the Executive will have the right to receive such compensation or benefit as herein provided or, if determined by the Company to be more advantageous to the Executive, similar compensation or benefits to which the Executive may be entitled under any other Company severance or termination agreement, plan, program, policy, practice or arrangement. The Executive’s entitlement to any compensation or benefits of a type not provided in this Agreement will be determined in accordance with the Company’s employee benefit plans and other applicable programs, policies and practices as in effect from time to time.

3.3 Notwithstanding any other provision of this Agreement to the contrary, the termination of the Executive’s employment with the company in connection with the sale, divestiture or other disposition of [applicable subsidiary] or part thereof (the “Subsidiary”) will not be deemed to be a termination of employment of the Executive for purposes of this Agreement provided the Executive is offered employment by the purchaser or acquirer thereof and the Company obtains an agreement from such purchaser or acquirer as contemplated in Section 6, and the Executive will not be entitled to benefits from the Company under this Agreement as a result of such sale, divestiture or other disposition, or as a result of any subsequent termination of employment.

Section 4. Notice of Termination. Following a Change in Control, any purported termination of the Executive’s employment by the Company will be communicated by a Notice of Termination to the Executive. For purposes of this Agreement, no such purported termination will be effective without such Notice of Termination.

Section 5. Excise Tax Payments.

5.1. In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Code) to the Executive or for the Executive’s benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, the Executive’s employment with the Company or a change in ownership or effective control of the Company or of a substantial portion of its assets (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to herein as the “Excise Tax”), then the Executive will be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes and the Excise Tax, other than interest and penalties imposed by reason of the Executive’s failure to file timely a tax return or pay taxes shown due on the

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Executive’s return, and including any Excise Tax imposed upon the Gross-Up Payment), the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

5.2. An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment will be made at the Company’s expense by an accounting firm of recognized national standing selected by the Company and reasonably acceptable to the Executive (the “Accounting Firm”). The Accounting Firm will provide its determination (the “Determination”), together with detailed supporting calculations and documentation, to the Company and the Executive within five days of the Termination Date, if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it will furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payment or Payments. Within ten days of the delivery of the Determination to the Executive, the Executive will have the right to dispute the Determination (the “Dispute”). The Gross-Up Payment, if any, as determined pursuant to this Section 5.2 will be paid by the Company to the Executive within five days of the receipt of the Determination. The existence of the Dispute will not in any way affect the Executive’s right to receive the Gross-Up Payment in accordance with the Determination. If there is no Dispute, the Determination will be binding, final and conclusive upon the Company and the Executive, subject to the application of Section 5.3.

5.3. As a result of uncertainty in the application of Sections 280G and 4999 of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not be paid (an “Excess Payment”) or that a Gross-Up Payment (or a portion thereof) which should be paid will not be paid (an “Underpayment”). An Underpayment will be deemed to have occurred (a) upon notice (formal or informal) to the Executive from any governmental taxing authority that the Executive’s tax liability (whether in respect of the Executive’s current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment, (b) upon a determination by a court, (c) by reason of a determination by the Company (which will include the position taken by the Company, together with its consolidated group, on its federal income tax return) or (d) upon the resolution of the Dispute to the Executive’s satisfaction. If an Underpayment occurs, the Executive will promptly notify the Company and the Company will promptly, but in any event at least five days prior to the date on which the applicable government taxing authority has requested payment, pay to the Executive an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of the Executive’s failure to file timely a tax return or pay taxes shown due on the Executive’s return) imposed on the Underpayment. An Excess Payment will deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax will not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Executive had previously received a Gross-Up Payment. A “Final Determination” will be deemed to have occurred when the Executive has received from the applicable government taxing authority a refund of taxes or

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other reduction in the Executive’s tax liability by reason of the Excise Payment and upon either (i) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the statute of limitations with respect to the Executive’s applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment will be treated as a loan by the Company to the Executive and the Executive will pay to the Company on demand (but not less than 10 days after the determination of such Excess Payment and written notice has been delivered to the Executive) the amount of the Excess Payment plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up Payment (to which the Excess Payment relates) was paid to the Executive until the date of repayment to the Company. The Executive will use reasonable cooperative efforts at the request of the Company to assist in the determination of the amount of any Excess Payment or Underpayment made to the Executive pursuant to this Agreement.

5.4. Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax is imposed on any Payment or Payments, the Company will pay to the applicable government taxing authorities as Excise Tax withholding the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments.

Section 6. Successors: Binding Agreement. This Agreement will be binding upon and will inure to the benefit of the Company and its Successors, and the Company will require any Successors to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Neither this Agreement nor any right or interest hereunder will be assignable or transferable by the Executive or by the Executive’s beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement will inure to the benefit of and be enforceable by the Executive’s legal representatives.

Section 7. Fees and Expenses. The Company will pay as they become due all legal fees and related expenses (including the costs of experts) incurred by the Executive as a result of (a) the Executive’s termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment) and (b) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement (including any such fees and expenses incurred in connection with (i) the Dispute and (ii) the Gross-Up Payment, whether as a result of any applicable government taxing authority proceeding, audit or otherwise) or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits.

Section 8. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) will be in writing and will be deemed to have been duly given when personally delivered or sent by

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certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company will be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications will be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address will be effective only upon receipt.

Section 9. Nonexclusivity of Rights. Nothing in this Agreement will prevent or limit the Executive’s continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company for which the Executive may qualify, nor will anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company (except for any severance or termination agreement). Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company will be payable in accordance with such plan or program, except as specifically modified by this Agreement.

Section 10. No Set-Off. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder will not be affected by any circumstances, including any right of set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others.

Section 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.

Section 12. Governing Law. This Agreement will be governed by and construed and enforced in accordance with the laws of the State of Delaware without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement will be brought and maintained in a court of competent jurisdiction in New Castle County in the State of Delaware.

Section 13. Severability. The provisions of this Agreement will be deemed severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof.

Section 14. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to severance protection in connection with a Change of Control.”

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.

GENERAL DYNAMICS CORPORATION

By: _________________________________
Name:
Title:

By: _________________________________
[Executive]

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EXHIBIT 10.11

W.P. Wylie
Vice President
Human Resources and Administration

February 13, 2001

Mr. Kenneth C. Dahlberg:

Dear Mr. Dahlberg

On behalf of General Dynamics Corporation, we are pleased to extend an offer to you for the position of Executive Vice President — Information Systems and Technology. In this position you will be an officer of the Corporation and will report to Nicholas D. Chabraja, Chairman and Chief Executive Officer. Please understand that your election to officer status is subject to approval by the Board of Directors. Your starting salary will be paid bi-weekly at a rate equivalent to $450,000 annually.

You will be eligible to participate in the Corporation’s Incentive Compensation and Long-Term Incentive Programs. Annual awards for Incentive Compensation are dependent upon your performance as well as the corporation’s performance. The Long-Term Incentive Program (LTIP) provides annual awards of stock options and performance-restricted stock. The present value of your long-term award will be approximately $1,100,000. Part of this award is in the form of options and part in the form of performance restricted stock. Please note that all long-term equity awards are subject to approval by the Compensation Committee of the Board of Directors. The value of your total direct compensation (salary, bonus, and long-term equity) is about $2,000,000. Tommy Augustsson (703-876-3473) will discuss the details of this program at your convenience.

In addition, you will be granted restricted shares of General Dynamics stock which will serve to offset the forfeiture of your non-vested Raytheon stock options. The grant value will be the average of the high and low on your first day of work and restrictions will lapse according to the original vesting schedule. Also, you will be granted restricted shares of General Dynamics stock to offset forfeitures of Raytheon shares. These shares will have a two year restriction period.

Using the February 12, 2001 closing prices of Raytheon (RTNb - $33.30) and General Dynamics (GD - $66.41) as an illustration, the resulting awards would be a grant of 40,293 shares of restricted stock. (See Enclosure for details of the calculations of this example.)

3190 Fairview Park Drive
Falls Church, VA 22042-4523
Tel 703 876 3415
Fax 703 876 3550
pwylie@generaldynamics.com

General Dynamics Private Information

Page 2
February 13, 2001

In the event you are involuntarily terminated, other than for cause, during the first three years of your employment, your salary and benefits would continue through that period.

This offer of employment is contingent upon filling out the application form previously transmitted to you as well as successful completion of a pre-employment drug screening.

Also, a presumptive condition for employment is that your bonus for performance year 2000 is paid by your current employer and that the non-vested options and restricted shares indeed are forfeited.

As a corporate officer, you will be offered the Corporate Office benefits programs (i.e., health insurance, disability insurance, etc.). Henry Eickelberg (703-876-3409) and Bob Stewart (703-876-3408) will enroll you in these programs upon your first day of work. The perquisite program for corporate officers has previously been transmitted to you. If you have any questions, please call me.

Please acknowledge your acceptance or rejection of this offer by completing the Acceptance/Rejection enclosure and returning it to me by 2 March 2001. If you accept the offer, please complete and return the application form also.

We at General Dynamics are looking forward to a positive response from you.

Sincerely,

/s/ T.R. Augustsson

for W.P. Wylie

Enclosures

EXHIBIT 10.12

Mr. William W. Boisture
President & Chief Operating Officer
Gulfstream Aerospace Corporation
500 Gulfstream Road
Savannah, GA. 31402

Dear Bill:

Please accept this letter to memorialize our understanding of certain issues agreed to between you and General Dynamics Corporation.

This letter agreement is predicated on your remaining employed with General Dynamics Corporation through December 31, 2004. During the term of this Agreement, you will continue to receive an annual base salary that is no less than your current base salary. Consistent with our normal practices, your base salary and bonus will be reviewed annually.

In further consideration, we have agreed to the following:

Relocation from Savannah, Georgia to Ft. Worth, Texas:

General Dynamics Corporation will reimburse you for the cost of moving from Savannah, Georgia to Ft. Worth Texas. This includes the cost of packing/unpacking, moving (including transporting one automobile) and storing (for up to six months, if necessary) your household items and furniture. General Dynamics Corporation will also reimburse you for the cost of reasonable real estate commissions and closing costs (including tide charges, settlement costs and reasonable attorney’s fees) you may incur in the course of selling your principal residence in Savannah, Georgia.

In the event that your employment terminates prior to December 31, 2004, you agree to reimburse the Company for the moving expenses and real estate commissions paid on your behalf.

Retirement Agreement Benefit:

In exchange for devoting your full and exclusive services to General Dynamics Corporation (and its subsidiaries), effective as of the date below, General Dynamics Corporation agrees to pay you a “Retirement Agreement Benefit.” Your Retirement Agreement Benefit shall be calculated as provided below from the available general assets of the Corporation.

You will continue to participate in the Gulfstream Aerospace Corporation Pension Plan (the “Savannah Plan”) and accrue benefits thereunder. Your monthly Retirement Agreement Benefit will be equal to: (l) the benefit calculated in accordance with the

general provisions of the General Dynamics Retirement Plan for Salaried Employees (the “General Dynamics Plan”), as amended, but without regard to the limitations imposed by Section 415 or 401(a)(17) of the Internal Revenue Code (as amended) reduced by (2) the monthly retirement benefit you are eligible to receive under the Savannah Plan (including post-retirement increases as received). Credited Service used in calculating your Retirement Agreement Benefit shall reflect both your prior employment with General Dynamics (from June 26, 1978 to October 9, 1979) and your period of service with Gulfstream. The General Dynamics Plan benefit is calculated on a single-life basis equal to the average of your final highest consecutive sixty (60) months of base salary rates (including amounts eligible to be received in cash, if any, under the General Dynamics Corporation Executive Compensation Program) times your Credited Service times 1-1/3 percent. If you retire before age 62, your Retirement Agreement Benefit will be reduced at the rate of 2-1/2 percent for each year (or portion thereof) your retirement age is less than 62 years old. In addition, your Retirement Agreement Benefit shall be reduced (on an actuarial equivalent basis) for payment in a form other than a single-life annuity. Your Retirement Agreement Benefit must be paid at the same time and in the same form that you elect to receive your retirement benefit under the Savannah Plan.

Your Retirement Agreement Benefit shall be earned site rate of 2-1/12% for each completed calendar month (starting from January 1, 2001) of active employment with General Dynamics Corporation. You shall be eligible for the entire benefit if you maintain active employment with General Dynamics Corporation through and including December 31, 2004. Your Retirement Agreement Benefit is an unfunded promise to pay money in the future and shall at all times be subject to the claims of general creditors of the Corporation.

You shall be eligible for full payment regardless of when you leave employment if your employment is terminated by reason of your incurring a total and permanent disability or your employment is terminated without cause. You shall be deemed totally and permanently disabled if you qualify for a disability benefit from the Social Security Administration. Your separation of employment shall be deemed to have terminated without cause as shall be determined within the sole and absolute discretion of the Compensation Committee of the Board of Directors.

Your Retirement Agreement Benefit shall be forfeited in full if your employment with the Corporation is terminated for cause as shall be determined within the sole and absolute discretion of the Compensation Committee of the Board of Directors.

If you should die prior to retiring from active service, your surviving spouse, if any, shall receive a monthly benefit payable from the Corporation equal to the amount determined in the manner described above but reflecting the pre-retirement surviving spouse provisions of the General Dynamics Plan (50% of the benefit that you would have received had you retired on the date immediately prior to your death reduced for commencement prior to age 62, if applicable, and for form of payment) and reduced by the pre-retirement surviving spouse’s benefit payable under the Savannah Plan including post-retirement increases.

I am pleased to provide you with these benefits. If this letter meets with your approval, please indicate your acceptance by signing and dating below and return one copy to me.

Sincerely,

General Dynamics Corporation

/s/ Nicholas D. Chabraja
Nicholas D. Chabraja
Chairman of the Board
And Chief Executive Officer

Accepted this 2 day of October, 2001:

/s/ William W. Boisture
William W. Boisture

Management’s Discussion and Analysis of the Results of Operations and Financial Condition
(Dollars in millions, except per share amounts or unless otherwise noted)

BUSINESS OVERVIEW

2001 Sales by Customer Base

The company’s businesses include information and communications technology, land and amphibious combat systems, naval and commercial shipbuilding, and business aviation. These are high technology businesses that use design, manufacturing and program management expertise together with advanced technology and the integration of complex systems as part of their everyday operations. 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.

Sixty percent of the company’s sales are from U.S. defense spending, which has risen steadily over the past few years. From a low of $42.4 billion in 1996, defense procurement is projected to reach $98.9 billion by 2007, according to the President’s 2003 budget. The company’s major defense programs are well-funded, long-term initiatives with a high probability of follow-on work. These programs include existing, multiyear efforts as well as new, transformational systems used by the military services. The company’s international defense business continued to grow in 2001 with significant new programs from governments in Europe, the Middle East and Asia. The company’s business aviation segment had its strongest year in 2001, with record revenue and operating earnings.

The company’s management concentrates on creating shareholder value through operational execution and disciplined capital deployment. Management engages in continuous process improvement that frequently results in improved margins. Strong cash flows are generated through a focus on return on invested capital. The company has achieved and expects to continue to generate significant free cash after satisfying internal investment requirements. This free cash is deployed as part of a disciplined acquisition program and on the repurchase of company shares in the open market.

Business Acquisitions

During 2001, the company acquired five businesses for a total of $1.5 billion. In late January, the company acquired Primex Technologies, Inc., renamed Ordnance and Tactical Systems, expanding the company’s market position in ordnance manufacturing to include medium- and large-caliber ammunition. This acquisition also expanded the company’s portfolio in what it believes to be the high growth areas of missile and precision-guided munitions through existing subcontract relationships. In mid-February, the company acquired four aircraft service and maintenance facilities from BBA North America. These operations now conduct business as General Dynamics Aviation Services, and are located in Dallas, Las Vegas, Minneapolis and West Palm Beach. In early June, the company acquired substantially all of the assets of Galaxy Aerospace Company LP. This acquisition broadened the Gulfstream product line with the mid-size Gulfstream 100 and the super mid-size Gulfstream 200 — creating market-entry, add-on and move-up opportunities for a wider range of customers. In late July, the company acquired Spain’s leading defense manufacturer, Empresa Nacional Santa Bárbara de Industrias Militares, S.A., of Madrid, Spain, and Santa Bárbara Blindados, S.A., of Seville. The new combined entity, renamed Santa Bárbara Sistemas, S.A., produces combat vehicles and munitions and is expected to enhance the company’s export abilities into Europe, North Africa and South America. Also, at the end of September, the company acquired Integrated Information Systems Group from Motorola, Inc. Renamed Decision Systems, this business provides technologies, products and systems

General Dynamics 2001 Annual Report 15

that strengthen the company’s position in what management believes to be rapidly growing information assurance, communications and situational awareness markets here and abroad.

