10-K

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, 2008

OR

¨ 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	13-1673581
State or other jurisdiction of incorporation or organization	IRS Employer Identification No.

2941 Fairview Park Drive, Suite 100, Falls Church, Virginia	22042-4513
Address of principal executive offices	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	Name of exchange on which registered
Common stock, par value $1 per share	New York Stock Exchange

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  x    Accelerated Filer  ¨    Non-Accelerated Filer  ¨    Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting common equity held by non-affiliates of the registrant was $31,518,272,489

as of June 29, 2008 (based on the closing price of the shares on the New York Stock Exchange).

386,068,301 shares of the registrant’s common stock were outstanding at February 1, 2009.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III incorporates by reference information from certain portions of the registrant’s definitive proxy statement for the 2009 annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year.

INDEX

	Page
PART I
Item 1. Business	3
Item 1A. Risk Factors	14
Item 1B. Unresolved Staff Comments	16
Item 2. Properties	16
Item 3. Legal Proceedings	17
Item 4. Submission of Matters to a Vote of Security Holders	17
PART II
Item 5. Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6. Selected Financial Data	18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	35
Item 8. Financial Statements and Supplementary Data	36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	65
Item 9A. Controls and Procedures	65
Item 9B. Other Information	68
PART III
Item 10. Directors, Executive Officers and Corporate Governance	68
Item 11. Executive Compensation	69
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	69
Item 13. Certain Relationships and Related Transactions, and Director Independence	69
Item 14. Principal Accountant Fees and Services	69
PART IV
Item 15. Exhibits and Financial Statement Schedules	69
Signatures	70
Schedule II – Valuation and Qualifying Accounts	71
Index to Exhibits	71

2    General Dynamics 2008 Annual Report

(Dollars in millions, unless otherwise noted)

PART I

ITEM 1. BUSINESS

BUSINESS OVERVIEW

General Dynamics offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design and construction; and information systems, technologies and services. Incorporated in Delaware, we employ approximately 92,300 people and have a global presence.

We are dedicated to consistently delivering superior shareholder returns. Shareholder value is created through a strategy that emphasizes excellence in program execution, sustained organic growth, continuous margin improvement, efficient cash-flow conversion and disciplined capital deployment. To perpetuate growth, we focus on identifying the fast currents in our core markets, seeking opportunities in adjacent markets and broadening our portfolio to encompass a variety of military, federal government, commercial and international customers. We deploy capital through internal investment, acquisitions, dividends and, when appropriate, the repurchase of company shares on the open market.

In addition to creating shareholder value and delivering the highest quality products and services, management fosters a corporate culture centered on continuous improvement, innovation, ethical behavior and integrity. This culture is evident in how we interact with shareholders, employees, customers, partners and the communities in which we operate.

Formed in 1952 through the combination of Electric Boat Company, Consolidated Vultee (CONVAIR) and other companies, General Dynamics grew internally and through acquisitions until the early 1990s, when we sold nearly all of our divisions except Electric Boat and Land Systems. Beginning in 1995, we expanded those two core defense businesses by acquiring additional shipyards and combat vehicle-related businesses. In 1997, to reach a new, expanding market, we began acquiring companies with expertise in information technology products and services. In 1999, we purchased Gulfstream Aerospace Corporation, a business-jet aircraft and aviation support-services company. Since 1995, we have acquired and successfully integrated 52 businesses, including five in 2008.

General Dynamics operates through four business groups –Aerospace, Combat Systems, Marine Systems and Information Systems and Technology.

AEROSPACE

Our Aerospace group designs, manufactures and outfits a comprehensive family of mid-size and large-cabin Gulfstream business-jet aircraft, and provides maintenance, refurbishment, outfitting and aircraft services for a variety of business-jet, wide-body and narrow-body aircraft customers globally. With 50 years of experience at the forefront of the business-jet aviation market, the Aerospace group is noted for:

• superior aircraft design, quality, safety and reliability;

• technologically advanced cockpit and cabin systems; and

• industry-leading product service and support.

The group’s Gulfstream product portfolio includes eight aircraft across a spectrum of price and performance options. The varying ranges, speeds and cabin dimensions are well-suited to the transportation needs of an increasingly diverse global customer base. The large-cabin models are assembled at Gulfstream’s headquarters in Savannah, Georgia, and outfitted at one of Gulfstream’s four U.S. completion facilities. A key supplier in Israel is responsible for construction of the mid-size models. Gulfstream then outfits these models in the group’s Texas completion center.

General Dynamics 2008 Annual Report    3

For the past several years, the Aerospace group has experienced a steady increase in demand for its business jets around the world, particularly in Europe, the Middle East, India and the Asia-Pacific region. As a result of this global demand, international customers now comprise over 50 percent of the group’s order backlog. The group’s customer base is also shifting toward private companies and individual customers, which collectively comprise two-thirds of total orders. The group remains a leading provider of aircraft for government and military service around the world, with Gulfstream aircraft operating in 34 nations. These government aircraft are used for head-of-state/executive transportation and a variety of special-mission applications, including aerial reconnaissance, maritime surveillance, weather research and astronaut training.

To respond to worldwide demand, management has adjusted aircraft production rates, invested in innovative product development and facility improvements, and enhanced the group’s global service network. Measured increases in aircraft production in recent years have consciously lagged demand, which has helped to protect the group’s product pricing while generating a multi-year backlog. To ensure that production increases maintain profitability, the group’s management has worked closely with its suppliers and invested in manufacturing productivity and efficiency improvements.

The Aerospace group continuously invests in research and development (R&D) over the course of each aircraft’s lifecycle to introduce new products and first-to-market enhancements that broaden customer choice, improve aircraft performance and set new standards for customer safety, comfort and in-flight productivity. The two aircraft that joined the Gulfstream family in 2008, the super-mid-size G250 and the ultra-large-cabin G650, demonstrate this innovation. The G250 offers the largest cabin and the longest range at the fastest speed in its class. The G650 is a completely new platform that has the longest range, fastest speed, largest cabin and most-advanced cockpit in the Gulfstream fleet. Scheduled to enter service in late 2011 and 2012, respectively, these aircraft were created with significant customer input and have been well-received. Gulfstream’s new and upgraded aircraft models are designed to minimize lifecycle costs while maximizing the commonality of parts and pilot-type ratings among the various models. For multiple-aircraft fleet operators, this uniformity reduces training and maintenance costs and enhances safety in the operation of the aircraft.

Current product-enhancement and development efforts include initiatives in advanced avionics, composites, flight-control systems, acoustics, cabin technologies and enhanced vision systems. In 2007 and early 2008, the Federal Aviation Administration (FAA) and European Aviation Safety Agency certified two of the group’s safety-enhancing products – the second-generation Enhanced Vision System (EVS II) and the new Synthetic Vision-Primary Flight Display (SV-PFD), both of which assist the pilot during low-visibility conditions. EVS II is a specially designed, forward-looking infrared (FLIR) camera that projects a real-world infrared image on the pilot’s head-up display (HUD), while Synthetic Vision provides three-dimensional images of the terrain, runway environment and obstacles on the pilot’s primary head-down display. The products work in tandem to provide pilots with unparalleled situational awareness regardless of weather, terrain or landing-field conditions. The group also continues to introduce new services to reduce pilot workload, streamline maintenance processes and enhance aircraft safety and reliability, including PlaneBook and PlaneConnect. PlaneBook is a compact computer tablet preloaded with a complete reference library that includes the airplane flight manual, operating manual and pilot checklists, improving manual-to-manual navigation and reducing paper and weight in the flight deck. PlaneConnect automatically relays any airborne technical issues identified by the plane’s maintenance system to ground technicians, reducing turnaround time through early dispatch of parts and technicians.

In March 2006, we embarked on a $400 facilities project designed to create additional R&D offices, improve the customer sales and design center, increase aircraft-service capacity and create facilities to build next-generation aircraft in Savannah. This multi-year project is substantially complete. Key 2008 developments include:

• the completion in March of a new purpose-built G650 manufacturing facility that enabled commencement of initial-phase G650 construction;

• the opening in August of a second R&D center with state-of-the-art laboratories; and

• the ground breaking in September of Phase Two of the new South Service Center in Savannah which, combined with Phase One of the building, will become the largest maintenance facility in the world built specifically for business jets.

In addition to the increased service capacity in Savannah, we continue to expand the group’s global service support network to address the needs of the growing international installed fleet. In November 2008, we acquired Jet Aviation, an aviation services provider with aircraft service centers in more than 20 locations worldwide. The addition of Jet Aviation enables the Aerospace group to uphold its commitment to provide customers worldwide first-in-class service and support 24 hours a day.

The acquisition also expands the Aerospace group’s portfolio to include premium aircraft-outfitting operations for airframes produced by other original equipment manufacturers (OEMs). Jet Aviation performs aircraft completions and refurbishments for business jets and narrow- and wide-body commercial aircraft at locations in Europe and the United States. As a trusted provider of turnkey aircraft management and fixed-base operations (FBO) services to a broad global customer base, Jet Aviation supports the continued growth and diversification of the Aerospace portfolio.

4    General Dynamics 2008 Annual Report

A market leader in the business-aviation industry, the Aerospace group remains focused on:

• driving efficiencies into, and taking cost out of, aircraft production, outfitting and service processes;

• continuously investing in innovative first-to-market technologies and products; and

• providing exemplary and timely support to customers around the world.

Net sales for the Aerospace group were 19 percent of our consolidated net sales in 2008, 18 percent in 2007 and 17 percent in 2006. Net sales by major products and services were as follows:

Year Ended December 31	2008		2007		2006
New aircraft and completions	$	4,678	$	4,081	$	3,341
Aircraft services		816		669		558
Pre-owned aircraft		18		78		217
Total Aerospace	$	5,512	$	4,828	$	4,116

COMBAT SYSTEMS

Our Combat Systems group is a global leader in the design, development, production, support and enhancement of tracked and wheeled military vehicles, weapons systems and munitions for the United States and its allies. The group’s product lines include:

• wheeled armored combat and tactical vehicles;

• tracked main battle tanks and infantry fighting vehicles;

• guns and ammunition-handling systems;

• ammunition and ordnance;

• mobile bridge systems;

• passive, active and reactive armor;

• chemical, biological and explosive detection systems;

• high-performance composite products; and

• highly engineered drive train components and aftermarket parts.

Combat Systems has a strong foundation of products that are core platforms for customers across the combat vehicle, armaments and munitions product lines. These long-term production programs have large, durable backlogs, providing the group’s management the opportunity to pursue continuous process and productivity improvements to increase customer satisfaction, reduce product lifecycle costs and improve the group’s financial performance. At the same time, the group applies its design and engineering expertise to develop product improvements that advance the utility and performance of these systems, while identifying and positioning itself for opportunities in emerging and adjacent markets.

Combat Systems’ core military vehicle platforms consist of a variety of wheeled combat vehicles and main battle tanks. At the heart of these programs are the Stryker wheeled combat vehicle and the Abrams main battle tank. The group is the sole provider of these vehicles – two of the key ground-force assets for its primary customer, the U.S. Army. Both of these vehicles have proven highly effective in operations in Iraq, securing their place in the Army’s force structure for the foreseeable future and creating new opportunities for these vehicles in international markets.

Combat Systems produces Strykers under a contract awarded in 2001, which has been modified to support the Army’s vision for expanded deployment of the vehicle in new roles throughout the force. The Stryker supports numerous missions with 10 variants: infantry carrier; command and control; medical evacuation; fire support; engineering; anti-tank; mortar carrier; reconnaissance; mobile gun system (MGS); and nuclear, biological and chemical reconnaissance vehicle (NBCRV).

Combat Systems continues to support the Army’s evolving needs for the most capable main battle tank with technological upgrades to the Abrams, including the System Enhancement Package (SEP) and the Tank Urban Survivability Kit (TUSK). The SEP-configured tank is a digital platform with an enhanced command-and-control system, second-generation thermal sights and improved armor. The TUSK increases the tank’s utility and crew survivability in urban warfare environments. In addition, through an innovative partnership with the Anniston Army Depot, the group’s Abrams Integrated Management (AIM) program refurbishes the oldest M1A1 Abrams tanks to a like-new condition.

Complementing these combat-vehicle programs are Combat Systems’ weapons-system and munitions programs. The group manufactures the M2 heavy machine gun and the MK19 and MK47 grenade launchers, as well as weapons for most U.S. fighter aircraft, including all high-speed Gatling guns for fixed-wing aircraft and the Hydra-70 family of rockets. The group also holds leading or sole-source munitions supply positions for products such as:

• the 120mm mortar and the 155mm and 105mm artillery projectile for the U.S. government,

• conventional bomb structures for the U.S. government,

• mortar systems and large-caliber requirements for the Canadian Department of National Defence, and

• military propellant requirements in the North American market.

In addition, Combat Systems is the principal second source for the U.S. military’s small caliber ammunition needs.

Beyond these long-term platform and supply programs, Combat Systems has been active in supporting the United States’ ongoing operations in Iraq and Afghanistan. In addition to providing armor kits, ammunition and logistics support for forces deployed overseas, the group has identified new technologies to respond to its customers’ evolving requirements. Among these are innovative solutions to detect current and emerging threats,

General Dynamics 2008 Annual Report    5

including chemical, biological and explosive detection systems, as well as systems to protect U.S. forces against improvised explosive devices (IEDs).

As threats to deployed forces have evolved, Combat Systems has established teaming relationships and leveraged its available capacity and vehicle-integration expertise to provide innovative new solutions to customers. The group is participating in the Defense Department’s mine-resistant, ambush-protected (MRAP) vehicle program, which emerged in late 2007. Combat Systems provides two offerings under this program – the Cougar, which it produces with a joint-venture partner, and the RG-31. Between these two solutions, the group and its partner have delivered more than 3,600 of the nearly 16,000 vehicles purchased under the MRAP program. The group is scheduled to deliver its remaining 700 vehicles under contract in the first quarter of 2009. While the Defense Department has completed purchasing vehicles under the initial MRAP program, it has expressed interest in a similar fast-response procurement of a lighter version of the MRAP for use off-road. The group is one of the bidders in this MRAP All-Terrain Vehicle (MRAP-ATV) program.

The past six years of warfare have had a significant impact on U.S. military assets, requiring the refurbishment of battle-damaged vehicles, the replacement of equipment that has reached the end of its service life and the replenishment of ammunition and other supplies for the U.S. armed forces. As the principal contractor for the maintenance, repair and reset of Abrams tanks and Stryker vehicles and a major U.S. munitions supplier, we expect the sustaining and upgrading of U.S. forces to become an increasing share of Combat Systems’ contract mix.

The Combat Systems group is also focused on innovative technologies and is well-positioned to participate in future development programs. For the U.S. Marine Corps, the group continues the design and testing of the Expeditionary Fighting Vehicle (EFV), an expeditionary combat platform designed to replace the service’s current craft. The EFV has a breakthrough design that provides sea maneuverability at speeds up to 25 knots and ground mobility equaling that of the Abrams tank. The group is building seven new prototypes as part of a system design and development contract, and we expect the Marine Corps to authorize production of up to 573 vehicles starting in 2012.

Combat Systems is a key team member in the Army’s Future Combat Systems (FCS) program and leads the system development of the FCS manned ground vehicle, which will complement the Army’s existing combat brigades composed of Strykers and Abrams tanks. The group is also a member of one of three teams awarded technology demonstration contracts for the Joint Light Tactical Vehicle (JLTV), which is intended to replace the Army’s fleet of High Mobility Multi-purpose Wheeled Vehicles (HMMWV or Humvees^®).

Combat Systems also has a significant presence internationally and is a recognized military-vehicle integrator and leading defense-materiel provider worldwide. It has manufacturing facilities in Australia, Austria, Canada, France, Germany, Spain and Switzerland, and has customers in more than 30 countries. The group’s European business offers a broad range of products, including light- and medium-weight tracked and wheeled tactical vehicles, amphibious bridge systems, artillery systems, light weapons, ammunition and propellants. Like the group’s U.S. products, many of these systems constitute key platforms employed by its customers’ military forces. These include the Leopard 2E tank and the Pizarro tracked infantry combat vehicle, produced for the Spanish army; the Pandur II armored combat vehicle, produced for the Portuguese army and navy; and the Piranha wheeled armored vehicle, which the group has sold to several European countries.

Beyond the European market, Combat Systems is experiencing increased international demand as a result of the demonstrated success of its fielded products. In particular, the group has opportunities to provide Abrams tanks to Egypt; Strykers, light armored vehicles and Abrams tanks to Iraq; and light armored vehicles and Abrams tank upgrades to Saudi Arabia.

To expand and diversify the products Combat Systems provides to customers around the world and to pursue new markets, we acquired AxleTech International (AxleTech) of Troy, Michigan, in December 2008. AxleTech is a global manufacturer and supplier of highly engineered axles, suspensions, brakes and aftermarket parts for heavy-payload vehicles for a variety of military and commercial customers.

The Combat Systems group continues to focus on operational execution across the business as it delivers on its substantial backlog. In an environment of continuously expanding threats and evolving customer needs, including an increased emphasis on speed to market, the group remains focused on its customers’ requirements and the opportunities they present.

Net sales for the Combat Systems group were 28 percent of our consolidated net sales in 2008, 29 percent in 2007 and 25 percent in 2006. Net sales by major products and services were as follows:

Year Ended December 31	2008		2007		2006
Medium armored vehicles	$	3,570	$	3,265	$	2,204
Main battle tanks		1,567		1,430		1,181
Munitions and propellant		1,278		1,276		806
Engineering and development		676		598		582
Armament and detection systems		580		761		491
Rockets and missile components		394		294		317
Aerospace components and other		129		173		402
Total Combat Systems	$	8,194	$	7,797	$	5,983

6    General Dynamics 2008 Annual Report

MARINE SYSTEMS

Our Marine Systems group designs, builds and supports submarines and surface ships for the U.S. Navy and commercial ships for Jones Act customers. The group operates three of the six shipyards in the United States that construct large ships for the Navy, including one of the country’s two nuclear submarine yards and the only yard that services deep-draft ships on the West Coast. The group’s diverse portfolio of platforms and capabilities includes:

• nuclear-powered submarines (Virginia Class);

• surface combatants (DDG-51, DDG-1000, LCS);

• auxiliary and combat-logistics ships (T-AKE);

• commercial ships;

• engineering design support; and

• overhaul, repair and lifecycle support services.

The substantial majority of Marine Systems’ workload supports the U.S. Navy. These efforts include the construction of new ships and the design and development of next-generation platforms to help the customer face evolving missions and maintain its desired fleet size, as well as maintenance and repair services to maximize the life and effectiveness of in-service ships. This business consists of major ship-construction programs awarded under large, multi-ship contracts that span several years. The group’s mature Navy construction programs currently consist of the fast-attack Virginia-class nuclear-powered submarine, the Arleigh Burke-class (DDG-51) guided-missile destroyer and the Lewis and Clark-class (T-AKE) dry cargo/ammunition combat-logistics ship.

The Virginia-class submarine is the first U.S. submarine designed to address post-Cold War threats, including capabilities tailored for both open-ocean and near-shore missions. These stealthy ships are well-suited for a variety of global assignments, including clandestine intelligence gathering, special-operations missions and sea-based missile launch.

The Navy’s Virginia-class program of record includes 30 submarines, which the customer is procuring in multi-ship blocks. The group, in conjunction with an industry partner that shares in the construction of these vessels, has delivered the four ships under its cost-reimbursable Block I contract and the first ship under its fixed-price Block II contract. Work is in progress on the remaining five ships under that contract, and deliveries of these ships are scheduled through 2013. The Navy awarded the group an eight-ship Block III contract in the fourth quarter of 2008, extending deliveries through 2018. As a result of strong Navy and congressional support, innovative cost-saving design and production efforts and successful program execution, the group is scheduled to build two submarines per year starting in 2011, which will double the group’s current submarine workload.

Marine Systems is the lead designer and producer of Arleigh Burke destroyers, a sophisticated class of surface combatants and the only active destroyer in the Navy’s global surface fleet. During 2008, the group delivered USS Sterett and USS Stockdale, the 29th and 30th of 34 DDG-51 ships the Navy has contracted with the group to build. The four remaining ships are scheduled for delivery between 2009 and 2011. The Navy and the Congress are currently evaluating future DDG-51 production requirements.

The group’s T-AKE is the Navy’s first new combat-logistics ship design in almost 20 years and the first Navy ship to incorporate proven commercial marine technologies, such as integrated electric-drive propulsion. These technologies are designed to minimize T-AKE operations and maintenance costs over an expected 40-year life. The T-AKE ships support multiple missions for the Navy, including replenishment at sea for U.S. and NATO operating forces around the world. The group has delivered the first six of these ships, including two in 2008. Work is underway on four of the remaining six ships currently under contract, with deliveries scheduled through 2012. The Navy has funded long-lead material procurement for the final two ships under the contract, which if fully exercised, would bring the program total to 14 ships.

The Marine Systems group is also participating in the development of technologies and naval platforms for the future. Following the conversion of four Trident ballistic-missile submarines (SSBNs) to guided-missile submarines (SSGNs) to address tactical-strike and special-operations mission requirements, the group continues to apply its design and engineering expertise to advance next-generation submarine capabilities. For example, Marine Systems leads a joint Navy-Defense Advanced Research Projects Agency (DARPA) initiative to identify and overcome technological barriers to reducing the cost of future submarines. Under this initiative, the group is developing technologies to propel submarines with external electric motors, reduce the ship’s infrastructure and improve its sensors. The group’s efforts also include initial concept studies for the development of the next-generation ballistic missile submarine.

Marine Systems is also participating in a number of programs in support of the Navy’s efforts to renew its surface combatant fleet. The group is focused on completing the design and starting construction of the next-generation guided-missile destroyer, the DDG-1000 Zumwalt Class. The group has one of two contracts for the construction of a DDG-1000 destroyer. The Congress has partially funded a third ship in the 2009 defense appropriations bill and, with the Navy, is evaluating future DDG-1000 production requirements.

Marine Systems leads one of two industry teams awarded contracts for the design and construction of the Littoral Combat Ship (LCS), a new high-speed surface warship designed to address emerging coastal-water threats. Marine Systems’ LCS is well-suited to accommodate the speed, draft and cargo capacity requirements of this new combatant class of warship. The group launched its first ship in the fourth quarter of 2008 and expects to deliver the ship in mid-2009. The Navy is currently assessing future LCS construction requirements.

General Dynamics 2008 Annual Report    7

In addition to these design and construction programs, the Marine Systems group provides comprehensive ship and submarine overhaul, repair and lifecycle support services to extend the service life of these vessels and maximize the value of these ships to the customer. The group also provides international allies with program management, planning and engineering design support for submarine and surface-ship construction programs.

To better serve the Navy’s growing Pacific presence, we acquired HSI Electric, Inc. (HSI), of Honolulu, Hawaii, in 2008. HSI is a marine and industrial electrical company specializing in electrical apparatus installation, maintenance, troubleshooting and repair.

Beyond its Navy programs, the group designs and produces ships for commercial customers to meet the Jones Act requirement that ships carrying cargo between U.S. ports be built in U.S. shipyards. Marine Systems currently has a contract to build up to nine product-carrier ships, five of which have been exercised by the customer. These product carriers are based on a design the group obtained through a strategic partnership with an experienced international commercial shipyard. The partnership allows Marine Systems to offer proven commercial ship designs to Jones Act customers, to learn best practices that improve efficiency and throughput, and to achieve cost savings on materials procured through the partnership. The group delivered the first ship in early 2009 and expects to deliver the second and third ships by the end of 2009.

To further the group’s goals of efficiency and continuous program improvement, we are committed to strategic investments in our shipyards in partnership with the Navy and local governments. In addition, the Marine Systems group continues to leverage its design and engineering expertise across our shipyards to improve program execution and generate cost savings. This knowledge sharing enables the group to use resources more efficiently and promote process improvements throughout the business. The group is well-positioned to effectively fulfill the long-term ship-construction and support requirements of its Navy and commercial customers.

Net sales for the Marine Systems group were 19 percent of our consolidated net sales in 2008, 18 percent in 2007 and 21 percent in 2006. Net sales by major products and services were as follows:

Year Ended December 31	2008		2007		2006
Nuclear-powered submarines	$	2,579	$	2,355	$	2,427
Surface combatants		1,195		1,112		1,088
Auxiliary and commercial ships		1,192		953		807
Repair and other services		590		573		618
Total Marine Systems	$	5,556	$	4,993	$	4,940

INFORMATION SYSTEMS AND TECHNOLOGY

Our Information Systems and Technology group provides technologies, products and services that support a wide range of government and commercial digital-communication and information-sharing needs. Since we created the group in 1998, we have evolved its product and service offerings through 27 acquisitions and internal development into a three-part portfolio that includes tactical and strategic mission systems, information technology and mission services, and intelligence mission systems.

Tactical and strategic mission systems – The group designs, manufactures and delivers trusted and secure communications network systems, ruggedized computers, command-and-control systems and operational hardware to customers within the U.S. Department of Defense, the intelligence community, federal civilian agencies and international customers.

This market is characterized by programs such as the U.S. Army’s Warfighter Information Network-Tactical (WIN-T) battlefield communications network. As the prime contractor for this program, we are responsible for the design, engineering, integration, production, program management and support of the Army’s primary current and future battlefield communications network. Using ground and satellite communications links, the network provides commanders with the digital telecommunications services they need to access intelligence information, initiate battle plans, collaborate with other military elements, issue orders and monitor the status of their forces.

The group also provides many of these capabilities to non-U.S. customers, through programs such as the BOWMAN digital voice and data communication system for the United Kingdom’s Ministry of Defence, the New Integrated Marines Communications and Information System (NIMCIS) for the Royal Netherlands Marine Corps, and the IRIS Tactical Command, Control and Communications System program for the Canadian Department of National Defence.

Information Systems and Technology’s leadership in this market has been developed through decades of experience in designing, building and supporting previous generations of communications technologies. With roots in commercial markets, the group’s expertise and record of innovation encompass all of the decisive technologies that enable design and deployment of tactical networking systems. These include:

• ruggedized mobile computing solutions with embedded wireless capability;

• information assurance and encryption technologies, products, systems and services that ensure the security and integrity of digital communications worldwide;

• digital switching, broadband networking and automated network management; and

• fixed and mobile radio and satellite communications systems and antenna technologies.

8    General Dynamics 2008 Annual Report

In 2008, we acquired Integrated Defense Systems, Inc. (IDSI), of Glen Rock, Pennsylvania. IDSI produces advanced filtering technologies and broadband power amplifiers for tactical communications applications for military and other government customers. The acquisition enables Information Systems and Technology to meet the special power requirements of software-defined radios and vehicle-mounted counter-IED devices as an original equipment manufacturer.

In addition to the work it does for the defense and intelligence communities, Information Systems and Technology has increased its business in the Department of Homeland Security and federal civilian markets through programs such as Rescue 21 and the Integrated Wireless Network (IWN) contract. Rescue 21 is a state-of-the-art search-and-rescue system that the U.S. Coast Guard uses to locate distressed mariners and deploy rescue assets. The Rescue 21 system has been deployed to 18 Coast Guard sectors covering more than 23,000 miles of U.S. coastline. The IWN program is a joint effort by the Departments of Justice, Homeland Security and the Treasury to provide a nationwide, interoperable wireless communications service in support of federal law enforcement, homeland security and first-responder operations.

Information technology and mission services – The group provides mission-critical information technology (IT) and skilled mission-support services to U.S. defense and national-security customers, federal civilian agencies and select commercial customers. The group also specializes in:

• design, development and integration of wireline and wireless voice, video and data networks;

• mission simulation and training services; and

• secure identification and credentialing capabilities.

In this market, Information Systems and Technology has a long-standing reputation for excellence in providing technical-support personnel and domain specialists that enable customers to execute their missions effectively. For many customers, Information Systems and Technology employees are the on-call staff who provide technical support for both desktop technology and mission-specific hardware. For other customers, our employees conceive, install and operate mission systems on a day-to-day basis.

In Fort Huachuca, Arizona, for example, Information Systems and Technology employees provide training and IT support services for critical Army intelligence missions, merging live data with network-centric computer-based simulations. The group also has provided enterprise-wide IT and information management services to Naval Air Systems Command for more than 10 years as the customer’s primary logistics-support contractor. In Iraq, the group supports the Army’s military healthcare IT mission, helping ensure continuity of care for injured soldiers by providing accurate, timely information to medical staff both in the field and at treatment facilities.

To expand the group’s presence in the growing healthcare market and broaden its IT services offerings to new customers, we acquired ViPS, Inc., of Towson, Maryland, in 2008. ViPS is a leading provider of high-end healthcare technology solutions, including data management, analytics, decision support and process automation that support the fast-growing needs for technology modernization of both U.S. federal agencies and commercial healthcare organizations.

Information Systems and Technology also supplies network-modernization and IT infrastructure services to U.S. government customers. As one of the U.S. Air Force’s leading partners for network modernization, for example, the group has provided IT support services to more than 75 Air Force bases. It currently supports all Air Force main operating bases. The group also has provided continuous enterprise-wide IT services and support to the U.S. Senate for more than six years.

Intelligence mission systems – The group provides the U.S. and allied intelligence communities with highly specialized intelligence, surveillance and reconnaissance (ISR) capabilities. These include:

• signals and information collection, processing and distribution systems;

• special-purpose computing;

• multi-level security;

• data mining and fusion;

• open-architecture mission systems and service-oriented architecture;

• special-mission satellites and payloads; and

• information operations services.

One of the group’s businesses has a 50-year legacy of providing advanced fire control systems for Navy submarine programs. Capitalizing on the breadth of this maritime-domain expertise, the group has developed the core mission system for the Navy’s LCS, establishing an open architecture that provides greater mission flexibility and requires fewer sailors than current combatants. In 2008, it was selected to integrate the ship mission systems on the new Joint High Speed Vessel program for the Army and the Navy.

Information Systems and Technology also is a leading provider of personnel with mission-specific experience in executing programs in the intelligence field. In partnership with the U.S. Joint Forces Command, for example, the group integrates collaborative command, control, communications, computing, intelligence, surveillance and reconnaissance (C4ISR) environments in support of worldwide training exercises.

In addition, Information Systems and Technology continues to extend its legacy of providing special payloads and communications capabilities to spacecraft as part of a team that will provide the ground-control segment for the nation’s Global Positioning System (GPS) Block II and future Block III satellites. This program includes satellite command and control, mission planning, constellation management, monitoring stations and ground antennas. On other programs, including NASA’s Landsat Data Continuity Mission (LDCM) and the National Geospatial-Intelligence

General Dynamics 2008 Annual Report    9

Agency’s NextView program, the group is responsible for design, fabrication and integration of the spacecraft.

The group’s contracts in securing and protecting the Internet have resulted in a leading market position in cyber security, computer forensics, countering identity theft and preventing credit card fraud. As U.S. cyber commands mobilize to protect the national information infrastructure against infiltration and corruption, the group’s capabilities in information operations, computer network defense and multi-level C4ISR-system security position it to meet those emerging requirements.

Although diversion of funding to high-priority war requirements has slowed the growth in some areas of the Information Systems and Technology group’s broad portfolio, its increasingly diversified customer base has stimulated new opportunities in each of its three principal markets. As the group continues to grow, it is positioned to take advantage of:

• the Defense Department’s increasing use of multi-year indefinite delivery, indefinite quantity (IDIQ) contracts;

• the federal government’s continued use of outsourced IT solutions; and

• the growing requirements among homeland security and intelligence customers faced with asymmetric threats.