CONSOLIDATED OVERVIEW

Results of Operations

The company’s net sales for 2001 were $12.2 billion, an increase of 17 percent over 2000. Excluding the increase attributable to businesses acquired during the year, net sales increased by more than seven percent, with organic revenue growth realized in each of the company’s business segments. Net sales for 2000 were $10.4 billion, an increase of 16 percent over 1999 sales of $9 billion. Organic revenue growth was approximately five percent of this increase.

Net earnings for 2001 grew 13 percent to $915, before favorable tax benefits, resulting in a per diluted share increase to $4.51 from $4.03 in 2000. Net earnings rose in part from organic earnings growth in all of the company’s business segments as well as contribution from acquired businesses. Net earnings for 2000 grew to $811 from $715 in 1999, an increase of 13 percent, before favorable tax benefits in both years. Net earnings per diluted share before tax benefits increased 14 percent to $4.03 in 2000 from $3.54 in 1999. Other non-recurring items in 1999 resulted in an insignificant impact to net earnings.

Cash flow from operating activities has steadily increased since 1999, totaling $1.1 billion in 2001. The company ended 2001 with a cash balance of $442, up from $177 at year-end 2000. Net debt increased to $1.5 billion from $336 at the end of 2000, primarily from the $1.5 billion investment in acquisitions discussed earlier. With adequate funds on hand and the capacity for additional long-term borrowings, management has the financial capability to execute its operating and financial strategy.

16 General Dynamics 2001 Annual Report

Expenses for non-operating items were $5 in 2001, essentially unchanged from 2000 expenses of $7. During 1999, the company recognized $43 in non-operating expenses. The majority of these costs were incurred or written off as a result of acquiring Gulfstream Aerospace Corporation (Gulfstream), and included transaction expenses and unamortized debt costs on obligations repaid shortly after the acquisition. Net interest expense decreased to $56 in 2001 from $60 in 2000 on a higher average debt balance because of lower average borrowing rates. The 2000 net interest expense of $60 increased from $34 in 1999 due to higher average commercial paper balance and decreased interest income as cash was used for business acquisitions.

The company’s effective tax rate was 33.8 percent, 28.6 percent and 21.8 percent for 2001, 2000 and 1999, respectively. During 2001, the company reduced its liabilities for tax contingencies and recognized a non-cash benefit of $28. During both 2000 and 1999, the company recognized favorable tax benefits of $90 and $165, respectively, from the settlement of outstanding tax issues with the Internal Revenue Service (IRS), including refund claims for research and experimentation tax credits.

Backlog

The company ended 2001 with a total backlog of $26.8 billion, an increase of 36 percent over the 2000 backlog of $19.7 billion. The increase stems from key program awards, higher business aircraft orders and growth through acquisition. Funded backlog has increased steadily from $12 billion in 1999 to $19.4 billion in 2001.

The company's defense businesses represent $20.2 billion of the 2001 backlog, of which approximately $15 billion is funded. For these businesses, total backlog represents the estimated remaining sales value of work to be performed under firm contracts. Funded backlog represents the portion of total backlog that has been appropriated by Congress and funded by the procuring agency.

Aerospace year-end 2001 backlog approximates $6.3 billion. Of total backlog, $4.2 billion is for orders for which the company has entered into definitive purchase contracts and has received non-refundable deposits from the customers. The backlog also includes $2.1 billion in options to purchase new aircraft and agreements to provide future aircraft maintenance and support services. A significant portion of the Aerospace backlog consists of an agreement with an unaffiliated customer who purchases the aircraft for use in its fractional ownership program, Executive Jet International (Executive Jet). Backlog with Executive Jet, a unit of Berkshire Hathaway and the leader in the fractional market, represents 43 percent of funded and 79 percent of unfunded Aerospace backlog. 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, which previously represented $2.5 billion of total backlog. Prior to the termination of the Avolar agreements, contracts with Avolar represented approximately $800 of firm contracts backlog for 36 aircraft. The company believes that it will be able to re-market the aircraft previously under contract to Avolar.

The company’s coal and aggregates operations add approximately $300 to year-end 2001 backlog, substantially all of which is funded.

General Dynamics 2001 Annual Report 17

REVIEW OF OPERATING SEGMENTS

INFORMATION SYSTEMS AND TECHNOLOGY

Results of Operations and Outlook


Year Ended December 31	2001			2000			1999

Net Sales	$	2,800		$	2,388		$	1,422
Operating Earnings		260			221			127
Operating Margin		9.3	%		9.3	%		8.9	%

Net sales increased $412 and operating earnings increased $39 in 2001 due in part to the acquisition of Decision Systems at the end of September. Excluding Decision Systems results, net sales and operating earnings grew by approximately seven percent. In 2000, net sales increased $966, due in large part to the September 1999 acquisition of three business units from GTE Corporation. In 2000, operating earnings increased $94 because of that acquisition and a five-percent growth in organic earnings.

Over two-thirds of the Information Systems and Technology contracts are fixed price, which provides the company opportunities to increase margins through improved efficiencies and processes. In order to best achieve these opportunities, the company realigned the group into fewer reporting organizations. The Information Systems and Technology group enters 2002 with five business units — Advanced Information Systems, C4 Systems, Network Systems, General Dynamics United Kingdom Limited, and the newly acquired Decision Systems.

18 General Dynamics 2001 Annual Report

Information Systems and Technology backlog rose to $5 billion in 2001, $3 billion higher than in 2000. The significant growth in 2001 stems from key program awards and the acquisition of Decision Systems. Funded backlog at year-end 2001 is 95 percent of the total.

Significant Awards and Other Contracts

The most significant addition to the group’s backlog during the year was a $2.4 billion contract that the U.K. Ministry of Defence awarded to the company in July 2001 for the BOWMAN program. BOWMAN is a secure digital voice and data communications system for the U.K. armed forces.

Also during 2001, the Taiwanese Army awarded the company a $390 contract for the second phase of the three-phase Improved Mobile Subscriber Equipment tactical communications systems. Phase I of the program began in 1996, with operational testing completed in 2000. Phase II will provide significant technology upgrades through 2005.

Other contracts in the 2001 backlog are the design, integration, installation and maintenance of telecommunications systems for the U.S. military, federal agencies and commercial customers, including a Navy/Marine Corps Intranet subcontract and the Army Installation Information Infrastructure Modernization program. Also included are various contracts that provide processing and mission computing systems for several U.S. avionics platforms (including the F-18, JSTARS and AYK-14 production programs), strategic fire control development and production, guidance engineering services, and training services and hardware for the Trident -class submarine.

Decision Systems added approximately $550 total backlog to the Information Systems and Technology year-end 2001 position, including contracts for command and control systems, the Navy’s digital modular radio, information assurance and space and terrestrial communications products.

COMBAT SYSTEMS

Results of Operations and Outlook


Year Ended December 31	2001			2000			1999

Net Sales	$	2,210		$	1,273		$	1,290
Operating Earnings		238			156			155
Operating Margin		10.8	%		12.3	%		12.0	%

Net sales increased $937 and operating earnings increased $82 in 2001 because of strong organic growth and the acquisition of two businesses, Ordnance and Tactical Systems and Santa Bárbara Sistemas, during the year. Initial operating margin rates from the acquisitions were modestly lower than the historical segment performance and primarily account for the lower overall margin rate for the full year. Excluding business acquisitions, net sales for 2001 increased by approximately 25 percent, stemming from new work on the Stryker program, previously referred to as the Interim Armored Vehicle program, and additional work on the Advanced Amphibious Assault Vehicle (AAAV) and armament programs, with approximately 15 percent growth in operating earnings. Net sales and operating earnings in 2000 were essentially flat compared with 1999.

The company expects Combat Systems full-year 2002 operating margins to remain consistent with 2001, but sees opportunity for margin expansion through

General Dynamics 2001 Annual Report 19

efforts to reduce costs and improve operating efficiencies as the new acquisitions are fully integrated.

Combat Systems backlog grew to $5.2 billion in 2001, $3.4 billion higher than 2000. This significant increase stems from several major awards and two business acquisitions. Included in the backlog are design programs for transformational systems, advanced technology awards that support development of the Army’s Future Combat Systems and a wide range of vehicles and vehicle systems, including long-term production programs for the U.S. and Spanish armies’ heavy armored vehicles. Production awards for programs currently in design are likely, extending the company’s deliveries well into the next decade. Funded backlog at year-end 2001 is $3.4 billion.

Transformational Systems

In November 2000, the Army awarded GM GDLS Defense Group, a joint venture between the company and General Motors Canada Ltd., a six-year requirements contract to equip its Brigade Combat Teams with an eight-wheeled armored vehicle called the Stryker. The 2001 backlog includes approximately $350 for the company’s share of the development, test, evaluation and production of the first 466 Strykers. Delivery of the vehicles began in February 2002.

The Marine Corps awarded the company a $712 contract for the systems development and demonstration phase of the AAAV program in July 2001. Low-rate initial production is scheduled to begin in 2004, followed by full-rate production in 2006.

The company received approximately $100 in advanced technology awards during the year that will support the development of the Future Combat Systems program. These awards include research and development on unmanned ground vehicles, and advanced hybrid electric drive systems.

Also included in backlog is research and development work on the Army’s Crusader Self-Propelled Howitzer program. The company’s share on this program is approximately 25 percent.

Heavy Armored Systems

The Army awarded the company a $741 fixed-price multiyear contract in March 2001 to upgrade an additional 307 M1A2 Abrams tanks with the System Enhancement Package. This award is a follow-on to the $1.3 billion, 580-vehicle fixed-price contract awarded to the company in 1996. During 2001, the company delivered the final 72 tanks from the 1996 contract and 42 from the follow-on award. Year-end backlog includes the remaining 265 tanks under the upgrade program, with deliveries scheduled through 2004.

The 2001 backlog also includes production of the Wolverine Heavy Assault Bridge vehicles for the U.S. Army, M1A1 Abrams tank hardware kits for the Egyptian tank co-production program, systems technical support for the M1A2, and engines for international customers.

Santa Bárbara Sistemas

Santa Bárbara Sistemas adds approximately $1.6 billion in production and munitions contracts to the Combat Systems year-end backlog, the majority of which are fixed-price production programs. These production programs include contracts to provide the Spanish army 235 Leopard main battle tanks, built under license from a German company, with deliveries beginning in late 2002 and extending through 2008. Also included is a contract for delivery of 48 Pizarro tracked infantry fighting vehicles.

20 General Dynamics 2001 Annual Report

Armament and Munitions

Armament and munitions programs are approximately $1.2 billion of Combat Systems year-end 2001 backlog, over 60 percent of which comes from Ordnance and Tactical Systems. Production and development contract backlog includes medium- and large-caliber ammunition, propellants, satellite propulsion products and armament programs. The backlog also includes systems management and production of over 300,000 rockets, warheads and motors for the Army’s 2.75-inch Hydra 70 rocket system, single- and multi-barrel medium-caliber gun systems, individual- and crew-served weapons, and reactive armor tiles for the Bradley Fighting Vehicle.

MARINE SYSTEMS

Results of Operations and Outlook


Year Ended December 31	2001			2000			1999

Net Sales	$	3,612		$	3,413		$	3,088
Operating Earnings		310			324			328
Operating Margin		8.6	%		9.5	%		10.6	%

Net sales rose $199 in 2001 with increased work on design programs and early-stage production programs offsetting a modest decline in mature production program volume. Operating earnings decreased $14 in 2001 primarily because of the shift in work from mature programs to lower margin design and cost-plus work. In 2000, net sales increased $325 largely from additional work on the Virginia -class submarine, DD-21 design and ship repair. This increase was offset partially by lower volume on the DDG-51 program resulting from a 55-day work stoppage at the company’s Bath Iron Works shipyard late in the year. In 2000, operating earnings remained essentially even with 1999 because of lower margin DD-21 design, repair work and the work stoppage at Bath Iron Works.

The company expects Marine Systems 2002 revenues and earnings to remain similar to last year. However, margins should improve in 2003 with resultant earnings growth. In 2001, the company completed a new land-level facility at Bath Iron Works, which is expected to increase cost efficiency in low-rate production. The company plans to complete lift capacity and steel handling enhancements at the NASSCO shipyard during 2002. These facilities improvements give rise to opportunities for improving margins through more efficient workflow.

Marine Systems backlog for 2001 totaled $10.1 billion, of which $6.7 billion is funded. The backlog includes long-term production programs scheduled for delivery through 2008, with likely follow-on work through the end of the decade. The 2000 backlog was $11.2 billion. The company expects Marine Systems backlog to hold firm through the next few years and then grow consistent with growth in the Navy’s shipbuilding plan embedded in the President’s 2003 budget.

General Dynamics 2001 Annual Report 21

Surface Combatants

The 2001 backlog includes contracts with the Navy for constructing eight Arleigh Burke -class destroyers (DDG-51) and an amphibious assault ship, the LPD-19, the third in the Navy’s new San Antonio -class of amphibious assault ships. The company is a member of a three-contractor team that was awarded a cost reimbursable contract to design and build the San Antonio -class ships.

Nuclear Submarines

The 2001 backlog includes a contract to construct the first four Virginia -class submarines. The Navy awarded the contract in 1998 for an initial value of $4.2 billion. Delivery of the first submarine is scheduled for 2004 and the fourth for 2008. Construction work is shared equally between the company as prime contractor and Newport News Shipbuilding Inc. (Newport News) as subcontractor, in accordance with the terms of a Team Agreement between the company and Newport News. The President’s 2003 budget includes full funding for a fifth submarine.

In December 1999, the Navy awarded the company an $887 modification for the third and final Seawolf submarine. Delivery is scheduled for 2004.

The 2001 backlog also includes contracts for submarine logistics support services.

Auxiliary and Commercial Ships

The backlog includes a $709 Navy contract awarded to the company in October 2001 for the design and construction of the first two T-AKE ships, a new class of dry-cargo combat logistics ship. The award includes options for 10 more ships that the Navy can exercise over the next six years for a potential contract value of $3.7 billion. Functional design work on the T-AKE began in late 2001 and delivery of both ships is scheduled for 2005. Funding has been appropriated for the third and fourth ships.

In September 2000, BP Oil Shipping Company, USA (BP) awarded the company a $630 contract to design and build three double-hull crude oil tankers, with options for three additional vessels. In September 2001, BP exercised an option for a fourth ship with a value of approximately $200. Design work on the tankers is underway. Construction of the first ship will begin in 2002, with delivery scheduled for late 2003. Deliveries of subsequent ships are planned for 2004, 2005 and 2006.

Totem Ocean Trailer Express, Inc. (TOTE) awarded the company a contract for approximately $300 in December 1999 to build two roll-on/roll-off cargo ships for TOTE’s cargo steamship service from Tacoma, Washington to Anchorage, Alaska. The contract has an option for a third ship. Construction on the first ship started in 2001. Deliveries are scheduled for 2002 and 2003.

In February 2000, the Navy awarded a $230 contract to the company for the construction of its eighth strategic sealift ship, scheduled for delivery in late 2002.

The backlog also includes repair contracts for naval vessels.

AEROSPACE

Results of Operations and Outlook


Year Ended December 31	2001			2000			1999

Net Sales	$	3,265		$	3,029		$	2,909
Operating Earnings		625			592			482
Operating Margin		19.1	%		19.5	%		16.6	%

Net sales in 2001 increased $236 primarily because of the Galaxy Aerospace acquisition in June 2001, which added the Gulfstream 100 and Gulfstream 200 aircraft. Operating earnings increased $33 in 2001 as a result of higher sales and improved cost performance in both “green” aircraft production and completion. This increase was offset partially by slightly higher research and development expenses for new product development, expenses from acquisitions and severance costs. Operating margins were slightly lower in 2001 because of the introduction of the less expensive lower margin aircraft acquired in the Galaxy Aerospace transaction.

22 General Dynamics 2001 Annual Report

In 2000, net sales increased $120 on slightly fewer deliveries than in 1999 due largely to the mix of aircraft delivered. Operating earnings increased $110 primarily because of improved cost performance from reduced cycle time, lean manufacturing initiatives in new aircraft production and completions, and aircraft mix.

The company anticipates 2002 total green aircraft production to increase with the full-year inclusion of the acquired Gulfstream 100 and Gulfstream 200 aircraft models, offset partially by a decrease in production of approximately 10 fewer large-cabin aircraft. As a result of efforts to improve cost performance, including some reductions in force and other continuous process improvements, the company anticipates that Aerospace full-year 2002 operating earnings will be comparable with 2001.

Summary of Aircraft Statistical Information

Aircraft contracts usually provide for two major milestones, the manufacture of the green aircraft and its completion, which includes exterior painting and installation of customer-selected interiors and optional avionics. Revenues are initially recorded when green aircraft are delivered to the customer and subsequently when the customer accepts final delivery of the fully outfitted aircraft.

The following summarizes certain key unit data related to the Aerospace business group:


		2001 ⁽¹⁾		2000		1999

New Orders			121		62		42
Options Exercised			2		20		2

	Total Firm Orders		123		82		44
New Options			54		1		10
Firm Contracts in Backlog			131		87		80
Options in Backlog			63		18		37

	Total Green Aircraft in Backlog		194		105		117
Completions in Backlog			49		47		46
Green Deliveries			84		71		70
Completion Deliveries			98		70		75

Aircraft in the backlog have deliveries expected through 2008.

⁽¹⁾ Excludes contracts with Avolar for 36 aircraft plus options for 66 more, which were terminated on March 25, 2002.

General Dynamics 2001 Annual Report 23

The Aerospace group backlog increased 43 percent in 2001, to $6.3 billion from $4.4 billion in 2000. This significant increase is attributable to another strong year for aircraft orders, including a large order placed by Executive Jet, a unit of Berkshire Hathaway and the leader in the fractional market.

Forty-eight percent, or $2 billion, of the 2001 firm contracts backlog is with commercial customers other than Executive Jet and covers a wide spectrum of industries and customer groups. Backlog with Executive Jet approximates $1.8 billion, which includes firm contracts for 78 aircraft. The 2001 firm contracts backlog also contains approximately $400 from government customers, including orders from the National Center for Atmospheric Research, the U.S. Coast Guard, the Japanese Coast Guard, and Israel's Ministry of Defense for special mission aircraft.

Options from Executive Jet, totaling $1 billion for 55 aircraft, make up the majority of the options backlog. Over 75 percent of the maintenance and support services backlog is also with Executive Jet.

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, which previously represented $2.5 billion of total backlog. Prior to the termination of the Avolar agreements, contracts with Avolar represented approximately $800 of firm contracts backlog for 36 aircraft. The company believes that it will be able to re-market the aircraft previously under contract to Avolar.

OTHER

The company’s Other businesses consist of Freeman Energy, engaged in coal mining, Material Service, engaged in the supply of aggregates to the construction industry, and a leasing operation for liquefied natural gas tankers.

Results of Operations


Year Ended December 31	2001		2000		1999

Net Sales	$	276	$	253	$	250
Operating Earnings		52		36		111

Earnings for 2001 reflected higher volume and profits in the aggregates and coal mining operations. In 2000, operating earnings corresponded to historical levels against slightly higher sales. Operating earnings for 1999 included $65 related to several non-recurring events, including the merger of the company’s and Gulfstream’s commercial pension plans, which resulted in the recognition of previously deferred gains of $126. Also during 1999, management decided not to make additional investments in its undeveloped high sulfur coal reserves and revalued these coal reserves and related assets, resulting in a non-cash charge to earnings of $61.

24 General Dynamics 2001 Annual Report

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

After spending $1.5 billion for acquisitions during 2001, the company ended the year with a cash balance of $442, net debt of $1,493, and a debt-to-capital ratio of 30 percent. With cash flow from business operations totaling $1 billion for 2001, the company expects to continue to generate funds from operations well in excess of its short- and long-term liquidity needs. Management defines cash flow from business operations, an internal performance measurement, as after-tax cash provided by business unit operating activities, net of capital expenditures and before corporate items. Management believes that the company has adequate funds on hand and capacity for additional long-term borrowings to provide ample strategic flexibility.

The following is a discussion of the company’s major operating, investing and financing activities for each of the three years in the period ended December 31, 2001 as classified on the Consolidated Statement of Cash Flows.

Cash Provided by Operating Activities

Net cash provided by operating activities was $1,103, $1,071 and $1,016 in 2001, 2000 and 1999, respectively. The increase in 2001 over 2000 was due to cash generated from growth in the company’s defense operations. This increase was offset partially by a decrease in cash from the Aerospace group’s operations, primarily caused by the timing of aircraft payments. The increase in 2000 over 1999 was due in large part to the increase in cash from favorable order activity and the timing of aircraft payments in the Aerospace group. The increase in 2000 also stemmed from including the full-year results of the three business units acquired from GTE Corporation compared with only four months in 1999.

Income Taxes. During 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. During 2000 and 1999, the company settled outstanding tax issues with the IRS, including its refund claims for research and experimentation tax credits, for the tax years 1990 through 1993 and 1986 through 1989. The company received cash refunds related to these settlements of $43 in 2000 and $334 in 1999.

Income tax payments were $326, $281 and $303 in 2001, 2000 and 1999, respectively, and included federal, foreign and state taxes.

Interest Expense. Cash paid for interest was $70, $78 and $52 in 2001, 2000 and 1999, respectively.

Termination of A-12 Program. As discussed further in Note P to the Consolidated Financial Statements, litigation on the A-12 program termination has been in progress since 1991. In the event the company is ultimately found to have been in default on the contract, the government contends the company’s liability for principal and interest would be approximately $1.2 billion pretax, or $625 after-tax. The company has sufficient resources to pay such an obligation if required, and retain ample liquidity through internally generated cash flow from operations, additional borrowing capacity, as well as the ability to raise capital in the equity markets.

Cash Used for Investing Activities

Cash used in investing activities was $1,746 in 2001, $329 in 2000 and $1,223 in 1999. The primary uses of cash in investing activities are business acquisitions and capital expenditures.

Business Acquisitions. On September 28, 2001, the company acquired Integrated Information Systems Group from Motorola, Inc. for $825 in cash.

On June 5, 2001, the company acquired substantially all of the assets of Galaxy Aerospace Company LP for $330 in cash, after a purchase price adjustment received during the first quarter of 2002. The selling parties may receive additional payments, up to a maximum of approximately $300 through 2006, contingent on the achievement of specific revenue targets.

General Dynamics 2001 Annual Report 25

On January 26, 2001, the company acquired Primex Technologies, Inc. for $334 in cash, plus the assumption of $204 in outstanding debt, $149 of which was repaid at the time of the acquisition.

Also during 2001, the company acquired four aircraft service and maintenance facilities from BBA North America, which now conduct business as General Dynamics Aviation Services, and Spain’s leading defense manufacturer, renamed Santa Bárbara Sistemas by the company.

On September 1, 1999, the company acquired three business units comprising Government Systems Corporation from GTE Corporation for $1.01 billion in cash.

The company financed the above acquisitions by issuing commercial paper. For further discussion of these acquisitions, see Note B to the Consolidated Financial Statements.

Capital Expenditures. The company completed a facility modernization project at its Bath Iron Works shipyard in 2001. The company invested a total of approximately $240, of which $105 was expended during 2000 and $115 expended through 1999. The company had no material commitments for capital expenditures as of December 31, 2001.

Sale of Assets. On February 15, 2001, Gulfstream sold its engine overhaul business for $55.

The company received approximately $40 in cash during the three-year period ended December 31, 2001 from the sale of certain vacant real estate located in southern California.

Cash Used for Financing Activities

Cash provided by financing activities was $908 in 2001, primarily from the debt proceeds used to finance the business acquisitions discussed above. This compares to cash used of $835 in 2000 and cash provided of $267 in 1999.

Debt Proceeds, Net. The company received $825 in net proceeds from the issuance of commercial paper during 2001. As of December 31, 2001, the company had $1,165 of commercial paper outstanding at an average yield of approximately 2.06 percent with an average term of 39 days. The company expects to reissue commercial paper as it matures and has the option to extend the term up to 270 days. During 2001, the company secured two new committed lines of credit totaling $2 billion, split evenly between a 364-day and a 5-year term facility. Both facilities back the commercial paper program and replace the company’s previous lines of credit, which totaled $1.4 billion.

On August 27, 2001, the company issued $500 of three-year floating rate notes due September 1, 2004. 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 are redeemable 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. The net proceeds of the issuance were used to repay a portion of the borrowings under the company’s commercial paper program. On February 8, 2002, the company commenced an offer to exchange all original outstanding floating rate notes due 2004 for an equal principal amount of floating rate exchange notes that have been registered under the Securities Act of 1933, as amended. The exchange offer expired on March 11, 2002. The terms of the exchange notes are substantially identical to the outstanding notes, except that the exchange notes are freely tradable. These floating rate notes are guaranteed by certain of the company’s subsidiaries.

Share Repurchases. On March 7, 2000, the company’s board of directors authorized management to repurchase up to 10 million shares of the company’s issued and outstanding common stock in the open market. During 2001, the company repurchased approximately 1.5 million shares of its common stock in the open market for a total of $113. During 2000, the company repurchased approximately 4.1 million shares for $208.

Dividends. On March 6, 2002, the company’s board of directors declared an increased regular quarterly dividend of $.30 per share. The company previously increased the quarterly dividend to $.28 per share in March 2001, to $.26 per share in March 2000 and to $.24 per share in March 1999.

26 General Dynamics 2001 Annual Report

ADDITIONAL FINANCIAL INFORMATION

Critical Accounting Policies. The policies that management believes are critical and require the use of significant business judgment in their application are the company’s revenue recognition policies. Estimating is an integral part of a contractor’s business activities, and it is necessary to revise estimates on contracts continually as the work progresses. Such changes in estimates may necessitate revision of earnings rates and, accordingly, earnings reported in the future. The company’s revenue recognition policies are summarized in Note A of the Notes to Consolidated Financial Statements contained elsewhere in this Annual Report.

Market Risk. The estimated fair value of the company’s financial instruments approximates carrying value. The company’s investment securities carry fixed rates of interest over their respective maturity terms. The company does not use derivatives to alter the interest characteristics of these instruments.

The company’s operations attempt to minimize the effects of currency risk by borrowing externally in the local currency or by hedging their purchases made in foreign currencies, when practical. The company is exposed to the effects of foreign currency fluctuations on the U.S. dollar value of earnings from its international operations. As a matter of policy, the company does not engage in currency speculation. The company periodically enters into foreign currency derivatives, including forward exchange and currency swap contracts, to hedge its exposure to fluctuations in foreign currency exchange rates.

One of the company’s Canadian subsidiaries holds privately placed U.S. dollar denominated senior notes of $150, which mature in September 2008. The subsidiary also has a currency swap that fixes its foreign currency variability on both the principal and interest portions of these notes. As of December 31, 2001, the fair value of this cash flow hedge was an $11 asset, which offset the effect of changes in the currency exchange rate on the related debt.

There were no material derivative instruments designated as fair value or net investment hedges during the year ended December 31, 2001.

New Accounting Standards. The Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in October 2001 and No. 143, “Accounting for Asset Retirement Obligations,” in August 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. 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 144 during the first quarter of 2002 and SFAS 143 on January 1, 2003. The company does not expect the adoption of the standards to have a material impact on the company’s results of operations or financial condition.

On June 30, 2001, the FASB issued SFAS 141, “Business Combinations,” and SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. The provisions of SFAS 142 eliminate amortization of goodwill and identifiable intangible assets with indefinite lives, and require an impairment assessment at least annually by applying a fair-value-based test. The company is required to adopt SFAS 142 on January 1, 2002. The company anticipates an annual increase to net earnings of approximately $45, or $.22 per diluted share, from the elimination of goodwill amortization. Management does not expect the other provisions of the statements to have a material impact on the company’s results of operations or financial condition.

General Dynamics 2001 Annual Report 27

CONSOLIDATED STATEMENT OF EARNINGS


		Year Ended December 31

(Dollars in millions, except per share amounts)		2001			2000			1999

Net Sales		$	12,163		$	10,356		$	8,959
Operating costs and expenses			10,678			9,027			7,756

Operating Earnings			1,485			1,329			1,203
Interest expense, net			(56	)		(60	)		(34	)
Other expense, net			(5	)		(7	)		(43	)

Earnings Before Income Taxes			1,424			1,262			1,126
Provision for income taxes, net			481			361			246

Net Earnings		$	943		$	901		$	880

Net Earnings Per Share:
	Basic	$	4.69		$	4.51		$	4.40
	Diluted	$	4.65		$	4.48		$	4.36

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

28 General Dynamics 2001 Annual Report

CONSOLIDATED BALANCE SHEET


	December 31

(Dollars in millions)	2001			2000

ASSETS
Current Assets:
Cash and equivalents	$	442		$	177
Accounts receivable		996			798
Contracts in process		1,737			1,238
Inventories		1,289			953
Other current assets		429			385

Total Current Assets		4,893			3,551

Noncurrent Assets:
Property, plant and equipment, net		1,768			1,294
Intangible assets, net		648			528
Goodwill, net		3,110			2,003
Other assets		650			611

Total Noncurrent Assets		6,176			4,436

	$	11,069		$	7,987

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt and current portion of long-term debt	$	1,211		$	340
Accounts payable		904			717
Other current liabilities		2,464			1,844

Total Current Liabilities		4,579			2,901

Noncurrent Liabilities:
Long-term debt		724			173
Other liabilities		1,238			1,093
Commitments and contingencies (see Note O)

Total Noncurrent Liabilities		1,962			1,266

Shareholders’ Equity:
Common stock, including surplus		694			619
Retained earnings		4,778			4,059
Treasury stock		(930	)		(833	)
Accumulated other comprehensive loss		(14	)		(25	)

Total Shareholders’ Equity		4,528			3,820

	$	11,069		$	7,987

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

General Dynamics 2001 Annual Report 29

CONSOLIDATED STATEMENT OF CASH FLOWS


			Year Ended December 31

(Dollars in millions)			2001			2000			1999

Cash Flows from Operating Activities:
Net earnings			$	943		$	901		$	880
Adjustments to reconcile net earnings to net cash provided by operating activities-
	Depreciation, depletion and amortization of property, plant and equipment			171			145			129
	Amortization of intangible assets and goodwill			100			81			64
	Recognition of pension gains previously deferred			—			—			(126	)
	Revaluation of undeveloped coal reserves and equipment			—			—			61
	Amortization of debt issuance costs on debt repaid			—			—			7
	Deferred income tax provision			117			128			41
(Increase) decrease in assets, net of effects of business acquisitions-
		Accounts receivable		(38	)		(39	)		36
		Contracts in process		(223	)		(82	)		105
		Inventories		(223	)		11			(189	)
Increase (decrease) in liabilities, net of effects of business acquisitions-
		Accounts payable		48			76			79
		Customer deposits on commercial contracts		(112	)		44			(60	)
		Billings in excess of costs and estimated profits		256			(99	)		—
Other, net				64			(95	)		(11	)

Net Cash Provided by Operating Activities				1,103			1,071			1,016

Cash Flows from Investing Activities:
Business acquisitions, net of cash acquired				(1,451	)		(71	)		(1,090	)
Purchases of available-for-sale securities				(45	)		(23	)		(37	)
Sales/maturities of available-for-sale securities				42			29			91
Capital expenditures				(356	)		(288	)		(197	)
Proceeds from sale of assets				96			33			18
Other, net				(32	)		(9	)		(8	)

Net Cash Used by Investing Activities				(1,746	)		(329	)		(1,223	)

Cash Flows from Financing Activities:
Net proceeds from (repayments of) commercial paper				825			(508	)		844
Proceeds from issuance of floating rate notes				500			—			—
Repayment of finance operations debt				(20	)		(18	)		(59	)
Net repayments of other debt				(133	)		(10	)		(374	)
Dividends paid				(219	)		(202	)		(136	)
Purchases of common stock				(113	)		(208	)		(59	)
Proceeds from option exercises				68			111			51

Net Cash Provided (Used) by Financing Activities				908			(835	)		267

Net Increase (Decrease) in Cash and Equivalents				265			(93	)		60
Cash and Equivalents at Beginning of Year				177			270			210

Cash and Equivalents at End of Year			$	442		$	177		$	270

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

30 General Dynamics 2001 Annual Report

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY


	Common Stock											Treasury Stock
									Retained									Comprehensive
(Dollars in millions, except share amounts)	Shares			Par		Surplus			Earnings			Shares			Amount			Income

Balance, December 31, 1998		241,348,865		$	241	$	243		$	2,639			(42,081,130	)	$	(706	)

Net earnings										880								$	880
Cash dividends declared										(156	)
Shares issued under compensation plans		864,252					32						2,158,056			34
Tax benefit of exercised stock options							29
Shares purchased		(1,272,800	)				(58	)					(19,100	)		(1	)
Shares issued for business acquisition													15,424
Unrealized losses on securities																			(2	)
Foreign currency translation adjustments																			5

Balance, December 31, 1999		240,940,317			241		246			3,363			(39,926,750	)		(673	)	$	883

Net earnings										901								$	901
Cash dividends declared										(205	)
Shares issued under compensation plans							97						3,542,282			48
Tax benefit of exercised stock options							35
Shares purchased													(4,054,200	)		(208	)
Unrealized gains on securities																			1
Minimum pension liability adjustment																			2
Foreign currency translation adjustments																			(21	)

Balance, December 31, 2000		240,940,317			241		378			4,059			(40,438,668	)		(833	)	$	883

Net earnings										943								$	943
Cash dividends declared										(224	)
Shares issued under compensation plans							54						1,710,198			16
Tax benefit of exercised stock options							21
Shares purchased													(1,466,300	)		(113	)
Foreign currency translation adjustments																			11

Balance, December 31, 2001		240,940,317		$	241	$	453		$	4,778			(40,194,770	)	$	(930	)	$	954

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

General Dynamics 2001 Annual Report 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts or unless otherwise noted)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization. The company’s businesses include information and communications technology, land and amphibious combat systems, naval and commercial shipbuilding, and business aviation. The company also owns a coal mining operation, an aggregates operation and a leasing operation for liquefied natural gas (LNG) tankers. 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.