Net sales for the Information Systems and Technology group were 34 percent of our consolidated net sales in 2008, 35 percent in 2007 and 37 percent in 2006. Net sales by major products and services were as follows:

Year Ended December 31	2008		2007		2006
Tactical and strategic mission systems	$	4,455	$	4,008	$	4,063
IT and mission services		3,536		3,584		2,894
Intelligence mission systems		2,047		2,030		2,067
Total Information Systems and Technology	$	10,038	$	9,622	$	9,024

For additional discussion of General Dynamics’ businesses, including significant program wins in 2008, see Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7, of this Annual Report on Form 10-K. For information on the revenues, operating earnings and identifiable assets attributable to each of our business groups, see Note R to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

CUSTOMERS

In 2008, 69 percent of our net sales were to the U.S. government; 14 percent were to U.S. commercial customers; 9 percent were directly to international defense customers; and the remaining 8 percent were to international commercial customers.

U.S. GOVERNMENT

Our primary customers are the U.S. Department of Defense and intelligence community. We have expanded our relationships with other U.S. government customers, including the Department of Homeland Security and several first-responder agencies at federal and state levels. Our net sales to the U.S. government were as follows:

Year Ended December 31	2008			2007			2006
Direct	$	19,864		$	18,447		$	15,948
Foreign Military Sales*		282			310			456
Total U.S. government	$	20,146		$	18,757		$	16,404
Percent of total net sales		69	%		69	%		68	%

* In addition to our direct international sales, we sell to foreign governments through the Foreign Military Sales (FMS) program. Under the FMS program, we contract with and are paid by the U.S. government, and the U.S. government assumes the risk of collection from the foreign government customer.

We perform our U.S. government business under cost-reimbursement, time-and-materials and fixed-price contracts. Contracts for research, engineering, prototypes, repair and maintenance are typically cost-reimbursement or time-and-materials. Under cost-reimbursement contracts, the customer reimburses us for allowable costs and pays a fixed fee and/or an incentive- or award-based fee. These fees are determined by our ability to achieve targets set in the contract, such as cost, quality, schedule and performance. Under time-and-materials contracts, the customer pays a fixed hourly rate for direct labor and reimburses us for materials costs. Our production contracts are primarily fixed-price. Under these contracts, we agree to perform a specific scope of work for a fixed amount.

Cost-reimbursement contracts accounted for approximately 38 percent of our U.S. government business in 2008 and 40 percent in 2007; time-and-materials contracts accounted for approximately 7 percent in 2008 and 2007; and fixed-price contracts accounted for approximately 55 percent in 2008 and 53 percent in 2007.

10    General Dynamics 2008 Annual Report

Each of these contract types presents advantages and disadvantages. Cost-reimbursement contracts generally subject us to lower risk. They also can include fee schedules that allow the customer to make additional payments when we satisfy certain performance criteria. However, not all costs are reimbursed under these types of contracts, and the government can challenge the costs we charge. In addition, the negotiated base fees are generally lower, consistent with our lower risk. Under time-and-materials contracts, our targeted profit may vary if actual labor hour costs vary significantly from the negotiated rates. Additionally, because we generally charge materials costs with little or no fee, the content mix can impact the profit margins associated with these contracts. Fixed-price contracts typically have higher fee levels in recognition of the higher risk and offer us additional profits if we can complete the work for less than the contract amount. However, fixed-price contracts require that we absorb cost overruns.

U.S. COMMERCIAL

Our U.S. commercial sales were $4,057 in 2008, $3,732 in 2007 and $3,831 in 2006. These sales represented approximately 14 percent of our consolidated net sales in each of 2008 and 2007 and 16 percent in 2006. The majority of these sales are for Gulfstream aircraft. This customer base consists of individuals and public and privately held companies representing a wide range of industries.

INTERNATIONAL

Our direct sales to government and commercial customers outside the United States were $5,097 in 2008, $4,751 in 2007 and $3,828 in 2006. These sales represented approximately 17 percent of our consolidated net sales in each of 2008 and 2007 and 16 percent in 2006.

We conduct business around the world with subsidiary operations in Australia, Austria, Canada, France, Germany, Italy, Mexico, Spain, Switzerland and the United Kingdom. Our non-U.S. subsidiaries are committed to developing long-term relationships in their respective countries and have distinguished themselves as principal regional suppliers.

Our international commercial business consists primarily of business-jet aircraft exports and the delivery of aircraft support from a worldwide service network. The market for business-jet aircraft and related services outside North America has expanded rapidly in recent years, particularly in Europe, the Middle East, India and the Asia-Pacific region. While the United States continues to be our largest market for business aircraft, orders from customers outside North America represent a growing segment of our aircraft business, exceeding 50 percent of total orders and total backlog in 2008.

For a discussion of the risks associated with conducting business in international locations, see Risk Factors contained in Part I, Item 1A, of this Annual Report on Form 10-K. For information regarding sales and assets by geographic region, see Note R to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

COMPETITION

Several factors determine our ability to compete successfully in both the defense and business-jet aircraft markets. While customers’ evaluation criteria vary, the principal competitive elements include:

• the technical excellence, reliability and cost competitiveness of our products and services;

• our ability to develop and integrate complex systems and deliver them on schedule;

• the reputation and customer confidence derived from our past performance; and

• the successful management of our businesses and customer relationships.

DEFENSE MARKET

The U.S. government contracts with numerous domestic and foreign companies for defense products and services. We compete against other large platform and system-integration contractors, as well as smaller companies that specialize in a particular technology or capability. Internationally, we compete with global defense contractors’ exports and the offerings of private and state-owned defense manufacturers operating in the local countries. Our Combat Systems group competes with a

General Dynamics 2008 Annual Report    11

large number of domestic and foreign businesses. Our Marine Systems group has only one primary competitor, Northrop Grumman Corporation, with which it also partners or subcontracts on several programs, including the Virginia-class submarine and DDG-1000 Zumwalt-class destroyer. Our Information Systems and Technology group competes with many companies, from large defense companies to small niche competitors with specialized technologies. The defense market’s contract-based procurement environment and the long-term operating cycle of many of our major platform programs can result in sustained periods of program continuity when we perform successfully.

At times, we are involved in teaming and subcontracting relationships with some of our competitors. Competitions for major defense programs often require companies to form teams to bring together broad capabilities to meet the customer’s requirements. In these situations, we may have multiple opportunities to participate. These include roles as the program’s system integrator, overseeing and coordinating the efforts of all participants in the team, or as a provider of a specific hardware or subsystem element, such as military vehicles provided by Combat Systems or core mission systems provided by Information Systems and Technology.

Another competitive factor in the defense market is the U.S. government’s increasing use of multiple-award IDIQ contracts to provide customers with flexible procurement options. IDIQ contracts allow the government to select a group of eligible contractors for a program and establish an overall spending limit. When the government awards IDIQ contracts to multiple bidders under the same program, we must compete to be selected as a participant in the program and subsequently compete for individual delivery orders. This contracting model is most common in our Information Systems and Technology group’s competitions but has been increasingly used in programs for which our Combat Systems group competes.

BUSINESS-JET AIRCRAFT MARKET

The business-jet aircraft manufacturing market is divided into segments based on aircraft range, price and cabin size. Gulfstream has at least one competitor for each of its products currently in production, with more competitors for the shorter-range aircraft. There are currently no competitors in the group’s ultra-large-cabin market (G650). Key competitive factors include aircraft safety, reliability and performance; comfort and in-flight productivity; service quality and timeliness; technological and new-product innovation; and price. We believe Gulfstream competes effectively in all these areas.

Jet Aviation competes in its business-jet aircraft services business primarily on price and service quality and timeliness. In its completions business, Jet Aviation competes with other original equipment manufacturers that also complete their own aircraft as well as other third-party providers. In its maintenance, repair and overhaul business and FBO business, Jet Aviation competes worldwide with several other large companies, as well as a large number of smaller companies, particularly in the maintenance business.

RESEARCH AND DEVELOPMENT

We conduct independent R&D activities as part of our normal business operations. Over the past three years, the majority of our company-sponsored R&D expenditures was in the defense business. In accordance with government regulations, we recover a significant portion of these expenditures through overhead charges to U.S. government contracts. In the commercial sector, most of our Aerospace group’s R&D activities support Gulfstream’s product enhancement and development programs. We also conduct customer-sponsored R&D activities under U.S. government contracts.

Research and development expenditures were as follows:

Year Ended December 31	2008		2007		2006
Company–sponsored	$	474	$	430	$	377
Customer–sponsored		212		192		398
Total research and development	$	686	$	622	$	775

EMPLOYEES

On December 31, 2008, we had approximately 92,300 employees, 24 percent of whom were covered by collective bargaining agreements with various labor representatives. Agreements covering approximately 3 percent of total employees are due to expire during 2009. Historically, we have renegotiated labor agreements without any significant disruption of operating activities.

RAW MATERIALS, SUPPLIERS AND SEASONALITY

We depend on suppliers and subcontractors for raw materials and components. These supply networks can experience price fluctuations and capacity constraints, which can put pressure on pricing. Effective management and oversight of suppliers and subcontractors is an important element of our successful performance. We attempt to mitigate these risks by entering long-term agreements with our suppliers or negotiating flexible pricing terms in our customer contracts. We have not experienced, and do not foresee, significant difficulties in obtaining the materials, components or supplies necessary for our business operations.

Our business is not seasonal in nature. The timing of contract awards, the availability of funding from the customer, the incurrence of contract costs and unit deliveries are the primary drivers of our revenue recognition. In the United States, these factors are influenced by the federal government’s October-to-September fiscal year. This process has historically resulted in higher revenues in the latter half of the year. Internationally, many of our government customers schedule deliveries toward the end of the calendar year, resulting in increasing revenues and earnings over the course of the year.

12    General Dynamics 2008 Annual Report

BACKLOG

Our total backlog represents the estimated remaining sales value of work to be performed under firm contracts and includes funded and unfunded portions. For additional discussion of backlog, see Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7, of this Annual Report on Form 10-K.

Summary backlog information for each of our business groups follows:

													2008 Total Backlog Not Expected to be Completed in 2009
December 31	2008						2007
	Funded		Unfunded		Total		Funded		Unfunded		Total
Aerospace	$	21,861	$	618	$	22,479	$	11,591	$	665	$	12,256	$	18,119
Combat Systems		12,127		2,831		14,958		10,824		2,077		12,901		7,339
Marine Systems		10,482		15,963		26,445		7,621		4,439		12,060		21,141
Information Systems and Technology		7,242		3,003		10,245		7,158		2,457		9,615		3,454
Total backlog	$	51,712	$	22,415	$	74,127	$	37,194	$	9,638	$	46,832	$	50,053

INTELLECTUAL PROPERTY

We are a leader in the development of innovative products, manufacturing technologies and systems-integration practices. In addition to owning a large portfolio of proprietary intellectual property, we license some intellectual property rights to, and from, others. The U.S. government holds licenses to our patents developed in the performance of government contracts, and it may use or authorize others to use the inventions covered by our patents. Although these intellectual property rights are important to the operation of our business, no existing patent, license or other intellectual property right is of such importance that its loss or termination would, in our opinion, have a material impact on our business.

REGULATORY MATTERS

U.S. GOVERNMENT CONTRACTS

U.S. government contracts are subject to procurement laws and regulations. The Federal Acquisition Regulation (FAR) and the Cost Accounting Standards (CAS) govern the majority of our contracts. The FAR mandates uniform policies and procedures for U.S. government acquisitions and purchased services. Also, individual agencies can have acquisition regulations that provide implementing language for the FAR, or that supplement the FAR. For example, the Department of Defense implements the FAR through the Defense Federal Acquisition Regulation supplement (DFARs). For all federal government entities, the FAR regulates the phases of any product or service acquisition, including:

• acquisition planning,

• competition requirements,

• contractor qualifications,

• protection of source selection and vendor information, and

• acquisition procedures.

In addition, the FAR addresses the allowability of our costs, while the CAS address how those costs can be allocated to contracts. The FAR also subjects us to audits and other government reviews. These reviews cover issues such as cost, performance and accounting practices relating to our contracts. The government may use information from these reviews to challenge our contract-related costs and fees. Failure to comply with procurement laws or regulations can result in civil, criminal or administrative proceedings. These might involve fines, penalties, suspension of payments, or suspension or debarment from government contracting or subcontracting for a period of time.

INTERNATIONAL

Our international sales are subject to the applicable foreign government regulations and procurement policies and practices, as well as certain U.S. policies and regulations, including the Foreign Corrupt Practices Act (FCPA). We are also subject to regulations governing investments, exchange controls, repatriation of earnings and import-export control, including the International Traffic in Arms Regulations (ITAR). Other factors that can affect international sales include currency exchange fluctuations and political and economic risks.

BUSINESS-JET AIRCRAFT

The Aerospace group is subject to FAA regulation in the United States and other similar aviation regulatory authorities internationally. For an aircraft to be manufactured and sold, the model must receive a type certificate from the appropriate aviation authority, and each aircraft must receive a certificate of airworthiness. Aircraft completions also require approval by the appropriate aviation authority, which often is accomplished through a supplemental type certificate. Aviation authorities can require changes to a specific aircraft or model type for safety reasons if they believe the aircraft does not meet their standards. Maintenance facilities and charter operations must be licensed by aviation authorities as well.

General Dynamics 2008 Annual Report    13

ENVIRONMENTAL

We are subject to a variety of federal, state, local and foreign environmental laws and regulations. These laws and regulations cover the discharge, treatment, storage, disposal, investigation and remediation of some materials, substances and wastes. We are directly or indirectly involved in environmental investigations or remediation at some of our current and former facilities, and at third-party sites that we do not own but where we have been designated a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency. As a PRP, we potentially are liable to the government or third parties for the full cost of remediating contamination at a relevant site. In cases where we have been designated a PRP, generally we seek to mitigate these environmental liabilities through available insurance coverage and by pursuing appropriate cost-recovery actions. In the unlikely event we are required to fully fund the remediation of a site, the current statutory framework would allow us to pursue contributions from other PRPs. We regularly assess our compliance status and management of environmental matters.

Operating and maintenance costs associated with environmental compliance and management of contaminated sites are a normal, recurring part of our operations. Historically, these costs have not been material. Environmental costs often are allowable and recoverable under our contracts with the U.S. government. Based on information currently available and current U.S. government policies relating to allowable costs, we do not expect continued compliance with environmental regulations to have a material impact on our results of operations, financial condition or cash flows. For additional information relating to the impact of environmental controls, see Note O to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

AVAILABLE INFORMATION

We file several types of reports with the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. These reports include an annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Free copies of these reports are made available on our website (www.generaldynamics.com) and through the General Dynamics investor relations office at (703) 876-3427.

These reports also can be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room is available by calling the SEC at (800) SEC-0330. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 1A. RISK FACTORS

An investment in our common stock or debt securities is subject to risks and uncertainties. Investors should consider the following factors, in addition to the other information contained in this Annual Report on Form 10-K, before deciding whether to purchase our securities.

Investment risks can be market-wide, as well as unique to a specific industry or company. The market risks faced by an investor in our stock are similar to the uncertainties faced by investors in a broad range of industries. There are, however, some risks that apply more specifically to General Dynamics based on our type of business. Of course, these risks and uncertainties are not the only ones that we or any company face. Additional risks and uncertainties currently considered immaterial could also affect our business, results of operations or financial condition.

Because three of our four business groups serve the defense market, our sales are concentrated with the U.S. government. This customer relationship involves certain unique risks. In addition, our expansion of sales to international customers in recent years exposes us to different financial and legal risks. In our Aerospace group’s market, we face risks tied to U.S. and global economic conditions. Despite the varying nature of our U.S. and international defense and business-aviation operations and the markets they serve, each group shares some common risks, such as the ongoing development of high-technology products and the price, availability and quality of commodities and subsystems.

We depend on the U.S. government for a significant portion of our sales. In each of the past three years, over two-thirds of our sales were to the U.S. government. U.S. defense spending historically has been cyclical. Though it is not clear that future defense spending will be equally cyclical, defense budgets rise when perceived threats to national security increase the level of concern over the country’s safety. At other times, spending on the military can decrease. While Department of Defense funding has grown rapidly over the past few years, there is no assurance this trend will continue. Competing demands for federal funds can put pressure on all areas of spending, which could impact the defense budget.

A decrease in U.S. government defense spending or changes in spending allocation could result in one or more of our programs being reduced, delayed or terminated. Reductions in our existing programs, unless offset by other programs and opportunities, could adversely affect our ability to sustain and grow future sales and earnings.

14    General Dynamics 2008 Annual Report

U.S. government contracts generally are not fully funded at inception and are subject to termination. Our U.S. government sales are funded by agency budgets that operate on an October-to-September fiscal year. In February of each year, the President of the United States presents to the Congress the budget for the upcoming fiscal year. This budget proposes funding levels for every federal agency and is the result of months of policy and program reviews throughout the Executive branch. From February through September of each year, the appropriations and authorization committees of the Congress review the President’s budget proposals and establish the funding levels for the upcoming fiscal year. Once these levels are enacted into law, the Executive Office of the President administers the funds to the agencies.

There are two primary risks associated with this process. First, the process may be delayed or disrupted. Changes in congressional schedules, negotiations for program funding levels or unforeseen world events can interrupt the funding for a program or contract. Second, future sales under existing multi-year contracts are conditioned on the continuing availability of congressional appropriations. The Congress typically appropriates funds on a fiscal-year basis, even though contract performance may extend over many years. Changes in appropriations in subsequent years may impact the funding available for these programs. Delays or changes in funding can impact the timing of available funds or lead to changes in program content.

In addition, U.S. government contracts generally permit the government to terminate a contract, in whole or in part, for convenience. If a contract is terminated for convenience, a contractor generally is entitled to receive payments for its allowable costs and the proportionate share of fees or earnings for the work performed. The government may also terminate a contract for default in the event of a breach by the contractor. If a contract is terminated for default, the government in most cases pays for only the work it has accepted. The loss of anticipated funding or the termination of multiple or large programs could have an adverse effect on our future sales and earnings.

Our Aerospace group is subject to changing customer demand for business aircraft. Our Aerospace group’s business-jet market is driven by the demand for business-aviation products and services by U.S. and foreign businesses, the U.S. and other governments, and individual customers. The group’s future results also depend on other factors, including general economic conditions, the availability of credit and trends in capital goods markets. Toward the end of 2008, well-known shocks to the financial and credit markets resulted in a slowdown in aircraft order flow and led to several defaults by our customers under contracts to purchase new aircraft. Continued malaise in the general economy and in particular the financial services sector could result in additional defaults. If our Aerospace group is unable to replace contracts terminated due to future customer defaults with existing contracts in the backlog or new contracts, the group’s anticipated sales and profitability could be reduced as a result.

Our earnings and margins depend on our ability to perform under our contracts. When agreeing to contractual terms, our management makes assumptions and projections about future conditions or events. These projections assess:

• the productivity and availability of labor,

• the complexity of the work to be performed,

• the cost and availability of materials,

• the impact of delayed performance and

• the timing of product deliveries.

If there is a significant change in one or more of these circumstances or estimates, or if we face unexpected contract costs, the profitability of one or more of these contracts may be adversely affected. This could affect our earnings and margins.

Our earnings and margins depend in part on subcontractor performance, as well as raw material and component availability and pricing. We rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors perform some of the services that we provide to our customers. We depend on these subcontractors and vendors to meet our contractual obligations in full compliance with customer requirements. Occasionally, we rely on only one or two sources of supply that, if disrupted, could have an adverse effect on our ability to meet our commitments to customers. Our ability to perform our obligations as a prime contractor may be adversely affected if one or more of these suppliers is unable to provide the agreed-upon supplies or perform the agreed-upon services in a timely and cost-effective manner.

International sales and operations are subject to greater risks that sometimes are associated with doing business in foreign countries. Our international business may pose different risks than our business in the United States. In some countries there is increased chance for economic, legal or political changes. Government customers in newly formed free-market economies typically have procurement procedures that are less mature, which can complicate the contracting process. In this context, our international business may be sensitive to changes in a foreign government’s leadership, national priorities and budgets. International transactions can involve increased financial and legal risks arising from foreign exchange-rate variability and differing legal systems. In addition, some international government customers require contractors to agree to specific in-country purchases, manufacturing agreements or financial support arrangements, known as offsets, as a condition for a contract award. The contracts may include penalties if we fail to meet the offset requirements. An unfavorable event or trend in any one or more of these factors could adversely affect our sales and earnings associated with our international business.

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Our future success will depend, in part, on our ability to develop new products and maintain a qualified workforce to meet the needs of our customers. Virtually all of the products that we produce and sell are highly engineered and require sophisticated manufacturing and system-integration techniques and capabilities. The commercial and government markets in which we operate are characterized by rapidly changing technologies. The product and program needs of our government and commercial customers change and evolve regularly. Accordingly, our future performance depends in part on our ability to identify emerging technological trends, develop and manufacture competitive products, and bring those products to market quickly at cost-effective prices. In addition, because of the highly specialized nature of our business, we must be able to hire and retain the skilled and qualified personnel necessary to perform the services required by our customers. If we are unable to develop new products that meet customers’ changing needs or successfully attract and retain qualified personnel, our future sales and earnings may be adversely affected.

Developing new technologies entails significant risks and uncertainties that may not be covered by indemnity or insurance. While we maintain insurance for some business risks, it is not practicable to obtain coverage to protect against all operational risks and liabilities. Where permitted by applicable laws, we seek indemnification from the U.S. government. In addition, we generally seek limitation of potential liability related to the sale and use of our homeland security products and services through qualification by the Department of Homeland Security under the SAFETY Act provisions of the Homeland Security Act of 2002. We may elect to provide products or services even in instances where we are unable to obtain such indemnification or qualification.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that 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. These 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 that 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 risk factors discussed in this section.

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 General Dynamics or any person acting on our behalf are qualified by the cautionary statements in this section. We do 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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We operate in a number of offices, manufacturing plants, laboratories, warehouses and other facilities in the United States and abroad. We believe our main facilities are adequate for our present needs and, given planned improvements and construction, expect them to remain adequate for the foreseeable future.

On December 31, 2008, our business groups had major operations at the following locations:

• Aerospace – Lincoln and Long Beach, California; West Palm Beach, Florida; Brunswick and Savannah, Georgia; Cahokia, Illinois; Westfield, Massachusetts; Minneapolis, Minnesota; St. Louis, Missouri; Las Vegas, Nevada; Teterboro, New Jersey; Dallas, Texas; Appleton, Wisconsin; Dubai, UAE; Dusseldorf, Hannover and Kassel, Germany; Mexicali, Mexico; Moscow, Russia; Singapore; Basel, Geneva and Zurich, Switzerland; Biggin Hill and Luton, United Kingdom.

• Combat Systems – Anniston, Alabama; Camden, Arkansas; St. Marks and St. Petersburg, Florida; Marion, Illinois; Saco, Maine; Westminster, Maryland; Detroit and Sterling Heights, Michigan; Lincoln, Nebraska; Charlotte, North Carolina; Lima, Ohio; Red Lion and Scranton, Pennsylvania; Garland, Texas; Burlington, Vermont; Marion and Woodbridge, Virginia; Oshkosh, Wisconsin; Vienna, Austria; Osasco, Brazil; London and La Gardeur, Canada; St. Etienne, France; Kaiserslautern, Germany; Granada, La Coruna, Oviedo, Palencia, Sevilla and Trubia, Spain; Kreuzlingen, Switzerland.

• Marine Systems – San Diego, California; Groton, Connecticut; Honolulu, Hawaii; Bath and Brunswick, Maine; Quonset Point, Rhode Island; Mexicali, Mexico.

• Information Systems and Technology – Gilbert and Scottsdale, Arizona; Santa Clara, California; Needham, Pittsfield and Taunton, Massachusetts; Ypsilanti, Michigan; Bloomington, Minnesota; McLeansville and Newton, North Carolina; Kilgore, Texas; Arlington and Fairfax, Virginia; Calgary and Ottawa, Canada; Oakdale and Tewkesbury, United Kingdom.

16    General Dynamics 2008 Annual Report

A summary of floor space by business group on December 31, 2008, follows:

(Square feet in millions)	Company- owned Facilities	Leased Facilities	Government- owned Facilities	Total
Aerospace	3.0	4.5	—	7.5
Combat Systems	7.0	4.6	7.1	18.7
Marine Systems	6.4	2.1	—	8.5
Information Systems and Technology	3.3	7.6	0.9	11.8
Total	19.7	18.8	8.0	46.5

ITEM 3. LEGAL PROCEEDINGS

For information relating to legal proceedings, see Note O to the Consolidated Financial Statements contained in Part II, Item  8, of this Annual Report on Form 10-K.

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

No matters were submitted to a vote of our security holders during the fourth quarter of 2008.

PART II

ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange.

The high and low sales prices of our common stock and the cash dividends declared on our common stock for each quarter of 2008 and 2007 are included in the Supplementary Data contained in Part II, Item 8, of this Annual Report on Form 10-K.

On February 1, 2009, there were approximately 14,000 holders of record of our common stock.

For information regarding securities authorized for issuance under our equity compensation plans, see Note P to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

We did not make any unregistered sales of equity securities in 2008.

The following table provides information about our fourth quarter repurchases of equity securities that are registered pursuant to Section 12 of the Exchange Act:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program*	Maximum Number of Shares That May Yet Be Purchased Under the Program*
9/29/08 – 10/26/08	2,316,800	$	67.72	2,316,800	8,108,200
10/27/08 – 11/23/08	1,755,500	$	56.38	1,755,500	6,352,700
11/24/08 – 12/31/08	1,500,000	$	52.84	1,500,000	4,852,700
Total	5,572,300	$	60.15

* On August 6, 2008, our board of directors authorized management to repurchase up to 10 million shares of common stock on the open market. On October 1, 2008, with 3.5 million shares remaining under the August authorization, the board of directors increased the number of authorized shares to 10 million. Unless terminated or extended earlier by resolution of the board of directors, the program will expire when the number of authorized shares has been repurchased.

For additional information relating to our repurchase of common stock during the past three years, see Financial Condition, Liquidity and Capital Resources – Financing Activities – Share Repurchases contained in Part II, Item 7, of this Annual Report on Form 10-K.

The following performance graph compares the cumulative total return to shareholders on our common stock, assuming reinvestment of dividends, with similar returns for the Standard & Poor’s^® 500 Index and the Standard & Poor’s^® Aerospace & Defense Index, both of which include General Dynamics.

General Dynamics 2008 Annual Report    17

ITEM 6. SELECTED FINANCIAL DATA

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

(Dollars and shares in millions, except per share and employee amounts)	2008			2007			2006			2005			2004
Summary of operations
Net sales	$	29,300		$	27,240		$	24,063		$	20,975		$	18,868
Operating earnings		3,653			3,113			2,625			2,179			1,931
Operating margin		12.5	%		11.4	%		10.9	%		10.4	%		10.2	%
Interest, net		(66	)		(70	)		(101	)		(118	)		(148	)
Provision for income taxes, net		1,126			967			817			621			580
Earnings from continuing operations		2,478			2,080			1,710			1,448			1,194
Return on sales (a)		8.5	%		7.6	%		7.1	%		6.9	%		6.3	%
Discontinued operations, net of tax		(19	)		(8	)		146			13			33
Net earnings		2,459			2,072			1,856			1,461			1,227
Diluted earnings per share:
Continuing operations		6.22			5.10			4.20			3.58			2.96
Net earnings		6.17			5.08			4.56			3.61			3.04
Sales per employee (b)		342,600			329,400			309,300			300,700			284,500
Cash flows
Net cash provided by operating activities	$	3,110		$	2,925		$	2,128		$	2,056		$	1,803
Net cash used by investing activities		(3,662	)		(852	)		(2,316	)		(181	)		(786	)
Net cash used by financing activities		(718	)		(786	)		(539	)		(520	)		(902	)
Cash dividends declared per common share		1.40			1.16			0.92			0.80			0.72
Financial position
Cash and equivalents	$	1,621		$	2,891		$	1,604		$	2,331		$	976
Total assets		28,373			25,733			22,376			19,700			17,575
Short- and long-term debt		4,024			2,791			2,781			3,287			3,293
Shareholders’ equity		10,053			11,768			9,827			8,145			7,189
Debt-to-equity (c)		40.0	%		23.7	%		28.3	%		40.4	%		45.8	%
Book value per share (d)		26.00			29.13			24.22			20.34			17.88
Working capital (e)		1,590			3,134			2,056			2,339			2,022
Other information
Free cash flow from operations (f)	$	2,634		$	2,478		$	1,822		$	1,771		$	1,507
Return on invested capital (g)		18.5	%		16.9	%		15.6	%		14.9	%		13.3	%
Funded backlog		51,712			37,194			34,024			28,186			28,020
Total backlog		74,127			46,832			43,667			40,754			40,304
Shares outstanding		386.7			404.0			405.8			400.4			402.1
Weighted average shares outstanding:
Basic		396.2			404.4			403.4			401.6			399.1
Diluted		398.7			408.1			406.8			404.8			402.9
Active employees		92,300			83,500			81,000			70,900			68,800

Note: Prior year amounts have been reclassified for discontinued operations.

(a) Return on sales is calculated as earnings from continuing operations divided by net sales.

(b) Sales per employee is calculated as net sales for the past 12 months divided by the average number of employees for the period.

(c) Debt-to-equity ratio is calculated as total debt divided by total equity as of year end.

(d) Book value per share is calculated as total equity divided by total outstanding shares as of year end.

(e) Working capital is calculated as current assets less current liabilities as of year end.

(f) See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a GAAP reconciliation of net cash provided by operating activities from continuing operations to free cash flow from operations.

(g) See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the calculation and related GAAP reconciliation of return on invested capital.

18    General Dynamics 2008 Annual Report

(Dollars in millions, except per share amounts or unless otherwise noted)

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

(For an overview of our business groups, including a discussion of products and services provided, see the Business discussion contained in Part I, Item 1, of this Annual Report on Form 10-K.)

MANAGEMENT OVERVIEW

General Dynamics offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design and construction; and information systems, technologies and services. We operate through four business groups – Aerospace, Combat Systems, Marine Systems and Information Systems and Technology. Our primary customers are the U.S. military, other U.S. government organizations, the armed forces of other nations, and a diverse base of corporate, government and individual buyers of business aircraft. We operate in two primary markets: defense and business aviation. The majority of our revenues derive from contracts with the U.S. military.

The nation’s engagement in the global war on terror, coupled with the need to modernize U.S. military forces, has driven steady Department of Defense funding increases since 2001. In particular, procurement and research and development (R&D) budgets, also known as investment accounts, provide the majority of our revenues. Defense Department total, or top-line, funding has increased at a compound annual growth rate of 6.9 percent from fiscal 2001 through 2009, while procurement and R&D spending has grown nearly 7.3 percent annually during that period. For fiscal year 2009, the Congress appropriated $516 billion for the Department of Defense, including approximately $182 billion for procurement and R&D. Budget expenditures generally lag congressional funding, and we expect that expenditures applied toward programs over the next few years will be consistent with defense funding appropriated in recent years. Our future growth potential in the U.S. defense market is driven by the size of the defense budget, the allocation of that budget to investment accounts, the diversity of our exposure to different programs and customers within the budget, and our successful execution of the contracts we are awarded.