Basis of Consolidation and Use of Estimates. The Consolidated Financial Statements include the accounts of all wholly-owned and majority-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Revenue Recognition. Sales and earnings under long-term defense contracts and programs are accounted for using the percentage-of-completion method of accounting. The company uses estimated earnings rates on similar, economically interdependent contracts to develop program earnings rates for contracts that meet Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts,” criteria. Earnings rates are applied to all contract costs, including general and administrative expenses, to determine sales and operating earnings. Earnings rates are reviewed periodically to assess revisions in contract values and estimated costs at completion. Based on these assessments, any changes in earnings rates are made prospectively.

Any anticipated losses on defense contracts and programs are charged to earnings when identified. Such losses encompass all costs, including general and administrative expenses, allocable to the contracts. Revenue arising from a claims process is not recognized either as income or as an offset against a potential loss until the claim can be reliably estimated and its realization is probable.

Contracts for aircraft certified by the Federal Aviation Authority are accounted for in accordance with Statement of Position 81-1. These contracts usually provide for two major milestones, the manufacture of the “green” aircraft and its completion, which includes exterior painting and installation of customer-selected interiors and optional avionics. Revenues are initially recorded when green aircraft are delivered to the customer and subsequently when the customer accepts final delivery of the fully outfitted aircraft. Sales of all other aircraft products and services are recognized when delivered or the service is performed.

General and Administrative Expenses. General and administrative expenses were $823, $647 and $570 in 2001, 2000 and 1999, respectively, and are included in operating costs and expenses on the Consolidated Statement of Earnings.

Interest Expense, Net. Interest expense was $68, $72 and $53 in 2001, 2000 and 1999, respectively. Interest payments, including interest on finance operations debt, were $70, $78 and $52 in 2001, 2000 and 1999, respectively.

Cash and Equivalents and Investments in Debt and Equity Securities. The company classifies its securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The company considers securities with a maturity of three months or less to be cash equivalents. The company adjusts all investments in debt and equity securities to fair value. Market adjustments are recognized in the statement of earnings for trading securities and are included as a component of accumulated other comprehensive income for available-for-sale securities. The company had $47 and $43 in available-for-sale investments at December 31, 2001 and 2000, respectively. The company had no investments classified as trading securities at the end of either period.

Accounts Receivable and Contracts in Process. Accounts receivable represent only amounts billed and currently due from customers. Recoverable costs and accrued profit related to long-term defense contracts and programs on which revenue has been recognized, but billings have not yet been presented to the customer (unbilled receivables), are included in contracts in process.

Inventories. Work in process inventories represent aircraft components and are stated at the lower of cost (based on estimated average unit cost of the number of units in a production lot, or specific identification) or market. Raw materials are stated at the lower of cost (first-in, first-out method) or market. Pre-owned aircraft acquired in connection with the sale of new aircraft are recorded at the lower of the trade-in value (determined at the time of trade and based on estimated fair value) or estimated net realizable value.

Property, Plant and Equipment, Net. Property, plant and equipment is carried at historical cost, net of accumulated depreciation, depletion and amortization. Most of the company’s assets are depreciated using accelerated methods, with the remainder using the straight-line method. Buildings and improvements are depreciated over periods up to 50 years. Machinery and equipment is depreciated

32 General Dynamics 2001 Annual Report

over periods up to 28 years. Depletion of mineral reserves is computed using the units-of-production method.

Impairment of Long-Lived Assets. Long-lived assets, identifiable intangibles and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The company assesses the recoverability of the cost of the asset based on a review of projected undiscounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset. If an asset is held for sale, the company reviews its estimated fair value less cost to sell. The company will change its accounting for the impairment of long-lived assets beginning in 2002. See “New Accounting Standards” discussion for further details.

Environmental Liabilities. The company accrues environmental costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. Cleanup and other environmental exit costs related to sold businesses were recorded at the time of disposal. Recorded liabilities have not been discounted. To the extent the U.S. government has specifically agreed to pay the ongoing maintenance and monitoring costs at sites currently used in the conduct of the company’s government contracting business, these costs are treated as contract costs and recognized as paid.

Stock-Based Compensation. The company measures compensation cost 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. Stock awards are recorded at fair value at the date of award.

Translation of Foreign Currencies. Local currencies have been determined to be functional currencies for the company’s international operations. Foreign currency balance sheets are translated at the end-of-period exchange rates and earnings statements at the average exchange rates for each period. The resulting foreign currency translation adjustments are included in the calculation of accumulated other comprehensive income and included in shareholders’ equity on the Consolidated Balance Sheet.

Derivative Instruments and Hedging Activities. The company adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS 137 and 138, on January 1, 2001. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income based on the guidelines stipulated in SFAS 133. The adoption of the standard did not have a material impact on the company’s results of operations or financial condition.

New Accounting Standards. The Financial Accounting Standards Board (FASB) issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” on October 3, 2001 and SFAS 143, “Accounting for Asset Retirement Obligations,” on August 16, 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. 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 144 during the first quarter of 2002 and SFAS 143 on January 1, 2003. The company does not expect the adoption of the standards to have a material impact on the company’s results of operations or financial condition.

The FASB issued SFAS 141, “Business Combinations,” and SFAS 142, “Goodwill and Other Intangible Assets,” on June 30, 2001. SFAS 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. The provisions of SFAS 142 eliminate amortization of goodwill and identifiable intangible assets with indefinite lives, and require an impairment assessment at least annually by applying a fair-value-based test. The company is required to adopt SFAS 142 on January 1, 2002. The company anticipates an annual increase to net earnings of approximately $45, or $.22 per diluted share, from the elimination of goodwill amortization. Management does not expect the other provisions of the statements to have a material impact on the company’s results of operations or financial condition.

Classification. Consistent with defense industry practice, the company classifies assets and liabilities related to long-term production contracts as current although a portion of these amounts is not expected to be realized within one year. In addition, certain prior year amounts have been reclassified to conform to the current year presentation.

General Dynamics 2001 Annual Report 33

B. BUSINESS COMBINATIONS

Pooling of Interests Method

On July 30, 1999, the company acquired Gulfstream Aerospace Corporation (Gulfstream), in a one-for-one common stock share exchange. Gulfstream is a leading designer, developer, manufacturer, marketer and service provider of technologically advanced business jet aircraft. The acquisition was accounted for as a pooling of interests. Accordingly, periods prior to the combination include the accounts and results of operations of Gulfstream.

Purchase Method

On September 28, 2001, the company acquired Integrated Information Systems Group from Motorola, Inc. for $825 in cash. The company financed the acquisition by issuing commercial paper. Renamed General Dynamics Decision Systems (Decision Systems), this business provides technologies, products and systems for information assurance, communications and situational awareness markets in the U.S. and abroad. Decision Systems is part of the Information Systems and Technology business group.

On July 25, 2001, the company acquired Empresa Nacional Santa Bárbara de Industrias Militares, S.A., of Madrid, Spain, and Santa Bárbara Blindados, S.A., of Seville. The new combined entity, renamed Santa Bárbara Sistemas, S.A., produces combat vehicles and munitions. Santa Bárbara Sistemas is part of the Combat Systems business group.

On June 5, 2001, the company acquired substantially all of the assets of Galaxy Aerospace Company LP for $330 in cash, after a purchase price adjustment received during the first quarter of 2002. The company financed the acquisition by issuing commercial paper. The selling parties may receive additional payments, up to a maximum of approximately $300 through 2006, contingent on the achievement of specific revenue targets. The acquired operation designs and manufactures the mid-size Gulfstream 100 and the super mid-size Gulfstream 200.

On January 26, 2001, the company acquired Primex Technologies, Inc. for $334 in cash, plus the assumption of $204 in outstanding debt, $149 of which was repaid at the time of the acquisition. The company financed the acquisition by issuing commercial paper. Renamed General Dynamics Ordnance and Tactical Systems, Inc., this business provides medium- and large-caliber ammunition, propellants, satellite propulsion systems and electronics products to the U.S. and its allies, as well as domestic and international industrial customers. Ordnance and Tactical Systems is part of the Combat Systems business group.

On September 1, 1999, the company acquired three business units comprising Government Systems Corporation from GTE Corporation for $1.01 billion in cash. The company financed the acquisition by issuing commercial paper. Government Systems Corporation is a leader in the advancement of C4ISR (command and control, communications, computers, intelligence, surveillance and reconnaissance); electronic defense systems; communication switching; and information systems for defense, government and industry in the U.S. and abroad. Government Systems Corporation is part of the Information Systems and Technology business group.

The purchase prices of the above acquisitions have been allocated to the estimated fair value of net tangible and intangible assets acquired, with any excess recorded as goodwill (see Note H). Certain of the estimates related to Decision Systems, Santa Bárbara Sistemas and the Galaxy Aerospace acquisition are still preliminary at December 31, 2001, but will be finalized within one year from their respective dates of acquisition. The operating results of the acquired businesses have been included with those of the company from their respective closing dates.

C. EARNINGS PER SHARE

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


Year Ended December 31	2001		2000		1999

Basic weighted average shares outstanding		201,142		199,840		199,988
Assumed exercise of options		1,608		1,200		1,945
Contingently issuable shares		157		222		124

Diluted weighted average shares outstanding		202,907		201,262		202,057

34 General Dynamics 2001 Annual Report

D. INCOME TAXES

The net provision for income taxes included on the Consolidated Statement of Earnings is summarized as follows:


Year Ended December 31		2001			2000			1999

Current:
	U.S. federal	$	374		$	300		$	344
	State		16			18			18
	Foreign		2			5			8

	Total current		392			323			370

Deferred:
	U.S. federal		118			134			51
	State		(1	)		(5	)		(11	)
	Foreign		—			(1	)		1

	Total deferred		117			128			41

Tax adjustments and credits			(28	)		(90	)		(165	)

		$	481		$	361		$	246

The provision for state and local income taxes that is allocable to U.S. government contracts is included in operating costs and expenses on the Consolidated Statement of Earnings and therefore not included in the provision above.

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.

During the third quarter of 2000, the company and the Internal Revenue Service (IRS) settled outstanding tax issues, including the company’s remaining refund claim for research and experimentation tax credits, for the years 1990 through 1993. The company recognized a benefit of $90, or $.45 per share, as a result of this settlement. During the first quarter of 1999, the company and the IRS settled outstanding tax issues, including refund claims for research and experimentation tax credits, for the years 1981 through 1989 for approximately $334 (including before-tax interest). The company recognized a benefit of $165 (net of amounts previously recorded in 1991 and 1992), or $.82 per diluted share, as a result of this settlement.

During the first quarter of 2000, all matters related to Gulfstream’s consolidated federal income tax returns for the years up to and including 1994 were resolved with no material impact on the company’s results of operations or financial condition.

The reconciliation from the statutory federal income tax rate to the company’s effective income tax rate is as follows:


Year Ended December 31	2001			2000			1999

Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Tax adjustments and credits		(2.0	)		(7.1	)		(14.7	)
State tax on commercial operations, net of federal benefits		1.1			1.0			0.9
Other, net		(0.3	)		(0.3	)		0.6

Effective income tax rate		33.8	%		28.6	%		21.8	%

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities consisted of the following:


December 31		2001		2000

Postretirement liabilities		$	98	$	97
A-12 termination			90		95
Accrued costs on disposed businesses			30		41
Long-term contract costing methods			—		35
Coal mining liabilities			24		25
Other			366		247

	Deferred assets	$	608	$	540

Capital Construction Fund		$	124	$	105
Commercial pension asset			103		93
Lease income			52		57
Intangible assets			78		47
Property basis differences			63		47
Other			45		28

	Deferred liabilities	$	465	$	377

Net deferred tax asset		$	143	$	163

The Capital Construction Fund (CCF) is a program established by the U.S. government and administered by the Maritime Administration. The purpose of the program is to support the acquisition, construction, reconstruction, or operation of U.S. flag merchant marine vessels. It provides for the deferral of federal and state income taxes on earnings derived from eligible programs as long as the

General Dynamics 2001 Annual Report 35

funds are deposited and used for qualified activities. Unqualified withdrawals are subject to taxation plus interest. The CCF must be collateralized by qualified assets defined by the Maritime Administration. At December 31, 2001, the company had assigned approximately $160 in U.S. government accounts receivable to the CCF.

Based on the level of projected earnings and current backlog, no material valuation allowance was required for the company’s deferred tax assets at December 31, 2001 and 2000. The current portion of the net deferred tax asset was $331 and $318 at December 31, 2001 and 2000, respectively, and is included in other current assets on the Consolidated Balance Sheet.

Income tax payments were $326, $281 and $303 in 2001, 2000 and 1999, respectively, and included federal, foreign and state taxes.

The 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 or financial condition.

E. CONTRACTS IN PROCESS

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


December 31	2001		2000

Contract costs and estimated profits	$	13,481	$	10,798
Other contract costs		731		718

		14,212		11,516
Less advances and progress payments		12,475		10,278

	$	1,737	$	1,238

Contract costs 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 on the company’s backlog. 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 affected.

F. INVENTORIES

Inventories consisted primarily of commercial aircraft components, as follows:


December 31	2001		2000

Work in process	$	643	$	405
Raw materials		361		289
Pre-owned aircraft		254		236
Other		31		23

	$	1,289	$	953

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

36 General Dynamics 2001 Annual Report

G. PROPERTY, PLANT AND EQUIPMENT, NET

The major classes of property, plant and equipment were as follows:


December 31	2001		2000

Land and improvements	$	159	$	123
Mineral reserves		76		69
Buildings and improvements		1,090		607
Machinery and equipment		2,065		1,568
Construction in process		148		273

		3,538		2,640
Less accumulated depreciation, depletion and amortization		1,770		1,346

	$	1,768	$	1,294

Certain of the company’s plant facilities are provided by the U.S. government and therefore are not included above.

H. INTANGIBLE ASSETS AND GOODWILL, NET

Intangible assets consisted of the following:


December 31	2001		2000

Contract and program intangibles	$	465	$	446
Other intangible assets		183		82

	$	648	$	528

Intangible assets were shown net of accumulated amortization of $172 and $139 at December 31, 2001 and 2000, respectively. Contract and program intangibles are amortized on a straight-line basis over periods ranging from 25 to 40 years. Other intangible assets consisted primarily of aircraft product design, licenses, customer lists and workforce. These other intangible assets are amortized over periods ranging from 3 to 21 years. Other also included approximately $20 in trademarks with an indefinite life.

Goodwill resulted from the company’s business acquisitions. Goodwill acquired prior to July 1, 2001, is amortized on a straight-line basis primarily over 40 years and was shown net of accumulated amortization of $198 and $131 at December 31, 2001 and 2000, respectively. As of December 31, 2001, approximately $650 of goodwill related to Decision Systems was not subject to amortization.

I. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:


December 31	2001		2000

Workers’ compensation	$	473	$	454
Billings in excess of costs and estimated profits		407		43
Customer deposits on commercial contracts		358		518
Retirement benefits		264		253
Salaries and wages		225		182
Other		737		394

	$	2,464	$	1,844

Other consisted primarily of contract-related costs assumed in business acquisitions, dividends payable, environmental remediation reserves, warranty reserves and the current portion of the company’s finance operation debt (see Note M).

J. DEBT

Debt (excluding finance operation discussed in Note M) consisted of the following:


December 31	2001		2000

Commercial paper, net of unamortized discount	$	1,165	$	340
Floating rate notes		500		—
Senior notes		150		150
Term debt		50		—
Industrial development bonds		15		15
Other		55		8

		1,935		513
Less current portion		1,211		340

	$	724	$	173

As of December 31, 2001, the company had $1,167 par value discounted commercial paper outstanding at an average yield of approximately 2.06 percent with an average term of approximately 39 days. During 2001, the company secured two new committed lines of credit totaling $2 billion, split evenly between a

General Dynamics 2001 Annual Report 37

364-day and a 5-year term facility. Both facilities back the commercial paper program and replace the company’s previous lines of credit, which totaled $1.4 billion.

On August 27, 2001, the company issued $500 of three-year floating rate notes due September 1, 2004. 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 3.42 percent for the year ended December 31, 2001. The notes are redeemable 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. On February 8, 2002, the company commenced an offer to exchange all original outstanding floating rate notes due 2004 for an equal principal amount of floating rate exchange notes that have been registered under the Securities Act of 1933, as amended. The exchange offer expired on March 11, 2002. The terms of the exchange notes are substantially identical to the outstanding notes, except that the exchange notes are freely tradable. These floating rate notes are guaranteed by certain of the company’s subsidiaries. See Note U 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. See Note N for fair value discussion of the currency swap.

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 are due December 1, 2002, and bear interest at 6.6 percent per annum with interest payable semi-annually.

At December 31, 2001, other consisted of $24 drawn under a bank line of credit, a $16 note payable to a Spanish government entity and three capital lease arrangements totaling $15. Annual principal payments on the note payable are $2 in both 2002 and 2003, $10 in 2004, $1 in 2005, with the balance due in 2006. Interest is payable each December at the rate of 3.85 percent annually. The capital leases extend through 2010.

K. OTHER LIABILITIES

Other liabilities consisted of the following:


December 31	2001		2000

Retirement benefits	$	340	$	324
Deferred U.S. federal income taxes		215		169
Customer deposits on commercial contracts		100		48
Accrued costs on disposed businesses		85		116
Coal mining related liabilities		71		73
Other		427		363

	$	1,238	$	1,093

The company has recorded liabilities for contingencies related to disposed businesses. These liabilities include postretirement benefits, environmental, legal and other costs.

The company has certain liabilities that are specific to the coal mining industry, including workers’ compensation and reclamation. The company is subject to the Federal Coal Mine Health & Safety Act of 1969, as amended, and the related workers’ compensation laws in the states in which it has operated. These laws require the company to pay benefits for occupational disability resulting from coal workers’ pneumoconiosis (black lung). The liability for known claims and an actuarially determined estimate of future claims that will be awarded to current and former employees is discounted based on an appropriate discount rate. Liabilities to reclaim land disturbed by the mining process and to perform other closing functions are recorded over the estimated production lives of the mines.

Other consisted primarily of liabilities for tax contingencies for open years, warranty reserves, long-term debt for the company’s finance operation (see Note M), and workers’ compensation.

38 General Dynamics 2001 Annual Report

L. SHAREHOLDERS’ EQUITY

Authorized Stock. On July 30, 1999, the company’s shareholders approved an amendment to its Certificate of Incorporation to increase the number of authorized shares of common stock from 200 million shares to 300 million shares of $1 par value common stock. Other authorized capital stock of the company consists of 50 million shares of $1 par value preferred stock issuable in series, with the rights, preferences and limitations of each series to be determined by the board of directors.

Dividends per Share. Dividends per share were $1.12, $1.04 and $.96 in 2001, 2000 and 1999, respectively.

Shares Outstanding. The company had 200,745,547, 200,501,649 and 201,013,567 shares of common stock outstanding as of December 31, 2001, 2000 and 1999, respectively. No shares of the company’s preferred stock are currently outstanding.

M. FINANCE OPERATION

The company owns three LNG tankers, which are leased to a nonrelated company. The leases are financed by privately-placed bonds, which are secured by the LNG tankers. The bonds are callable under certain conditions and are nonrecourse to the company. Accordingly, the company is not obligated to repay the debt in the event the lessee defaults on the lease payments. Outstanding debt was $43 and $63 at December 31, 2001 and 2000, respectively. Principal payments on the debt are made semi-annually and are scheduled as follows, $23 in 2002, $17 in 2003, and $3 at maturity in 2004. The weighted average interest rate on the debt is 6.2 percent.

The leases are classified as direct financing leases and extend through 2009. The components of the company’s net investment in the leases receivable were as follows:


December 31	2001			2000

Aggregate future minimum lease payments	$	195		$	225
Unguaranteed residual value		38			38
Unearned interest income		(79	)		(95	)

	$	154		$	168

The company is scheduled to receive minimum lease payments of $31 in both 2002 and 2003, $24 in 2004 and $21 in 2005 and 2006.

N. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the company’s financial instruments approximates carrying value. Fair value is generally based on quoted market prices, except the finance operation debt, where fair value is based on risk-adjusted discount rates.

As of December 31, 2001, the company’s sole cash flow hedge was the currency swap discussed in Note J. Fair value of this currency swap was an $11 asset, which offset the effect of changes in the currency exchange rate on the related debt. There were no material derivative instruments designated as fair value or net investment hedges during the year ended December 31, 2001.

O. 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 P.

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.

General Dynamics 2001 Annual Report 39

substantial legal and factual arguments that will result in either the dismissal of the case or a judgment in the company’s favor.

Minimum Lease Payments

Total rental expense under operating leases was $111, $71 and $62 for 2001, 2000 and 1999, respectively. Future minimum lease payments due during the next five years are as follows:



2002	$	105
2003		90
2004		84
2005		73
2006		45
2007 and thereafter		169

	$	566

Operating leases are primarily for facilities and equipment. In addition, the company has significant operating lease obligations related to its underwater fiber-optic cable installation business. At December 31, 2001, the company had leased four ships with expiration dates through 2006.

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 $880 at December 31, 2001. The company was contingently liable for certain other guarantees totaling approximately $65 at December 31, 2001. The company knows of no event of default that would require it to satisfy these guarantees.

The company has agreements with certain of its suppliers to procure major aircraft components such as engines, wings and avionics. These supplier agreements vary in length from three to six years and generally provide for price and quantity of components to be supplied. In connection with the Gulfstream 100/200 and Gulfstream V/V-SP programs, the company has entered into revenue sharing agreements with three suppliers. Under the terms of these agreements, the suppliers are required to design, manufacture and supply certain aircraft components, including the fuselage for the Gulfstream 100/200 aircraft, in exchange for a fixed percentage of the revenues associated with such aircraft. Payments to the suppliers are made generally on a pro rata basis concurrent with the associated customer deposits received on the aircraft sales agreements.

As of December 31, 2001, in connection with orders for eleven Gulfstream V-SP 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. Management believes that the fair market value of all such aircraft equals or exceeds the specified trade-in values.

P. 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.

40 General Dynamics 2001 Annual Report

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

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 $970 at December 31, 2001). In this outcome, the government contends the company’s liability would be approximately $1.2 billion pretax, $625 after-tax to be taken as a charge against discontinued operations. The company has sufficient resources to pay such an obligation if required.

Q. INCENTIVE COMPENSATION PLAN

Under the 1997 Incentive Compensation Plan, awards may be granted in cash, common stock, options to purchase common stock, restricted shares of common stock, or any combination of these. Awards of stock options and restricted stock are intended to qualify as deductible, performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Incentive Compensation Plan awards of cash and unrestricted stock are not designed to be deductible by the company under Section 162(m).

Stock options may be granted either as incentive stock options, intended to qualify under Section 422 of the Code, or as options not qualified under the Code. All options are issued with an exercise price at or above 100 percent of the fair market value of the common stock on the date of grant. Options granted under Gulfstream’s incentive compensation plans prior to the acquisition were subject to different vesting periods based on the terms of the plans. At the time of the acquisition, substantially all of the outstanding Gulfstream options became fully vested.

A grant of restricted shares pursuant to the Incentive Compensation Plan is a transfer of shares of common stock, for such consideration and subject to such restrictions, if any, on transfer or other incidents of ownership, for such periods of time as the Compensation Committee (or subcommittee thereof) may determine. Until the end of the applicable period of restriction, the restricted shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated. However, during the period of restriction, the recipient of restricted shares will be entitled to vote the restricted shares and to retain cash dividends paid thereon. Awards of restricted shares may be granted pursuant to a performance formula whereby the number of shares initially granted increases or decreases based on the increase or decrease in the price of the common stock over a performance period.

Information with respect to restricted stock awards was as follows:


Year Ended December 31	2001		2000		1999

Number of shares awarded		340,888		385,023		540,661
Weighted average grant price	$	71.39	$	44.15	$	60.15

There were 1,372,394 shares of restricted stock outstanding at December 31, 2001.

General Dynamics 2001 Annual Report 41

Information with respect to stock options was as follows:


Year Ended December 31	2001			2000			1999

Number of shares:
Outstanding at beginning of year		6,573,599			7,502,881			8,672,328
Granted		2,418,080			2,961,050			1,666,720
Exercised		(1,766,787	)		(3,669,070	)		(2,622,081	)
Canceled		(158,779	)		(221,262	)		(214,086	)

Outstanding at end of year		7,066,113			6,573,599			7,502,881

Exercisable at end of year		3,237,568			3,023,399			5,419,012

Weighted average exercise price:
Outstanding at beginning of year	$	44.57		$	39.82		$	30.35
Granted		72.18			43.17			59.62
Exercised		42.61			33.11			20.64
Canceled		53.29			54.76			49.23
Outstanding at end of year		54.31			44.57			39.82
Exercisable at end of year		46.02			42.45			34.16

Information with respect to stock options outstanding and exercisable at December 31, 2001, was as follows:


Options Outstanding

		Number		Weighted			Weighted
	Range of	Outstanding		Average Remaining			Average
	Exercise Prices	at 12/31/01		Contractual Life			Exercise Price

	$4.10 - 11.37		90,532		1.87	years	$	4.54
	22.03 - 41.66		344,503		0.22			32.91
	42.71 - 46.84		3,151,779		2.75			42.88
	49.81 - 59.38		916,926		2.48			57.97
	62.43 - 88.63		2,562,373		4.05			71.70

			7,066,113


Options Exercisable

	Number		Weighted
Range of	Exercisable		Average
Exercise Prices	at 12/31/01		Exercise Price

$4.10 - 11.37		90,532	$	4.54
22.03 - 41.66		344,503		32.91
42.71 - 46.84		1,797,412		43.00
49.81 - 59.38		866,193		58.23
62.43 - 88.63		138,928		68.07

		3,237,568

At December 31, 2001, in addition to the shares reserved for issuance on the exercise of options outstanding, 9,726,157 treasury shares have been reserved for options that may be granted in the future.

Had compensation cost 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:


Year Ended December 31		2001		2000		1999

Net Earnings:	As reported	$	943	$	901	$	880
	Pro forma		921		886		853
Net Earnings Per Share—Basic:	As reported	$	4.69	$	4.51	$	4.40
	Pro forma		4.58		4.43		4.27
Net Earnings Per Share—Diluted:	As reported	$	4.65	$	4.48	$	4.36
	Pro forma		4.54		4.40		4.22

Weighted average fair value of options granted		$	17.67	$	10.20	$	8.74

The compensation cost calculated under the fair value approach shown above is recognized over the vesting period of the stock options. Fair value is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for all years presented: (1) expected dividend yields from 1.3 to 1.8 percent, (2) expected volatility from 17.8 to 30.8 percent, (3) risk-free interest rates from 4.7 to 6.7 percent and (4) expected lives from 30 months to 54 months.

42 General Dynamics 2001 Annual Report

R. RETIREMENT PLANS

The company provides defined pension and other postretirement benefits to certain eligible employees. The following is a reconciliation of the benefit obligations, plan/trust assets, and funded status of the company’s plans:


	Pension Benefits						Other Postretirement Benefits

	2001			2000			2001			2000

Change in Benefit Obligation
Benefit obligation at beginning of year	$	(4,579	)	$	(4,393	)	$	(835	)	$	(778	)
Service cost		(130	)		(121	)		(11	)		(10	)
Interest cost		(338	)		(322	)		(62	)		(56	)
Amendments		(24	)		(32	)		(56	)		—
Actuarial (loss) gain		(156	)		49			(65	)		(53	)
Acquisitions/other		(195	)		(6	)		(25	)		(2	)
Benefits paid		260			246			70			64

Benefit obligation at end of year	$	(5,162	)	$	(4,579	)	$	(984	)	$	(835	)


	Pension Benefits						Other Postretirement Benefits

	2001			2000			2001			2000

Change in Plan/Trust Assets
Fair value of assets at beginning of year	$	6,165		$	5,722		$	349		$	366
Actual return on plan/trust assets		80			695			(16	)		—
Acquisitions		134			—			10			—
Employer contributions		1			6			20			18
Curtailment/settlement		(13	)		(12	)		—			—
Benefits paid		(260	)		(246	)		(39	)		(35	)

Fair value of assets at end of year	$	6,107		$	6,165		$	324		$	349


	Pension Benefits						Other Postretirement Benefits

	2001			2000			2001			2000

Funded Status Reconciliation
Funded status	$	945		$	1,586		$	(660	)	$	(486	)
Unrecognized net actuarial (gain) loss		(682	)		(1,285	)		37			(72	)
Unrecognized prior service cost		242			252			47			(11	)
Unrecognized transition (asset) obligation		(2	)		(9	)		34			45

Prepaid (accrued) benefit cost	$	503		$	544		$	(542	)	$	(524	)

General Dynamics 2001 Annual Report 43


		Pension Benefits									Other Postretirement Benefits

		2001			2000			1999			2001			2000			1999

Assumptions at December 31
Discount rate			7.25	%		7.50	%		7.50	%		7.25	%		7.50	%		7.50	%
Varying rates of increase in compensation levels based on age			4.00-11.00	%		4.00-11.00	%		4.00-11.00	%
Expected weighted average long-term rate of return on assets			8.16	%		8.31	%		8.31	%		8.00	%		8.00	%		8.00	%
Assumed health care cost trend rate for next year:
	Post-65 claim groups											4.75	%		5.75	%		6.75	%
	Pre-65 claim groups											4.75	%		5.75	%		6.75	%

Net periodic pension and other postretirement benefits costs included the following:


	Pension Benefits									Other Postretirement Benefits

	2001			2000			1999			2001			2000			1999

Service cost	$	130		$	121		$	112		$	11		$	10		$	10
Interest cost		338			322			281			62			56			51
Expected return on plan assets		(486	)		(445	)		(397	)		(25	)		(24	)		(19	)
Recognized net actuarial gain		(41	)		(33	)		(8	)		(3	)		(11	)		(1	)
Amortization of unrecognized transition (asset) obligation		(7	)		(7	)		(7	)		11			12			13
Amortization of prior service cost		33			32			29			(1	)		(1	)		(1	)

	$	(33	)	$	(10	)	$	10		$	55		$	42		$	53

Pension Benefits. As of December 31, 2001, the company had 12 trusteed, noncontributory, qualified defined benefit pension plans covering substantially all of its government business employees and two plans covering substantially all of its commercial business employees. Under certain plans, benefits are a function primarily of both the employee’s years of service and level of compensation, while under other plans, benefits are a function primarily of years of service.

It is the company’s policy to fund the plans to the maximum extent deductible under existing federal income tax regulations. Such contributions are intended to provide not only for benefits attributed to service to date, but also for benefits to be earned in the future.

Changes in prior service cost resulting from plan amendments are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan.

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 SFAS 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

44 General Dynamics 2001 Annual Report

government plans have also been deferred. The aforementioned deferrals have been classified against the prepaid pension cost related to these plans.

The company historically had deferred certain gains realized by its commercial pension plan for the purpose of offsetting any costs associated with its final disposition. In connection with the 1999 acquisition of Gulfstream, the company merged the Gulfstream commercial pension plan with its own. As a result of the merger of these plans, in 1999 the company recognized previously deferred gains on its commercial plan, totaling $126 (before-tax), which is included in operating costs and expenses on the Consolidated Statement of Earnings. The company’s commercial plans’ net prepaid pension cost of $293 and $268 at December 31, 2001 and 2000, respectively, is included in other noncurrent assets on the Consolidated Balance Sheet.

At December 31, 2001, approximately 60 percent of the plans’ assets were invested in diversified U.S. common stocks including futures contracts, 16 percent in mortgage-backed securities, 14 percent in diversified U.S. corporate debt securities and 10 percent in securities of the U.S. government or its agencies.

In addition to the qualified defined benefit plans, the company provides eligible employees the opportunity to participate in defined contribution savings plans, which permit contributions on both a pretax and after-tax basis. Generally, salaried employees and certain hourly employees are eligible to participate upon commencement of employment with the company. Under most plans, the employee may contribute to various investment alternatives, including investment in the company’s common stock. In certain plans, the company matches a portion of the employees’ contributions with contributions to a fund, which invests in the company’s common stock. The company’s contributions to the defined contribution plans totaled $64, $57 and $46 in 2001, 2000 and 1999, respectively. Approximately 15 million shares of the company’s common stock were held by the defined contribution plans at both December 31, 2001 and 2000.

The company also sponsors several unfunded non-qualified supplemental executive plans, which provide participants with additional benefits, including any excess of such benefits over limits imposed on qualified plans by federal law. The recorded liability and expense related to these plans are not material to the company’s results of operations or financial condition.

Other Postretirement Benefits. The company maintains plans providing postretirement health care coverage for many of its current and former employees and postretirement life insurance benefits for certain retirees. These benefits vary by employment status, age, service and salary level at retirement. The coverage provided and the extent to which the retirees share in the cost of the program vary throughout the company. Both health and life insurance benefits are provided only to those employees who retire directly from the service of the company and not to those who terminate service/seniority prior to eligibility for retirement.

The company maintains several Voluntary Employee’s Beneficiary Association (VEBA) trusts for certain plans. It is the company’s policy to fund the VEBAs in accordance with existing federal income tax regulations. At December 31, 2001, the majority of the VEBA trusts’ assets were invested in diversified U.S. common stocks, U.S. fixed income securities and bank notes. For non-funded plans, claims are paid as received.