During this period of war, defense budgets have included the President’s budget submission, as well as supplemental funds requested over the course of the fiscal year to meet the emergent needs of the warfighter. For fiscal year 2008, the Congress appropriated $183 billion in emergency spending, including approximately $68 billion, or 37 percent, for investment accounts. For fiscal year 2009, the Congress has appropriated $66 billion in supplemental funding, primarily for battlefield operational requirements. The Defense Department has indicated that it will request at least another $70 billion of supplemental funding in 2009 to include funds for procuring additional weaponry. If this second supplemental is approved, defense funding for fiscal year 2009 will total approximately $652 billion, a 110 percent increase since 2001.

Looking ahead, we expect defense core budget top-line growth to moderate. In the near-term, top-line funding should remain at or near current well-funded levels, led by the need to continue to support ongoing war operations. While the landscape will continue to evolve in conjunction with the new administration’s defense strategy as well as dynamic macroeconomic and geopolitical conditions, we expect near-term defense funding levels to be driven primarily by the following:

• continued support for the warfighter from the administration and the Congress in the face of threats posed by an uncertain global security environment;

• the number of troops deployed in Afghanistan and Iraq, coupled with the increase in the overall size of the U.S. military;

• the need to reset and replenish equipment and supplies damaged and consumed during the war;

• the need to maintain thousands of jobs that support the health of our nation’s military infrastructure; and

• the need to modernize that infrastructure to address the evolving requirements of modern-day warfare.

Future supplemental funding levels will likely decrease in tandem with the administration’s current plan to reduce troop levels in

Iraq, offset somewhat by an increased footprint in Afghanistan. As this supplemental spending decreases, some of the supplemental funding that had previously been used to finance core procurement programs will likely shift back to the base budget.

Beyond our U.S. defense market, governments around the world continue to fund weapons and equipment modernization programs, leading to significant defense export opportunities. We are committed to pursuing international opportunities presented by international demand for military hardware and information technologies. While the revenue upside can be significant, European and other international defense budgets are subject to unpredictable issues of contract award timing, defense priorities and overall fiscal spending pressures. As we broaden the customer base for our defense products around the world, we expect growing international sales.

The business-aviation market remained strong for much of 2008. While mid-size order activity moderated from past years, Gulfstream enjoyed continued strong order activity for its long-range and ultra-long-range business-jet offerings, including its new G650 product. Market conditions changed significantly, however, in the fourth quarter of 2008 as credit and financial markets seized in reaction to deteriorating global economic conditions. This severe dislocation caused new aircraft order activity to slow.

This sudden financial turmoil affected some of Gulfstream’s customers who either sought deferral or defaulted on their aircraft orders.

General Dynamics 2008 Annual Report    19

These perturbations in the group’s backlog had no impact to financial performance in 2008 due largely to the willingness of customers in the backlog to move up to earlier availabilities. If the market continues to erode, additional defaults and deferrals may occur. However, we believe the diversity and duration of the business-jet order book positions the Aerospace group to bridge the current market turmoil. Aircraft-service revenues, which grew 8 percent in 2008, provide the group diversified exposure to after-market sales fueled by recent growth in the global installed business-jet fleet. We believe continued investment in new aircraft products will drive long-term growth, particularly when the Aerospace group begins delivering its newest aircraft offerings, the G250 in 2011 and the G650 in 2012.

We are committed to creating shareholder value through ethical business practices, disciplined program management and continuous operational improvements. Our solid performance is measured in our sustained revenue and earnings growth and strong cash flow. General Dynamics’ record as an industry leader in cash flow generation has provided our management the flexibility to execute our operational strategy, and enabled us to consistently deploy resources to further enhance shareholder returns through strategic and tactical acquisitions, payment of dividends and share repurchases.

CONSOLIDATED OVERVIEW

The following discussion of our results of operations is based on operating performance at the business group level. The disclosures focus on the material financial measures our management uses to evaluate the performance of each of our four business groups, including sales, operating earnings and margins, cash flow, and orders and backlog. For the defense business groups, the discussion of results of operations is based on specific contracts and programs that drive the group’s results rather than types of products and services, which often comprise multiple contracts with different customers. For the Aerospace group, the results are analyzed with respect to specific lines of products and services, consistent with how the group is managed.

In the defense business groups, the majority of the sales are generated by long-term government contracts. As discussed further in the Application of Critical Accounting Policies section, we account for sales under these contracts using the percentage-of-completion method of accounting. Under this method, revenue is recognized as work progresses, either as products are produced and delivered or as services are rendered, as applicable. As a result, changes in sales are generally discussed in terms of volume. Volume indicates increases or decreases in sales due to changes in production or construction activity levels, changes in delivery schedules or levels of services on individual contracts.

In the Aerospace group, we recognize revenue using the percentage-of-completion method. Sales contracts for new aircraft have two major phases: the manufacture of the “green” aircraft and the aircraft’s completion, which includes exterior painting and installation of customer-selected interiors and optional avionics. We record revenues on these contracts at two milestones: when green aircraft are delivered to and accepted by the customer, and when the customer accepts final delivery of the aircraft. Revenues in the Aerospace group’s Jet Aviation aircraft outfitting business are recognized as work progresses, similar to our defense businesses. Aircraft services revenues are recognized upon delivery of services. Changes in sales in this group result from the number of new aircraft deliveries (both green and completion), the progress toward completion of aircraft outfitting activities, the level of service activity during the period and the number of pre-owned aircraft sold.

Operating earnings and margins in the defense business groups are generally discussed in terms of changes in sales volume, performance, or the mix of contracts (e.g., fixed-price/cost-reimbursable) and the phases of work within those contracts (e.g., development/production). Performance refers to changes in contract earnings rates during the term of the contract based on revisions to estimates of profit at completion on individual contracts. These revisions result from increases or decreases to the estimated value of the contract and/or the estimated costs required to complete the contract. The following discussion of results provides additional disclosure to the extent that a material or unusual event causes a change in the profitability of a contract.

Operating earnings and margins in the Aerospace group are generally a function of the prices we are able to charge for our various aircraft models, the operational efficiency of the group in the manufacture and completion of the aircraft, and the mix of aircraft deliveries among the higher-margin large-cabin and lower-margin mid-size aircraft. Additional factors affecting the group’s earnings and margins include the volume and profitability of services work performed, the number and type of pre-owned aircraft sold, and the level of general and administrative costs incurred by the group, which include selling expenses and research and development costs.

20    General Dynamics 2008 Annual Report

Results of Operations

Year Ended December 31	2008			2007			Variance
Net sales	$	29,300		$	27,240		$	2,060	7.6	%
Operating earnings		3,653			3,113			540	17.3	%
Operating margin		12.5	%		11.4	%

In 2008, we achieved solid growth in sales and a significant increase in operating earnings compared with 2007. This strong performance during the year resulted in our highest operating margin in eight years backed by continued strong cash flows from operations. We received a record level of orders in 2008, ending the year with the highest backlog in our history.

Each of our four business groups produced increases in sales in 2008 over the prior year. Sales growth in the Aerospace and Marine Systems groups was particularly strong in 2008 as a result of continued increases in business-jet aircraft deliveries and increased activity on U.S. Navy and commercial shipbuilding programs. In the Combat Systems group, strong demand for U.S. military vehicles and related support services drove the increase in sales. Higher activity in tactical and strategic mission systems contributed the majority of the sales growth in the Information Systems and Technology group.

Our operating earnings increased at more than double the rate of sales growth in 2008, and three of our four business groups reported earnings in excess of $1 billion. Growth in operating earnings exceeded the sales growth in all of our business groups due to strong program execution and a continued focus on operating performance. Overall, our operating margins increased 110 basis points to 12.5 percent in 2008, the fifth consecutive year of margin expansion.

Year Ended December 31	2007			2006			Variance
Net sales	$	27,240		$	24,063		$	3,177	13.2	%
Operating earnings		3,113			2,625			488	18.6	%
Operating margin		11.4	%		10.9	%

We produced significant sales growth in 2007 on the strength of rising sales in each of our business groups. In particular, the Combat Systems and Aerospace groups generated substantial sales growth in 2007 on U.S. military vehicle sales and increased business-jet deliveries. Sales in the Information Systems and Technology group increased primarily as a result of the acquisition of Anteon International Corporation in mid-2006. Sales were up slightly in the Marine Systems group compared with 2006. Our operating earnings grew at a higher rate than sales in 2007, as three of our four business groups achieved significant operating leverage. The Aerospace group’s earnings and margins reflected the strength of improved pricing and ongoing productivity improvements. Operating earnings and margins were up in Combat Systems and Marine Systems due to improved operational execution across a variety of programs. Our overall operating margins improved 50 basis points in 2007 to 11.4 percent.

Cash Flow

Cash flows from operations in 2008 exceeded net earnings for the tenth consecutive year. Net cash provided by operating activities was $3.1 billion in 2008, $2.9 billion in 2007 and $2.1 billion in 2006. In addition, we generated over $300 in cash in 2006 from the sale of several non-core businesses. Over the three-year period, we used our cash to fund acquisitions and capital expenditures, repurchase our common stock, pay dividends and repay maturing debt. Our net debt – debt less cash and equivalents and marketable securities – was $2.3 billion at the end of 2008 compared with a net surplus of $268 at the end of 2007. Our net debt increased by $2.5 billion during the year after $3.2 billion spent on acquisitions, over $1.5 billion of share repurchases, $533 of dividends paid, $490 of capital expenditures and more than $470 of company-sponsored research and development during the year.

Other Financial Information

General and administrative (G&A) expenses as a percentage of sales declined to 5.9 percent in 2008 from 6 percent in 2007 and 6.2 percent in 2006, reflecting our continued emphasis on operating leverage. G&A was $1.7 billion in 2008, $1.6 billion in 2007 and $1.5 billion in 2006. We expect 2009 G&A as a percent of sales to approximate the 2008 rate.

Net interest expense was $66 in 2008 compared with $70 in 2007 and $101 in 2006. Interest income generated by our strong cash position has increased during each of the past three years while scheduled repayments of our long-term debt have steadily reduced interest expense. We expect net interest expense to increase to approximately $140 to $150 in 2009 due to the issuance of additional debt in 2008.

Our effective tax rate was 31.2 percent in 2008, 31.7 percent in 2007 and 32.3 percent in 2006. In 2008, our taxes were reduced by a refund associated with the settlement of outstanding litigation. This resulted in a $35, or approximately $0.09 per-share, benefit that reduced our 2008 tax rate by 100 basis points. Our effective tax rate in 2007 was impacted favorably by the resolution of our 2003 to 2004 federal income tax audit with the Internal Revenue Service. This settlement resulted in a benefit of $18, or approximately $0.04 per share, which reduced our effective tax rate by 60 basis points. We anticipate an effective tax rate of approximately 31.5 to 32 percent in 2009. For additional discussion of tax matters, see Note E to the Consolidated Financial Statements.

Discontinued Operations

In 2008, we entered into an agreement to sell our Spanish nitrocellulose operation and recognized a pretax loss of $11 in discontinued operations. We expect the sale to close in the first quarter of 2009.

In 2007, we completed the sale of our coal mining operation and received proceeds of approximately $25. We had previously recognized a pretax loss of $57 in discontinued operations in 2006 in anticipation of the sale.

General Dynamics 2008 Annual Report    21

In 2006, we completed the sale of our aggregates operation. We received approximately $315 in cash from the sale of this business and recognized a pretax gain of $199 in discontinued operations.

Our reported net sales exclude the revenues associated with these divested businesses. We have included their operating results, along with the gains and losses from the transactions discussed above, as discontinued operations, net of income taxes. For additional discussion of our divestiture activities and the results of discontinued operations, see Note C to the Consolidated Financial Statements.

Backlog and Estimated Potential Contact Value

Our total backlog increased almost 60 percent in 2008 to $74.1 billion at the end of the year. Funded backlog was $51.7 billion at year end, up 39 percent over 2007. We received $57 billion of new orders in 2008, the highest level in our history. Order activity was significant across each of our business groups, resulting in backlog growth in each group in 2008.

The total backlog for our defense businesses increased 49 percent in 2008 to $51.6 billion, compared with $34.6 billion at the end of 2007. The defense backlog represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of this backlog was $29.9 billion at the end of 2008, up 17 percent over 2007. This includes items that have been authorized and appropriated by the Congress and funded by the customer, as well as commitments by international customers that are similarly approved and funded by their governments. The unfunded backlog for the defense businesses represents firm orders that do not meet these criteria. While there is no guarantee that future budgets and appropriations will provide funding for a given program, we have included in the backlog only firm contracts we believe are likely to receive funding.

The Aerospace group’s total backlog reached a record level of $22.5 billion at year-end 2008 compared with $12.3 billion at the end of 2007, an increase of more than 83 percent. The group’s funded backlog increased almost 90 percent during the year to $21.9 billion at the end of 2008. The funded backlog represents orders for which we have definitive purchase contracts and deposits from the customer. The Aerospace unfunded backlog of $618 at the end of 2008 consists of agreements to provide future aircraft maintenance and support services.

Our backlog does not include work awarded under unfunded indefinite delivery, indefinite quantity (IDIQ) contracts, unexercised options associated with existing firm contracts or options to purchase new aircraft, which we refer to collectively as estimated potential contract value.

IDIQ contracts are used when the customer has not defined the exact timing and quantity of deliveries that will be required at the time the contract is executed. These agreements, which set forth the majority of the contractual terms, including prices, are funded as delivery orders are placed. A significant portion of our IDIQ value represents contracts for which we have been designated as the sole-source supplier to design, develop, produce and integrate complex products and systems over several years for the military or other government agencies. Management believes the customers intend to fully implement these systems. The estimated potential contract value also includes our estimate of the value we will receive under multiple-award IDIQ contracts in which we are one of several companies competing for task orders under the contract. Because the value of these arrangements is subject to the customer’s future exercise of an indeterminate quantity of delivery orders, we recognize these contracts in backlog only when they are funded.

Contract options in our defense businesses represent agreements to perform additional work beyond the products and services associated with firm contracts, if the customer exercises the option. These options are negotiated in conjunction with a firm contract and provide the terms under which the customer may elect to procure additional units or services at a future date. Contract options in the Aerospace group represent options to purchase new aircraft, including long-term option agreements with fleet customers. We recognize options in backlog when the customer exercises the option and establishes a firm order.

As of December 31, 2008, the estimated potential value associated with these IDIQ contracts and contract options was approximately $16.8 billion, up from $14.5 billion at the end of 2007. We expect to realize this value over the next 10 to 15 years. This represents management’s estimate of the potential value we will receive. The actual amount of funding received in the future may be higher or lower.

REVIEW OF OPERATING SEGMENTS

AEROSPACE

Results of Operations and Outlook

Year Ended December 31	2008			2007			Variance
Net sales	$	5,512		$	4,828		$	684	14.2	%
Operating earnings		1,021			810			211	26.0	%
Operating margin		18.5	%		16.8	%
Aircraft deliveries (in units):
Green		156			138			18	13.0	%
Completion		152			138			14	10.1	%

22    General Dynamics 2008 Annual Report

The Aerospace group generated significant sales growth in 2008, attributable primarily to increased aircraft deliveries compared with 2007. The group increased aircraft production rates for the fifth consecutive year in 2008 in response to a steadily growing aircraft backlog. As a result, new aircraft sales increased 12 percent in 2008. Sequential years of higher new aircraft deliveries have expanded the group’s worldwide installed base of business-jet aircraft. As a result, demand in the group’s aircraft services business grew in 2008, with volume up 8 percent compared to 2007. Our November 2008 acquisition of Jet Aviation, a business-jet outfitting and aviation-services company, also contributed to the group’s sales growth. Approximately one-quarter of the group’s increase in sales in 2008 came from the addition of Jet Aviation. Pre-owned aircraft sales were $18 in 2008, down from $78 in 2007. The group had four pre-owned aircraft available for sale on December 31, 2008.

The Aerospace group’s operating earnings increased at a significantly higher rate than sales in 2008. The following factors impacted the group’s growth in operating earnings during the year:

Increased aircraft deliveries	$	146
Pricing, delivery mix and productivity improvements		105
Increased aircraft services		11
Pre-owned aircraft activity		(25	)
General and administrative expenses		(26	)
Total increase in operating earnings	$	211

Operating earnings and margins on the group’s 2008 aircraft deliveries were up compared with the units delivered in 2007, the result of improved pricing on aircraft orders over the past several years. The group also continued to generate productivity improvements in the aircraft assembly and outfitting processes, which further improved earnings in 2008. In late 2008, the number of pre-owned aircraft transactions was significantly curtailed in response to the deterioration of the global economic environment. As a result, the group wrote down the carrying value of the four pre-owned aircraft available for sale at year end. The group’s earnings growth was also tempered by increased selling expenses from strong order activity and higher product-development costs associated with the introduction of two new aircraft models in 2008. The net effect of these factors was a 170 basis-point increase in operating margins in 2008, following two years of 120 basis-point improvement.

The significant deterioration in the economic environment in late 2008 weakened the global demand for business jets, particularly in the mid-size aircraft segment. As a consequence of these conditions and the relatively short duration of the group’s mid-size backlog, we plan to significantly reduce mid-size aircraft production in 2009. Given the substantial level and duration of the large-cabin aircraft backlog, we expect to increase production of these models in 2009. However, we assess aircraft production requirements quarterly and will modify the group’s production and delivery schedule as necessary based on the state of our backlog and market conditions. We also expect more pre-owned activity in 2009 than we experienced in 2008 or 2007. Of the contracts for 2009 aircraft deliveries, approximately 10 include aircraft trade-in options, which the customers may elect to exercise.

Including the effect of a full year of results of Jet Aviation, we expect the Aerospace group’s 2009 sales to increase between 20 and 25 percent over 2008. We expect the group’s operating margins to be 200 to 220 basis points lower than those achieved in 2008 due primarily to the increase in aircraft-services volume associated with the Jet Aviation acquisition.

Year Ended December 31	2007			2006			Variance
Net sales	$	4,828		$	4,116		$	712	17.3	%
Operating earnings		810			644			166	25.8	%
Operating margin		16.8	%		15.6	%
Aircraft deliveries (in units):
Green		138			113			25	22.1	%
Completion		138			104			34	32.7	%

The Aerospace group’s sales and operating earnings increased significantly in 2007 over 2006. To meet growing global demand, the group increased aircraft production in 2007 resulting in new-aircraft sales growth of 22 percent compared with the prior year. Aircraft-services volume also increased 20 percent over 2006. Sales of pre-owned aircraft decreased to $78 in 2007 from $217 in 2006 as favorable market conditions led more customers to sell their own aircraft rather than trade them in.

Operating earnings in 2007 increased approximately $205 as a result of the higher new-aircraft and aircraft-services volume. The earnings growth was also driven by improved pricing on units delivered in 2007 compared with 2006 as well as labor efficiencies and productivity improvements, particularly in the aircraft-completion process. These factors contributed a $65 increase in earnings in 2007. Higher selling and G&A costs and product-development spending reduced the group’s earnings growth by approximately $90, and lower sales of pre-owned aircraft reduced the earnings growth by $14.

Backlog and Estimated Potential Contract Value

General Dynamics 2008 Annual Report    23

The Aerospace group’s backlog increased 83 percent in 2008 to $22.5 billion at year end, the largest backlog in the group’s history. The group’s funded backlog was $21.9 billion at year end, up 89 percent over 2007. In 2008, the group received $15.4 billion in new orders, a record level for the fifth consecutive year and an increase of 67 percent over 2007. In addition, the acquisition of Jet Aviation in the fourth quarter added approximately $750 to the group’s backlog related to agreements to perform outfitting work for other equipment manufacturers.

In the second quarter of 2008, the group began taking orders for the Gulfstream G650, a new ultra-long-range, ultra-large-cabin business jet that is scheduled to enter service in 2012. In the fourth quarter, the group introduced and began taking orders for the Gulfstream G250, a new super-mid-size business jet that is scheduled to enter service in 2011.

The group experienced strong demand in North America as well as a growing proportion of international orders in 2008. Over 50 percent of the group’s orders in 2008 were from customers outside North America for the second year in a row. The group’s backlog includes scheduled aircraft deliveries for large-cabin models through periods ranging from 2011 to 2017. The backlog does not include options to purchase new aircraft, including long-term agreements with fleet customers. These options totaled $2.3 billion at the end of 2008 and are included in estimated potential contract value.

As a result of the sharp decline in global economic conditions in 2008, the group had some customers default on their contracts late in the fourth quarter. These defaults had no impact on the group’s 2008 deliveries. We were able to fill those production slots with other customers who were interested in moving forward in the delivery queue. Despite the defaults, the backlog grew in 2008 as the group achieved a book-to-bill ratio (aircraft orders divided by deliveries) greater than one for the fifth consecutive year. While the backlog continues to have some risk, particularly if the economic climate worsens, we will continue to work with customers to minimize the future impact to the group’s performance.

* Represents ratio of new aircraft orders to deliveries (in units) during the year.

The following table summarizes key unit data for Gulfstream aircraft orders and backlog:

Year Ended December 31	2008	2007	2006
New orders	280	256	159
Options exercised	8	1	—
Firm orders	288	257	159
As of December 31
Firm contracts in backlog	438	320	203
Completions in backlog*	52	49	49

* Represents aircraft that have moved from green production to the completion process as of year end. The backlog includes only the value of the completion effort on these aircraft.

COMBAT SYSTEMS

Results of Operations and Outlook

Year Ended December 31	2008			2007			Variance
Net sales	$	8,194		$	7,797		$	397	5.1	%
Operating earnings		1,111			916			195	21.3	%
Operating margin		13.6	%		11.7	%

The Combat Systems group’s net sales increased in 2008 compared with 2007. The group’s sales growth was driven by its U.S. military vehicle business:

U.S. military vehicles	$	655
Weapons systems and munitions		(140	)
European military vehicles		(118	)
Total increase in sales	$	397

The increase in U.S. military vehicle sales was driven primarily by higher activity on the group’s mine-resistant, ambush-protected (MRAP) vehicle program and several contracts in support of the group’s Abrams main battle tank modernization efforts. Under the MRAP program, which emerged in late 2007, the group produces RG-31 and Cougar armored vehicles for the U.S. Department of Defense. The group is scheduled to complete deliveries of its remaining RG-31 MRAP vehicles under contract in the first quarter of 2009. Under the Abrams program, volume was up most notably in 2008 on the System Enhancement Package (SEP) upgrade and on contracts to repair and reset battle-damaged M1 tanks.

Sales in the group’s weapons systems business decreased in 2008 due to fewer deliveries of systems that help protect U.S. combat forces from improvised explosive devices (IEDs). Sales increased slightly on the group’s munitions programs over 2007, particularly on its large- and medium-caliber munitions supply contracts for the United States and Canada.

24    General Dynamics 2008 Annual Report

In the group’s European military vehicles business, volume was lower during the year on several international military vehicle programs including the Leopard tank program with the Spanish government. The decrease in sales in 2008 on these programs was offset slightly by increased volume on the group’s Piranha wheeled armored vehicle contract for Belgium and higher activity within the group’s mobile bridge business.

In December 2007, the group received a notice of termination from the Czech Republic regarding its contract to deliver 199 Pandur II military vehicles. In the second quarter of 2008, we entered into a memorandum of understanding and a testing agreement with the Czech Republic regarding the testing and acceptance of 17 vehicles that had been completed by the group. We are negotiating a revised contract for the purchase of 107 vehicles, including the 17 completed vehicles. We do not believe the outcome of the negotiations will have a material effect on the group’s operating results. Due to ongoing negotiations, there were no sales recognized under this contract in 2008, but we expect to continue production upon finalization of the revised contract.

The Combat Systems group’s operating earnings grew significantly in 2008, increasing at more than four times the rate of sales growth during the year. While the most significant driver of the group’s earnings growth was improved performance in the U.S. military vehicle business, particularly on the MRAP and Abrams programs, each of the group’s businesses generated at least a 100 basis-point increase in margins in 2008. The operating leverage achieved across Combat Systems’ operations in 2008 produced an overall 190 basis-point improvement in the group’s operating margins compared with 2007.

On December 19, 2008, we acquired AxleTech International (AxleTech) of Troy, Michigan. AxleTech is a global manufacturer and supplier of highly engineered axles, suspensions, brakes and aftermarket parts for heavy-payload vehicles for a variety of military and commercial customers.

We expect Combat Systems to produce sales growth of approximately 20 to 25 percent in 2009, including the addition of AxleTech’s revenues. We expect the group’s operating margins to return to a more sustainable mid-12 percent level in 2009.

Year Ended December 31	2007			2006			Variance
Net sales	$	7,797		$	5,983		$	1,814	30.3	%
Operating earnings		916			677			239	35.3	%
Operating margin		11.7	%		11.3	%

In 2007, Combat Systems generated the greatest growth in sales and operating earnings among our four business groups. Each of the group’s businesses experienced double-digit sales and earnings growth over 2006. More than half of the growth resulted from increased volume in the group’s U.S. military vehicle business, including higher activity on Abrams-related contracts and the Stryker wheeled combat vehicle program, the ramp-up of production of light armored vehicles (LAVs) for the U.S. Marine Corps, and increased production of MRAP military vehicles. Sales increased almost 50 percent in the group’s munitions business in 2007 due to strong volume in its large- and medium-caliber munitions supply contracts and the acquisition of SNC Technologies Inc. in January 2007. In the group’s weapons systems business, sales grew 13 percent in 2007 due primarily to increased activity on its counter-IED contract. The European military vehicle business experienced sales growth of almost 30 percent in 2007. This growth resulted primarily from increased activity on Pandur and Piranha wheeled vehicle contracts for several European governments.

The group’s operating margins increased 40 basis points in 2007 compared with 2006 due to a shift in contract mix and improved performance across a number of the group’s wheeled military vehicle programs. The margin growth was limited somewhat by the inclusion of lower-margin acquisitions in the munitions business, increased supplier costs on the group’s small-caliber munitions contract and costs recognized in connection with our exit from the group’s European commercial trading business.

Backlog and Estimated Potential Contract Value

The Combat Systems group’s total backlog was $15 billion at the end of 2008, an increase of 16 percent over 2007. Funded backlog grew 12 percent in 2008 to $12.1 billion at year end. The group’s backlog consists primarily of long-term production contracts that have scheduled deliveries through 2014.

The group’s backlog on December 31, 2008, included approximately $3.8 billion for M1 Abrams main battle tank modernization and upgrade programs. These include the M1A2 SEP, Abrams Integrated Management (AIM) and Tank Urban Survivability Kit (TUSK) programs. Under the SEP program, we retrofit M1A2 Abrams main battle tanks with improved electronics, command-and-control capabilities and armor enhancements that are designed to improve the tank’s effectiveness. Over 50 percent of the group’s Abrams backlog at year end was for the SEP program. During 2008, the group was awarded a multi-year contract with a potential value of $1.2 billion from the U.S. Army to upgrade 435 M1A1 Abrams vehicles to the SEP Version Two (V2) configuration and received funding of $830 for 317 of those vehicles. Under the AIM program, M1 Abrams

General Dynamics 2008 Annual Report    25

main battle tanks are completely overhauled and returned to a like-new condition. TUSK is a technological upgrade that improves the effectiveness of the tank in urban warfare environments. In 2008, the group received awards from the Army totaling $320 for the AIM and TUSK programs combined. At year end, the Abrams backlog included approximately $530 for these contracts. Additionally, the group received combined orders from the Army worth approximately $290 for Abrams systems technical support in 2008.

The Combat Systems group’s backlog at year end included approximately $1.8 billion for the Army’s Stryker wheeled combat vehicle program, including the production of nearly 800 vehicles scheduled for delivery through 2011. In 2008, the group received orders valued at $2.1 billion from the Army under the Stryker program, including awards worth approximately $900 for the production of 677 Stryker vehicles and over $260 for Stryker modification kits to be used in Operation Iraqi Freedom. The group also received awards in 2008 totaling $600 for Stryker contractor logistics and field support, including reset and battle-damage repair.

The group’s backlog for the Army’s Future Combat Systems (FCS) program totaled $1.2 billion at the end of 2008. The group leads the system development of the manned ground vehicles (MGV) element of the program, as well as the development of the autonomous navigation systems for FCS unmanned ground vehicles. The group’s current contract extends through 2013.

Approximately $880 was included in the Combat Systems group’s backlog at the end of the year for the Marine Corps’ Expeditionary Fighting Vehicle (EFV) program. The group is building seven new prototypes under the system design and development phase of the EFV program and received orders of approximately $980 related to this effort in 2008.

The group’s backlog at year end included approximately $700 under the MRAP program. The group produces two separate vehicles under this program – the Cougar, in connection with its joint venture partner, and the RG-31. In 2008, the group received MRAP orders valued at nearly $1.1 billion for production of 778 RG-31 and 184 Cougar vehicles and related vehicle support and spare parts. Deliveries under the Cougar program were completed in 2008. The group’s deliveries of the RG-31 vehicles remaining under this contract are scheduled to be completed in the first quarter of 2009.

The Combat Systems group has several significant international military vehicle production contracts in backlog. The backlog at the end of the year included:

• $560 for the production of 190 Pizarro Advanced Infantry Fighting Vehicles scheduled for delivery to the Spanish army through 2014.

• $360 for the production of 85 Leopard 2E battle tanks, which the group produces for the Spanish army using a design licensed from a German company. Deliveries are scheduled through 2010.

• $340 for the Pandur II vehicle contract with the Czech Republic that is currently being renegotiated. The backlog amount represents the estimated value of a revised contract for the purchase of 107 vehicles.

• $275 for a contract with the government of Belgium for 116 Piranha wheeled military vehicles.

• $230 from the Swiss government to provide 232 Duro wheeled armored personnel vehicles and 12 Piranha wheeled military vehicles.

• $165 for a contract with the government of Portugal for 226 Pandur II wheeled vehicles.

• $120 for a contract with the German government to provide 192 Eagle IV wheeled military vehicles.

The Combat Systems group’s backlog at year end also included approximately $2.5 billion in weapons systems, munitions, detection systems and composite-structures programs. In 2008, the group received awards totaling $250 for the production of Hydra-70 rockets, bringing the total contract value to date to nearly $800. The group also received awards of approximately $125 from the Army in 2008 for the production of small-caliber ammunition, bringing the total contract value to date to almost $700.

MARINE SYSTEMS

Results of Operations and Outlook

Year Ended December 31	2008			2007			Variance
Net sales	$	5,556		$	4,993		$	563	11.3	%
Operating earnings		521			421			100	23.8	%
Operating margin		9.4	%		8.4	%

Net sales in the Marine Systems group improved in 2008 as a result of increased activity across each of the group’s shipyards. The growth in the group’s sales consisted of the following:

Mature Navy ship production	$	270
Commercial ship production		184
Navy design and early-stage production		154
Other		(45	)
Total increase in sales	$	563

Approximately 60 percent of the Marine Systems group’s sales in both 2008 and 2007 were produced by three mature ship-production programs for the U.S. Navy – the Virginia-class submarine, the T-AKE combat-logistics ship and the Arleigh Burke-class (DDG-51) destroyer. Activity increased on the Virginia program in 2008 as the group continued construction on its cost-reimbursable Block I contract and its fixed-price Block II contract. The final Block I ship and the first Block II ship were delivered in 2008, and construction is in process on the remaining five Block II ships. The group received a multi-year, eight-ship Block III award in the fourth quarter of 2008, and as a result, the group expects

26    General Dynamics 2008 Annual Report

to increase production to two ships per year beginning in 2011. Including Block III, deliveries are scheduled through 2018. On the T-AKE program, volume increased in 2008 as the group delivered the fifth and sixth ships and continued construction of the seventh through tenth ships of the group’s 14-ship program. Deliveries are scheduled through 2012. Activity on the Arleigh Burke destroyer program decreased slightly in 2008 compared with 2007. The group delivered two destroyers in 2008, and construction is in process on the remaining four ships under contract with deliveries scheduled through 2011.