The health care cost trend rates are assumed to decline gradually to 4.75 percent for post-65 and pre-65 claim groups in the year 2003, and thereafter over the projected payout period of the benefits. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of a one-percentage point increase or decrease in the assumed health care cost trend rate on the total service and interest cost is $5 and $(5), respectively, and the effect on the accumulated postretirement benefit obligation is $62 and $(62), respectively.

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.

General Dynamics 2001 Annual Report 45

S. BUSINESS GROUP INFORMATION

Management has chosen to organize and measure its business groups in accordance with the nature of products and services offered. Management measures its groups’ 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:


	Net Sales						Operating Earnings						Sales to U.S. Government

	2001		2000		1999		2001		2000		1999		2001		2000		1999

Information Systems & Technology	$	2,800	$	2,388	$	1,422	$	260	$	221	$	127	$	1,991	$	1,606	$	833
Combat Systems		2,210		1,273		1,290		238		156		155		1,785		1,084		1,178
Marine Systems		3,612		3,413		3,088		310		324		328		3,403		3,360		3,054
Aerospace		3,265		3,029		2,909		625		592		482		140		130		138
Other*		276		253		250		52		36		111		—		—		—

	$	12,163	$	10,356	$	8,959	$	1,485	$	1,329	$	1,203	$	7,319	$	6,180	$	5,203


													Depreciation,
	Identifiable Assets						Capital Expenditures						Depletion and Amortization

	2001		2000		1999		2001		2000		1999		2001		2000		1999

Information Systems & Technology	$	3,459	$	2,340	$	2,418	$	54	$	71	$	25	$	94	$	85	$	54
Combat Systems		2,118		1,054		938		43		14		12		56		26		27
Marine Systems		1,731		1,613		1,431		119		132		101		55		52		51
Aerospace		2,360		1,710		1,757		28		29		29		44		39		38
Other*		313		317		373		20		25		20		16		17		17
Corporate**		1,088		953		857		92		17		10		6		7		6

	$	11,069	$	7,987	$	7,774	$	356	$	288	$	197	$	271	$	226	$	193

* 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, including Gulfstream’s merged plans post-acquisition, as further described in Note R. Operating earnings for 1999 included a non-recurring gain of $126 related to the commercial pension plan merger, also described in Note R, and a non-cash charge to earnings of $61 related to the revaluation of undeveloped coal reserves and related assets.

** 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.

46 General Dynamics 2001 Annual Report

The following table presents revenues by geographic area (based on the location of the company’s customers):


Year Ended December 31		2001		2000		1999

North America:
	United States	$	10,866	$	9,386	$	7,991
	Canada		115		153		188
	Other		11		38		41

	Total North America		10,992		9,577		8,220
Europe			555		190		261
Africa/Middle East			426		229		325
Asia/Pacific			153		275		84
Latin America			19		67		58
Other			18		18		11

		$	12,163	$	10,356	$	8,959

T. QUARTERLY DATA (UNAUDITED)


														Common Stock

								Net Earnings						Market Price
								Per Share						Range
	Net		Operating		Net													Dividends
	Sales		Earnings		Earnings			Basic ^(a)			Diluted			High		Low		Declared

2001
4th Quarter	$	3,508	$	404	$	246		$	1.22		$	1.21		$	96.00	$	75.60	$	.28
3rd Quarter		3,020		376		230			1.14			1.13			90.20		73.76		.28
2nd Quarter		2,962		371		227			1.13			1.12			84.28		62.94		.28
1st Quarter		2,673		334		240	^(b)		1.20	^(b)		1.19	^(b)		78.19		60.50		.28
2000
4th Quarter	$	2,691	$	351	$	219		$	1.10		$	1.09		$	79.00	$	58.75	$	.26
3rd Quarter		2,502		337		294	^(c)		1.48	^(c)		1.47	^(c)		64.94		51.87		.26
2nd Quarter		2,617		335		204			1.02			1.01			61.19		48.00		.26
1st Quarter		2,546		306		184			.92			.91			57.56		36.25		.26

Quarterly data is based on a 13 week period.

(a) The sum of the basic earnings per share for the four quarters of 2000 differs from the annual basic earnings per share due to the required method of computing the weighted average number of shares in interim periods.

(b) Included a non-cash tax benefit of $28, or $.14 per share, as further described in Note D.

(c) Included a research and experimentation tax credit of $90, or $.45 per share, as further described in Note D.

General Dynamics 2001 Annual Report 47

U. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The floating rate notes are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain wholly-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 December 31, 2001 and 2000 for the balance sheet, as well as the statement of earnings and cash flows for each of the three years in the period ended December 31, 2001.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS


							Other
				Guarantors			Subsidiaries
				on a Combined			on a Combined			Consolidating			Total
Year Ended December 31, 2001	Parent			Basis			Basis			Adjustments			Consolidated

Net Sales	$	—		$	11,563		$	600		$	—		$	12,163
Cost of sales		(24	)		9,380			499			—			9,855
General and administrative expenses		—			782			41			—			823

Operating Earnings		24			1,401			60			—			1,485
Interest expense		(52	)		(4	)		(12	)		—			(68	)
Interest income		4			4			4			—			12
Other income (expense), net		(34	)		(32	)		61			—			(5	)

Earnings Before Income Taxes		(58	)		1,369			113			—			1,424
Provision (benefit) for income taxes		(40	)		498			23			—			481
Equity in net earnings of subsidiaries		961			—			—			(961	)		—

Net Earnings	$	943		$	871		$	90		$	(961	)	$	943


							Other
				Guarantors			Subsidiaries
				on a Combined			on a Combined			Consolidating			Total
Year Ended December 31, 2000	Parent			Basis			Basis			Adjustments			Consolidated

Net Sales	$	—		$	10,077		$	279		$	—		$	10,356
Cost of sales		(14	)		8,165			229			—			8,380
General and administrative expenses		—			630			17			—			647

Operating Earnings		14			1,282			33			—			1,329
Interest expense		(60	)		(1	)		(11	)		—			(72	)
Interest income		5			5			2			—			12
Other income (expense), net		(7	)		(29	)		29			—			(7	)

Earnings Before Income Taxes		(48	)		1,257			53			—			1,262
Provision (benefit) for income taxes		(90	)		452			(1	)		—			361
Equity in net earnings of subsidiaries		859			—			—			(859	)		—

Net Earnings	$	901		$	805		$	54		$	(859	)	$	901


							Other
				Guarantors			Subsidiaries
				on a Combined			on a Combined			Consolidating			Total
Year Ended December 31, 1999	Parent			Basis			Basis			Adjustments			Consolidated

Net Sales	$	—		$	8,645		$	314		$	—		$	8,959
Cost of sales		(145	)		7,085			246			—			7,186
General and administrative expenses		—			548			22			—			570

Operating Earnings		145			1,012			46			—			1,203
Interest expense		(27	)		(16	)		(10	)		—			(53	)
Interest income		10			7			2			—			19
Other income (expense), net		(8	)		(41	)		6			—			(43	)

Earnings Before Income Taxes		120			962			44			—			1,126
Provision (benefit) for income taxes		(104	)		328			22			—			246
Equity in net earnings of subsidiaries		656			—			—			(656	)		—

Net Earnings	$	880		$	634		$	22		$	(656	)	$	880

48 General Dynamics 2001 Annual Report

CONDENSED CONSOLIDATING BALANCE SHEET


								Other
					Guarantors			Subsidiaries
					on a Combined			on a Combined			Consolidating			Total
December 31, 2001		Parent			Basis			Basis			Adjustments			Consolidated

ASSETS
Current Assets:
Cash and equivalents		$	174		$	3		$	265		$	—		$	442
Accounts receivable			—			833			163			—			996
Contracts in process			35			1,525			177			—			1,737
Inventories
	Work in process		—			643			—			—			643
	Raw materials		—			358			3			—			361
	Pre-owned aircraft		—			254			—			—			254
	Other		—			30			1			—			31
Other current assets			147			231			51			—			429

Total Current Assets			356			3,877			660			—			4,893

Noncurrent Assets:
Property, plant and equipment			157			2,888			493			—			3,538
Accumulated depreciation, depletion & amortization of PP&E			(19	)		(1,406	)		(345	)		—			(1,770	)
Intangible assets			—			3,139			989			—			4,128
Accumulated amortization of intangible assets			—			(332	)		(38	)		—			(370	)
Other assets			235			210			205			—			650
Investment in subsidiaries			9,158			—			—			(9,158	)		—

Total Noncurrent Assets			9,531			4,499			1,304			(9,158	)		6,176

		$	9,887		$	8,376		$	1,964		$	(9,158	)	$	11,069

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt		$	1,165		$	20		$	26		$	—		$	1,211
Other current liabilities			154			2,573			641			—			3,368

Total Current Liabilities			1,319			2,593			667			—			4,579

Noncurrent Liabilities:
Long-term debt			500			60			164			—			724
Other liabilities			356			776			106			—			1,238

Total Noncurrent Liabilities			856			836			270			—			1,962

Shareholders’ Equity:
Common stock, including surplus			694			3,737			1,117			(4,854	)		694
Other shareholders’ equity			7,018			1,210			(90	)		(4,304	)		3,834

Total Shareholders’ Equity			7,712			4,947			1,027			(9,158	)		4,528

		$	9,887		$	8,376		$	1,964		$	(9,158	)	$	11,069


								Other
					Guarantors			Subsidiaries
					on a Combined			on a Combined			Consolidating			Total
December 31, 2000		Parent			Basis			Basis			Adjustments			Consolidated

ASSETS
Current Assets:
Cash and equivalents		$	153		$	1		$	23		$	—		$	177
Accounts receivable			1			760			37			—			798
Contracts in process			56			1,178			4			—			1,238
Inventories
	Work in process		—			405			—			—			405
	Raw materials		—			289			—			—			289
	Pre-owned aircraft		—			236			—			—			236
	Other		—			23			—			—			23
Other current assets			126			233			26			—			385

Total Current Assets			336			3,125			90			—			3,551

Noncurrent Assets:
Property, plant and equipment			75			2,543			22			—			2,640
Accumulated depreciation, depletion & amortization of PP&E			(16	)		(1,323	)		(7	)		—			(1,346	)
Intangible assets			—			2,585			216			—			2,801
Accumulated amortization of intangible assets			—			(254	)		(16	)		—			(270	)
Other assets			203			200			208			—			611
Investment in subsidiaries			7,110			—			—			(7,110	)		—

Total Noncurrent Assets			7,372			3,751			423			(7,110	)		4,436

		$	7,708		$	6,876		$	513		$	(7,110	)	$	7,987

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt		$	340		$	—		$	—		$	—		$	340
Other current liabilities			85			2,386			90			—			2,561

Total Current Liabilities			425			2,386			90			—			2,901

Noncurrent Liabilities:
Long-term debt			—			23			150			—			173
Other liabilities			402			578			113			—			1,093

Total Noncurrent Liabilities			402			601			263			—			1,266

Shareholders’ Equity:
Common stock, including surplus			619			3,398			287			(3,685	)		619
Other shareholders’ equity			6,262			491			(127	)		(3,425	)		3,201

Total Shareholders’ Equity			6,881			3,889			160			(7,110	)		3,820

		$	7,708		$	6,876		$	513		$	(7,110	)	$	7,987

General Dynamics 2001 Annual Report 49

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


							Other
				Guarantors			Subsidiaries
				on a Combined			on a Combined			Consolidating		Total
Year Ended December 31, 2001	Parent			Basis			Basis			Adjustments		Consolidated

Net Cash Provided by Operating Activities	$	86		$	814		$	203		$	—	$	1,103

Cash Flows from Investing Activities:
Business acquisitions, net of cash acquired		(1,162	)		(374	)		85			—		(1,451	)
Capital expenditures		(92	)		(244	)		(20	)		—		(356	)
Other, net		(19	)		54			26			—		61

Net Cash Used by Investing Activities		(1,273	)		(564	)		91			—		(1,746	)

Cash Flows from Financing Activities:
Net proceeds from commercial paper issuances		825			—			—			—		825
Net proceeds from floating rate notes		500			—			—			—		500
Net repayments of other debt, including finance operations		(149	)		(5	)		1			—		(153	)
Dividends paid		(219	)		—			—			—		(219	)
Other, net		(72	)		14			13			—		(45	)

Net Cash Provided by Financing Activities		885			9			14			—		908

Cash sweep by parent		323			(257	)		(66	)		—		—

Net Increase in Cash and Equivalents		21			2			242			—		265
Cash and Equivalents at Beginning of Year		153			1			23			—		177

Cash and Equivalents at End of Year	$	174		$	3		$	265		$	—	$	442


							Other
				Guarantors			Subsidiaries
				on a Combined			on a Combined			Consolidating		Total
Year Ended December 31, 2000	Parent			Basis			Basis			Adjustments		Consolidated

Net Cash Provided by Operating Activities	$	(53	)	$	1,137		$	(13	)	$	—	$	1,071

Cash Flows from Investing Activities:
Capital expenditures		(17	)		(268	)		(3	)		—		(288	)
Other, net		(6	)		(54	)		19			—		(41	)

Net Cash Used by Investing Activities		(23	)		(322	)		16			—		(329	)

Cash Flows from Financing Activities:
Net repayments of commercial paper		(508	)		—			—			—		(508	)
Dividends paid		(202	)		—			—			—		(202	)
Purchases of common stock		(208	)		—			—			—		(208	)
Proceeds from option exercises		111			—			—			—		111
Net repayments of other debt, including finance operations		—			(5	)		(23	)		—		(28	)

Net Cash Used by Financing Activities		(807	)		(5	)		(23	)		—		(835	)

Cash sweep by parent		866			(859	)		(7	)		—		—

Net Decrease in Cash and Equivalents		(17	)		(49	)		(27	)		—		(93	)
Cash and Equivalents at Beginning of Year		170			50			50			—		270

Cash and Equivalents at End of Year	$	153		$	1		$	23		$	—	$	177


							Other
				Guarantors			Subsidiaries
				on a Combined			on a Combined			Consolidating		Total
Year Ended December 31, 1999	Parent			Basis			Basis			Adjustments		Consolidated

Net Cash Provided by Operating Activities	$	343		$	656		$	17		$	—	$	1,016

Cash Flows from Investing Activities:
Business acquisitions, net of cash acquired		(1,042	)		(48	)		—			—		(1,090	)
Sales/maturities of available-for-sale securities		10			81			—			—		91
Capital expenditures		(10	)		(182	)		(5	)		—		(197	)
Other, net		(2	)		(29	)		4			—		(27	)

Net Cash Used by Investing Activities		(1,044	)		(178	)		(1	)		—		(1,223	)

Cash Flows from Financing Activities:
Net proceeds from commercial paper issuances		844			—			—			—		844
Net repayments of other debt, including finance operations		—			(414	)		(19	)		—		(433	)
Dividends paid		(136	)		—			—			—		(136	)
Other, net		22			(30	)		—			—		(8	)

Net Cash Provided by Financing Activities		730			(444	)		(19	)		—		267

Cash sweep by parent		67			(70	)		3			—		—

Net Increase in Cash and Equivalents		96			(36	)		—			—		60
Cash and Equivalents at Beginning of Year		74			86			50			—		210

Cash and Equivalents at End of Year	$	170		$	50		$	50			—	$	270

50 General Dynamics 2001 Annual Report

STATEMENT OF FINANCIAL RESPONSIBILITY

To the Shareholders of General Dynamics Corporation:

The management of General Dynamics Corporation is responsible for the consolidated financial statements and all related financial information contained in this report. The financial statements, which include amounts based on estimates and judgments, have been prepared in accordance with accounting principles generally accepted in the United States applied on a consistent basis.

The company maintains a system of internal accounting controls designed and intended to provide reasonable assurance that assets are safeguarded, that transactions are executed and recorded in accordance with management’s authorization and that accountability for assets is maintained. An environment that establishes an appropriate level of control consciousness is maintained and monitored by management. An important element of the monitoring process is an internal audit program that independently assesses the effectiveness of the control environment.

The Audit and Corporate Responsibility Committee of the board of directors, which is composed of four outside directors, meets periodically and, when appropriate, separately with the independent public accountants, management and internal audit to review the activities of each.

The financial statements have been audited by Arthur Andersen LLP, independent public accountants, whose report follows.



Michael J. Mancuso		John W. Schwartz
Senior Vice President and Chief Financial Officer		Vice President and Controller

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To General Dynamics Corporation:

We have audited the accompanying Consolidated Balance Sheet of General Dynamics Corporation (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related Consolidated Statements of Earnings, Shareholders’ Equity and Cash Flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of General Dynamics Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The condensed consolidating financial statements provided in Note U are presented for purposes of complying with the Securities and Exchange Commission’s rules and are not part of the basic financial statements. These condensed consolidating financial statements have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.


Vienna, Virginia
January 21, 2002 (except with respect to the matters
discussed in Note J and Note O, as to which the date is March 15, 2002)		ARTHUR ANDERSEN LLP

General Dynamics 2001 Annual Report 51

SELECTED FINANCIAL DATA (UNAUDITED)

The following table presents summary selected historical financial data derived from the audited Consolidated Financial Statements and other information of the company for each of the five years presented. The following information should be read in conjunction with Management’s Discussion and Analysis of the Results of Operations and Financial Condition and the audited Consolidated Financial Statements and related Notes thereto.


(Dollars and shares in millions,
except per share and employee amounts)		2001			2000			1999			1998			1997

Summary of Operations
Net sales		$	12,163		$	10,356		$	8,959		$	7,398		$	5,966
Operating earnings			1,485			1,329			1,203			918			676
Interest (expense) income, net			(56	)		(60	)		(34	)		(17	)		16
Provision for income taxes, net			481			361			246			315			130
Net earnings			943			901			880			589			559
Earnings per share:
	Basic		4.69			4.51			4.40			2.95			2.80
	Diluted		4.65			4.48			4.36			2.91			2.73
Cash dividends per common stock share			1.12			1.04			.96			.88			.82
Sales per employee (adjusted for business acquisitions)			254,800			239,000			227,500			208,600			191,700

Financial Position
Cash and equivalents and marketable securities		$	442		$	177		$	270		$	303		$	774
Total assets			11,069			7,987			7,774			6,196			5,583
Short- and long-term debt			1,935			513			1,022			530			645
Shareholders’ equity			4,528			3,820			3,170			2,407			2,008
Book value per share			22.56			19.05			15.77			12.08			10.02

Other Information
Funded backlog		$	19,384	⁽¹⁾	$	14,442		$	11,951		$	10,841		$	9,699
Total backlog			26,832	⁽¹⁾		19,742			19,916			19,332			12,531
Shares outstanding			200.7			200.5			201.0			199.3			200.3
Weighted average shares outstanding:
	Basic		201.1			199.8			200.0			199.5			199.8
	Diluted		202.9			201.3			202.1			202.2			204.5
Active employees			51,700			43,300			43,400			38,440			34,800

⁽¹⁾ Excludes $785 of funded backlog and $2,485 of total backlog resulting from the company's termination on March 25, 2002 of its agreements with Avolar, a subsidiary of UAL Corporation.

52 General Dynamics 2001 Annual Report

Exhibit 21, Annual Report on Form 10-K
for the year ended December 31, 2001
Commission File Number 1-3671
Page 1

GENERAL DYNAMICS CORPORATION
SUBSIDIARIES
AS OF MARCH 7, 2002


Subsidiaries of General Dynamics		Place of	Percent of
Corporation (Parent and Registrant)		Incorporation	Voting Power

American Overseas Marine Corporation		Delaware		100
	Quincy Maritime Corporation I	Delaware		100
	Quincy Maritime Corporation II	Delaware		100
	Quincy Maritime Corporation III	Delaware		100
	Water Transportation Alternatives, Inc.	Delaware		100
Bath Iron Works Corporation		Maine		100
	BIW-LLTF, LLC	Maine		100
Concord I Maritime Corporation		Delaware		100
	Braintree I Maritime Corp.	Delaware		100
Concord II Maritime Corporation		Delaware		100
	Braintree II Maritime Corp.	Delaware		100
Concord III Maritime Corporation		Delaware		100
	Braintree III Maritime Corp.	Delaware		100
Concord IV Maritime Corporation		Delaware		100
	Braintree IV Maritime Corp.	Delaware		100
Concord V Maritime Corporation		Delaware		100
	Braintree V Maritime Corp.	Delaware		100
Convair Aircraft Corporation		Delaware		100
Convair Corporation		Delaware		100
Eagle Enterprise, Inc.		Delaware		100
Elco Company, The		New Jersey		100
Electric Boat Corporation		Delaware		100
	EB Groton Engineering, Inc.	Delaware		100
	EB Groton Operations, Inc.	Delaware		100
	EB Newport Engineering, Inc.	Delaware		100
	EB Quonset Point Operations, Inc.	Delaware		100
	Electro Dynamic Corporation	Delaware		100
	General Dynamics Power Technology, Inc.	Delaware		100
Electrocom, Inc.		Delaware		100
GD Marine Property, LLC		District of Columbia		100
GD Plus S.A.R.L.		France		100
General Dynamics Advanced Technology Systems, Inc.		Delaware		100
	it International Telecom USA, Inc	Delaware		100
General Dynamics Armament Systems, Inc.		Delaware		100
	GDAS International, Inc.	Delaware		100
General Dynamics Decision Systems, Inc.		Delaware		100
	General Dynamics Satellite Communication Services, Inc.	Delaware		100
General Dynamics Defense Systems, Inc.		Delaware		100
	General Dynamics Creative Concepts, Inc.	Delaware		100
	General Dynamics Devcor, Inc.	Delaware		100
General Dynamics Foreign Sales Corporation		Virgin Islands		100

Exhibit 21, Annual Report on Form 10-K
for the year ended December 31, 2001
Commission File Number 1-3671
Page 2

GENERAL DYNAMICS CORPORATION
SUBSIDIARIES
AS OF MARCH 7, 2002


Subsidiaries of General Dynamics				Place of	Percent of
Corporation (Parent and Registrant)				Incorporation	Voting Power

General Dynamics Government Systems Corporation				Delaware		100
	General Dynamics Federal Services Corporation			California		100
	General Dynamics Government Systems Overseas Corporation			Delaware		100
	General Dynamics Interactive Corporation			Delaware		100
	General Dynamics Overseas Systems and Services Corporation			Delaware		100
	Page International Holdings, Inc.			Delaware		100
		Page Europa SpA		Italy		100
			Pagetel Sistem Muhendisligi Sanayi ve Ticaret Limited	Turkey		100
General Dynamics Information Systems, Inc.				Delaware		100
General Dynamics International Corporation				Delaware		100
General Dynamics Land Systems, Inc.				Delaware		100
	AV Technology, LLC			Maryland		100
	General Dynamics Land Systems Customer Service & Support Company			Texas		100
		General Dynamics Support Services Company		Delaware		100
		Global Support Services Company		Cayman Islands		100
	General Dynamics Land Systems International, Inc.			Delaware		100
	General Dynamics Robotic Systems, Inc.			Delaware		100
	G.T. Devices, Inc.			Maryland		100
General Dynamics Manufacturing Limited				Canada		100
General Dynamics Marine Services, Inc.				Delaware		100
General Dynamics Ordnance and Tactical Systems, Inc.				Virginia		100
	General Dynamics OTS (Aerospace), Inc.			Washington		100
		Bi-propellant Rocket Research Corporation		Delaware		100
	General Dynamics OTS (California), Inc.			California		100
		General Dynamics OTS GMBH		Switzerland		100
	General Dynamics OTS (Downey), Inc.			Delaware		100
		AMMS, Inc.		Delaware		100
	General Dynamics OTS (DRI), Inc.			Alabama		100
	General Dynamics OTS (OTI), Inc.			Florida		100
	General Dynamics OTS (Pennsylvania), Inc.			Pennsylvania		100
		GD International Ltd.		Virgin Islands		100
	General Dynamics OTS (Versatron), Inc.			Delaware		100
	St. Marks Powder, Inc.			Delaware		100
General Dynamics Properties, Inc.				Delaware		100
General Dynamics Shared Resources, Inc.				Delaware		100
General Dynamics Worldwide Holdings, Inc.				Cayman Islands		100

Exhibit 21, Annual Report on Form 10-K
for the year ended December 31, 2001
Commission File Number 1-3671
Page 3

GENERAL DYNAMICS CORPORATION
SUBSIDIARIES
AS OF MARCH 7, 2002

Subsidiaries of General Dynamics

Place of

Percent of

Corporation (Parent and Registrant)

Incorporation

Voting Power

General Dynamics Worldwide Holdings, Inc.

Delaware

100

General Dynamics Canada Ltd.

Canada

100

Computing Devices (Thailand) Limited

Thailand

100

Proto Metalworks Ltd.

Canada

100

General Dynamics Limited

United Kingdom

100

General Dynamics United Kingdom Limited

United Kingdom

100

Computing Devices Hastings Limited

United Kingdom

100

Computing Devices Eastbourne Limited

United Kingdom

100

GCC Beteiligungsverwal Tungs GMBH

Austria

100

Gulfstream Aerospace Corporation, Limited

United Kingdom

100

it International Telecom Inc.

Canada

100

it International Telecom Limted

England and Wales

100

Gulfstream Aerospace Corporation

Delaware

100

Gulfstream Delaware Corporation

Delaware

100

Gulfstream Aerospace Corporation

California

100

Gulfstream Aerospace Corporation

Oklahoma

100

Gulfstream Aerospace Corporation

Georgia

100

Gulfstream Aerospace FSC, Ltd.

Barbados

100

Gulfstream Aerospace (Middle East) Ltd.

Cyprus

100

Gulfstream International Corporation

Delaware

100

Gulfstream Aerospace Corporation of Texas

Texas

100

Gulfstream Aerospace Services Corporation

Delaware

100

Gulfstream Aircraft Incorporated

Georgia

100

Gulfstream Alliance Holdings, Inc.

Delaware

100

General Dynamics Aviation Services Corporation (DE)

Delaware

100

General Dynamics Aviation Services Corporation (FL)

Florida

100

General Dynamics Aviation Services Corporation (MN)

Minnesota

100

General Dynamics Aviation Services Corporation (NV)

Nevada

100

Gulfstream Financial Services Corporation

Georgia

100

Gulfstream NetJets, Inc.

Georgia

100

Interiores Aereos S.A. de C.V.

Mexico

100

Material Service Resources Company

Delaware

100

Freeman Energy Sales Corporation

Delaware

100

Capital Fuels Sales Corporation

Delaware

100

Capital Resources Development Company

Delaware

100

CFTX, Inc.

Delaware

100

Material Service Corporation

Delaware

100

Material Service Foundation

Illinois

100

MLRB, Inc.

Illinois

100

Mineral and Land Resources Corporation

Delaware

100

Thornton Quarries Corporation

Illinois

100

Century Mineral Resources, Inc.

Illinois

100

Freeman Energy Corporation

Delaware

100

Freeman United Coal Mining Company

Delaware

100

Prairie Energy Sales Corporation

Delaware

100

Exhibit 21, Annual Report on Form 10-K
for the year ended December 31, 2001
Commission File Number 1-3671
Page 4

GENERAL DYNAMICS CORPORATION
SUBSIDIARIES
AS OF MARCH 7, 2002


Subsidiaries of General Dynamics			Place of	Percent of
Corporation (Parent and Registrant)			Incorporation	Voting Power

NASSCO Holdings Incorporated			Delaware		100
	International Manufacturing Technologies, Inc.		California		100
		Technologias Internacionales de Manufactura S.A. de C.V.	Mexico		100
	National Steel and Shipbuilding Company		Nevada		100
Patriot I Shipping Corp.			Delaware		100
Patriot II Shipping Corp.			Delaware		100
Patriot IV Shipping Corp.			Delaware		100
Santa Bárbara Sistemas, S.A.			Spain		100
	Santa Bárbara Blindados, S.A.		Spain		100

Exhibit 23, Annual Report on Form 10-K
for the year ended December 31, 2001
Commission File Number 1-3671

GENERAL DYNAMICS CORPORATION

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference in this Form 10-K for the year ended December 31, 2001, into the company’s previously filed Registration Statements File Numbers 2-23904, 2-24270, 33-23448, 33-42799, 333-26571, 333-74574, 333-77024 (including 333-77024-01 through 333-77024-13), and 333-80213-01.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Vienna, Virginia
March 28, 2002

Exhibit 24, Annual Report on Form 10-K
for the year ended December 31, 2001
Commission File Number 1-3671

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENT, that each of the undersigned Directors of GENERAL DYNAMICS CORPORATION, a Delaware corporation, hereby constitutes and appoints each of NICHOLAS D. CHABRAJA, MICHAEL J. MANCUSO and DAVID A. SAVNER as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the 2001 Annual Report on Form 10-K of General Dynamics Corporation, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary as fully to all intents and purposes as he might or could do in person, and hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 6th day of March 2002.


/s/ Julius W. Becton, Jr.		/s/ George A. Joulwan

Julius W. Becton, Jr.		George A. Joulwan
/s/ Nicholas D. Chabraja		/s/ Paul G. Kaminski

Nicholas D. Chabraja		Paul G. Kaminski
/s/ James S. Crown		/s/ James R. Mellor

James S. Crown		James R. Mellor
/s/ Lester Crown		/s/ Carl E. Mundy, Jr.

Lester Crown		Carl E. Mundy, Jr.
/s/ Charles H. Goodman		/s/ Carlisle A. H. Trost

Charles H. Goodman		Carlisle A. H. Trost

Exhibit 99.1, Annual Report on Form 10-K
for the year ended December 31, 2001
Commission File Number 1-3671

GENERAL DYNAMICS

March 29, 2002

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Dear Sir or Madam:

This letter is being filed by General Dynamics Corporation with its Form 10-K pursuant to Temporary Note 3T to Article 3 of Regulation S-X to set forth certain representations made to General Dynamics by Arthur Andersen LLP in connection with their audit.

General Dynamics received a representation letter dated March 28, 2002, from Arthur Andersen LLP indicating that they have audited the consolidated financial statements of General Dynamics Corporation and subsidiaries as of December 31, 2001 and for the year then ended, and have issued their report thereon dated January 21, 2002 (except with respect to the matters discussed in Note J and Note O, as to which the date is March 15, 2002). In the representation letter, Arthur Andersen represented that the audit was subject to their quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards and that there was appropriate continuity of Arthur Andersen personnel working on the audit, availability of national office consultation and availability of personnel at foreign affiliates of Arthur Andersen to conduct the relevant portions of the audit.

/s/ John W. Schwartz
John W. Schwartz
Vice President and Controller

1.		Purpose. The purpose of the General Dynamics Corporation Non-Employee Directors 1999 Stock Plan (the “Plan”) is to provide General Dynamics Corporation (the “Company”) with an effective means of attracting, retaining, and motivating directors of the Company.

2.		Eligibility. Any member of the Board of Directors of the Company (the “Board”) who is not an employee of the Company (an “Eligible Director”) is eligible to participate in the Plan.

3.		Administration. The Plan shall be administered by the Board. Except as otherwise expressly provided in the Plan, the Board shall have full power and authority to interpret and administer the Plan, to determine the Eligible Directors to receive awards and the amounts, types and terms of the awards, to adopt, amend, and rescind rules and regulations, and to establish terms and conditions, not inconsistent with the provisions of the Plan, for the administration and implementation of the Plan, provided, however, that the Board may not, after the date of any award, make any changes that would adversely affect the rights of a recipient under such award without the consent of the recipient. The determination of the Board on all matters shall be final and conclusive and binding on the Company and all participants.

4.		Awards. Awards may be made by the Board in such amounts as it shall determine in cash, in the Company’s common stock, par value $1.00 per share (“Common Stock”), in options to purchase Common Stock of the Corporation (“Stock Options”), or in shares of Common Stock subject to certain restrictions (“Restricted Stock”), or any combination thereof. Further, an Eligible Director’s annual retainer may also be paid under the Plan in either cash or Common Stock or in a fifty percent (50%) and fifty percent (50%) combination thereof, as the Eligible Director may elect. There shall be 40,000 shares of Common Stock available for issuance in connection with awards under the Plan. If any award under the Plan shall expire, terminate, or be canceled for any reason without having been vested or exercised in full, the corresponding number of shares which were reserved for issuance in connection therewith shall again be available for the purposes of the Plan. Shares available under the Plan may be authorized and unissued shares or may be treasury shares.