The group’s product carrier program produced the increase in commercial shipbuilding volume in 2008. Construction of the first three ships ramped up in 2008, and the first ship was delivered in early 2009. The next two ships are scheduled to be delivered in the second half of 2009.

In addition to the large ship-construction programs, sales increased on the group’s design and early-stage production contracts for the Navy. Most notably, volume increased on the group’s DDG-1000 next-generation destroyer program. The completion of the group’s SSGN submarine conversion contract in the fourth quarter of 2007 slightly offset the other volume increases in the group in 2008.

The Marine Systems group improved its performance significantly in 2008, increasing operating earnings at double the rate of sales growth. As a result of operational efficiencies realized at each of its shipyards, the group increased program earnings rates in 2008 on the Virginia, DDG-51, T-AKE and commercial product carrier programs. These improvements generated an overall 100 basis-point increase in the group’s operating margins over 2007.

We expect sales growth in the Marine Systems group of approximately 5 to 6 percent in 2009 as the group continues to deliver on its record backlog. We expect the group’s operating margins to increase slightly with continued operating efficiencies at each of the shipyards.

Year Ended December 31	2007			2006			Variance
Net sales	$	4,993		$	4,940		$	53	1.1	%
Operating earnings		421			375			46	12.3	%
Operating margin		8.4	%		7.6	%

The Marine Systems group’s sales were up slightly in 2007 compared with 2006. Combined sales from the Virginia-class, T-AKE and Arleigh Burke destroyer programs in 2007 were essentially unchanged compared with 2006. Activity was up significantly on the T-AKE contract, but volume on the Virginia and Arleigh Burke programs declined in 2007. Volume was up across the group’s ship design, engineering, repair and overhaul, and early-stage construction programs for the Navy, including the detail design of the DDG-1000 and the construction of the first Littoral Combat Ship (LCS). Volume on these two programs increased more than 60 percent in 2007 compared with 2006. Additionally, activity was up more than 10 percent on the group’s engineering, repair and overhaul contracts for the Navy in 2007, particularly in the group’s nuclear submarine support and logistics services business. Combined sales on the group’s SSGN submarine conversion program and commercial ship construction programs decreased more than 50 percent during the year as the group completed its fourth and final SSGN submarine conversion in 2007 and its four-ship commercial tanker program in 2006.

The Marine Systems group’s operating earnings and margins grew significantly in 2007 on steady sales. The group generated operating efficiencies that led to improved performance on several of its key programs, including the Virginia-class submarine, the Arleigh Burke-class destroyer and the SSGN submarine conversions. Additionally, we reached an agreement with the Navy in 2007 to restructure the T-AKE contract. The agreement included a resolution of an outstanding request for equitable adjustment (REA), which resulted in revised pricing on ships one through nine and the addition of five option ships. Prior to the agreement, we recognized revenue on the T-AKE program at a break-even level pending the resolution of the REA. After the contract restructuring, the program estimate at completion was revised, and we began recognizing profit on the contract in the second quarter of 2007.

Backlog and Estimated Potential Contract Value

The Marine Systems group’s backlog consists of long-term submarine and ship construction programs, as well as numerous repair and engineering contracts. At the end of 2008, the group’s backlog reached an all-time high of $26.4 billion, more than double the $12.1 billion backlog at the end of 2007. The group’s funded backlog increased 38 percent in 2008 to $10.5 billion at the end of the year. The group generally receives large contract awards that provide backlog for several years. The current backlog includes shipbuilding deliveries through 2018.

The Virginia-class submarine program is the largest contract in the group’s backlog. The group’s backlog at year end included $18.1 billion for 13 Virginia-class submarines to be delivered through 2018. The group received $14.5 billion in Virginia-class orders in 2008, including a $13.8 billion Block III award for the construction of eight submarines. The contract included $2.3 billion of funding for construction of the first ship and long-lead materials for the second ship. As the prime contractor on the Virginia-class program, we report the entire backlog and sales associated with the program but share the construction and the earnings equally with our teaming partner. The current Navy plan calls

General Dynamics 2008 Annual Report    27

for construction of one submarine in 2009 and 2010 and two per year from 2011 to 2013.

The Marine Systems group’s backlog at year end also included $1.8 billion for the Navy’s T-AKE combat-logistics ship program. In 2008, the group received $1.6 billion in T-AKE orders, including the exercise of the options for ships 10 through 12 and long-lead materials for the 13th and 14th ships. Deliveries of these ships are scheduled through 2012.

Navy destroyer programs represent another significant component of the group’s backlog. These include the Arleigh Burke-class DDG-51 and Zumwalt-class DDG-1000 destroyer programs. At year end, the backlog included approximately $765 for the remaining four DDG-51 destroyers under contract. Deliveries are scheduled through 2011, including two in 2009. In 2008, the group received one of two contracts worth approximately $1.4 billion for the construction of a DDG-1000 destroyer, scheduled to be delivered in 2013. The group’s backlog at the end of 2008 included $1.5 billion for the completion of the design effort and construction of the DDG-1000. The Navy is currently evaluating future DDG-51 and DDG-1000 production requirements.

The group’s backlog at year-end 2008 also included $365 for a contract with U.S. Shipping Partners, L.P., for the remaining work in the construction of five product carriers under a potential nine-ship program. The five ships under contract are scheduled for delivery through 2011. The customer has indicated in public filings its reluctance to purchase ships six through nine. If the customer fails to exercise its options under the contract, we believe ample opportunity exists to remarket these ships.

In addition, the Marine Systems group’s backlog at year end included approximately $3.5 billion in engineering, repair and overhaul programs.

INFORMATION SYSTEMS AND TECHNOLOGY

Results of Operations and Outlook

Year Ended December 31	2008			2007			Variance
Net sales	$	10,038		$	9,622		$	416	4.3	%
Operating earnings		1,075			1,027			48	4.7	%
Operating margin		10.7	%		10.7	%

The Information Systems and Technology group’s net sales exceeded $10 billion for the first time in 2008, with the most significant growth over 2007 coming from the group’s tactical and strategic mission systems business. The group’s increase in sales in 2008 was attributable to the following:

U.S. defense	$	555
Commercial wireless		(86	)
United Kingdom		(53	)
Total increase in sales	$	416

The group’s U.S. defense market consists of the tactical and strategic mission systems, information technology (IT) and mission services, and intelligence mission systems businesses. The tactical and strategic mission systems business generated double-digit sales growth in 2008. This growth resulted from increased activity on several key U.S. military programs, such as the Warfighter Information Network – Tactical (WIN-T) program and the Common Hardware/Software III (CHS-3) program, as well as higher volume on the group’s ground-based satellite communications programs. The group provides fast, secure, mobile command-and-control capabilities to warfighters under WIN-T, and commercial and ruggedized computers, network equipment and software to the U.S. armed forces and other federal agencies worldwide under CHS-3. Sales were up in the group’s core IT services business due primarily to the ramp-up of activity on several new programs, including the group’s contract to provide technology operations and maintenance infrastructure support (TOMIS) services for the U.S. Bureau of Citizenship and Immigration and the Warfighter Field Operations Customer Support (FOCUS) contract. Under the Warfighter FOCUS program, the group provides support for the Army’s live, virtual and constructive training operations. Sales in the group’s intelligence mission systems business remained steady compared with 2007.

The group’s commercial wireless operations experienced significantly lower activity in 2008 due to reduced demand in the market. However, sales in the commercial wireless business appeared to stabilize in the second half of 2008.

Sales decreased in the group’s United Kingdom business due to a scheduled decline in activity on the BOWMAN communications program for the U.K. armed forces, offset in part by higher activity on other command, control, communications, computing and intelligence systems (C4I) programs. The BOWMAN program has reached a steady-state level of volume for the foreseeable future as the group continues ongoing logistics support and sustainment activity.

The Information Systems and Technology group’s operating earnings increased at a rate consistent with sales growth. As a result, the group was able to maintain a 10.7 percent operating margin, equaling 2007 despite an increased proportion of lower-margin service work.

We expect 8 percent sales growth in the Information Systems and Technology group in 2009 with contributions from each of the group’s businesses. We expect operating margins to be down 30 to 40 basis points compared with 2008 based on the scheduled contract mix in 2009.

Year Ended December 31	2007			2006			Variance
Net sales	$	9,622		$	9,024		$	598	6.6	%
Operating earnings		1,027			976			51	5.2	%
Operating margin		10.7	%		10.8	%

Sales in the Information Systems and Technology group improved in 2007 compared with 2006, and operating earnings topped $1 billion for the first time. The group experienced 11 percent organic growth in its core North American tactical and strategic mission systems and IT and

28    General Dynamics 2008 Annual Report

mission services businesses. The strong performance in the tactical and strategic mission systems business was due to higher activity on programs such as Combat Operations Centers (COC), CHS-3 and Mobile User Objective System (MUOS) as well as increased volume on the group’s ground-based satellite communications programs. The IT and mission services business benefited from the acquisition of Anteon International Corporation (Anteon) in June 2006 and higher volume in its core defense market on the strength of such programs as Intelligence Information, Command-and-Control Equipment and Enhancements (ICE2) and Network-Centric Solutions (NETCENTS). These increases were offset partially by an expected decline in volume on the U.K. BOWMAN program, reduced activity in the group’s intelligence mission systems business and a decline in activity in the commercial wireless market. The group’s operating margins were down by 10 basis points compared with 2006 due to the group’s shift to include more IT services content, including the acquisition of Anteon.

Backlog and Estimated Potential Contract Value

The Information Systems and Technology group’s backlog grew 7 percent in 2008 to $10.2 billion at year end, reflecting a book-to-bill ratio (in dollars) of 1.12 for the year. The group’s funded backlog on December 31 increased slightly compared with 2007 to $7.2 billion, representing approximately 70 percent of the group’s total backlog. Unlike our other defense businesses, the Information Systems and Technology group’s backlog consists of thousands of contracts that have to be reconstituted each year with new program and task order awards, and relatively few large-scale, long-term programs. Some of the more significant programs are highlighted below.

The Army’s WIN-T program comprised over $790 of the group’s backlog at the end of 2008. Information Systems and Technology is the prime contractor on this battlefield communications network program that is designed to provide warfighters with fast, secure, mobile command-and-control capabilities. In 2008, the group received approximately $315 of awards for WIN-T, including a contract to provide specialized satellite communications earth terminals and technical support services for the first increment of the program.

The group’s backlog at year end also included approximately $730 for the ICE2 program. ICE2 was the Information Systems and Technology group’s largest single program in 2008 and supports critical intelligence and command-and-control systems and networks for U.S. defense and intelligence operations worldwide. In 2008, the group received ICE2 orders of $960, bringing the total contract value since inception to $3.1 billion.

Approximately $385 of the group’s backlog at year end was for the Canadian Maritime Helicopter Project (MHP). Under the MHP program, the group provides integrated mission systems for 28 state-of-the-art helicopters that are intended to replace Canada’s aging fleet of marine helicopters.

Other programs that made up a significant portion of the group’s year-end backlog include approximately $310 for CHS-3, $200 for NETCENTS and $190 for Rescue 21, the search-and-rescue system for the U.S. Coast Guard. The group received $565 in orders under CHS-3 and over $160 of orders under the Rescue 21 program in 2008.

In addition to these programs, the group received a number of significant contract awards in 2008, including the following:

• A contract from the National Geospatial Intelligence Agency worth approximately $375 to plan, engineer, design, install, test and operate the agency’s IT infrastructure. The contract has a total potential value of approximately $970 if all options are exercised.

• A contract worth approximately $265 for the system development and demonstration of the Integrated Computer System for the Army’s FCS program, bringing the total contract value to approximately $810.

• A contract from the U.S. Marine Corps worth $133 to produce units of the next-generation Tactical Data Network (TDN)-Data Distribution Systems-Modular (DDS-M), which provides secure, networked communication capabilities for deployed forces. The contract has a total potential value of $375 if all options are exercised.

• A contract worth $115 for design and implementation work on the next-generation Global Positioning System Space System program (GPS III) for the U.S. Air Force.

• An award valued at $114 to develop and integrate the maritime and fixed-site joint tactical radio capabilities and provide information assurance services for the Airborne Maritime and Fixed Site (AMF) Joint Tactical Radio System (JTRS). The contract has a potential value of over $150.

• A $110 order to build the spacecraft for NASA’s Landsat Data Continuity Mission. The group is designing and fabricating the spacecraft as well as providing testing and on-orbit engineering support.

The group’s backlog does not include approximately $10.3 billion of estimated potential contract value associated with its anticipated share of IDIQ contracts and unexercised options. The value of these arrangements may be realized over the next 13 years. In 2008, funding under IDIQ contracts and options contributed over $3.5 billion, more than 30 percent of the group’s orders, to the group’s backlog, most notably from ICE2, CHS-3 and WIN-T.

Information Systems and Technology was awarded several significant IDIQ contracts during 2008. The group was awarded a contract with a potential value of over $2 billion for the Warfighter FOCUS program. The group received approximately $215 in orders under this program in

General Dynamics 2008 Annual Report    29

2008. In addition, the group received an IDIQ contract from the Naval Air Systems Command with a potential value of over $180 for integrated logistics support for foreign military sales.

CORPORATE

Corporate results consist primarily of compensation expense for stock options and a portion of the earnings/cost from our commercial pension plans.

Corporate operating expenses totaled $75 in 2008, $61 in 2007 and $47 in 2006. The increase in Corporate operating expense in 2008 and 2007 resulted primarily from increased stock option expense. (See Note P to the Consolidated Financial Statements for additional information regarding our stock options.) We expect 2009 stock option expense of approximately $80 to $85. The impact of the commercial pension plans on Corporate’s earnings was not significant in the past three years, and we do not expect it to be significant in 2009.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

In the mid-1990s, General Dynamics embarked on a strategy of disciplined capital deployment, generating strong cash flow to enable a series of acquisitions designed to grow the company beyond our core platform businesses. These acquisitions incorporated new products and technologies and expanded our customer base. Since 1995, we have acquired 52 businesses for a total cost of almost $20 billion. These actions have resulted in a larger, more diversified company while preserving a strong balance sheet and sustained financial flexibility.

Year Ended December 31	2008			2007			2006
Net cash provided by operating activities	$	3,110		$	2,925		$	2,128
Net cash used by investing activities		(3,662	)		(852	)		(2,316	)
Net cash used by financing activities		(718	)		(786	)		(539	)
Net (decrease) increase in cash and equivalents		(1,270	)		1,287			(727	)
Cash and equivalents at beginning of year		2,891			1,604			2,331
Cash and equivalents at end of year		1,621			2,891			1,604
Marketable securities		143			168			–
Short- and long-term debt		(4,024	)		(2,791	)		(2,781	)
Net (debt) surplus (a)	$	(2,260	)	$	268		$	(1,177	)
Debt-to-equity (b)		40.0	%		23.7	%		28.3	%
Debt-to-capital (c)		28.6	%		19.2	%		22.1	%

(a) Net (debt) surplus is calculated as total debt less cash and equivalents and marketable securities.

(b) Debt-to-equity ratio is calculated as total debt divided by total equity.

(c) Debt-to-capital ratio is calculated as total debt divided by total debt plus total equity.

Our cash balances are invested primarily in time deposits from highly rated banks, commercial paper rated A1/P1 or higher, and repurchase agreements with direct obligations of the Spanish government as collateral. Our marketable securities balances are invested primarily in high-quality corporate, municipal and U.S. government-sponsored debt securities. The marketable securities have an average duration of two months and an average credit rating of AA+. We have not incurred any losses associated with these investments.

The following is a discussion of our major operating, investing and financing activities for each of the three years in the period ended December 31, 2008, as classified on the Consolidated Statement of Cash Flows.

Operating Activities

We generated cash from operating activities of $3.1 billion in 2008, $2.9 billion in 2007 and $2.1 billion in 2006. In each year, the two primary drivers of our cash flow were net earnings and increasing levels of customer deposits in the Aerospace group. In 2007, the cash flows from operating activities included the collection of approximately $270 of contract funds upon resolution of the Marine Systems group’s request for equitable adjustment on the T-AKE contract. In 2006, net earnings generated the majority of our operating cash flows, though approximately $150 of the net earnings related to a net gain on the sale of non-core businesses. The cash flow from these sales is reported in investing activities.

        Termination of A-12 Program. As discussed further in Note O to the Consolidated Financial Statements, litigation on the A-12 program termination has been ongoing since 1991. If, contrary to our expectations, the default termination ultimately is sustained, we, along with The Boeing Company, could collectively be required to repay the U.S. government as much as $1.4 billion for progress payments received for the A-12 contract, plus interest, which was approximately $1.4 billion at December 31, 2008. If this were the outcome, we would owe half of the total, or approximately $1.4 billion pretax. Our after-tax cash obligation would be approximately $690. We believe we have sufficient resources, including access to capital markets, to pay such an obligation, if required.

Investing Activities

We used $3.7 billion in 2008, $852 in 2007 and $2.3 billion in 2006 for investing activities. The primary uses of cash in investing activities were business acquisitions and capital expenditures. In 2007 and 2006, these uses of cash were partially reduced by proceeds from divestiture activities.

Business Acquisitions. In 2008, we completed five acquisitions for a total of $3.2 billion. In 2007, we completed four acquisitions for a total of $330. In 2006, we completed three acquisitions for a total of $2.3 billion. We financed these acquisitions using cash on hand and commercial paper. (See Note B to the Consolidated Financial Statements for additional information regarding the acquisitions.)

Capital Expenditures. Capital expenditures were $490 in 2008, $474 in 2007 and $334 in 2006. The increase in 2008 over 2007 resulted from continued facility improvements in the Aerospace group, which are

30    General Dynamics 2008 Annual Report

substantially complete. The increase in 2007 over 2006 resulted from facility improvements in the Aerospace and the Marine Systems groups. We expect capital expenditures of approximately $475 in 2009, less than 2 percent of sales. We had no material commitments for capital expenditures on December 31, 2008.

Sale of Assets. In 2007, we sold our coal mining operation for approximately $25 in cash, net of taxes. In 2006, we sold our aggregates business for approximately $315 in cash, net of taxes.

Available-for-Sale Securities. As a result of our strong cash position, we have expanded our investments in available-for-sale securities in recent years. Net sales of these securities were $17 in 2008 compared with net purchases of $179 in 2007 and $12 in 2006.

Financing Activities

We used $718 in 2008, $786 in 2007 and $539 in 2006 for financing activities. Our typical financing activities are issuances and repayments of debt, payment of dividends and repurchases of common stock. Net cash from financing activities also includes proceeds received from stock option exercises.

Debt Proceeds, Net. On December 15, 2008, we issued $1 billion of five-year fixed-rate debt pursuant to a Form S-3 Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 on December 8, 2008. We used the proceeds for general corporate purposes, including working capital requirements, capital expenditures, refinancing of existing indebtedness including commercial paper, and financing of acquisitions. We received net proceeds from commercial paper issuances in 2008 of $904, which were used primarily to fund business acquisitions. We had no commercial paper outstanding at the end of 2007 or 2006. We have approximately $2 billion in bank credit facilities that have not been drawn upon. These facilities provide backup liquidity to our commercial paper program.

In 2008, we repaid $500 of fixed-rate debt, $150 of senior notes and $20 of term debt on the scheduled maturity dates. There were no material debt repayments in 2007. In 2006, we repaid $500 of our fixed-rate debt on the scheduled maturity date. There are no material repayments of long-term debt scheduled until the third quarter of 2010.

Dividends. Our board of directors declared an increased quarterly dividend of $0.35 per share on March 5, 2008, the 11th consecutive annual increase. The board had previously increased the quarterly dividend to $0.29 per share in March 2007 and $0.23 per share in March 2006.

Share Repurchases. In 2008, we repurchased 20 million of our outstanding shares on the open market. We repurchased 6.5 million shares in 2007 and 1.2 million shares in 2006 on the open market. As of December 31, 2008, approximately 4.9 million shares were authorized for repurchase by our board of directors – about 1 percent of our total shares outstanding.

Non-GAAP Management Metrics

Our management emphasizes the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. In 2008, for the tenth consecutive year, net cash provided by operating activities exceeded net earnings. We deployed this cash to complete acquisitions, continue our trend of annual dividend increases and repurchase our outstanding shares. As a result of this continued focus on cash generation and disciplined capital deployment, our return on invested capital (ROIC) increased by 160 basis points during 2008 to 18.5 percent. Our ROIC has grown 520 basis points since 2004.

        We believe ROIC is a useful measure for investors, because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by the sum of the average debt and shareholders’ equity for the year. Net operating profit after taxes is defined as earnings from continuing operations plus after-tax interest and amortization expense. ROIC for 2004 through 2008 is calculated as follows:

Year Ended December 31	2008			2007			2006			2005			2004
Earnings from continuing operations	$	2,478		$	2,080		$	1,710		$	1,448		$	1,194
After-tax interest expense		91			89			106			108			106
After-tax amortization expense		100			99			90			70			62
Net operating profit after taxes		2,669			2,268			1,906			1,626			1,362
Average debt and equity	$	14,390		$	13,430		$	12,220		$	10,948		$	10,249
Return on invested capital		18.5	%		16.9	%		15.6	%		14.9	%		13.3	%

General Dynamics 2008 Annual Report    31

Our free cash flow from operations was $2.6 billion in 2008, $2.5 billion in 2007, $1.8 billion in each of 2006 and 2005, and $1.5 billion in 2004. We define free cash flow from operations as net cash provided by operating activities from continuing operations less capital expenditures. We believe free cash flow from operations is a useful measure for investors, because it portrays our ability to generate cash from our core businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities from continuing operations, as classified on the Consolidated Statement of Cash Flows:

Year Ended December 31	2008			2007			2006			2005			2004
Net cash provided by operating activities from continuing operations	$	3,124		$	2,952		$	2,156		$	2,033		$	1,760
Capital expenditures		(490	)		(474	)		(334	)		(262	)		(253	)
Free cash flow from operations	$	2,634		$	2,478		$	1,822		$	1,771		$	1,507
Cash flow as a percentage of earnings from continuing operations:
Net cash provided by operating activities from continuing operations		126	%		142	%		126	%		140	%		147	%
Free cash flow from operations		106	%		119	%		107	%		122	%		126	%

Over the past five years, we have generated free cash flow from operations well in excess of our earnings from continuing operations during the period, an average 115 percent conversion rate. We expect to continue to generate funds in excess of our short- and long-term liquidity needs. We believe we have adequate funds on hand and sufficient borrowing capacity to execute our financial and operating strategy.

ADDITIONAL FINANCIAL INFORMATION

Off-balance Sheet Arrangements

As of December 31, 2008, other than operating leases, we had no material off-balance sheet arrangements, including guarantees; retained or contingent interests in assets transferred to unconsolidated entities; derivative instruments indexed to our stock and classified in shareholders’ equity on the Consolidated Balance Sheet; or variable interests in entities that provide us with financing, liquidity, market risk or credit risk support or engage with us in leasing, hedging or research and development services.

Contractual Obligations and Commercial Commitments

The following tables present information about our contractual obligations and commercial commitments as of December 31, 2008:

			Payments Due by Period
Contractual Obligations	Total Amount Committed		Less Than 1 Year		2-3 Years		4-5 Years		More Than 5 Years
Long-term debt (a)	$	4,700	$	1,040	$	973	$	1,213	$	1,474
Capital lease obligations		2		1		1		—		—
Operating leases		1,081		205		304		167		405
Purchase obligations (b)		28,018		11,166		7,554		4,653		4,645
Other long-term liabilities (c)		12,337		1,930		1,963		1,558		6,886
	$	46,138	$	14,342	$	10,795	$	7,591	$	13,410

(a) Includes scheduled interest payments. See Note J to the Consolidated Financial Statements for discussion of long-term debt.

(b) Includes amounts committed under legally enforceable agreements for goods and services with defined terms as to quantity, price and timing of delivery. This amount includes $21.6 billion of purchase orders for products and services to be delivered under firm government contracts under which we have full recourse under normal contract termination clauses. As disclosed in Note Q to the Consolidated Financial Statements, we expect to make approximately $260 of contributions to our retirement plans in 2009. This amount has been excluded from the above amount.

(c) Represents other long-term liabilities on our Consolidated Balance Sheet, including the current portion of long-term liabilities. The projected timing of cash flows associated with these obligations is based on management's estimates, which are largely based on historical experience. This amount also includes all liabilities under our defined-benefit retirement plans, as discussed in Note Q. See Note Q for information regarding the plan assets available to satisfy these liabilities. Retirement plan assets and liabilities are presented net on the Consolidated Balance Sheet on a plan-by-plan basis.

32    General Dynamics 2008 Annual Report

			Amount of Commitment Expiration by Period
Commercial Commitments	Total Amount Committed		Less Than 1 Year		2-3 Years		4-5 Years		More Than 5 Years
Letters of credit*	$	1,554	$	837	$	30	$	242	$	445
Trade-in options*		141		93		48		—		—
	$	1,695	$	930	$	78	$	242	$	445

* See Note O to the Consolidated Financial Statements for discussion of letters of credit and aircraft trade-in options.

Application of Critical Accounting Policies

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to long-term contracts and programs, goodwill and other intangible assets, income taxes, pensions and other post-retirement benefits, workers’ compensation, warranty obligations, pre-owned aircraft inventory, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following policies are critical and require the use of significant business judgment in their application:

Revenue Recognition. We account for sales and earnings in our defense and aerospace businesses using the percentage-of-completion method of accounting. Under the percentage-of-completion method, we recognize contract revenue as the work progresses – either as the products are produced and delivered or as services are rendered, as applicable. We estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the remaining life of the contract based on either input measures (e.g., costs incurred) or output measures (e.g., contract milestones or units delivered), as appropriate to the circumstances. Where an interim output measure is reliably determinable and representative of progress toward completion, we use such output measures. Otherwise, we use input measures.

We generally measure progress toward completion on contracts in our defense businesses based on the proportion of costs incurred to date relative to total estimated costs at completion or based on unit deliveries under the contract. Our contracts for the manufacture of business-jet aircraft usually provide for two major phases: the manufacture of the “green” aircraft (i.e., before exterior painting and installation of customer-selected interiors and optional avionics) and its completion. We record revenue at two contractual milestones: when green aircraft are delivered to, and accepted by, the customer and when the customer accepts final delivery of the fully outfitted aircraft. We do not recognize revenue at green delivery unless (1) a contract has been executed with the customer and (2) the customer can be expected to satisfy its obligations under the contract, as evidenced by the receipt of deposits from the customer and other factors.

We follow the guidelines of American Institute of Certified Public Accountants (AICPA) Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. However, we include revisions of estimated profits on contracts in earnings under the reallocation method, in accordance with Accounting Principles Board Opinion No. 20, Accounting Changes (which has been superseded by Statement of Financial Accounting Standards (SFAS) No. 154, Accounting Changes and Error Corrections), rather than the cumulative catch-up method. Under the reallocation method, the impact of revisions in estimates is recognized prospectively over the remaining contract term, while under the cumulative catch-up method such impact would be recognized immediately. If a revised estimate of contract profitability reveals an anticipated loss on the contract, we recognize the loss in the period it is identified. Anticipated losses cover all costs allocable to the contracts, including G&A expenses on government contracts.

We use the reallocation method because we believe the majority of factors that typically result in changes in estimates of total contract revenue, total costs or the extent of progress toward completion on our long-term contracts affect both the period in which the change is identified and future periods. We believe these changes generally reflect expectations as to future performance and, therefore, the reallocation method is the method that best matches our revenues and earnings in the periods in which they are earned. While we have applied this method consistently for more than 30 years, most contractors use the cumulative catch-up method.

The percentage-of-completion method of accounting involves the use of various estimating techniques to project costs at completion, and in some cases includes estimates of recoveries asserted against the customer for changes in specifications. Contract estimates involve various assumptions and projections relative to the outcome of future events over a period of several years, including future labor productivity and availability, the nature and complexity of the work to be performed, the cost and availability of materials, the impact of delayed performance, the availability and timing of funding from the customer, and the timing of product deliveries. These estimates are based on our best judgment. A significant change in one or more of these estimates could affect the profitability of one or more

General Dynamics 2008 Annual Report    33

of our contracts. We review our contract estimates periodically to assess revisions in contract values and estimated costs at completion and reflect changes in estimates in the current and future periods under the reallocation method.

We recognize revenue arising from claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We recognize revenue from award or incentive fees when there is a basis to reasonably estimate the amount of the fee. Estimates of award or incentive fees are based on actual award experience and anticipated performance.

Goodwill. Since 1995, we have acquired 52 businesses at a total cost of almost $20 billion, including five in 2008. In connection with these acquisitions, we have recognized $11.4 billion of goodwill. Goodwill represents the purchase price paid in excess of the fair value of identifiable net tangible and intangible assets acquired. Goodwill is not amortized but is subject to an impairment test on an annual basis and when circumstances indicate that an impairment is more likely than not.

The test for goodwill impairment is a two-step process that requires a significant level of estimation by management, particularly the estimate of the fair value of our reporting units. These estimates require the use of judgment. We estimate the fair value of our reporting units based on the discounted projected cash flows of the underlying operations. This requires numerous assumptions, including the timing of work embedded in our backlog, our performance and profitability under our contracts, our success in securing future business, and the appropriate interest rate used to discount the projected cash flows. This discounted cash flow analysis is corroborated by “top-down” analyses, including a market assessment of our enterprise value. Beyond the annual impairment test, factors that may lead us to perform a goodwill impairment test include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. We have recorded no goodwill impairment to date and do not anticipate any reasonably possible circumstances that would lead to an impairment in the foreseeable future.

Commitments and Contingencies. We are subject to litigation and other legal proceedings arising either out of the ordinary course of our business or under provisions relating to the protection of the environment. Estimating liabilities and costs associated with these matters requires the use of judgment. We record a charge against earnings when a liability associated with claims or pending or threatened litigation matters is probable and when our exposure is reasonably estimable. The ultimate resolution of our exposure related to these matters may change as further facts and circumstances become known.

Deferred Contract Costs. Certain costs incurred in the performance of our government contracts are recorded under GAAP but are not currently allocable to contracts. Such costs include a portion of our estimated workers’ compensation, other insurance-related assessments, pension and other post-retirement benefits, and environmental expenses. These costs will become allocable to contracts generally when they are paid. As permitted by AICPA Audit and Accounting Guide, Federal Government Contractors, we have elected to defer (or inventory) these costs in contracts in process until they are paid, at which time the costs are charged to contracts and recovered from the government. We expect to recover these costs through ongoing business, including existing backlog and probable follow-on contracts. This business base includes numerous contracts for which we are the sole source or one of two suppliers on long-term defense programs. We regularly assess the probability of recovery of these costs under our current and probable follow-on contracts. This assessment requires that we make assumptions about future contract costs, the extent of cost recovery under our contracts and the amount of future contract activity. These estimates are based on our best judgment. If the backlog in the future does not support the continued deferral of these costs, the profitability of our remaining contracts could be adversely affected.

Retirement Plans. Our defined-benefit pension and other post-retirement benefit costs and obligations depend on various assumptions and estimates. The key assumptions relate to the interest rates used to discount estimated future liabilities and projected long-term rates of return on plan assets. We determine the discount rate used each year based on the rate of return currently available on a portfolio of high-quality fixed-income investments with a maturity that is consistent with the projected benefit payout period. We determine the long-term rate of return on assets based on historical returns and the current and expected asset allocation strategy. These estimates are based on our best judgment, including consideration of current and future market conditions. In the event a change in any of the assumptions is warranted, future pension and post-retirement benefit cost could increase or decrease. The following hypothetical changes in the discount rate and expected long-term rate of return on plan assets for our commercial pension and post-retirement benefit plans would have had the following impact on 2008:

	Increase 25 bps			Decrease 25 bps
Increase (decrease) to net pension cost from:
Change in discount rate	$	(2	)	$	3
Change in long-term rate of return on plan assets		(3	)		3
Increase (decrease) to post-retirement benefit cost from:
Change in discount rate	$	(1	)	$	1
Change in long-term rate of return on plan assets		(1	)		1

As discussed under Deferred Contract Costs, our contractual arrangements with the U.S. government provide for the recovery of contributions to our government retirement plans. As permitted by AICPA Audit and Accounting Guide, Federal Government Contractors, we have elected to defer recognition of the cumulative net unfunded benefit cost in our government plans to provide a better matching of revenues and expenses. As such, the impact on the retirement benefit cost for these plans that

34    General Dynamics 2008 Annual Report

results from annual changes in assumptions does not impact our future earnings either positively or negatively.

We believe that our judgment is applied consistently and produces financial information that fairly depicts the results of operations for all periods presented.

New Accounting Standards

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – An Amendment of FASB Statement No. 133. SFAS 161 expands and enhances required disclosures related to derivatives and hedging instruments. SFAS 161 is effective in the first quarter of 2009. We do not expect the adoption of SFAS 161 to have a material effect on our results of operations, financial condition or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51. SFAS 160 establishes new accounting for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective in the first quarter of 2009. We do not expect the adoption of SFAS 160 to have a material effect on our results of operations, financial condition or cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. SFAS 141R changes the requirements for accounting for business combinations, including the determination of purchase price and assignment of purchase price to acquired assets and assumed liabilities. The primary effect of SFAS 141R is to increase earnings volatility associated with business combinations, including a requirement to charge acquisition and restructuring costs to earnings rather than including the costs in the purchase price, and a modification of the guidelines for recognizing intangible assets, which may increase the value assigned to intangible assets and the resulting amortization expense associated with future acquisitions. SFAS 141R is effective for our acquisitions that are completed after December 31, 2008.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, primarily from foreign currency exchange rates, interest rates, commodity prices and investments.

Foreign Currency Risk

Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and certain inter-company transactions denominated in currencies other than our (or one of our subsidiaries’) functional currency. We may enter into foreign currency forward contracts from time to time to fix, or limit the adverse impact on, the amount of firmly committed and forecasted non-functional payments, receipts and inter-company transactions related to our ongoing business and operational financing activities. These contracts are designed to minimize our risk when we enter into transactions outside our functional currency. We do not use derivatives for trading or speculative purposes.

On December 31, 2008 and 2007, we had $2.4 billion and $1.7 billion, respectively, in notional forward and option contracts outstanding. A 10 percent unfavorable exchange rate movement in our portfolio of foreign currency forward contracts would have resulted in an incremental recognized pretax loss of $12 in 2008 and $29 in 2007, and an incremental unrecognized pretax loss of $112 in 2008 and $53 in 2007. This exchange-rate sensitivity relates primarily to changes in the U.S. dollar/ Canadian dollar, euro/Swiss franc, pound sterling/euro and U.S. dollar/euro exchange rates. We believe these hypothetical recognized and unrecognized losses would be offset by corresponding gains in the remeasurement of the underlying transactions being hedged. We believe these forward and option contracts and the offsetting underlying commitments, when taken together, do not create material market risk.

Interest Rate Risk

Financial instruments subject to interest rate risk include fixed-rate long-term debt obligations, variable-rate commercial paper and short-term investments. On December 31, 2008, we had $3.1 billion par value of fixed-rate debt and $905 in commercial paper outstanding. Our fixed-rate debt obligations are not putable, and we do not trade these securities in the market. A 10 percent unfavorable interest rate movement would not have a material impact on the fair value of our debt obligations.

We have credit facilities with major banks of $1 billion expiring in July 2009 and $975 expiring in December 2011. These facilities are required by rating agencies to support the A1/P1 rating of our commercial paper issuances. We may renew or replace, in whole or in part, the facility that expires in July 2009.

Commodity Price Risk

We are also subject to risk of rising labor and commodity prices, primarily on long-term fixed-price contracts. To the extent possible, we include terms in our contracts that are designed to protect us from this risk. Some of the protective terms included in our contracts are considered derivatives but are not accounted for separately because they are clearly and closely related to the host contract. We have not entered into commodity hedging contracts but may do so as circumstances warrant. We do not believe that changes in labor or commodity prices will have a material impact on our results of operations or cash flows.

Investment Risk

Our investment policy allows for purchases of fixed-income securities with an investment-grade rating and a maximum maturity of five years. We held $1.8 billion in cash and equivalents and marketable securities to be used for general corporate purposes on December 31, 2008. Our marketable securities have an average duration of two months and an average credit rating of AA+. Given that our investments had an aggregate weighted average maturity of 23 days as of December 31, 2008, a 10 percent unfavorable interest rate movement would have no immediate material impact on the value of the holdings in either year. Historically, we have not experienced material gains or losses on these instruments due to changes in interest rates or market values.

General Dynamics 2008 Annual Report    35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statement of Earnings

	Year Ended December 31
(Dollars in millions, except per share amounts)	2008			2007			2006
Net sales:
Products	$	20,185		$	19,125		$	17,095
Services		9,115			8,115			6,968
		29,300			27,240			24,063
Operating costs and expenses:
Products		17,406			16,829			15,213
Services		8,241			7,298			6,225
		25,647			24,127			21,438
Operating earnings		3,653			3,113			2,625
Interest, net		(66	)		(70	)		(101	)
Other, net		17			4			3
Earnings from continuing operations before income taxes		3,604			3,047			2,527
Provision for income taxes, net		1,126			967			817
Earnings from continuing operations		2,478			2,080			1,710
Discontinued operations, net of tax		(19	)		(8	)		146
Net earnings	$	2,459		$	2,072		$	1,856
Earnings per share
Basic:
Continuing operations	$	6.26		$	5.14		$	4.24
Discontinued operations		(0.05	)		(0.02	)		0.36
Net earnings	$	6.21		$	5.12		$	4.60
Diluted:
Continuing operations	$	6.22		$	5.10		$	4.20
Discontinued operations		(0.05	)		(0.02	)		0.36
Net earnings	$	6.17		$	5.08		$	4.56

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

36    General Dynamics 2008 Annual Report

Consolidated Balance Sheet

	December 31
(Dollars in millions)	2008			2007
ASSETS
Current assets:
Cash and equivalents	$	1,621		$	2,891
Accounts receivable		3,469			2,874
Contracts in process		4,341			4,337
Inventories		2,029			1,621
Other current assets		490			575
Total current assets		11,950			12,298
Noncurrent assets:
Property, plant and equipment, net		2,872			2,472
Intangible assets, net		1,617			972
Goodwill		11,413			8,942
Other assets		521			1,049
Total noncurrent assets		16,423			13,435
Total assets	$	28,373		$	25,733
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt	$	911		$	673
Accounts payable		2,443			2,318
Customer advances and deposits		4,154			3,440
Other current liabilities		2,852			2,733
Total current liabilities		10,360			9,164
Noncurrent liabilities:
Long-term debt		3,113			2,118
Other liabilities		4,847			2,683
Commitments and contingencies (see Note O)
Total noncurrent liabilities		7,960			4,801
Shareholders’ equity:
Common stock		482			482
Surplus		1,346			1,141
Retained earnings		13,287			11,379
Treasury stock		(3,349	)		(1,881	)
Accumulated other comprehensive (loss) income		(1,713	)		647
Total shareholders’ equity		10,053			11,768
Total liabilities and shareholders’ equity	$	28,373		$	25,733

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

General Dynamics 2008 Annual Report    37

Consolidated Statement of Cash Flows

	Year Ended December 31
(Dollars in millions)	2008			2007			2006
Cash flows from operating activities:
Net earnings	$	2,459		$	2,072		$	1,856
Adjustments to reconcile net earnings to net cash provided by operating activities–
Depreciation of property, plant and equipment		301			278			251
Amortization of intangible assets		146			145			133
Stock-based compensation expense		105			86			61
Excess tax benefit from stock-based compensation		(31	)		(67	)		(47	)
Deferred income tax provision		196			122			45
Discontinued operations, net of tax		19			8			(146	)
(Increase) decrease in assets, net of effects of business acquisitions–
Accounts receivable		(386	)		(519	)		(160	)
Contracts in process		73			(435	)		(390	)
Inventories		(183	)		(135	)		(237	)
Increase (decrease) in liabilities, net of effects of business acquisitions–
Accounts payable		(38	)		340			180
Customer advances and deposits		849			993			399
Other current liabilities		(203	)		72			102
Other, net		(183	)		(8	)		109
Net cash provided by operating activities from continuing operations		3,124			2,952			2,156
Net cash used by discontinued operations – operating activities		(14	)		(27	)		(28	)
Net cash provided by operating activities		3,110			2,925			2,128
Cash flows from investing activities:
Business acquisitions, net of cash acquired		(3,224	)		(330	)		(2,342	)
Sales/maturities of available-for-sale securities		1,423			2,619			70
Purchases of available-for-sale securities		(1,406	)		(2,798	)		(82	)
Capital expenditures		(490	)		(474	)		(334	)
Proceeds from sale of assets, net		34			108			72
Discontinued operations		1			23			300
Net cash used by investing activities		(3,662	)		(852	)		(2,316	)
Cash flows from financing activities:
Purchases of common stock		(1,522	)		(505	)		(85	)
Proceeds from fixed-rate notes		995			—			—
Proceeds from commercial paper, net		904			—			—
Dividends paid		(533	)		(445	)		(359	)
Repayment of fixed-rate notes		(500	)		—			(500	)
Repayment of senior notes		(150	)		—			—
Proceeds from option exercises		144			207			253
Excess tax benefit from stock-based compensation		31			67			47
Other, net		(87	)		(110	)		105
Net cash used by financing activities		(718	)		(786	)		(539	)
Net (decrease) increase in cash and equivalents		(1,270	)		1,287			(727	)
Cash and equivalents at beginning of year		2,891			1,604			2,331
Cash and equivalents at end of year	$	1,621		$	2,891		$	1,604

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

38    General Dynamics 2008 Annual Report

Consolidated Statement of Shareholders’ Equity

	Common Stock				Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity	Comprehensive Income
(Dollars in millions)	Par		Surplus
Balance, December 31, 2005	$	482	$	645	$	8,285		$	(1,493	)	$	226		$8,145
Net earnings		—		—		1,856			—			—		1,856	$	1,856
Cash dividends declared		—		—		(372	)		—			—		(372)		—
Stock-based awards		—		235		—			113			—		348		—
Shares purchased		—		—		—			(75	)		—		(75)		—
Net loss on cash flow hedges		—		—		—			—			(23	)	(23)		(23	)
Foreign currency translation adjustments		—		—		—			—			78		78		78
Adjustment to initially apply SFAS 158		—		—		—			—			(130	)	(130)		—
Balance, December 31, 2006		482		880		9,769			(1,455	)		151		9,827	$	1,911
Adoption of FIN 48		—		—		7			—			—		7	$	—
Net earnings		—		—		2,072			—			—		2,072		2,072
Cash dividends declared		—		—		(469	)		—			—		(469)		—
Stock-based awards		—		261		—			79			—		340		—
Shares purchased		—		—		—			(505	)		—		(505)		—
Net gain on cash flow hedges		—		—		—			—			6		6		6
Unrealized gains on securities		—		—		—			—			3		3		3
Foreign currency translation adjustments		—		—		—			—			188		188		188
Change in retirement plans’ funded status		—		—		—			—			299		299		299
Balance, December 31, 2007		482		1,141		11,379			(1,881	)		647		11,768	$	2,568
Net earnings		—		—		2,459			—			—		2,459	$	2,459
Cash dividends declared		—		—		(551	)		—			—		(551)		—
Stock-based awards		—		205		—			62			—		267		—
Shares purchased		—		—		—			(1,530	)		—		(1,530)		—
Net loss on cash flow hedges		—		—		—			—			(24	)	(24)		(24	)
Unrealized losses on securities		—		—		—			—			(5	)	(5)		(5	)
Foreign currency translation adjustments		—		—		—			—			(153	)	(153)		(153	)
Change in retirement plans’ funded status		—		—		—			—			(2,178	)	(2,178)		(2,178	)
Balance, December 31, 2008	$	482	$	1,346	$	13,287		$	(3,349	)	$	(1,713	)	$10,053	$	99

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

General Dynamics 2008 Annual Report    39

(Dollars in millions, except per share amounts or unless otherwise noted)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization. Our businesses are organized into four groups: Aerospace, which produces Gulfstream aircraft, performs aircraft completions for other manufacturers and provides aircraft service operations; Combat Systems, which designs and manufactures combat vehicles, weapons systems and munitions; Marine Systems, which designs and constructs surface ships and submarines; and Information Systems and Technology, which provides information systems, technologies and services. Our primary customers are the U.S. military, other government organizations, the armed forces of other nations, and a diverse base of corporate and individual buyers of business aircraft.

Basis of Consolidation and Classification. The Consolidated Financial Statements include the accounts of General Dynamics Corporation and our wholly owned and majority-owned subsidiaries. We eliminate all inter-company balances and transactions in the consolidated statements.

In 2006, 2007 and 2008, we sold and entered into agreements to sell certain non-core businesses, as discussed in Note C. The financial statements have been restated to reflect the results of operations of these businesses in discontinued operations.

Consistent with defense industry practice, we classify assets and liabilities related to long-term production contracts as current, even though some of these amounts are not expected to be realized within one year. In addition, some prior-year amounts have been reclassified among financial statement accounts to conform to the current-year presentation.

Use of Estimates. U.S. generally accepted accounting principles (GAAP) require that we make a number of estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates.

Revenue Recognition. We account for sales and earnings in our defense and aerospace businesses using the percentage-of-completion method of accounting in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. We estimate the profit on a contract as the difference between the total estimated revenue and the total estimated costs of a contract and recognize that profit over the contract term. We determine progress toward completion on production contracts based on either input measures, such as costs incurred, or output measures, such as units delivered, as appropriate. Our contracts for the manufacture of business-jet aircraft usually provide for two major phases: the manufacture of the “green” aircraft and its completion. Completion includes exterior painting and installation of customer-selected interiors and optional avionics. We record revenue at two milestones: when green aircraft are delivered to, and accepted by, the customer and when the customer accepts final delivery of the fully outfitted aircraft. For services contracts, we recognize revenues as the services are rendered. We apply earnings rates to all contract costs, including general and administrative (G&A) expenses on government contracts, to determine sales and operating earnings.

We review earnings rates periodically to assess revisions in contract values and estimated costs at completion. We apply the effect of any changes in earnings rates resulting from these assessments prospectively rather than under the cumulative catch-up method. Under this method, the impact of revisions in estimates is recognized over the remaining contract term, while under the cumulative catch-up method, such impact would be recognized immediately. We charge any anticipated losses on contracts to earnings as soon as they are identified. Anticipated losses cover all costs allocable to the contracts, including G&A expenses on government contracts. We recognize revenue arising from claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and its realization is probable.

General and Administrative Expenses. G&A expenses were $1.7 billion in 2008, $1.6 billion in 2007 and $1.5 billion in 2006. These expenses are included in operating costs and expenses on the Consolidated Statement of Earnings.

Research and Development Expenses. Company-sponsored research and development expenses consisted of the following:

Year Ended December 31	2008		2007		2006
Company-sponsored research and development, including product development costs	$	317	$	287	$	266
Bid and proposal costs		157		143		111
Total company-sponsored research and development	$	474	$	430	$	377

Research and development (R&D) expenses are included in operating costs and expenses on the Consolidated Statement of Earnings in the period in which they are incurred. Customer-sponsored R&D expenses are charged directly to the related contract.

40    General Dynamics 2008 Annual Report

The Aerospace group has cost-sharing arrangements with some of its suppliers, which enhance the group’s internal development capabilities and offset a portion of the financial risk associated with the group’s product development efforts. These arrangements explicitly state that supplier contributions are for reimbursements of costs we incur in the development of new aircraft models and technologies, and we retain substantial rights in the products developed under these arrangements. We record amounts received from these cost-sharing arrangements as a reduction of R&D expenses, as we have no obligation to refund any amounts received under the agreement regardless of the outcome of the development effort. Specifically, under the terms of each agreement, payments received from suppliers for their share of the costs are typically based on milestones and are recognized as earned when we achieve a milestone event.

Interest, Net. Net interest expense consisted of the following:

Year Ended December 31	2008			2007			2006
Interest expense	$	133		$	131		$	156
Interest income		(67	)		(61	)		(55	)
Interest expense, net	$	66		$	70		$	101
Interest payments	$	124		$	127		$	155

Income Taxes. We calculate our provision for federal, international and state income taxes based on current tax law. The reported tax provision differs from the amounts currently receivable or payable because some income and expense items are recognized in different time periods for financial reporting purposes than for income tax purposes. We periodically assess our liabilities and contingencies for all periods open to examination by tax authorities based on the latest available information. Where we believe there is more than a 50 percent chance that our tax position will not be sustained, we record our best estimate of the resulting tax liability, including interest, in the Consolidated Financial Statements. It is our policy to record any interest or penalties incurred in connection with income taxes as part of income tax expense for financial reporting purposes.

Cash and Equivalents and Investments in Debt and Equity Securities. We classify our securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. We consider securities with a maturity of three months or less to be cash equivalents. We adjust all investments in debt and equity securities to fair value. For trading securities, the adjustments are recognized in the Consolidated Statement of Earnings. Adjustments for available-for-sale securities are recognized as a component of accumulated other comprehensive income within shareholders’ equity in the Consolidated Balance Sheet. We had available-for-sale investments of $241 at December 31, 2008, and $264 at December 31, 2007, included in other current and non-current assets on the Consolidated Balance Sheet. We had no trading securities at the end of either period.

The contractual arrangements with some of our international customers require us to maintain some of the advance payments made by our customers and apply them only to our activities associated with these contracts. These advances totaled approximately $270 as of December 31, 2008.

Fair Value Measurements. In 2008, we adopted SFAS 157, Fair Value Measurements, with respect to our financial assets and liabilities. SFAS 157 defines “fair value” in the context of accounting and financial reporting and establishes a framework for measuring fair value under GAAP. SFAS 157 is effective for our non-financial assets and liabilities on January 1, 2009. We did not have any significant non-financial assets or liabilities measured at fair value that have not been accounted for under SFAS 157 on December 31, 2008.

Our financial instruments include cash and equivalents, marketable securities and other investments; accounts receivable and accounts payable; short- and long-term debt; and derivative financial instruments. The carrying values of cash and equivalents, accounts receivable and payable, and short-term debt (commercial paper) on the Consolidated Balance Sheet approximate their fair value. The following tables present the fair values of our other financial assets and liabilities on December 31, 2008 and 2007, and the basis for determining their fair values under the SFAS 157 framework:

Financial assets (liabilities)	Fair Value			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs
December 31, 2008
Marketable securities*	$	143		$	143		$	—
Other investments*		98			98			—
Derivatives*		(77	)		—			(77	)
Long-term debt		(3,168	)		(3,168	)		—
December 31, 2007
Marketable securities*	$	168		$	168		$	—
Other investments*		96			96			—
Derivatives*		(67	)		—			(67	)
Long-term debt		(2,101	)		(2,101	)		—

* Reported on the Consolidated Balance Sheet at fair value.

Inventories. Inventories are stated at the lower of cost or net realizable value. Cost for work-in-process inventories, representing principally aircraft in the manufacturing process, is based on the estimated average unit cost of the units in a production lot, or specific identification. Cost for aircraft parts and

General Dynamics 2008 Annual Report    41

components is based on the first in, first out method, or specific identification. We record pre-owned aircraft acquired in connection with the sale of new aircraft at the lower of the trade-in value or the estimated net realizable value.

Property, Plant and Equipment, Net. Property, plant and equipment are carried at historical cost, net of accumulated depreciation. We depreciate most of our assets using the straight-line method and the remainder using accelerated methods. Buildings and improvements are depreciated over periods up to 50 years. Machinery and equipment are depreciated over periods up to 28 years.

Impairment of Long-lived Assets. We review long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment losses, where identified, are determined as the excess of the carrying value over the estimated fair value of the long-lived asset. We assess the recoverability of the carrying value of assets held for use based on a review of projected undiscounted cash flows. If an asset is held for sale, our assessment considers the estimated fair value less cost to sell.

We review goodwill and indefinite-lived intangible assets for impairment annually by applying a fair-value-based test. Goodwill represents the purchase price paid in excess of the fair value of identifiable net tangible and intangible assets acquired in a business combination. We apply a two-step impairment test to first identify potential goodwill impairment for each reporting unit and then measure the amount of goodwill impairment loss, if necessary. We completed the required annual goodwill impairment test during the fourth quarter of 2008 and did not identify any impairment. For a summary of our goodwill by reporting unit, see Note B.

Environmental Liabilities. We accrue environmental costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. To the extent ongoing environmental maintenance and monitoring costs are considered allowable costs under our government contracts, we treat these costs as contract costs and recognize them generally when they are paid.

Translation of Foreign Currencies. The functional currencies for our international operations are their respective local currencies. We translate foreign currency balance sheets from the international business units’ functional currency to U.S. dollars 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 a component of accumulated other comprehensive income, which is included in shareholders’ equity on the Consolidated Balance Sheet. The effect of changes in foreign exchange rates on non-U.S. cash balances was not material in each of the past three years.

B. ACQUISITIONS, INTANGIBLE ASSETS AND GOODWILL

In 2008, we acquired five businesses for an aggregate of approximately $3.2 billion in cash.

Aerospace

• Jet Aviation of Zurich, Switzerland, on November 5. Jet Aviation performs aircraft completions and refurbishments for business jets and commercial aircraft, aircraft support services, and management and fixed base operations (FBO) services to a broad global customer base.

Combat Systems

• AxleTech International (AxleTech) of Troy, Michigan, on December 19. AxleTech is a global manufacturer and supplier of highly engineered drive train components and aftermarket parts for heavy-payload military and commercial customers.

Marine Systems

• HSI Electric, Inc. (HSI), of Honolulu, Hawaii, on July 23. HSI is a marine and industrial electrical company specializing in electrical apparatus installation, maintenance, troubleshooting and repair.

Information Systems and Technology

• ViPS, Inc. (ViPS), a wholly owned subsidiary of HLTH Corporation, of Towson, Maryland, on July 22. ViPS is a leading provider of high-end healthcare technology solutions, including data management, analytics, decision support and process automation that support both U.S. federal government agencies and commercial healthcare organizations.

• Integrated Defense Systems, Inc. (IDSI), of Glen Rock, Pennsylvania, on February 29. IDSI produces advanced filtering technologies and broadband power amplifiers for tactical communications applications for military and other government customers.

In 2007, we acquired four businesses for an aggregate of approximately $330 in cash.

Aerospace

• WECO Aerospace Systems, Inc. (WECO), of Lincoln, California, on March 2. WECO, renamed GDAS-Lincoln, Inc., is an aviation-component overhaul company specializing in electronic accessories and flight instrument services.

42    General Dynamics 2008 Annual Report

Combat Systems

• SNC Technologies Inc. (SNC TEC), a wholly owned subsidiary of SNC-Lavalin Group Inc. of Montreal, Quebec, on January 5. SNC TEC is an ammunition system integrator that supplies small-, medium- and large-caliber ammunition and related products to the Canadian Forces, U.S. and other national defense customers, and law enforcement agencies around the world.

Information Systems and Technology

• Mediaware International Pty Ltd. (Mediaware) of Australia on November 13. Mediaware develops real-time full-motion compressed digital video processing software and systems for defense, intelligence and commercial customers.

• Monteria, LLC (Monteria), of Mount Airy, Maryland, on October 24. Monteria designs and manufactures technology and systems dedicated exclusively to supporting the signals intelligence (SIGINT) community.

In 2006, we acquired three businesses for an aggregate of approximately $2.3 billion in cash.

Combat Systems

• Chamberlain Manufacturing Corporation’s Scranton, Pennsylvania, operation (Scranton Operation) on July 7. The Scranton Operation is a supplier of large-caliber projectile metal parts to the U.S. government.

Information Systems and Technology

• Anteon International Corporation (Anteon) of Fairfax, Virginia, on June 8. Anteon is a leading systems integration company that provides mission, operational and information technology (IT) enterprise support to the U.S. government.

• FC Business Systems, Inc. (FCBS), of Fairfax, Virginia, on January 17. FCBS provides a broad spectrum of engineering and IT services to government customers.

We funded each of the above acquisitions using cash on hand and commercial paper borrowings. The operating results of these businesses have been included with our reported results since the respective closing dates of the acquisitions. The purchase prices of these businesses have been allocated to the estimated fair value of identifiable net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill. Some of the estimates related to the Jet Aviation, AxleTech and ViPS acquisitions were still preliminary at December 31, 2008. We are in the process of identifying and valuing intangible and other assets acquired. The completion of these analyses could result in an increase or decrease to the preliminary value assigned to these acquired assets, as well as to future periods’ amortization expense. We expect the analyses to be completed during 2009 without any material adjustments.

Intangible assets consisted of the following:

December 31	2008
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Contract and program intangible assets	$	1,580	$	(613	)	$	967
Other intangible assets		892		(242	)		650
Total intangible assets	$	2,472	$	(855	)	$	1,617

December 31	2007
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Contract and program intangible assets	$	1,366	$	(504	)	$	862
Other intangible assets		316		(206	)		110
Total intangible assets	$	1,682	$	(710	)	$	972

Contract and program intangible assets represent primarily acquired backlog and probable follow-on work and related customer relationships. We amortize these assets over 7 to 40 years. The weighted-average amortization life of these assets on December 31, 2008, was 15 years. Other intangible assets consist primarily of aircraft product design and customer lists, amortized over 9 and 21 years, respectively, and trade names, software and licenses, amortized over 6 to 24 years. We amortize intangible assets on a straight-line basis unless the pattern of usage of the benefits indicates an alternate method is more representative of the usage of the asset.

Amortization expense was $146 in 2008, $145 in 2007 and $133 in 2006. We expect to record annual amortization expense over the next five years as follows:

2009	$	209
2010		203
2011		195
2012		191
2013		151

General Dynamics 2008 Annual Report    43

The changes in the carrying amount of goodwill by business group during 2008 and 2007 were as follows:

	Aerospace		Combat Systems			Marine Systems		Information Systems and Technology			Total Goodwill
December 31, 2006	$	343	$	2,069		$	185	$	5,944		$	8,541
Acquisitions (a)		12		62			—		113			187
Other (b)		—		177			—		37			214
December 31, 2007		355		2,308			185		6,094			8,942
Acquisitions (a)		1,795		529			6		234			2,564
Other (b)		166		(199	)		1		(61	)		(93	)
December 31, 2008	$	2,316	$	2,638		$	192	$	6,267		$	11,413

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

(b) Consists primarily of adjustments for foreign currency translation.

C. DISCONTINUED OPERATIONS

In 2008, we entered into an agreement to sell our Combat Systems group’s nitrocellulose operation in Spain and recognized a pretax loss of $11 in discontinued operations in anticipation of the sale. The transaction is expected to close in the first quarter of 2009. In 2007, we completed the sale of our coal mining operation. We received proceeds of approximately $25 from this transaction. We had previously recognized a pretax loss of $57 in the fourth quarter of 2006 in anticipation of the sale. When the transaction closed in 2007, we recognized a $13 pretax favorable adjustment to the estimated loss. We sold our aggregates business in the second quarter of 2006. We received proceeds of approximately $315 in 2006 and recognized a pretax gain of approximately $199.

The financial statements have been restated to remove the sales of these businesses from our consolidated net sales and present the results of their operations in discontinued operations. The summary of operating results from discontinued operations, including the gains and losses from the disposal transactions discussed above, follows:

Year Ended December 31	2008			2007			2006
Net sales	$	2		$	54		$	149
Operating expenses		12			79			183
Operating loss		(10	)		(25	)		(34	)
Other, net		—			—			(1	)
(Loss) gain on disposal		(11	)		13			142
(Loss) earnings before taxes		(21	)		(12	)		107
Tax benefit		(2	)		(4	)		(39	)
(Loss) earnings from discontinued operations	$	(19	)	$	(8	)	$	146

Assets and liabilities of discontinued operations are included in other current assets and other current liabilities on the Consolidated Balance Sheet and consisted of the following:

December 31	2008		2007
Accounts receivable	$	1	$	—
Contracts in process		3		—
Other assets		4		3
Assets of discontinued operations	$	8	$	3
Accounts payable		3		1
Other liabilities		36		45
Liabilities of discontinued operations	$	39	$	46

D. EARNINGS PER SHARE

We compute basic earnings per share using net earnings for the period and the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and the issuance of restricted shares.

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

Year Ended December 31	2008	2007	2006
Basic weighted average shares outstanding	396,238	404,417	403,424
Dilutive effect of stock options and restricted stock*	2,508	3,728	3,403
Diluted weighted average shares outstanding	398,746	408,145	406,827

* Excludes the following outstanding options to purchase shares of common stock and nonvested restricted stock because the effect of including these options and restricted shares would be antidilutive: 2008 – 9,489; 2007 – 4,064; 2006 – 3,726.

44    General Dynamics 2008 Annual Report

E. INCOME TAXES

Income Tax Provision

The following is a summary of the net provision for income taxes for continuing operations:

Year Ended December 31	2008			2007			2006
Current:
U.S. federal	$	847		$	756		$	642
State*		11			9			12
International		107			98			118
Total current		965			863			772
Deferred:
U.S. federal		182			89			44
State*		(7	)		2			(1	)
International		21			31			2
Total deferred		196			122			45
Tax adjustments		(35	)		(18	)		—
Provision for income taxes, net	$	1,126		$	967		$	817

* 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.

Net income tax payments were $841 in 2008, $759 in 2007 and $743 in 2006.