5.		Common Stock. In the case of awards or payments of retainers in Common Stock, the number of shares shall be determined by dividing the amount of the award or retainer elected to be received in Common Stock by the average of the highest and lowest quoted selling prices of the Company’s Common Stock on the New York Stock Exchange on the date of the award or retainer. The average is referred to throughout this Plan as the “fair market value.”

	a.		Dividends. If any award in Common Stock or Restricted Stock is to be paid on a deferred basis, the recipient may be entitled, on terms and conditions to be established by the Board, to receive a payment of, or credit equivalent to, any dividend payable with respect to the number of shares of Common Stock or Restricted Stock which, as of the record date for the dividend, has been awarded or made payable to the recipient but not delivered.

	b.		Interest. If any award in cash is to be paid on a deferred basis, the recipient may be entitled, on terms and conditions to be established by the Board, to accrue interest on the unpaid amount.

	a.		General. Restricted Stock represents awards made in Common Stock in which the shares granted may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated except upon passage of time, or upon satisfaction of other conditions, or both, in every case as provided by the Board. The recipient of an award of Restricted Stock shall be entitled to vote the shares awarded and to the payment of dividends on the shares from the date the award of shares is made; and, in addition, all Special Distributions (as defined in Section 9 hereof) thereon shall be credited to an account similar to the Account described in Section 9. The recipient of an award of Restricted Stock shall have a nonforfeitable interest in amounts credited to such account in proportion to the lapse of restrictions on the Restricted Stock to which such amounts relate. For example, when restrictions lapse on fifty percent (50%) of the Restricted Stock granted in an award, the holder of such Restricted Stock shall have a nonforfeitable interest in fifty percent (50%) of the amount credited to his account which is attributable to such Restricted Stock. The holder of Restricted Stock shall receive a payment in cash of any amount in his account as soon as practicable after the lapse of restrictions relating thereto.

	b.		Restricted Stock Performance Formula. Awards of Restricted Stock may be granted pursuant to the formula described in this Section, referred to herein as the “Restricted Stock Performance Formula.” The Board shall make an initial grant of shares of Restricted Stock (the “Initial Grant”). At the end of a specified performance period (determined by the Board), the number of shares in the Initial Grant shall be increased or decreased, based on the increase or decrease in the fair market value of a share of Common Stock during the performance period, by a number of shares equal to (a) the excess of the fair market value of a share of Common Stock on the last day of the performance period over the fair market value of a share of Common Stock on the grant date multiplied by (b) the number of shares of Restricted Stock subject to the Initial Grant and divided by (c) the fair market value of a share of Common Stock on the last day of the performance period. The number of shares of Common Stock so determined is added to (in the case of a higher fair market value) or subtracted from (in the case of a lower fair market value) the number of shares of Restricted Stock to be earned at that time. Once the number of shares of Restricted Stock has been adjusted, restrictions will continue to be imposed for a period of time determined by the Board.

	b.		Purchase Price. The purchase price of the Common Stock under each option shall be determined by the Board, but shall not be less than 100 percent of the fair market value of the Common Stock on the date of the award of the option.

	c.		Terms and Conditions . The Board shall establish (i) the term of each option, (ii) the terms and conditions upon which and the times when each option shall be exercised, and (iii) the terms and conditions under which options may be exercised after termination as an Eligible Director for any reason for periods not to exceed three years after such termination.

	d.		Purchase by Cash or Stock . The purchase price of shares purchased upon the exercise of any stock option shall be paid (i) in full in cash, or (ii) in whole or in part (in combination with cash) in full shares of Common Stock owned by the optionee and valued at fair market value on the date of exercise, all pursuant to procedures approved by the Board.

	e.		Transferability . Options shall not be transferable other than by will or pursuant to the laws of descent and distribution. During the lifetime of the person to whom an option has been awarded, it may be exercisable only by such person or one acting in his stead or in a representative capacity. Upon or after the death of the person to whom an option is awarded, an option may be exercised by the optionee’s legatee or legatees under his last will, or by the option holder’s personal representative or distributee’s executive, administrator, or personal representative or designee in accordance with the terms of the option.

9.		Adjustments for Special Distributions. The Board shall have the authority to change all Stock Options granted under this Plan to adjust equitably the purchase price thereof and the number and kind of shares or other property subject thereto to reflect a special distribution to shareholders or other extraordinary corporate action involving distributions or payments to shareholders (collectively referred to as “Special Distributions”). In the event of any Special Distribution, the Board may cause to be created a Special Distribution account (the “Account”) in the name of the individual to whom Stock Options have been granted hereunder (sometimes herein referred to as a “Grantee”) to which shall be credited an amount determined by the Board, or, in the case of non-cash Special Distributions, make appropriate comparable adjustments for, or payments to or for the benefit of, the Grantee.

		Amounts credited to the Account in accordance with the preceding rules shall be credited with interest, accrued monthly, at an annual rate equal to the higher of Moody’s Corporate Bond Yield Average or the prime rate in effect from time to time, and such interest shall be credited in accordance with rules to be established by the Board. Notwithstanding the foregoing, at no time shall the Board permit the amount credited to the Grantee’s Account to exceed 90 percent of the purchase price of the Grantee’s outstanding Stock Options to which such amount relates. To the extent that any credit would cause the Account to exceed that limitation, such excess shall be distributed to the Grantee in cash.

		Amounts credited to the Grantee’s Account shall be paid to the Grantee or, if the Grantee is deceased, his or her beneficiary at the time that the options to which it relates are exercised or expire, whichever occurs first.

		The Account shall for all purposes be deemed to be an unfunded promise to pay money in the future in certain specified circumstances. As to amounts credited to the Account, a Grantee shall have no rights greater than the rights of a general unsecured creditor of the Company, and amounts credited to the Grantee’s Account shall not be assignable or transferable other than by will or the laws of descent and distribution, and such amounts shall not be subject to the claims of the Grantee’s creditors.

10.		Adjustments and Reorganizations. The Board may make such adjustments to awards granted under the Plan (including the terms, exercise price, and otherwise) as it deems appropriate in the event of changes that impact the Company, the Company’s share price, or share status.

		In the event of any merger, reorganization, consolidation, change of control, recapitalization, separation, liquidation, stock dividend, stock split, extraordinary dividend, spin-off, split-up, rights offering, share combination, or other change in the corporate structure of the Company affecting the Common Stock, the number and kind of shares that may be delivered under the Plan shall be subject to such equitable adjustment as the Board may deem appropriate. Except as otherwise provided by the Board, all authorized shares, share limitations, and awards under the Plan shall be proportionately adjusted to account for any increase or decrease in the number of issued shares of Common Stock resulting from any stock split, stock dividend, reverse stock split, or any similar reorganization or event. Notwithstanding anything in this Plan to the contrary, all awards outstanding hereunder shall become fully vested upon the occurrence of a change in control.

		In the preceding paragraph, “change of control” means any of the following events:

	a.		An acquisition (other than directly from the Company) of any voting securities of the Company by any Person (as used in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and including any “group” as such term is used in such sections) who immediately after such acquisition is the Beneficial Owner (as used in Rule 13d-3 promulgated under the Exchange Act) of 40 percent or more of the combined voting power of the Company’s then outstanding voting securities; provided that, in determining whether a change of control has occurred, voting securities which are acquired by (i) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or any subsidiary of the Company, (ii) the Company or any subsidiary of the Company, (iii) any Person that, pursuant to Rule 13d-1 promulgated under the Exchange Act, is permitted to, and actually does, report its beneficial ownership of voting securities of the Company on Schedule 13G (or any successor Schedule) (a “13G Filer”) provided that, if any 13G Filer subsequently becomes required to or does report its Beneficial Ownership of voting securities of the Company on Schedule 13D (or any successor Schedule) then such Person shall be deemed to have first acquired, on the first date on which such Person becomes required to or does so file, Beneficial Ownership of all voting securities of the Company Beneficially Owned by it on such date, or (iv) any person in connection with a Non-Control Transaction (as hereinafter defined), will not constitute an acquisition which results in a change of control

	b.		Consummation of:

	(A)		the stockholders of the Company immediately before such merger, consolidation, or reorganization will own, directly or indirectly, immediately following such merger, consolidation, or reorganization, at least 50 percent of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation, or reorganization (the “Surviving Company”) or any parent thereof in substantially the same proportion as their ownership of the voting securities of the Company immediately before such merger, consolidation, or reorganization; and

	(B)		the individuals who were members of the Board immediately prior to the execution of the agreement providing for such merger, consolidation, or reorganization constitute a majority of the members of the Board of Directors of the Surviving Company or any parent thereof; and

	(C)		no person (other than the Company, any subsidiary of the Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, any Schedule 13G Filer, the Surviving Company, any subsidiary or parent of the Surviving Company, or any person who, immediately prior to such merger, consolidation, or reorganization, was the Beneficial Owner of 40 percent or more of the then outstanding voting securities of the Company) is the Beneficial Owner of 40 percent or more of the combined voting power of the Surviving Company’s then outstanding voting securities;

	(D)		a transaction described in clauses (A) through (C) above is referred to herein as a “Non-Control Transaction;”

	(ii)		the complete liquidation or dissolution of the Company; or

	(iii)		a sale or other disposition of all or substantially all of the assets of the Company (other than a sale or other disposition to an entity (A) of which at least 50 percent of the combined voting power of the outstanding voting securities are owned, directly or indirectly, by stockholders of the Company in substantially the same proportion as their ownership of the voting securities of the Company, (B) a majority of whose board of directors is comprised of individuals who were members of the Board immediately prior to the execution of the agreement providing for such sale or other disposition and (C) of which no Person (other than the Company, any Subsidiary of the Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, any Schedule 13G Filer, the Surviving Corporation, any Subsidiary or parent of the Surviving Corporation, or any Person who, immediately prior to such merger, consolidation or reorganization, was the Beneficial Owner of 40 percent or more of the then outstanding voting securities of the Company) has Beneficial Ownership of 40 percent or more of the combined voting power of the entity’s outstanding voting securities.

			the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (including, but not limited to, a consent solicitation).

	d.		Notwithstanding the foregoing, a change of control will not be deemed to occur solely because any person (a “Subject Person”) acquires beneficial ownership of more than the permitted amount of the outstanding voting securities of the Company as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increases the proportional number of shares beneficially owned by the Subject Person, provided that if a change of control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional voting securities which increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person, then a change of control will be deemed to have occurred.

11.		Tax Withholding. In the event that federal, state or local tax laws provide withholding requirements that apply to Eligible Directors, the Company shall withhold amounts paid under the Plan as required by any such law.

12.		Expenses. The expenses of administering the Plan shall be borne by the Company.

13.		Amendments. The Board shall have complete power and authority to amend the Plan, provided that the Board shall not amend the Plan in any manner that requires shareholder approval under applicable law without such approval No amendment to the Plan may, without the consent of the individual to whom the award shall theretofore have been awarded, adversely affect the rights of an individual under the award.

14.		Effective Date of the Plan. The Plan shall become effective on December 1, 1999, the date of its adoption by the Board.

15.		Termination. The Board may terminate the Plan or any part thereof at any time, provided that no termination may, without the consent of the individual to whom any award shall theretofore have been made, adversely affect the rights of an individual under the award.

16.		Other Actions. Nothing contained in the Plan shall be deemed to preclude other compensation plans which may be in effect from time to time or be construed to limit the authority of the Company to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Company (a) to award options for proper corporate purposes otherwise than under the Plan to an employee or other person, firm, corporation, or association, or (b) to award options to, or assume the option of, any person in connection with the acquisition, by purchase, lease, merger, consolidation, or otherwise, of the business and assets (in whole or in part) of any person, firm, corporation, or association.


	(i) a merger, consolidation or reorganization involving the Company, unless:

	(A) the stockholders of the Company, immediately before such merger, consolidation or reorganization, will own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least 50% of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation or reorganization (the “Surviving Corporation”) in substantially the same proportion as their ownership of the voting securities of the Company immediately before such merger, consolidation or reorganization;

	(B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least 50% of the members of the board of directors of the Surviving Corporation; and

	(C) no Person (other than the Company, any Subsidiary of the Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, any Subsidiary of the Surviving Corporation, or any Person who, immediately prior to such merger, consolidation or reorganization, was the Beneficial Owner of 20% or more of the then outstanding voting securities of the Company) is the Beneficial Owner of 20% or more of the combined voting power of the Surviving Corporation’s then outstanding voting securities.

	(D) a transaction described in clauses (A) through (C) above is referred to herein as a ''Non-Control Transaction”;

	(ii) the complete liquidation or dissolution of the Company; or

	(iii) an agreement for sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary of the Company).


	case except in connection with the termination of the Executive’s employment for Disability, Cause, as a result of the Executive’s death or by the Executive other than for Good Reason;

	(b) a reduction in the Executive’s base salary or any failure to pay the Executive any compensation or benefits to which the Executive is entitled within five days after the date when due;

	(c) the imposition of a requirement that the Executive be based at any place outside a 30-mile radius of ______, except for reasonably required travel on Company business which is not materially greater in frequency or duration than prior to the Change in Control;

	(d) the failure by the Company to (i) continue in effect (without reduction in benefit level or reward opportunities) any material compensation or employee benefit plan in which the Executive was participating at any time within 180 days preceding the date of the Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to the Executive or (ii) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and reward opportunities) to those provided for under each other employee benefit plan, program and practice in which the Executive was participating at any time within 1 80 days preceding the date of the Change in Control or at any time thereafter;

	(e) the insolvency or the filing (by any party, including the Company) of a petition for bankruptcy with respect to the Company, which petition is not dismissed within 60 days;

	(f) any material breach by the Company of any provision of this Agreement;

	(g) any purported termination of the Executive’s employment for Cause by the Company which does not comply with the terms of this Agreement; or

	(h) the failure of the Company to obtain, as contemplated in Section 6, an agreement, reasonably satisfactory to the Executive, from any Successor to assume and agree to perform this Agreement.


	(a) If the Executive’s employment with the Company is terminated (i) by the Company for Cause or Disability, (ii) by reason of the Executive’s death or (iii) by the Executive other than for Good Reason and other than during the 60-day period commencing on the first anniversary of the date of the occurrence of a Change in Control (the “Window Period”), the Company will pay to the Executive the Accrued Compensation and, if such termination is other than by the Company for Cause, a Pro Rata Bonus.

	(b) If the Executive’s employment with the Company is terminated for any reason other than as specified Section 3.1(a) or during the Window Period, the Executive will be entitled to the following:


	(i) the Company will pay the Executive all Accrued Compensation and a Pro Rata Bonus;

	(ii) the Company will pay the Executive as severance pay, and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment an amount in cash equal to times the sum of (A) the Base Amount and (B) the Bonus Amount;

	(iii) for a period of 18 months (the “Continuation Period”), the Company will at its expense continue on behalf of the Executive and the Executive’s dependents and beneficiaries the life insurance, disability, medical, dental and hospitalization benefits provided (A) to the Executive at any time during the 180-day period prior to the Change in Control or at any time thereafter or (B) to other similarly situated executives who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 3.1(b)(iii) during the Continuation Period will be no less favorable to the Executive and the Executive’s dependents and beneficiaries than the most favorable of such coverages and benefits during any of the periods referred to in clauses (A) and (B) above. The Company’s obligation hereunder with respect to the foregoing benefits will be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the coverages


	and benefits of the combined benefit plans are no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 3.1(b) will not be interpreted so as to limit any benefits to which the Executive or the Executive’s dependents or beneficiaries may be entitled under any of the Company’s employee benefit plans, programs or practices following the Executive’s termination of employment, including retiree medical and life insurance benefits;

	(iv) the Company will pay in a single payment an amount in cash equal to the excess of (A) the Supplemental Retirement Benefit determined as if (1) the Executive had remained employed by the Company for an additional year(s) of credited service, (2) the Executive’s annual compensation during such period had been equal to the Executive’s Base Salary and the Bonus Amount, (3) the Executive had been fully vested in the Executive’s benefit under each retirement plan in which the Executive was a participant, (3) the Company had made employer contributions to each defined contribution plan in which the Executive was a participant at the Termination Date in an amount equal to the amount of such contribution for the plan year immediately preceding the Termination Date and (4) the Executive had been fully vested in the Executive’s benefit under each retirement plan in which the Executive was a participant, over (B) the lump sum actuarial equivalent of the aggregate retirement benefit the Executive is actually entitled to receive under such retirement plans; and

	(v) any restrictions on any outstanding restricted stock awards granted to the Executive will lapse and such restricted stock awards will become fully vested, all in-the-money stock options will become fully vested, and the Executive will have the right to require the Company to purchase, for cash, any out-of-the-money stock options held by the Executive at a price equal to the fair market value of such options on the date of purchase determined by the Company using the Black-Scholes option pricing model. For purposes of this Section 3.1(b)(v), a stock option will be deemed (A) to be in-the-money if, as of the date of determination, the New York Stock Exchange composite quotation for the Company’s Common Stock, as reported in the Wall Street Journal, as of the close of business, New York City time, on the immediately preceding trading day (the “Applicable Price”), exceeds the exercise price per share required to be paid by the holder upon the exercise of such option and (B) to be out-of-the-money if, as of the date of determination, the Applicable Price is equal to or less than such exercise price.


	(c) The amounts provided for in Section 3.1(a) and Sections 3.1(b)(i), (ii) and (iv) will be paid in a single lump sum cash payment by the Company to the Executive within five days after the Termination Date.

	(d) The Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such payment will be offset or reduced by the amount of any compensation or benefits

*		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, including Gulfstream’s merged plans post-acquisition, as further described in Note R. Operating earnings for 1999 included a non-recurring gain of $126 related to the commercial pension plan merger, also described in Note R, and a non-cash charge to earnings of $61 related to the revaluation of undeveloped coal reserves and related assets.

**		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.

(a)		The sum of the basic earnings per share for the four quarters of 2000 differs from the annual basic earnings per share due to the required method of computing the weighted average number of shares in interim periods.

(b)		Included a non-cash tax benefit of $28, or $.14 per share, as further described in Note D.

(c)		Included a research and experimentation tax credit of $90, or $.45 per share, as further described in Note D.