The reconciliation from the statutory federal income tax rate to our effective income tax rate follows:

Year Ended December 31	2008		2007		2006
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
Tax adjustments	(1.0	)	(0.6	)	—
State tax on commercial operations, net of federal benefits	0.1		0.2		0.3
Impact of international operations	(1.5	)	(1.4	)	(1.0	)
Qualified export sales exemption	—		—		(0.3	)
Domestic production deduction	(1.0	)	(1.1	)	(0.5	)
Domestic tax credits	(0.5	)	(0.3	)	(0.6	)
Other, net	0.1		(0.1	)	(0.6	)
Effective income tax rate	31.2	%	31.7	%	32.3	%

Deferred Tax Assets (Liabilities)

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

December 31	2008			2007
Retirement plan liabilities*	$	948		$	161
A-12 termination		89			90
Tax loss and credit carryforwards		78			63
Other		808			792
Deferred assets		1,923			1,106
Valuation allowance		(70	)		(69	)
Net deferred assets	$	1,853		$	1,037
Intangible assets		(949	)		(676	)
Long-term contract accounting methods		(422	)		(352	)
Capital Construction Fund		(200	)		(190	)
Property basis differences		(139	)		(139	)
Lease income		(22	)		(24	)
Retirement plan assets*		—			(291	)
Other		(114	)		(279	)
Deferred liabilities	$	(1,846	)	$	(1,951	)
Net deferred tax asset (liability)	$	7		$	(914	)

* Retirement plan liabilities and assets include a deferred tax asset of $1,069 at December 31, 2008, and a deferred tax liability of $89 at December 31, 2007, related to the amounts recorded in accumulated other comprehensive income to recognize the funded status of the company's retirement plans. See Note M and Note Q for further discussion.

The net deferred tax asset (liability) was included in the Consolidated Balance Sheet as follows:

December 31	2008			2007
Current deferred tax asset	$	57		$	94
Current deferred tax liability		(62	)		(22	)
Noncurrent deferred tax asset		111			11
Noncurrent deferred tax liability		(99	)		(997	)
Net deferred tax asset (liability)	$	7		$	(914	)

The Capital Construction Fund (CCF) is a program, established by the U.S. government and administered by the Maritime Administration, that affects the timing of a portion of our tax payments. The program supports the acquisition, construction, reconstruction or operation of U.S. flag merchant marine vessels. It allows us to defer federal and state income taxes on earnings derived from eligible programs as long as the funds are deposited and used for qualified activities. Unqualified withdrawals are subject to taxation plus interest. The CCF is collateralized by qualified assets as defined by the Maritime Administration. On December 31, 2008, we had invested approximately $572 of U.S. government accounts receivable in the CCF.

General Dynamics 2008 Annual Report    45

On December 31, 2008, we had U.S. and foreign operating loss carryforwards of $136, which begin to expire in 2013. We had R&D and foreign investment tax credit carryforwards of $68, which begin to expire in 2013.

Earnings from continuing operations before income taxes included foreign income of $524 in 2008, $491 in 2007 and $417 in 2006. We intend to reinvest indefinitely the undistributed earnings of some of our non-U.S. subsidiaries. On December 31, 2008, we had approximately $840 of earnings from these non-U.S. subsidiaries that had not been remitted to the United States. Should these earnings be distributed in the form of dividends or alternative means, the distributions would be subject to U.S. federal income tax at the statutory rate of 35 percent, but would generate partially offsetting foreign tax credits.

Tax Uncertainties

On November 27, 2001, we filed a refund suit in the U.S. Court of Federal Claims, titled General Dynamics v. United States, for the years 1991 to 1993. We added the years 1994 to 1998 to the litigation on June 23, 2004. The suit sought recovery of refund claims that were disallowed by the Internal Revenue Service (IRS) at the administrative level. On December 30, 2005, the court issued its opinion regarding one of the matters in the case. The court held that we could not treat the A-12 contract as complete for federal income tax purposes in 1991, the year the contract was terminated. (See Note O for more information regarding the A-12 contract.) On the other issues in the case, we reached a settlement in 2008 with the U.S. Department of Justice acting on behalf of the United States. As a result of the settlement, we reduced our tax provision in the second quarter of 2008 by $35, or $0.09 per share. In the fourth quarter of 2008, we received a refund of $45, including taxable interest, and the court dismissed the case.

In 2007, we reached an agreement with the IRS on the examination of our income tax returns for 2003 and 2004. As a result of the resolution of the 2003 to 2004 audit, we reassessed our tax contingencies and recognized a non-cash benefit of $18, or $0.04 per share.

The IRS has examined all of our consolidated federal income tax returns through 2004. The IRS commenced its examination of our 2005 and 2006 income tax returns in October 2007, and we expect this examination to conclude in 2009. We have recorded liabilities for tax contingencies for all years that remain open to review. We do not expect the resolution of tax matters for these years to have a material impact on our results of operations, financial condition or cash flows.

With respect to income tax uncertainties, based on all known facts and circumstances and current tax law, we believe the total amount of unrecognized tax benefits on December 31, 2008, is not material to our results of operations, financial condition or cash flows. We also believe that the total amount of unrecognized tax benefits on December 31, 2008, if recognized, would not have a material impact on our effective tax rate. We further believe that there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will significantly increase or decrease over the next 12 months producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.

F. ACCOUNTS RECEIVABLE

Accounts receivable represent amounts billed and currently due from customers and consisted of the following:

December 31	2008		2007
Non-U.S. government	$	1,689	$	1,163
U.S. government		1,009		1,187
Commercial		771		524
Total accounts receivable	$	3,469	$	2,874

The receivables from non-U.S. government customers relate primarily to long-term production programs for the Spanish government. The scheduled payment terms for some of these receivables extend beyond the next year. Other than these amounts, we expect to collect substantially all of the December 31, 2008, accounts receivable balance during 2009.

G. CONTRACTS IN PROCESS

Contracts in process represent recoverable costs and, where applicable, accrued profit related to long-term contracts that have been inventoried until the customer is billed, and consisted of the following:

December 31	2008		2007
Contract costs and estimated profits	$	12,904	$	11,224
Other contract costs		1,078		1,200
		13,982		12,424
Less advances and progress payments		9,641		8,087
Total contracts in process	$	4,341	$	4,337

46    General Dynamics 2008 Annual Report

Contract costs consist primarily of labor and material costs and related overhead and G&A expenses. Contract costs also include contract recoveries for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs, which totaled approximately $40 on December 31, 2008, and approximately $20 on December 31, 2007. We record revenue associated with these matters only when recovery can be estimated reliably and realization is probable. Contract costs at the end of 2008 and 2007 also included approximately $215 associated with our contract to provide 199 Pandur II wheeled vehicles to the Czech Republic. In the second quarter of 2008, we entered into a memorandum of understanding and a testing agreement with the Czech Republic regarding the testing and acceptance of 17 completed vehicles. These agreements are part of ongoing negotiations with the Czech Republic following a notice of termination delivered by the customer in December 2007. We are negotiating a revised contract with the customer for the purchase of 107 vehicles, including the 17 completed vehicles, and we expect to recover the December 31, 2008, contracts-in-process balance over the course of the revised contract.

Other contract costs represent amounts recorded under GAAP that are not currently allocable to government contracts, such as a portion of our estimated workers’ compensation, other insurance-related assessments, pension and other post-retirement benefits, and environmental expenses. Some of these liabilities are discounted at contractual rates agreed to with our U.S. government customer. These costs will become allocable to contracts generally when they are paid. We expect to recover these costs through ongoing business, including existing backlog and probable follow-on contracts. This business base includes numerous contracts for which we are the sole source or are one of two suppliers on long-term U.S. defense programs. However, if the backlog in the future does not support the continued deferral of these costs, the profitability of our remaining contracts could be adversely affected. We expect to bill substantially all of our year-end 2008 contracts-in-process balance, with the exception of these other contract costs, during 2009.

H. INVENTORIES

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

December 31	2008		2007
Aircraft parts and components	$	1,001	$	804
Work in process		876		774
Pre-owned aircraft		100		30
Other		52		13
Total inventories	$	2,029	$	1,621

I. PROPERTY, PLANT AND EQUIPMENT, NET

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

December 31	2008		2007
Machinery and equipment	$	2,957	$	2,640
Buildings and improvements		1,863		1,576
Construction in process		293		292
Land and improvements		227		221
Total property, plant and equipment*		5,340		4,729
Less accumulated depreciation		2,468		2,257
Property, plant and equipment, net	$	2,872	$	2,472

* The U.S. government provides certain of our plant facilities; we do not include these facilities above.

J. DEBT

Debt consisted of the following:

December 31		2008		2007
Fixed-rate notes	Interest Rate
Notes due May 2008	3.000%	$	—	$	500
Notes due August 2010	4.500%		700		699
Notes due May 2013	4.250%		999		999
Notes due February 2014	5.250%		995		—
Notes due August 2015	5.375%		400		400
Commercial paper, net of unamortized discount	0.850%		905		—
Senior notes due 2008	6.320%		—		150
Term debt due 2008	7.500%		—		20
Other	Various		25		23
Total debt			4,024		2,791
Less current portion			911		673
Long-term debt		$	3,113	$	2,118

On December 31, 2008, we had outstanding $3.1 billion aggregate principal amount of fixed-rate notes. This included $1 billion of five-year fixed-rate debt issued on December 15, 2008, pursuant to a Form S-3 Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 on December 8, 2008. The fixed-rate notes are fully and unconditionally guaranteed by several of our 100-percent-owned subsidiaries. We have the option to redeem the notes prior to their maturity in whole or in part at 100 percent of the principal plus any accrued but unpaid interest and any applicable make-whole amounts. See Note S for condensed consolidating financial statements.

We repaid $500 of the fixed-rate notes, $150 of senior notes and $20 of term debt on the scheduled maturity dates in 2008.

General Dynamics 2008 Annual Report    47

On December 31, 2008, other debt consisted primarily of a capital lease arrangement, $5 of debt assumed in connection with our acquisition of SNC TEC in January 2007 and $6 of debt assumed in connection with our acquisition of AxleTech in December 2008.

On December 31, 2008, we had $905 of commercial paper outstanding at an average yield of approximately 0.85 percent with an average maturity of eight days. We have approximately $2 billion in bank credit facilities that provide backup liquidity to our commercial paper program. These credit facilities consist of a $1 billion multi-year facility expiring in July 2009 and a $975 multi-year facility expiring in December 2011. These facilities are required by rating agencies to support the A1/P1 rating of our commercial paper issuances. We may renew or replace, in whole or in part, the facility that expires in July 2009. Our commercial paper issuances and the bank credit facilities are guaranteed by several of our 100-percent-owned subsidiaries. Additionally, a number of our international subsidiaries have available local bank credit facilities aggregating approximately $1.1 billion.

The aggregate amounts of scheduled maturities of our debt for the next five years are as follows:

Year Ended December 31
2009	$	911
2010		705
2011		3
2012		2
2013		999
Thereafter		1,404
Total debt	$	4,024

Our financing arrangements contain a number of customary covenants and restrictions. We were in compliance with all material covenants on December 31, 2008.

K. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

December 31	2008		2007
Salaries and wages	$	613	$	571
Retirement benefits		566		585
Workers’ compensation		469		534
Other*		1,204		1,043
Total other current liabilities	$	2,852	$	2,733

* Consists primarily of income tax liabilities, dividends payable, environmental remediation reserves, warranty reserves, liabilities of discontinued operations and insurance-related costs.

L. OTHER LIABILITIES

Other liabilities consisted of the following:

December 31	2008		2007
Retirement benefits	$	3,063	$	499
Customer deposits on commercial contracts		1,174		707
Deferred income taxes		99		997
Other*		511		480
Total other liabilities	$	4,847	$	2,683

* Consists primarily of liabilities for warranty reserves and workers' compensation.

Liabilities for retirement benefits increased significantly in 2008 as a result of market losses associated with plan assets. Customer deposits increased as a result of significant orders for Gulfstream aircraft in the Aerospace group. See Note E for further discussion of deferred tax balances and Note Q for further discussion of retirement benefits.

M. SHAREHOLDERS’ EQUITY

Authorized Stock. Our authorized capital stock consists of 500 million shares of $1 per share par value common stock and 50 million shares of $1 per share par value preferred stock. The preferred stock is issuable in series, with the rights, preferences and limitations of each series to be determined by our board of directors.

Shares Issued and Outstanding. We had 481,880,634 shares of common stock issued on December 31, 2008 and 2007. We had 386,710,589 shares of common stock outstanding on December 31, 2008, and 403,979,572 shares of common stock outstanding on December 31, 2007. No shares of our preferred stock were outstanding as of either date. The only changes in our shares outstanding during 2008 resulted from shares issued under our equity compensation plans (see Note P for further discussion) and share repurchases in the open market. In 2008, we repurchased 20 million shares at an average price of $76.50 per share. On December 31, 2008, approximately 4.9 million

48    General Dynamics 2008 Annual Report

shares were authorized for repurchase by our board of directors – about 1 percent of our total shares outstanding.

Dividends per Share. Dividends declared per share were $1.40 in 2008, $1.16 in 2007 and $0.92 in 2006.

Accumulated Other Comprehensive Income. Accumulated other comprehensive income (AOCI) consisted of the following:

December 31	2008
	Gross Balance			Deferred Taxes (a)			Net Balance
Unrealized (losses) gains on securities	$	(1	)	$	1		$	—
Foreign currency translation adjustment		356			(32	)		324
Pension (b)		(3,026	)		1,049			(1,977	)
Other post-retirement (b)		(53	)		20			(33	)
(Losses) gains on cash flow hedges		(55	)		28			(27	)
Total	$	(2,779	)	$	1,066		$	(1,713	)

December 31	2007
	Gross Balance			Deferred Taxes (a)			Net Balance
Unrealized (losses) gains on securities	$	7		$	(2	)	$	5
Foreign currency translation adjustment		640			(163	)		477
Pension (b)		273			(94	)		179
Other post-retirement (b)		(16	)		5			(11	)
(Losses) gains on cash flow hedges		7			(10	)		(3	)
Total	$	911		$	(264	)	$	647

(a) The amount of income tax expense (benefit) reported in other comprehensive income was ($1,330) in 2008, $247 in 2007 and ($76) in 2006.

(b) SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, requires that we recognize an asset or liability on the balance sheet for the full funded status of our defined-benefit retirement plans. The difference between the asset or liability recognized under SFAS 87 or SFAS 106 and the full funded status of these plans is recorded directly to AOCI, net of tax. See Note Q for further discussion.

N. FOREIGN EXCHANGE RISK MANAGEMENT

We are subject to foreign currency exchange rate risk stemming from receipts from customers, payments to suppliers, outstanding debt and inter-company transactions denominated in foreign currencies.

As a matter of policy, we do not engage in interest rate or currency speculation. We periodically enter into derivative financial instruments, principally foreign currency forward purchase and sale contracts, typically with terms of less than three years. These instruments are designed to hedge our exposure to changes in exchange rates related to known and anticipated inter-company and third-party sale and purchase commitments made in non-functional currencies. There were no material derivative financial instruments designated as fair value or net investment hedges in 2007 and 2008.

We recognize all derivative financial instruments on the Consolidated Balance Sheet at fair value (see Note A). Changes in fair value of derivative financial instruments are recorded in the Consolidated Statement of Earnings or in AOCI within shareholders’ equity on the Consolidated Balance Sheet, depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction represented and the effectiveness of the hedge.

For derivative financial instruments not designated as cash flow hedges, we mark these contracts to market value each period and record the gain or loss in the Consolidated Statement of Earnings. The gains and losses on these instruments generally offset losses and gains on the assets, liabilities and other transactions being hedged.

Gains and losses related to foreign exchange forward contracts that qualify as cash flow hedges are deferred in AOCI on the Consolidated Balance Sheet until the underlying transaction occurs. These gains and losses will be reclassified to earnings upon recognition of the underlying transaction being hedged.

The fair value of outstanding forward exchange contracts was not material. Net gains and losses recognized in earnings in 2008 were not material. We expect the amount of gains and losses in AOCI that will be reclassified to earnings in 2009 will not be material.

O. COMMITMENTS AND CONTINGENCIES

Litigation

Termination of A-12 Program. In January 1991, the U.S. Navy terminated our A-12 aircraft contract for default. The A-12 contract was a fixed-price incentive contract for the full-scale development and initial production of the Navy’s carrier-based Advanced Tactical Aircraft. We and McDonnell Douglas, the contractors, were parties to the contract with the Navy. (McDonnell Douglas is now owned by The Boeing Company.) Both contractors 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 the contractors repay $1.4 billion in unliquidated progress payments. The Navy agreed to defer collection of that amount pending a decision by the U.S. Court of Federal Claims (the trial court) on the contractors’ challenge to the termination for default or a negotiated settlement.

On December 19, 1995, the trial 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 U.S. Court of Appeals for the Federal Circuit (the appeals court) remanded the case to the trial court for determination of whether the government’s default termination was justified. On August 31, 2001, following the trial on remand, the trial court upheld 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

General Dynamics 2008 Annual Report    49

for the government’s schedule arguments, as to which the trial court held that the schedule the government unilaterally imposed was reasonable and enforceable, and that the government had not waived that schedule. On the sole ground that the contractors were not going to deliver the first aircraft on the date provided in the unilateral schedule, the trial court upheld the default termination and entered judgment for the government.

On January 9, 2003, an appeal was argued before a three-judge panel of the appeals court. On March 17, 2003, the appeals court vacated the trial court’s judgment and remanded the case to the trial court for further proceedings. The appeals court found that the trial court had misapplied the controlling legal standard in concluding that the termination for default could be sustained solely on the basis of the contractors’ inability to complete the first flight of the first test aircraft by December 1991. Rather, the appeals court held that to uphold a termination for default, the trial court would have to determine that there was no reasonable likelihood that the contractors could perform the entire contract effort within the time remaining for performance.

On May 3, 2007, the trial court issued a decision upholding the government’s default termination. We believe that the trial court failed to follow the appeals court ruling and continue to believe that the evidence supports a determination that the government’s default termination was not justified. The case is currently on appeal with the appeals court. The appeals court heard oral arguments in this case on December 3, 2008.

If, contrary to our expectations, the default termination is ultimately sustained, the contractors could collectively be required to repay the government as much as $1.4 billion for progress payments received for the A-12 contract, plus interest, which was approximately $1.4 billion on December 31, 2008. This would result in a liability to us of half of the total, or approximately $1.4 billion pretax. Our after-tax charge would be approximately $775, or $1.94 per share, to be recorded in discontinued operations. Our after-tax cash cost would be approximately $690. We believe we have sufficient resources to satisfy our obligation if required.

Other. Various claims and other legal proceedings incidental to the normal course of business are pending or threatened against us. While we cannot predict the outcome of these matters, we believe any potential liabilities in these proceedings, individually or in the aggregate, will not have a material impact on our results of operations, financial condition or cash flows.

Environmental

We are subject to and affected by a variety of federal, state, local and foreign environmental laws and regulations. We are directly or indirectly involved in environmental investigations or remediation at some of our current and former facilities, and at third-party sites that we do not own but where we have been designated a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency. Based on historical experience, we expect that a significant percentage of the total remediation and compliance costs associated with these facilities will continue to be allowable contract costs and, therefore, reimbursed by the U.S. government.

As required, we provide financial assurance for certain sites undergoing or subject to investigation or remediation. Where applicable, we seek insurance recovery for costs related to environmental liability. We do not record insurance recoveries before collection is considered probable. Based on all known facts and analyses, as well as current U.S. government policies relating to allowable costs, we do not believe that our liability at any individual site, or in the aggregate, arising from such environmental conditions, will be material to our results of operations, financial condition or cash flows. We also do not believe that the range of reasonably possible additional loss beyond what has been recorded would be material to our results of operations, financial condition or cash flows.

Minimum Lease Payments

Total rental expense under operating leases was $230 in 2008, $216 in 2007 and $198 in 2006. Operating leases are primarily for facilities and equipment. Future minimum lease payments due during the next five years are as follows:

2009	$	205
2010		173
2011		131
2012		97
2013		70
2014 and thereafter		405
Total minimum lease payments	$	1,081

Other

Letters of Credit. In the ordinary course of business, we have entered into letters of credit and other similar arrangements with financial institutions and insurance carriers totaling approximately $1.6 billion on December 31, 2008. From time to time in the ordinary course of business, we guarantee the payment or performance obligations of our subsidiaries arising under certain contracts. We are aware of no event of default that would require us to satisfy these guarantees.

Government Contracts. As a government contractor, we are subject to U.S. government audits and investigations relating to our operations, including claims for fines, penalties, and compensatory and treble damages. Based on currently available information, we believe the outcome of such ongoing government disputes and investigations will not have a material impact on our results of operations, financial condition or cash flows.

50    General Dynamics 2008 Annual Report

Aircraft Trade-ins. In connection with orders for new aircraft in funded contract backlog, our Aerospace group has offered options to some customers to trade in aircraft as partial consideration in the new-aircraft transaction. These options were historically structured as predetermined minimum trade-in options with a fair value determined at contract signing. As the group’s contract backlog grew and the period from contract signing to scheduled entry into service extended, all new trade-in commitments were structured as fair market value trade-in options. Under the terms of these options, we establish the fair market value of the trade-in aircraft at a date generally 120 days preceding delivery of the new aircraft to the customer, at which time the customer is required to either exercise the option or allow its expiration. Any excess of the pre-established trade-in price above the fair market value at the time the new-aircraft is delivered is treated as a reduction of revenue in the new-aircraft sales transaction.

At the end of 2008, three fair market value trade-in options totaling $93 had been exercised in connection with orders for aircraft scheduled for delivery in 2009. Beyond these commitments, additional fair market value trade-in options remain outstanding for aircraft scheduled to deliver from 2009 through 2012. Two options offered at a predetermined minimum trade-in price totaling $48 for aircraft scheduled to deliver in 2010 remained unexercised on December 31, 2008. The estimated decline in fair market value from the date of commitment through the end of 2008 for these five aircraft is not material. Beginning in late 2008, we no longer offer trade-in option commitments in connection with new-aircraft contracts.

Labor Agreements. Approximately one-fourth of our employees are represented by labor organizations in 50 collective bargaining agreements. A number of these agreements expire within any given year. Historically, we have been successful at renegotiating successor agreements without any material disruption of operating activities. We expect to complete the renegotiation of six collective bargaining agreements in 2009, covering approximately 2,600 employees. We do not expect that the renegotiations will, either individually or in the aggregate, have a material impact on our results of operations, financial condition or cash flows.

Product Warranties. We provide product warranties to our customers associated with certain product sales, particularly business-jet aircraft. We record estimated warranty costs in the period in which the related products are delivered. The warranty liability recorded at each balance sheet date is based on the number of months of warranty coverage remaining for products delivered and the average historical monthly warranty payments, and is included in other current liabilities and other liabilities on the Consolidated Balance Sheet.

The changes in the carrying amount of warranty liabilities for each of the past three years were as follows:

Year Ended December 31	2008			2007			2006
Beginning balance	$	237		$	219		$	202
Warranty expense		69			77			70
Payments		(52	)		(64	)		(59	)
Adjustments (a)		(33	)		5			6
Ending balance (b)	$	221		$	237		$	219

(a) Includes warranty liabilities assumed in connection with acquisitions, foreign exchange translation adjustments and reclassifications.

(b) Warranty obligations incurred in connection with long-term production contracts are accounted for within the contract estimates at completion (EACs) and are excluded from the above amounts.

P. EQUITY COMPENSATION PLANS

Equity Compensation Overview

We have various equity compensation plans for employees, as well as for non-employee members of the board of directors, including the General Dynamics Corporation Equity Compensation Plan (Equity Compensation Plan) and the General Dynamics United Kingdom Share Save Plan (U.K. Plan).

The purpose of the Equity Compensation Plan is to provide an effective means of attracting, retaining and motivating officers, key employees and non-employee directors, and to provide them with incentives to enhance our growth and profitability. Under the Equity Compensation Plan, awards may be granted to officers, employees or non-employee directors in common stock, options to purchase common stock, restricted shares of common stock, participation units or any combination of these.

Stock options may be granted either as incentive stock options, intended to qualify for capital gain treatment under Section 422 of the Internal Revenue Code of 1986, as amended (the Code), or as options not qualified under the Code. All options granted under the Equity Compensation Plan are issued with an exercise price at the fair market value of the common stock on the date of grant. Awards of stock options vest over two years, with 50 percent of the options vesting in one year and the remaining 50 percent vesting the following year. Stock options awarded under the Equity Compensation Plan expire five years after the grant date. We grant stock options to participants in the Equity Compensation Plan on the first Wednesday of March based on the average of the high and low stock prices on that day as listed on the New York Stock Exchange.

General Dynamics 2008 Annual Report    51

Grants of restricted stock are awards of shares of common stock that are released approximately four years after the grant date. During that restriction period, recipients may not sell, transfer, pledge, assign or otherwise convey their restricted shares to another party. However, during the restriction period, the recipient is entitled to vote the restricted shares and to retain cash dividends paid on those shares.

Participation units represent obligations that have a value derived from or related to the value of our common stock. These include stock appreciation rights, phantom stock units, and restricted stock units and are payable in cash and/or common stock.

Under the U.K. Plan, our employees located in the United Kingdom may invest designated amounts in a savings account to be used to purchase a specified number of shares of common stock, based on option grants that the employee may receive, at an exercise price of not less than 80 percent of the fair market value of the common stock. The options may be exercised three, five or seven years after the date of grant, depending on the terms of the specific award.

We issue common stock under our equity compensation plans from treasury stock. On December 31, 2008, in addition to the shares reserved for issuance upon the exercise of outstanding options, approximately 13 million shares have been authorized for options and restricted stock that may be granted in the future.

Stock-based Compensation Expense

The following table details the components of stock-based compensation expense recognized in net earnings in each of the past three years:

Year Ended December 31	2008		2007		2006
Stock options	$	49	$	42	$	32
Restricted stock		19		14		8
Total stock-based compensation expense, net of tax*	$	68	$	56	$	40

* Stock-based compensation expense (pretax) is included in G&A expenses.

Stock Options

We recognize compensation expense related to stock options on a straight-line basis over the vesting period of the awards, which is generally two years. We estimate the fair value of options on the date of grant using the Black-Scholes option pricing model with the following assumptions for each of the past three years:

Year Ended December 31	2008		2007		2006
Expected volatility	16.4-19.2	%	15.5-21.7	%	16.6-24.9	%
Weighted average expected volatility	16.7	%	18.9	%	24.0	%
Expected term (in months)	44-50		48-54		48-58
Risk-free interest rate	2.5-3.3	%	4.4-4.7	%	4.4-5.0	%
Expected dividend yield	1.5	%	1.5	%	1.5	%

We estimate the above assumptions based on the following:

• Expected volatility is based on the historical volatility of our common stock over a period equal to the expected term of the option.

• Expected term is based on historical option exercise data to determine the expected employee exercise behavior. Based on historical option exercise data, we have estimated different expected terms and determined a separate fair value for options granted for two employee populations.

• The risk-free interest rate is the yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option at the grant date.

• The dividend yield is based on our historical dividend yield level.

52    General Dynamics 2008 Annual Report

The resulting weighted average fair value per option granted was $11.66 in 2008, $15.18 in 2007 and $14.46 in 2006. Stock option expense reduced operating earnings (and earnings per share) by $75 ($0.12) in 2008, $64 ($0.10) in 2007 and $49 ($0.08) in 2006. Compensation expense for stock options is reported as a Corporate expense for segment reporting purposes (see Note R). On December 31, 2008, we had $62 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 1.1 years.

A summary of option activity during 2008 follows:

	Shares Under Option		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2007	15,839,983		$	60.83
Granted	7,289,237			82.52
Exercised	(3,014,402	)		49.76
Forfeited/cancelled	(417,809	)		73.39
Outstanding at December 31, 2008	19,697,009		$	70.28	2.9	$	33
Vested and expected to vest at December 31, 2008	19,258,201		$	70.05	2.8	$	33
Exercisable at December 31, 2008	9,692,575		$	59.92	1.8	$	32

In the table above, intrinsic value is calculated as the excess, if any, between the market price of our stock on the last trading day of the year and the exercise price of the options. For options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise and the exercise price. The total intrinsic value of options exercised was $113 in 2008, $218 in 2007 and $160 in 2006.

We received cash from the exercise of stock options of $144 in 2008, $207 in 2007 and $253 in 2006. The excess tax benefit resulting from stock option exercises recognized was $31 in 2008, $67 in 2007 and $47 in 2006.

Restricted Stock/Restricted Stock Units

We determine the fair value of restricted stock and restricted stock units as the average of the high and low market prices of our stock on the date of grant. We generally recognize compensation expense related to restricted stock and restricted stock units on a straight-line basis over the period during which the restriction lapses, which is generally four years.

Compensation expense related to restricted stock and restricted stock units reduced operating earnings (and earnings per share) by $30 ($0.05) in 2008, $22 ($0.03) in 2007 and $12 ($0.02) in 2006. On December 31, 2008, we had $48 of unrecognized compensation cost related to restricted stock and restricted stock units, which is expected to be recognized over a weighted average period of 2.4 years.

A summary of restricted stock and restricted stock unit activity during 2008 follows:

	Shares/ Share-Equivalent Units		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2007	1,954,673		$	61.30
Granted	442,865			83.05
Vested	(583,895	)		57.06
Forfeited	(36,852	)		69.31
Nonvested at December 31, 2008	1,776,791		$	67.95

The total fair value of shares vested was $51 in 2008, $76 in 2007 and $21 in 2006.

General Dynamics 2008 Annual Report    53

Q. RETIREMENT PLANS

We provide defined-benefit pension and other post-retirement benefits, as well as defined-contribution benefits, to eligible employees.

Retirement Plan Summary Information

Pension Benefits. We have six noncontributory and five contributory trusteed, qualified defined-benefit pension plans covering substantially all of our government business employees, and two noncontributory and four contributory plans covering substantially all of our commercial business employees. The primary factors affecting the benefits earned by participants in our pension plans are employees’ years of service and compensation levels.

We also sponsor several unfunded and one funded non-qualified supplemental executive plans, which provide participants with additional benefits, including excess benefits over limits imposed on qualified plans by federal tax law.

Effective January 1, 2007, we made several modifications to the benefit structures covering salaried employees in our primary government pension plan, including modifying the benefit accrual rate on service rendered after December 31, 2006, eliminating certain early-retirement features and closing the plan to new salaried participants. As a result of these modifications, the plan’s projected benefit obligation as of December 31, 2006, was reduced by approximately $500, and the net periodic cost of the plan has been reduced beginning in 2007.

Other Post-retirement Benefits. We maintain plans that provide post-retirement health care coverage for many of our current and former employees and post-retirement 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. The plans provide health and life insurance benefits only to those employees who retire directly from our service and not to those who terminate service/seniority prior to eligibility for retirement.

Defined-contribution Benefits. In addition to the defined-benefit plans, we provide eligible employees the opportunity to participate in defined-contribution savings plans (commonly known as 401(k) plans), which permit contributions on both a before-tax and after-tax basis. Generally, salaried employees and certain hourly employees are eligible to participate in the plans. Under most plans, the employee may contribute to various investment alternatives, including investment in our common stock. In certain plans, we match a portion of the employees’ contributions. Our contributions to these defined-contribution plans totaled $190 in 2008, $182 in 2007 and $172 in 2006. The defined-contribution plans held approximately 35 and 34 million shares of our common stock at December 31, 2008 and 2007, respectively, representing approximately 9 and 8 percent of our outstanding shares at each date.

Defined-benefit Retirement Plan Summary Financial Information

We account for our defined-benefit retirement plans under SFAS 87, Employers’ Accounting for Pensions, SFAS 106, Employers’ Accounting for Postretirement Benefits, SFAS 132(R), Employers’ Disclosures About Pension and Other Postretirement Benefits, and SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.

Estimating retirement plan assets, liabilities and costs under SFAS 87 and SFAS 106 requires the use of significant judgment, including extensive use of actuarial assumptions. These include the long-term rate of return on plan assets, the interest rate used to discount projected benefit payments, health care cost trend rates and future salary increases. Given the long-term nature of the assumptions being made, actual outcomes generally differ from these estimates.

The assets, liabilities and costs recognized under SFAS 87 and SFAS 106 defer the impact of differences between these long-term assumptions and the actual results each year and spread these differences over future years. We amortize actuarial differences under qualified plans on a straight-line basis over the average remaining service period of eligible employees. We recognize the difference between the actual and expected return on plan assets for qualified plans over five years. We recognize differences under nonqualified plans immediately. The deferral of these differences has two effects. The first is the smoothing of annual benefit costs to reduce the volatility that can result either from year-to-year changes in the assumptions or from actual results that are not necessarily representative of the long-term financial position of these plans. The second is the recording of plan assets and liabilities on the Consolidated Balance Sheet at levels not reflective of the current funded status of the plans because of these deferred differences.

SFAS 158 requires that we recognize an asset or liability on the Consolidated Balance Sheet equal to the funded status of our defined-benefit retirement plans. This is accomplished by recording the difference between the asset or liability recognized under SFAS 87 and SFAS 106 and the funded status of each of these plans directly to AOCI in shareholders’ equity on the Consolidated Balance Sheet. SFAS 158 does not change the measurement or reporting of pension or post-retirement benefit cost.

54    General Dynamics 2008 Annual Report

The following is a reconciliation of the benefit obligations and plan/trust assets, and the resulting funded status, of our defined-benefit retirement plans:

	Pension Benefits						Other Post-retirement Benefits
Year Ended December 31	2008			2007			2008			2007
Change in Benefit Obligation
Benefit obligation at beginning of year	$	(7,069	)	$	(7,195	)	$	(1,079	)	$	(1,134	)
Service cost		(200	)		(208	)		(14	)		(16	)
Interest cost		(445	)		(417	)		(69	)		(64	)
Amendments		(31	)		(6	)		(11	)		6
Actuarial (loss) gain		(294	)		436			151			55
Acquisitions		(126	)		—			(61	)		—
Settlement/curtailment/other		25			(50	)		25			(11	)
Benefits paid		395			371			86			85
Benefit obligation at end of year	$	(7,745	)	$	(7,069	)	$	(972	)	$	(1,079	)
Change in Plan/Trust Assets
Fair value of assets at beginning of year	$	7,452		$	7,154		$	437		$	396
Actual return on plan assets		(2,360	)		499			(154	)		64
Acquisitions		118			—			—			—
Employer contributions		17			122			95			21
Settlement/curtailment/other		(17	)		40			—			—
Benefits paid		(387	)		(363	)		(46	)		(44	)
Fair value of assets at end of year	$	4,823		$	7,452		$	332		$	437
Funded status at end of year	$	(2,922	)	$	383		$	(640	)	$	(642	)
Amounts recognized in the Consolidated Balance Sheet consisted of the following:
	Pension Benefits						Other Post-retirement Benefits
December 31	2008			2007			2008			2007
Noncurrent assets	$	67		$	825		$	—		$	—
Current liabilities		(331	)		(321	)		(235	)		(264	)
Noncurrent liabilities		(2,658	)		(121	)		(405	)		(378	)
Net (liability) asset recognized	$	(2,922	)	$	383		$	(640	)	$	(642	)
Amounts recognized in AOCI consisted of the following:
	Pension Benefits						Other Post-retirement Benefits
December 31	2008			2007			2008			2007
Net actuarial loss	$	3,464		$	241		$	55		$	21
Prior service credit		(438	)		(514	)		(4	)		(7	)
Remaining transition obligation		—			—			2			2
Total amount recognized in AOCI		3,026			(273	)		53			16
Net SFAS 87/SFAS 106 retirement plan asset (liability)	$	104		$	110		$	(587	)	$	(626	)

General Dynamics 2008 Annual Report    55

The following represent amounts included in AOCI on the Consolidated Balance Sheet on December 31, 2008, that we expect to recognize in our retirement benefit cost in 2009:

	Pension Benefits			Other Post-retirement Benefits
Prior service (credit) cost	$	(46	)	$	1
Net actuarial loss (gain)		28			(9	)

A pension plan’s funded status is the difference between the plan’s assets and its “projected benefit obligation” (PBO). The PBO is the present value of future benefits attributed to employee services rendered to date, including assumptions about future compensation levels. A pension plan’s “accumulated benefit obligation” (ABO) is the present value of future benefits attributed to employee services rendered to date, excluding assumptions about future compensation levels. The ABO for all defined-benefit pension plans was $7.5 billion and $6.7 billion on December 31, 2008 and 2007, respectively.

On December 31, 2008 and 2007, some of our pension plans had an ABO that exceeded the plans’ assets. Summary information for those plans follows:

	Pension Benefits
December 31	2008			2007
Projected benefit obligation	$	(7,579	)	$	(284	)
Accumulated benefit obligation		(7,312	)		(261	)
Fair value of plan assets		4,662			138

Net periodic pension and other post-retirement benefit costs consisted of the following:

	Pension Benefits									Other Post-retirement Benefits
Year Ended December 31	2008			2007			2006			2008			2007			2006
Service cost	$	200		$	208		$	266		$	14		$	16		$	18
Interest cost		445			417			424			69			64			67
Expected return on plan assets		(593	)		(555	)		(543	)		(29	)		(26	)		(26	)
Recognized net actuarial loss		14			10			30			2			6			9
Amortization of prior service (credit) cost		(46	)		(42	)		(11	)		—			1			1
Amortization of unrecognized transition obligation		—			—			—			—			1			1
Net periodic cost	$	20		$	38		$	166		$	56		$	62		$	70

Retirement Plan Assumptions

We use a December 31 measurement date for our plans. We calculate the plan assets and liabilities for a given year and the net periodic benefit cost for the subsequent year using assumptions determined as of December 31 of the year in question.

The following table summarizes the assumptions used to determine our benefit obligations and net periodic benefit costs.

	Pension Benefits						Other Post-retirement Benefits
Assumptions at December 31	2008		2007		2006		2008		2007		2006
Weighted average used to determine benefit obligations
Discount rate	6.48	%	6.46	%	5.94	%	6.79	%	6.33	%	5.89	%
Varying rates of increase in compensation levels based on age	2.00-9.00	%	2.50-11.00	%	2.50-11.00	%
Weighted average used to determine net cost for the year ended
Discount rate	6.46	%	5.94	%	5.70	%	6.33	%	5.89	%	5.74	%
Expected weighted average long-term rate of return on assets	8.09	%	8.11	%	8.18	%	8.00	%	8.00	%	8.00	%
Varying rates of increase in compensation levels based on age	2.00-11.00	%	2.50-11.00	%	2.50-11.00	%
Assumed health care cost trend rate for next year:
Post-65 claim groups							7.75	%	8.25	%	8.75	%
Pre-65 claim groups							7.75	%	8.25	%	8.75	%

56    General Dynamics 2008 Annual Report

We determine the interest rate used to discount projected benefit liabilities each year based on yields currently available on high-quality fixed-income investments with maturities consistent with the projected benefit payout period. We base the discount rate on a yield curve developed from a portfolio of high-quality corporate bonds with aggregate cash flows at least equal to the expected benefit payments and with similar timing.

In determining our expected long-term asset return assumptions, we rely on historical long-term rates of return by asset class, the current long-term U.S. Treasury bond rate, and our current and expected asset allocation strategy.

Our investment policy endeavors to strike the appropriate balance among capital preservation, asset growth and current income. Target allocation percentages vary over time depending on the perceived risk and return potential of various asset classes and existing market conditions. We are currently invested almost exclusively in U.S. publicly traded securities but may invest in other asset classes consistent with our investment policy. Further, we use derivative instruments on a non-leveraged basis to reduce anticipated asset volatility, to gain exposure to an asset class or to adjust the duration of fixed-income assets.

The plans’ weighted average asset allocations on December 31, 2008 and 2007, by asset category, were as follows:

	Pension Benefits		Other Post-retirement Benefits
December 31	2008	2007	2008	2007
U.S. common stocks	51%	53%	48%	65%
U.S. common stocks with risk-mitigating hedges	44%	44%	19%	28%
Fixed income	5%	3%	33%	7%

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. 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 2014 and thereafter through the projected payout period of the benefits. The effect of a one-percentage-point increase or decrease in the assumed health care cost trend rate on the net periodic benefit cost is $6 and ($5), respectively, and the effect on the accumulated post-retirement benefit obligation is $64 and ($54), respectively.

Contributions and Benefit Payments

It is our policy to fund our retirement plans in a manner that optimizes the tax deductibility and contract recovery of contributions, considered within our framework of capital deployment opportunities. These contributions are intended to provide not only for benefits attributed to service to date, but also for benefits to be earned in the future. In December 2007, we made a $100 discretionary payment to prefund a portion of future years’ funding requirements for our primary government pension plan. We expect to contribute approximately $230 to our pension plans in 2009. We maintain several Voluntary Employees’ Beneficiary Association (VEBA) trusts for some of our post-retirement benefit plans. For non-funded plans, claims are paid as received. We expect to contribute approximately $30 to our other post-retirement benefit plans in 2009.

We expect the following benefits to be paid from our retirement plans over the next 10 years:

	Pension Benefits		Other Post-retirement Benefits
2009	$	389	$  89
2010		425	90
2011		428	91
2012		450	91
2013		472	90
2014-2018		2,727	434

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the federal government makes subsidy payments to employers to offset the cost of prescription drug benefits provided to employees. We received $4 in subsidy payments in each of 2008 and 2007. We anticipate the following subsidy payments over the next 10 years:

2009	$	4
2010		5
2011		5
2012		5
2013		5
2014–2018		26

Government Contract Considerations

Our contractual arrangements with the U.S. government provide for the recovery of contributions to our pension plans covering employees working in our government contracting businesses. With respect to post-retirement benefit plans, our government contracts provide for the recovery of contributions to a VEBA and, for non-funded plans, recovery of claims paid. The cumulative pension and post-retirement benefit cost for some of these plans exceeds our cost currently allocable to contracts. To the extent recovery of the cost is considered probable based on our backlog, we defer the excess in contracts in process on the Consolidated Balance Sheet until the cost is paid, charged to contracts and included in net sales. For other plans, the amount contributed to the plans, charged to contracts and included in net sales has exceeded the plans’ cumulative benefit cost. We have deferred recognition of these excess earnings to provide a better matching of revenues and expenses. These deferrals have been classified against the prepaid benefit cost related to these plans. (See Note G for discussion of our deferred contract costs.)

The net funded status of our government retirement plans was a liability of approximately $3.1 billion on December 31, 2008, and $350 on December 31, 2007. These amounts included accrued liabilities determined under SFAS 87 and 106 of $765 on December 31, 2008, and $715 on December 31, 2007.

General Dynamics 2008 Annual Report    57

R. BUSINESS GROUP INFORMATION

We operate in four business groups: Aerospace, Combat Systems, Marine Systems, and Information Systems and Technology. We organize and measure our business groups in accordance with the nature of products and services offered. These business groups derive their revenues from business aviation; combat vehicles, weapons systems and munitions; shipbuilding design and construction; and information systems, technologies and services, respectively. We measure each group’s profit based on operating earnings. As a result, we do not allocate net interest, other income and expense items, and income taxes to our business groups.

Summary financial information for each of our business groups follows:

	Net Sales						Operating Earnings									Sales to U.S. Government
Year Ended December 31	2008		2007		2006		2008			2007			2006			2008		2007		2006
Aerospace	$	5,512	$	4,828	$	4,116	$	1,021		$	810		$	644		$	125	$	170	$	187
Combat Systems		8,194		7,797		5,983		1,111			916			677			6,424		5,876		4,590
Marine Systems		5,556		4,993		4,940		521			421			375			5,290		4,902		4,839
Information Systems and Technology		10,038		9,622		9,024		1,075			1,027			976			8,307		7,809		6,788
Corporate*		—		—		—		(75	)		(61	)		(47	)		—		—		—
	$	29,300	$	27,240	$	24,063	$	3,653		$	3,113		$	2,625		$	20,146	$	18,757	$	16,404
	Identifiable Assets						Capital Expenditures									Depreciation and Amortization
Year Ended December 31	2008		2007		2006		2008			2007			2006			2008		2007		2006
Aerospace	$	6,515	$	3,006	$	2,755	$	164		$	129		$	86		$	68	$	51	$	47
Combat Systems		8,666		7,708		6,347		100			118			92			140		134		108
Marine Systems		1,989		2,243		2,347		126			130			40			60		57		57
Information Systems and Technology		9,034		9,485		9,323		94			94			112			172		174		165
Corporate*		2,169		3,291		1,604		6			3			4			7		7		7
	$	28,373	$	25,733	$	22,376	$	490		$	474		$	334		$	447	$	423	$	384

* Corporate operating results include our stock option expense and a portion of the operating results of our commercial pension plans. Corporate identifiable assets include cash and equivalents from domestic operations and assets of discontinued operations.

The following table presents our net sales by geographic area based on the location of our customers:

Year Ended December 31	2008		2007		2006
North America:
United States	$	24,203	$	22,489	$	20,235
Canada		719		665		429
Other		241		185		96
Total North America		25,163		23,339		20,760
Europe:
United Kingdom		842		777		1,001
Spain		662		819		700
Other		1,454		1,348		573
Total Europe		2,958		2,944		2,274
Asia/Pacific		545		382		599
Africa/Middle East		508		378		285
South America		126		197		145
	$	29,300	$	27,240	$	24,063

Our net sales from international operations were $4,154 in 2008, $3,905 in 2007 and $3,404 in 2006. The long-lived assets of operations located outside the United States were 8 percent of our total long-lived assets on December 31, 2008, 4 percent on December 31, 2007, and 3 percent on December 31, 2006.

58    General Dynamics 2008 Annual Report

S. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The fixed-rate notes described in Note J are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain of our 100-percent-owned subsidiaries (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 on December 31, 2008 and 2007, for the balance sheet, as well as the statements of earnings and cash flows for each of the three years in the period ended December 31, 2008.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

Year Ended December 31, 2008	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Net sales	$	—		$	25,131		$	4,169		$	—		$	29,300
Cost of sales		(1	)		20,491			3,438			—			23,928
General and administrative expenses		76			1,419			224			—			1,719
Operating earnings		(75	)		3,221			507			—			3,653
Interest expense		(118	)		—			(15	)		—			(133	)
Interest income		39			3			25			—			67
Other, net		5			2			10			—			17
Earnings from continuing operations before income taxes		(149	)		3,226			527			—			3,604
Provision for income taxes		2			1,009			115			—			1,126
Discontinued operations, net of tax		—			(3	)		(16	)		—			(19	)
Equity in net earnings of subsidiaries		2,610			—			—			(2,610	)		—
Net earnings	$	2,459		$	2,214		$	396		$	(2,610	)	$	2,459
Year Ended December 31, 2007	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Net sales	$	—		$	23,329		$	3,911		$	—		$	27,240
Cost of sales		(3	)		19,273			3,214			—			22,484
General and administrative expenses		64			1,353			226			—			1,643
Operating earnings		(61	)		2,703			471			—			3,113
Interest expense		(113	)		(2	)		(16	)		—			(131	)
Interest income		29			1			31			—			61
Other, net		(2	)		3			3			—			4
Earnings from continuing operations before income taxes		(147	)		2,705			489			—			3,047
Provision for income taxes		(26	)		870			123			—			967
Discontinued operations, net of tax		—			(8	)		—			—			(8	)
Equity in net earnings of subsidiaries		2,193			—			—			(2,193	)		—
Net earnings	$	2,072		$	1,827		$	366		$	(2,193	)	$	2,072
Year Ended December 31, 2006	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
Net sales	$	—		$	20,656		$	3,407		$	—		$	24,063
Cost of sales		(2	)		17,099			2,840			—			19,937
General and administrative expenses		49			1,279			173			—			1,501
Operating earnings		(47	)		2,278			394			—			2,625
Interest expense		(142	)		(4	)		(10	)		—			(156	)
Interest income		24			2			29			—			55
Other, net		(1	)		1			3			—			3
Earnings from continuing operations before income taxes		(166	)		2,277			416			—			2,527
Provision for income taxes		(31	)		745			103			—			817
Discontinued operations, net of tax		—			146			—			—			146
Equity in net earnings of subsidiaries		1,991			—			—			(1,991	)		—
Net earnings	$	1,856		$	1,678		$	313		$	(1,991	)	$	1,856

General Dynamics 2008 Annual Report    59

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2008	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
ASSETS
Current assets:
Cash and equivalents	$	746		$	—		$	875		$	—		$	1,621
Accounts receivable		—			1,532			1,937			—			3,469
Contracts in process		402			2,675			1,264			—			4,341
Inventories
Work in process		—			785			91			—			876
Raw materials		—			907			94			—			1,001
Pre-owned aircraft		—			100			—			—			100
Other		—			60			(8	)		—			52
Other current assets		190			33			267			—			490
Total current assets		1,338			6,092			4,520			—			11,950
Noncurrent assets:
Property, plant and equipment		133			4,199			1,008			—			5,340
Accumulated depreciation of PP&E		(30	)		(2,057	)		(381	)		—			(2,468	)
Intangible assets and goodwill		—			9,090			4,795			—			13,885
Accumulated amortization of intangible assets		—			(690	)		(165	)		—			(855	)
Other assets		872			(448	)		97			—			521
Investment in subsidiaries		23,355			—			—			(23,355	)		—
Total noncurrent assets		24,330			10,094			5,354			(23,355	)		16,423
Total assets	$	25,668		$	16,186		$	9,874		$	(23,355	)	$	28,373
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	905		$	5		$	1		$	—		$	911
Liabilities of discontinued operations		—			—			39			—			39
Other current liabilities		542			4,861			4,007			—			9,410
Total current liabilities		1,447			4,866			4,047			—			10,360
Noncurrent liabilities:
Long-term debt		3,094			8			11			—			3,113
Other liabilities		2,513			1,991			343			—			4,847
Total noncurrent liabilities		5,607			1,999			354			—			7,960
Intercompany		8,561			(8,972	)		195			216			—
Shareholders’ equity:
Common stock, including surplus		1,828			6,134			3,091			(9,225	)		1,828
Retained earnings		13,287			12,612			1,951			(14,563	)		13,287
Other shareholders’ equity		(5,062	)		(453	)		236			217			(5,062	)
Total shareholders’ equity		10,053			18,293			5,278			(23,571	)		10,053
Total liabilities and shareholders’ equity	$	25,668		$	16,186		$	9,874		$	(23,355	)	$	28,373

60    General Dynamics 2008 Annual Report

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2007	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments			Total Consolidated
ASSETS
Current assets:
Cash and equivalents	$	1,875		$	—		$	1,016		$	—		$	2,891
Accounts receivable		—			1,648			1,226			—			2,874
Contracts in process		418			2,872			1,047			—			4,337
Inventories
Work in process		—			766			8			—			774
Raw materials		—			777			27			—			804
Pre-owned aircraft		—			30			—			—			30
Other		—			16			(3	)		—			13
Other current assets		281			83			211			—			575
Total current assets		2,574			6,192			3,532			—			12,298
Noncurrent assets:
Property, plant and equipment		128			3,834			767			—			4,729
Accumulated depreciation of PP&E		(24	)		(1,882	)		(351	)		—			(2,257	)
Intangible assets and goodwill		—			8,793			1,831			—			10,624
Accumulated amortization of intangible assets		—			(585	)		(125	)		—			(710	)
Other assets		548			420			81			—			1,049
Investment in subsidiaries		19,884			—			—			(19,884	)		—
Total noncurrent assets		20,536			10,580			2,203			(19,884	)		13,435
Total assets	$	23,110		$	16,772		$	5,735		$	(19,884	)	$	25,733
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	500		$	22		$	151		$	—		$	673
Liabilities of discontinued operations		—			46			—			—			46
Other current liabilities		500			5,149			2,796			—			8,445
Total current liabilities		1,000			5,217			2,947			—			9,164
Noncurrent liabilities:
Long-term debt		2,098			12			8			—			2,118
Other liabilities		407			1,963			313			—			2,683
Total noncurrent liabilities		2,505			1,975			321			—			4,801
Intercompany		7,837			(7,631	)		(461	)		255			—
Shareholders’ equity:
Common stock, including surplus		1,623			6,100			1,546			(7,646	)		1,623
Retained earnings		11,379			11,195			950			(12,145	)		11,379
Other shareholders’ equity		(1,234	)		(84	)		432			(348	)		(1,234	)
Total shareholders’ equity		11,768			17,211			2,928			(20,139	)		11,768
Total liabilities and shareholders’ equity	$	23,110		$	16,772		$	5,735		$	(19,884	)	$	25,733

General Dynamics 2008 Annual Report    61

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended December 31, 2008	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments		Total Consolidated
Net cash provided by operating activities	$	(635	)	$	3,469		$	276		$	—	$	3,110
Cash flows from investing activities:
Business acquisitions, net of cash acquired		—			(1,074	)		(2,150	)		—		(3,224	)
Sales/maturities of available-for-sale securities		1,333			57			33			—		1,423
Purchases of available-for-sale securities		(1,310	)		(63	)		(33	)		—		(1,406	)
Capital expenditures		(6	)		(431	)		(53	)		—		(490	)
Other, net		—			35			—			—		35
Net cash used by investing activities		17			(1,476	)		(2,203	)		—		(3,662	)
Cash flows from financing activities:
Purchases of common stock		(1,522	)		—			—			—		(1,522	)
Proceeds from fixed-rate notes		995			—			—			—		995
Proceeds from commercial paper, net		904			—			—			—		904
Dividends paid		(533	)		—			—			—		(533	)
Repayment of fixed-rate notes		(500	)		—			—			—		(500	)
Other, net		151			(2	)		(211	)		—		(62	)
Net cash used by financing activities		(505	)		(2	)		(211	)		—		(718	)
Cash sweep/funding by parent		(6	)		(1,991	)		1,997			—		—
Net decrease in cash and equivalents		(1,129	)		—			(141	)		—		(1,270	)
Cash and equivalents at beginning of year		1,875			—			1,016			—		2,891
Cash and equivalents at end of year	$	746		$	—		$	875		$	—	$	1,621
Year Ended December 31, 2007	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments		Total Consolidated
Net cash provided by operating activities	$	(70	)	$	2,765		$	230		$	—	$	2,925
Cash flows from investing activities:
Purchases of available-for-sale securities		(2,728	)		(70	)		—			—		(2,798	)
Sales/maturities of available-for-sale securities		2,558			61			—			—		2,619
Capital expenditures		(3	)		(414	)		(57	)		—		(474	)
Business acquisitions, net of cash acquired		—			(49	)		(281	)		—		(330	)
Other, net		38			93			—			—		131
Net cash used by investing activities		(135	)		(379	)		(338	)		—		(852	)
Cash flows from financing activities:
Purchases of common stock		(505	)		—			—			—		(505	)
Dividends paid		(445	)		—			—			—		(445	)
Other, net		274			5			(115	)		—		164
Net cash used by financing activities		(676	)		5			(115	)		—		(786	)
Cash sweep/funding by parent		2,162			(2,391	)		229			—		—
Net increase in cash and equivalents		1,281			—			6			—		1,287
Cash and equivalents at beginning of year		594			—			1,010			—		1,604
Cash and equivalents at end of year	$	1,875		$	—		$	1,016		$	—	$	2,891

Year Ended December 31, 2006	Parent			Guarantors on a Combined Basis			Other Subsidiaries on a Combined Basis			Consolidating Adjustments		Total Consolidated
Net cash provided by operating activities	$	(70	)	$	1,811		$	387		$	—	$	2,128
Cash flows from investing activities:
Business acquisitions, net of cash acquired		(2	)		(2,340	)		—			—		(2,342	)
Capital expenditures		(4	)		(287	)		(43	)		—		(334	)
Discontinued operations		—			300			—			—		300
Other, net		48			11			1			—		60
Net cash used by investing activities		42			(2,316	)		(42	)		—		(2,316	)
Cash flows from financing activities:
Repayment of fixed-rate notes		(500	)		—			—			—		(500	)
Dividends paid		(359	)		—			—			—		(359	)
Proceeds from option exercises		253			—			—			—		253
Other, net		(38	)		(6	)		111			—		67
Net cash used by financing activities		(644	)		(6	)		111			—		(539	)
Cash sweep/funding by parent		(297	)		511			(214	)		—		—
Net decrease in cash and equivalents		(969	)		—			242			—		(727	)
Cash and equivalents at beginning of year		1,563			—			768			—		2,331
Cash and equivalents at end of year	$	594		$	—		$	1,010		$	—	$	1,604

62    General Dynamics 2008 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 U.S. generally accepted accounting principles applied on a consistent basis.

We maintain 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. We maintain and monitor an environment that establishes an appropriate level of control consciousness. An important element of the monitoring process is an internal audit program that independently assesses the effectiveness of the control environment.

The Audit Committee of the board of directors, which is composed of five outside directors, meets periodically and, when appropriate, separately with the independent auditors, management and internal audit staff to review the activities of each.

The financial statements have been audited by KPMG LLP, independent registered public accounting firm, whose report follows.

L. Hugh Redd	John W. Schwartz
Senior Vice President and Chief Financial Officer	Vice President and Controller

General Dynamics 2008 Annual Report    63

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of General Dynamics Corporation:

We have audited the accompanying Consolidated Balance Sheets of General Dynamics Corporation (a Delaware corporation) and subsidiaries as of December 31, 2008 and 2007, and the related Consolidated Statements of Earnings, Shareholders’ Equity, and Cash Flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited financial statement Schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of General Dynamics Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), General Dynamics Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 19, 2009, expressed an unqualified opinion on the effectiveness of the company’s internal control over financial reporting.

KPMG LLP

McLean, Virginia

February 19, 2009

64    General Dynamics 2008 Annual Report

SUPPLEMENTARY DATA (Unaudited)

(Dollars in millions, except per share amounts)	2008										2007
	4Q			3Q		2Q (a)		1Q			4Q		3Q		2Q (b)			1Q
Net sales	$	7,852		$	7,140	$	7,303	$	7,005		$	7,515	$	6,834	$	6,591		$	6,300
Operating earnings		938			933		921		861			871		801		760			681
Earnings from continuing operations		630			634		641		573			578		544		518			440
Net earnings (loss) from discontinued operations		(18	)		—		—		(1	)		1		2		(5	)		(6	)
Net earnings		612			634		641		572			579		546		513			434
Earnings per share – Basic (c):
Continuing operations	$	1.62		$	1.60	$	1.61	$	1.43		$	1.43	$	1.35	$	1.28		$	1.08
Discontinued operations		(0.05	)		—		—		—			—		—		(0.01	)		(0.01	)
Net earnings		1.57			1.60		1.61		1.43			1.43		1.35		1.27			1.07
Earnings per share – Diluted (c):
Continuing operations	$	1.62		$	1.59	$	1.60	$	1.42		$	1.42	$	1.34	$	1.27		$	1.07
Discontinued operations		(0.05	)		—		—		—			—		—		(0.01	)		(0.01	)
Net earnings		1.57			1.59		1.60		1.42			1.42		1.34		1.26			1.06
Market price range:
High	$	74.85		$	94.41	$	95.13	$	89.88		$	94.55	$	85.70	$	82.41		$	81.28
Low		47.81			73.12		82.47		74.01			82.41		70.61		76.01			73.59
Dividends declared	$	0.35		$	0.35	$	0.35	$	0.35		$	0.29	$	0.29	$	0.29		$	0.29

(Quarterly data are based on a 13-week period.)

(a) Second quarter of 2008 includes $35 tax benefit related to a settlement of a tax refund suit with the U.S. Department of Justice (see Note E).

(b) Second quarter of 2007 includes $18 tax benefit related to resolution of 2003-2004 IRS audits (see Note E).

(c) The sum of the basic and diluted earnings per share for the four quarters of the year may differ from the annual basic and diluted earnings per share due to the required method of computing the weighted average number of shares in interim periods.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The company’s management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the company’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2008. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2008, the company’s disclosure controls and procedures were effective.

The certifications of the company’s Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to this report. Additionally, in 2008 the company’s Chief Executive Officer certified to the New York Stock Exchange (NYSE) that he was not aware of any violation by the company of the NYSE’s corporate governance listing standards.

General Dynamics 2008 Annual Report    65

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Shareholders of General Dynamics Corporation:

The management of General Dynamics Corporation is responsible for establishing and maintaining adequate internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our evaluation we believe that, as of December 31, 2008, our internal control over financial reporting is effective based on those criteria.

KPMG LLP has issued an audit report on the effectiveness of our internal control over financial reporting. The KPMG report immediately follows this report.

Nicholas D. Chabraja	L. Hugh Redd
Chairman and Chief Executive Officer	Senior Vice President and Chief Financial Officer

66    General Dynamics 2008 Annual Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of General Dynamics Corporation:

We have audited General Dynamics Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). General Dynamics Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, General Dynamics Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheets of General Dynamics Corporation as of December 31, 2008 and 2007, and the related Consolidated Statements of Earnings, Shareholders’ Equity, and Cash Flows for each of the years in the three-year period ended December 31, 2008, and our report dated February 19, 2009, expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

McLean, Virginia

February 19, 2009

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no significant changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

General Dynamics 2008 Annual Report    67

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required to be set forth herein, except for the information included under Executive Officers of the Company, is included in the sections entitled “Election of the Board of Directors of the Company,” “Governance of the Company – Code of Ethics,” “Audit Committee Report” and “Other Information – Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our 2009 annual shareholders meeting (the Proxy Statement), which sections are incorporated herein by reference.

Executive Officers of the Company

All of our executive officers are appointed annually. None of our executive officers was selected pursuant to any arrangement or understanding between the officer and any other person. As previously announced and pursuant to our agreement with him, Mr. Jay Johnson will become our chief executive officer on July 1, 2009, following the retirement of Mr. Chabraja. Mr. Chabraja will remain as Chairman of the Board of Directors through the annual meeting of shareholders in May 2010.

The name, age, offices and positions of our executives held for at least the last five years as of February 20, 2009, were as follows:

Name, Position and Office	Age
John P. Casey – Vice President of the company and President of Electric Boat Corporation since October 2003	54
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; Executive Vice President, March 1994 – December 1996	66
Gerard J. DeMuro – Executive Vice President, Information Systems and Technology, since October 2003; Vice President of the company, February 2000 – October 2003; President of General Dynamics C4 Systems, August 2001 – October 2003	53
Charles M. Hall – Executive Vice President, Combat Systems, since July 2005; Vice President of the company and President of General Dynamics Land Systems, September 1999 – July 2005	57
David K. Heebner – Executive Vice President, Marine Systems, since January 2009; Senior Vice President of the company May 2002 – January 2009; President of General Dynamics Land Systems, July 2005 – October 2008; Senior Vice President, Planning and Development, May 2002 – July 2005; Vice President, Strategic Planning, January 2000 – May 2002	64
Jay L. Johnson – Vice Chairman of the company since September 2008; Executive Vice President of Dominion Resources, Inc., December 2002 – September 2008; Chief Executive Officer of Dominion Virginia Power, October 2007 – September 2008; President and Chief Executive Officer of Dominion Delivery, 2002 – 2007	62
S. Daniel Johnson – Vice President of the company and President of General Dynamics Information Technology since April 2008; Executive Vice President of General Dynamics Information Technology, July 2006 – March 2008; Executive Vice President and Chief Operating Officer of Anteon Corporation, August 2003 – June 2006	61
Joseph T. Lombardo – Executive Vice President, Aerospace, and President of Gulfstream Aerospace Corporation since April 2007; Vice President of the company and Chief Operating Officer of Gulfstream Aerospace Corporation, May 2002 – April 2007	61
Christopher Marzilli – Vice President of the company and President of General Dynamics C4 Systems since January 2006; Senior Vice President and Deputy General Manager of General Dynamics C4 Systems, November 2003 – January 2006	49
Phebe N. Novakovic – Senior Vice President, Planning and Development, since July 2005; Vice President, Strategic Planning, October 2002 – July 2005	51
Walter M. Oliver – Senior Vice President, Human Resources and Administration, since March 2002; Vice President, Human Resources and Administration, January 2001 – March 2002	63
L. Hugh Redd – Senior Vice President and Chief Financial Officer since June 2006; Vice President and Controller of General Dynamics Land Systems, January 2000 – June 2006	51
Mark C. Roualet – Vice President of the company and President of General Dynamics Land Systems since October 2008; Senior Vice President and Chief Operating Officer of General Dynamics Land Systems, July 2007 – October 2008; Senior Vice President – Ground Combat Systems, March 2003 – July 2007	50
David A. Savner – Senior Vice President, General Counsel and Secretary since May 1999; Senior Vice President – Law and Secretary, April 1998 – May 1999	64
John W. Schwartz – Vice President and Controller since March 1998	52
Lewis F. Von Thaer – Vice President of the company and President of General Dynamics Advanced Information Systems since March 2005; Senior Vice President, Operations, of General Dynamics Advanced Information Systems, November 2003 – March 2005	48

68    General Dynamics 2008 Annual Report

ITEM 11. EXECUTIVE COMPENSATION

The information required to be set forth herein is included in the sections entitled “Governance of the Company – Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation” and “Compensation Committee Report on Executive Compensation” in our Proxy Statement, which sections are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 our Proxy Statement, which sections are incorporated herein by reference.

The information required to be set forth herein with respect to securities authorized for issuance under our equity compensation plans is included in the section entitled “Equity Compensation Plan Information” in our Proxy Statement, which section is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required to be set forth herein is included in the sections entitled “Governance of the Company – Related Party Transactions Approval Policy” and “Governance of the Company – Director Independence” in our Proxy Statement, which sections are incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required to be set forth herein is included in the section entitled “Selection of Independent Auditors – Audit and Non-Audit Fees” in our Proxy Statement, which section is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Consolidated Financial Statements

 Consolidated Statement of Earnings

 Consolidated Balance Sheet

 Consolidated Statement of Cash Flows

 Consolidated Statement of Shareholders’ Equity

 Notes to Consolidated Financial Statements (A to S)

2. Financial Statement Schedules

Schedule	Description	Page
II	Valuation and Qualifying Accounts	71

All other financial schedules not listed are omitted because they are either inapplicable 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 71 through 72 of this Annual Report on Form 10-K for the year ended December 31, 2008.

General Dynamics 2008 Annual Report    69

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

February 20, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below on February 20, 2009, by the following persons on behalf of the Registrant and in the capacities indicated, including a majority of the directors.

/s/ Nicholas D. Chabraja	Chairman, Chief Executive Officer and Director
Nicholas D. Chabraja	(Principal Executive Officer)
/s/ L. Hugh Redd	Senior Vice President and Chief Financial Officer
L. Hugh Redd	(Principal Financial Officer)
/s/ John W. Schwartz	Vice President and Controller
John W. Schwartz	(Principal Accounting Officer)
*
Jay L. Johnson	Vice Chairman and Director
*
James S. Crown	Director
*
William P. Fricks	Director
*
Charles H. Goodman	Director
*
George A. Joulwan	Director
*
Paul G. Kaminski	Director
*
John M. Keane	Director
*
Deborah J. Lucas	Director
*
Lester L. Lyles	Director
*
Carl E. Mundy, Jr.	Director
*
J. Christopher Reyes	Director
*
Robert Walmsley	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

Senior Vice President, General Counsel and

Secretary

70    General Dynamics 2008 Annual Report

SCHEDULE II–VALUATION AND QUALIFYING ACCOUNTS

(Dollars in millions)	2008			2007			2006
Balance at January 1	$	87		$	135		$	125
Charged to costs and expenses		8			5			15
Deductions from reserves		(1	)		(4	)		(2	)
Other adjustments*		4			(49	)		(3	)
Balance at December 31	$	98		$	87		$	135

Allowance and valuation accounts consist of accounts receivable allowance for doubtful accounts and valuation allowance on deferred tax assets. These amounts are deducted from the assets to which they apply.

* Includes amounts assumed in business combinations and foreign currency translation adjustments.

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
3.1	Restated Certificate of Incorporation of the company (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission October 7, 2004)
3.2	Amended and Restated Bylaws of General Dynamics Corporation (as amended effective February 4, 2009) (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission February 5, 2009)
4.1	Indenture dated as of August 27, 2001, among the company, 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, filed with the Commission January 18, 2002)
4.2	First Supplemental Indenture dated as of August 27, 2001, among the company, 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, filed with the Commission January 18, 2002)
4.3	Second Supplemental Indenture dated as of May 15, 2003, among the company, the Guarantors (as defined therein) and The Bank of New York, as Trustee (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission May 16, 2003, SEC file number 1-3671)
4.4	Third Supplemental Indenture dated as of August 14, 2003, among the company, the Guarantors (as defined therein) and The Bank of New York, as Trustee (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission August 14, 2003, SEC file number 1-3671)
4.5	Fourth Supplemental Indenture dated as of December 15, 2008, among the company, the Guarantors (as defined therein) and The Bank of New York Mellon, as Trustee (incorporated herein by reference from the company’s current report on Form 8-K, filed with the Commission December 15, 2008)
10.1*	Amended and Restated Employment Agreement between the company and Nicholas D. Chabraja dated June 7, 2007 (incorporated herein by reference from the company’s quarterly report on Form 10-Q for the quarterly period ended July 1, 2007, filed with the Commission August 1, 2007)
10.2*	Amendment to Employment Agreement between the company and Nicholas D. Chabraja dated December 11, 2008**
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, filed with the Commission March 18, 1999, SEC file number 1-3671)
10.4*	Amendment to Retirement Benefit Agreement between the company and David A. Savner dated June 7, 2007 (incorporated herein by reference from the company’s quarterly report on Form 10-Q for the quarterly period ended July 1, 2007, filed with the Commission August 1, 2007)
10.5*	Second Amendment to Retirement Benefit Agreement between the company and David A. Savner dated December 11, 2008**
10.6*	Executive Retention Agreement between the company and Walter M. Oliver dated June 7, 2007 (incorporated herein by reference from the company’s quarterly report on Form 10-Q for the quarterly period ended July 1, 2007, filed with the Commission August 1, 2007)

General Dynamics 2008 Annual Report    71

INDEX TO EXHIBITS – GENERAL DYNAMICS CORPORATION

COMMISSION FILE NO. 1-3671

Exhibit Number	Description
10.7*	Letter Agreement with Jay L. Johnson dated May 7, 2008 (incorporated herein by reference from the company’s quarterly report on Form 10-Q for the period ended June 29, 2008, filed with the Commission August 5, 2008)
10.8*	General Dynamics Corporation Equity Compensation Plan (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2003, filed with the Commission March 5, 2004)
10.9*	Form of Incentive Stock Option Agreement pursuant to the General Dynamics Corporation Equity Compensation Plan (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2004, filed with the Commission March 4, 2005)
10.10*	Form of Non-Statutory Stock Option Agreement pursuant to the General Dynamics Corporation Equity Compensation Plan (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2004, filed with the Commission March 4, 2005)
10.11*	Form of Restricted Stock Award Agreement pursuant to the General Dynamics Corporation Equity Compensation Plan (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2004, filed with the Commission March 4, 2005)
10.12*	Form of Restricted Stock Unit Award Agreement pursuant to the General Dynamics Equity Compensation Plan**
10.13*	Successor Retirement Plan for Directors (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2003, filed with the Commission March 5, 2004)
10.14*	General Dynamics Corporation Non-employee Directors’ 1999 Stock Plan (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2002, filed with the Commission March 24, 2003, SEC file number 1-3671)
10.15*	General Dynamics Corporation Second Amended and Restated 1997 Incentive Compensation Plan (incorporated herein by reference from the company’s quarterly report on Form 10-Q for the quarterly period ended September 29, 2002, filed with the Commission November 12, 2002, SEC file number 1-3671)
10.16*	General Dynamics United Kingdom Share Save Plan (incorporated herein by reference from the company’s annual report on Form 10-K for the year ended December 31, 2002, filed with the Commission March 24, 2003, SEC file number 1-3671)
10.17*	General Dynamics Corporation Supplemental Savings and Stock Investment Plan, amended and restated effective as of January 1, 2009**
10.18*	Form of Severance Protection Agreement entered into by substantially all executive officers**
10.19*	General Dynamics Corporation Supplemental Retirement Plan, restated effective January 1, 2009**
10.20*	2008 Compensation Arrangements for Named Executive Officers (incorporated herein by reference from the company's quarterly report on Form 10-Q for the quarterly period ended March 30, 2008, filed with the Commission May 6, 2008)
21	Subsidiaries**
23	Consent of Independent Registered Public Accounting Firm**
24	Power of Attorney**
31.1	Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
31.2	Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
32.1	Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2	Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

* Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 15(b) of Form 10-K.

** Filed herewith.

72    General Dynamics 2008 Annual Report

EX-10.2

Exhibit 10.2

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment, dated as of December 11, 2008, amends the Amended and Restated Employment Agreement dated as of June 7, 2007 (the “Agreement”) between General Dynamics Corporation (the “Corporation”) and Nicholas D. Chabraja.

Section 17 of the Agreement is hereby amended in its entirety to read as follows:

Section 409A of the Internal Revenue Code. The intent of the parties is that payments and benefits under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) to the extent subject thereto, and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, Mr. Chabraja shall not be considered to have terminated employment with the Corporation for purposes of this Agreement until Mr. Chabraja would be considered to have incurred a “separation from service” from the Corporation within the meaning of Section 409A of the Code. To the extent required to avoid an accelerated or additional tax under Section 409A of the Code, amounts reimbursable to Mr. Chabraja under this Agreement shall be paid to Mr. Chabraja on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits provided to the Mr. Chabraja) during any one year may not effect amounts reimbursable or provided in any subsequent year. Notwithstanding anything to the contrary in this Agreement, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement during the six-month period immediately following Mr. Chabraja’s termination of employment shall instead be paid on the first business day after the date that is six months following Mr. Chabraja’s “separation from service” within the meaning of Section 409A. Any amount the payment of which is delayed in accordance with the preceding sentence shall be paid with interest at an annual rate equal to the prime rate (as determined by the Northern Trust Company of Chicago from time to time) from the date on which such amount would otherwise have been paid until the actual date of payment.

IN WITNESS WHEREOF, the Corporation has caused this Amendment to Employment Agreement to be executed, and Mr. Chabraja has executed this Agreement as of the date first above written.

	GENERAL DYNAMICS CORPORATION
/s/ Millie A. Miller	By:	/s/ Walter M. Oliver
Witness		Walter M. Oliver, Senior Vice President, Human Resources & Administration
/s/ David A. Savner		/s/ Nicholas D. Chabraja
Witness		Nicholas D. Chabraja

EX-10.5

Exhibit 10.5

SECOND AMENDMENT TO RETIREMENT BENEFIT AGREEMENT

This Second Amendment, dated as of December 11, 2008, amends the Retirement Benefit Agreement dated as of March 4, 1998 between General Dynamics Corporation (the “Corporation”) and David A. Savner (“the Executive”), as amended by the Amendment to Retirement Benefit Agreement dated as of June 7, 2007 (together the “Agreement”).

The Agreement is hereby amended to insert a new Section 12 as follows:

Section 12. SECTION 409A. The intent of the parties is that payments and benefits under this Agreement comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, the Executive shall not be considered to have terminated employment with the Corporation for purposes of this Agreement until the Executive would be considered to have incurred a “separation from service” from the Corporation within the meaning of Section 409A of the Code.

IN WITNESS WHEREOF, the Corporation has caused this Second Amendment to the Retirement Benefit Agreement to be executed, and the Executive has executed this Second Amendment to the Retirement Benefit Agreement as of the date first above written.

	GENERAL DYNAMICS CORPORATION
/s/ Millie A. Miller	By:	/s/ Walter M. Oliver
Witness		Walter M. Oliver, Senior Vice President, Human Resources & Administration
/s/ Julie P. Aslaksen		/s/ David A. Savner
Witness		David A. Savner

EX-10.12

Exhibit 10.12

RESTRICTED STOCK UNIT AWARD AGREEMENT

PURSUANT TO THE GENERAL DYNAMICS CORPORATION

EQUITY COMPENSATION PLAN

This Restricted Stock Unit Award Agreement (the “Agreement”) is entered into as of [            ], (the “Grant Date”), by and between General Dynamics Corporation (the “Company”) and [            ] (the “Grantee”).

WHEREAS, the Company sponsors the General Dynamics Corporation Equity Compensation Plan (the “Plan”), pursuant to which the Company may grant Restricted Stock Units (“RSUs); and

WHEREAS, the Company desires to grant the Grantee an award of RSUs.

NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:

1. Number of RSUs. The Grantee is hereby granted RSUs over              shares of Common Stock, subject to the restrictions set forth herein. Each RSU represents an unfunded, unsecured promise by the Company to deliver one share of the Company’s common stock (“Common Stock”), subject to certain restrictions and the terms and conditions contained in this Agreement.

2. Nature and Settlement of Award. Settlement of the RSUs shall occur as soon as practicable after the Vesting Date (as provided in Section 3(b) below), but in any event, for Grantees who are U.S. taxpayers, within the period ending on the 15th day of the third month following the Vesting Date (defined below).

3. Terms of RSUs. The grant of RSUs provided in Section 1 hereof will be subject to the following terms, conditions and restrictions:

(a) No Shareholder Rights. The grant of RSUs does not entitle Grantee to any rights of a shareholder of Common Stock, including dividends or voting rights.

(b) Vesting Date. Except as may otherwise be provided herein, RSUs will vest on the first day of January on which the New York Stock Exchange is open for business of the fourth calendar year following the calendar year in which the Grant Date occurs (the “Vesting Date”) provided that the Grantee is employed by the Company or is serving as a director of the Company on such date or dies prior to such date while employed by the Company or serving as a director of the Company. Upon the vesting of the RSUs, the Company, in its sole discretion, may either issue to the Grantee or the Grantee’s personal representative a stock certificate representing, or deposit in such Grantee’s or the Grantee’s personal representative’s brokerage account via electronic transfer, one share of Common Stock for each RSU that has vested.

(c) Dividend Equivalents. If the Company decides to pay dividend equivalents on the RSUs, such dividend equivalents will accrue and be notionally credited to the Grantee’s RSU account and paid out in the form of additional shares on the date that the RSUs are settled in accordance with Section 2 and will in no circumstances be settled in cash; no dividend equivalents will be paid out prior to the Vesting Date. In no event shall fractional shares be issued; the Company will round down to the nearest share in settling any accrued dividend equivalents.

(d) Transfer Restrictions. Neither the RSUs nor any interest thereto may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of by the Grantee, except by will or the laws of descent and distribution, and any such purported sale, assignment, transfer, pledge, hypothecation or other disposition shall be void and unenforceable against the Company.

(e) Incorporation of Plan by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement will be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement will have the definitions set forth in the Plan. The Committee will have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decisions will be binding and conclusive upon the Grantee and the Grantee’s legal representative in respect of any questions arising under the Plan or this Agreement. If there exists any inconsistency between the terms of this Agreement and the Plan, the terms contained in the Plan will govern. If there exists an inconsistency between the terms of the RSUs as provided for herein (including terms relating to the number of shares of RSUs or the Vesting Date) and the terms as indicated in the records maintained by Company, the terms as indicated in the records of the Company will govern.

4. Termination of Employment or Service as a Director.

(a) General. In the event that (i) the Grantee ceases to be employed by the Company or ceases to be a director of the Company for any reason (other than due to death, total and permanent disability, Retirement (as defined below), divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, or lay-off), prior to the Vesting Date or (ii) the Grantee ceases to be employed by the Company on account of lay-off prior to December 31^st of the calendar year following the calendar year in which the Grant Date occurs (the “Determination Date”), the RSUs will be automatically forfeited by the Grantee on the date of such termination. For purposes of this Agreement, in the event of involuntary termination of the Grantee’s employment (whether or not in breach of local labor laws), the Grantee’s right to receive RSUs and vest under the Plan, if any, will terminate effective as of the date that the Grantee is no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of involuntary termination of employment (whether or not in breach of local labor laws), the Grantee’s right to receive shares pursuant to the RSUs after termination of employment, if any, will be measured by the date of termination of the Grantee’s active employment and will not be extended by any notice period mandated under local law; the Committee shall have the exclusive discretion to determine when the Grantee is no longer actively employed for purposes of the Award. For purposes of this Agreement, “Retirement” means, (A) with respect to an employee who is not an elected officer of the Company on the date on which the employee’s employment with the Company terminates, the termination of employment after the attainment of age 55 with at least five (5) or more years of continuous service and (B) with respect to an employee who is an elected officer of the Company on the date on which the employee’s employment with the Company terminates, termination of employment after attaining age 55 with the consent of the Chief Executive Officer of the Company.

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(b) Certain Terminations. In the event that the Grantee ceases to be employed by the Company or ceases to be a director of the Company due to total and permanent disability, Retirement, divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, prior to the Determination Date, then the RSUs will vest on the date of such cessation with respect to a number of RSUs equal to product of (i) the total number of RSUs granted hereunder (including any dividend equivalents that have been credited to the Grantee’s notional account as of the date of termination of employment) and (ii) a fraction, the numerator of which will be the number of days from January 1 of the year in which the Grant Date occurs to the last day of the month in which such termination occurs and the denominator of which will be 730, such product to be rounded down to the nearest whole share (the “Pro Rated RSUs”), and the remaining RSUs will be automatically forfeited by the Grantee as of the date of such termination. In the event that the Grantee ceases to be employed by the Company or ceases to serve as a director of the Company due to total and permanent disability, Retirement, divestiture or discontinued operation of a Subsidiary or division with which the Grantee was associated, or lay-off, in each case, on or after the Determination Date, then RSUs will vest in full on the date of such cessation. Notwithstanding the foregoing, all of the RSUs will be automatically forfeited by the Grantee if the Grantee causes “Harm” (as defined below) to the Company prior to the Vesting Date. For purposes of this Agreement, “Harm” includes, any actions that adversely affect the Company’s financial standing, reputation, or products, or any actions involving personal dishonesty, a felony conviction related to the Company, or any material violation of any confidentiality or non-competition agreement with the Company.

(c) Change in Control. Notwithstanding the foregoing, the RSUs, to the extent not previously forfeited, will become immediately vested upon the occurrence of a Change in Control.

(d) Settlement of Awards. Settlement of the RSUs that have vested or partially vested pursuant to Sections 4(b) or (c) above shall occur as soon as practicable after such vesting, but in any event, for Grantees who are U.S. taxpayers, within the period ending on the 15th day of the third month following such vesting.

5. Tax Withholding. Regardless of any action the Company or the Grantee’s actual employer (the “Employer”) takes with respect to any or all income tax (including federal, state and local taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including the grant of the RSUs, the vesting of the RSUs, the conversion of the RSUs into shares of Common Stock, the subsequent sale of any shares acquired at vesting and the receipt of any dividends or dividend equivalents; and (ii) do not commit to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate the Grantee’s liability for Tax-Related Items.

3

Prior to the issuance of shares pursuant to this award of RSUs, the Grantee shall pay, or make adequate arrangements satisfactory to the Company or to the Employer (in their sole discretion) to satisfy all withholding and payment on account obligations of the Company and/or Employer. In this regard, the Grantee authorizes the Company or the Employer to withhold all applicable Tax-Related Items legally payable by the Grantee from the Grantee’s wages or other cash compensation payable to the Grantee by the Company or the Employer or from any equivalent cash payment received upon vesting of the RSUs. Alternatively, or in addition, if permissible under local law, the Company or the Employer may, in their sole discretion, (i) sell or arrange for the sale of Shares to be issued on the vesting of the RSUs to satisfy the withholding or payment on account obligation, and/or (ii) withhold in shares, provided that the Company and the Employer shall withhold only the amount of shares necessary to satisfy the minimum withholding amount (or such other rate that will not result in a negative accounting impact). The Grantee shall pay to the Company or to the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of the Grantee’s receipt of this Award, the vesting of the RSUs, or the conversion of the vested RSUs into shares that cannot be satisfied by the means previously described. The Company may refuse to deliver shares to the Grantee if the Grantee fails to comply with the Grantee’s obligation in connection with the Tax-Related Items as described herein. If the Grantee fails to pay or make satisfactory arrangements to satisfy all withholding and payment on account obligations by the 15th day of the third month following the date on which the RSUs have vested, then the RSUs shall be forfeited.

6. Nature of Grant. In accepting the RSUs, the Grantee acknowledges that:

(a) the Plan is discretionary in nature and established voluntarily by the Company and may be modified, amended, suspended or terminated by the Company at any time, as provided in the Plan, and the award of RSUs is at the sole discretion of the Company and does not create any contractual or other right to receive future awards of RSUs, or benefits in lieu of RSUs even if RSUs have been awarded repeatedly in the past;

(b) the award of RSUs is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or to the Employer, and the RSUs are outside the scope of the Grantee’s employment contract, if any;

(c) the RSUs are not part of normal or expected compensation or salary for any purposes, including, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;

(d) neither the award of RSUs nor any provision of this Agreement nor the Plan confer upon the Grantee any right with respect to employment or continuation of current employment, and in the event that the Grantee is not an employee of the Company, the RSUs shall not be interpreted to form an employment contract or relationship with the Company; and

(e) no claim or entitlement to compensation or damages arises from termination of the RSUs, and no claim or entitlement to compensation or damages shall arise from any diminution in value of the or shares received upon vesting of the RSUs resulting from

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termination of the Grantee’s employment by the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and the Grantee irrevocably releases the Company and the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Agreement, the Grantee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim.

7. Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in this document by and among, as applicable, the Employer, and the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including his or her name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Grantee’s country or elsewhere and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Grantee may elect to deposit any shares acquired upon vesting of the RSUs. Data will be held only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan. The Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Refusing or withdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of a refusal to consent or withdrawal of consent, the Grantee may contact his or her local human resources representative.

8. Miscellaneous.

(a) Modification; Entire Agreement; Waiver. No change, modification or waiver of any provision of this Agreement will be valid unless the same is agreed to in writing by the parties hereto. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereof. The failure of the Company to enforce at any time any provision of this Agreement will in no way be construed to be a waiver of such provision or of any other provision hereof. The Company reserves the right, however, to the extent the Company deems necessary or advisable in its sole discretion, to

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unilaterally alter or modify the awards to ensure all RSUs and the Agreements provided to Grantees who are U.S. taxpayers are made in such a manner that either qualifies for exemption from or complies with Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”); provided, however that the Company makes no representations that the RSUs will be exempt from or will comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to the RSUs.

(b) Bound by Plan and Other Related Documents. By accepting the award of RSUs, the Grantee acknowledges that the Grantee has received a copy of the Plan and General Dynamics Corporate Policy 03-103, “Detection and Prevention of Insider Trading in General Dynamics Corporation Securities” (the “Trading Policy”) and has had an opportunity to review the Plan and the Trading Policy and agrees to be bound by all the terms and provisions of the Plan and the Trading Policy.

(c) Successors. The terms of this Agreement will be binding upon and inure to the benefit of the Company, its successors and assigns, and of the beneficiaries, executors, administrators, heirs and successors of the Grantee.

(d) Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. For purposes of litigating any dispute that arises under this Award or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Virginia, and agree that such litigation shall be conducted in the courts of Virginia or the federal courts for the Eastern District of Virginia, and no other courts, where this award of RSUs is made and/or to be performed.

(e) Section 409A Compliance. To the extent applicable, it is intended that the Plan and the Agreement comply with or be exempt from the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. Accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, Grantee shall not be considered to have terminated employment with the Company for purposes of this Agreement and no payments shall be due to Grantee under Section 4(b) of this Agreement until Grantee would be considered to have incurred a “separation from service” from the Company within the meaning of Section 409A of the Code. For purposes of this Agreement, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A of the Code, and any payments described in this Agreement that are due within the “short term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. To the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement during the six-month period immediately following Grantee’s separation from service shall instead be paid on the first business day after the date that is six months following Grantee’s separation from service (or death, if earlier).

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(f) Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included.

(g) Language. If the Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different that the English version, the English version will control.

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EX-10.17

Exhibit 10.17

GENERAL DYNAMICS CORPORATION

SUPPLEMENTAL SAVINGS AND

STOCK INVESTMENT PLAN

Amended and restated

Effective as of January 1, 2009

GENERAL DYNAMICS CORPORATION

SUPPLEMENTAL SAVINGS AND

STOCK INVESTMENT PLAN

Table of Contents

SECTION 1	INTRODUCTION AND PLAN HISTORY	1
SECTION 2	DEFINITIONS	1
SECTION 3	SUPPLEMENTAL BENEFITS DUE TO LIMITATIONS UNDER THE QUALIFIED SSIP	4
SECTION 4	CREDITED EARNINGS	5
SECTION 5	PAYMENT, NONFORFEITABILITY OF BENEFITS AND MAINTENANCE OF ACCOUNTS	6
SECTION 6	SPECIAL SUPPLEMENTAL BENEFITS	8
SECTION 7	MISCELLANEOUS PROVISIONS	8
SECTION 8	AMENDMENT AND TERMINATION OF THE PLAN	10
SECTION 9	SECTION 409A COMPLIANCE	11

SECTION 1 INTRODUCTION AND PLAN HISTORY

1.1 Introduction. This Plan is maintained so as to strengthen the ability of the Company and its Subsidiaries to attract and retain persons of outstanding competence upon which, in large measure, continued growth and profitability depend. The Plan is intended to supplement Qualified Salary Deferrals and Qualified Matching Contributions. The Plan is intended to be an unfunded deferred compensation plan for a select group of management or highly compensated employees within the meanings of Sections 201(2), 301(a)(3) and 401(a)(4) of ERISA and shall be construed and interpreted accordingly.

1.2 Effective Date. This Plan was established effective January 1, 1983, and previously amended and restated as of January 1, 1987, January 1, 1998, and August 1, 2003. The Plan was further amended as of March 1, 2005. The Plan was last amended and restated effective as of December 24, 2005, and conformed to include amendments through January 1, 2007. The Plan is hereby amended and restated effective as of January 1, 2009.

1.3 Plan Appendices. From time to time, the Company may adopt Appendices to the Plan for the purpose of setting forth specific provisions or providing documentation necessary to determine benefits under the Plan for certain Employee groups. Each such Appendix shall be attached to and form a part of the Plan. Each such Appendix shall specify the population to which it applies and shall supersede the provisions of the Plan document to the extent necessary to eliminate any inconsistencies between the Plan document and such Appendix.

1.4 Applicability of Plan Provisions. The provisions of this Plan shall apply to any person who is a Participant on or after January 1, 2005, and to any Account in existence on or after January 1, 2005. Pre-2005 Accounts are considered to be “grandfathered” under Section 409A and, except as otherwise specifically provided under this Plan by reference to Pre-2005 Accounts, the benefits and rights existing as of October 3, 2004, under the prior version of the Plan applicable to any Pre-2005 Account shall continue to apply. For purposes of clarity, except as otherwise specifically provided by this Plan by reference to Pre-2005 Accounts, to the extent that benefits or rights of Pre-2005 Accounts are governed by reference to corresponding Qualified SSIP provisions, the Qualified SSIP provisions in effect as of October 3, 2004, shall apply.

SECTION 2 DEFINITIONS

Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless the context clearly indicates to the contrary. Some of the words and phrases used in the Plan are not defined in this Section 2, but, for convenience, are defined as they are introduced into the text.

2.1 Account shall mean the recordkeeping account to which Salary Deferrals, Matching Contributions and Credited Earnings are credited (or debited for Credited Earnings reflecting an investment loss) under the Plan. An Account may be divided into two or more subaccounts to the extent necessary or desirable, as determined by the Company, for Plan recordkeeping and accounting purposes. Such subaccounts are referred to herein collectively as the “Account” or “Accounts,” and sometimes individually as the “Account.”

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2.2 Accounting Date shall mean each day on which the U.S. financial markets are open for business.

2.3 Beneficiary shall mean the Participant’s beneficiary, who shall be determined by the following order: (1) the Participant’s designated beneficiary under the Qualified SSIP, (2) the Participant’s spouse, and (3) the Participant’s estate.

2.4 Change of Control shall mean a “Change of Control” as that term is defined in the Company’s Equity Compensation Plan, as amended from time to time.

2.5 Code shall mean the Internal Revenue Code of 1986, as amended from time to time and the rules and regulations promulgated thereunder.

2.6 Company shall mean General Dynamics Corporation, a Delaware corporation, and any successor thereof.

2.7 Credited Earnings shall have the meaning set forth in Section 4.1.

2.8 Eligible Employee shall mean an Employee who satisfies the eligibility criteria described at Section 3.1.

2.9 Employee shall mean any person who is regularly employed as a full-time, salaried employee by the Company or its Subsidiaries, and who is not covered by a collective bargaining agreement (except where such collective bargaining agreement specifically provides for participation). Individuals not initially treated and classified by the Company as common-law employees, including, but not limited to, leased employees, independent contractors or any other contract employees, shall be excluded from participation irrespective of whether a court, administrative agency or other entity determines that such individuals are common-law employees.

2.10 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

2.11 Key Employee shall mean a “specified employee” as that term is used under Section 409A.

2.12 Matching Contributions shall mean amounts credited to a Participant’s Account with reference to the Participant’s Salary Deferrals pursuant to Section 3.4.

2.13 Participant shall mean any current or former Employee who has an Account that has not been fully paid or otherwise discharged.

2.14 Plan shall mean the General Dynamics Corporation Supplemental Savings and Stock Investment Plan, established January 1, 1983, as amended and restated as set forth herein, as it may be amended from time to time, and its Appendices.

2.15 Plan Year shall mean the 12 month period beginning on January 1st and ending on the following December 31st.

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2.16 Post-2004 Account shall mean a Participant’s subaccount to which Salary Deferrals and Matching Contributions are credited if not earned and vested by December 31, 2004, and any Credited Earnings with respect to such amounts.

2.17 Pre-2005 Account shall mean a Participant’s subaccount to which Salary Deferrals and Matching Contributions are credited to the extent they were earned and vested on or before December 31, 2004, and any Credited Earnings with respect to such amounts.

2.18 Qualified Matching Contributions shall mean amounts contributed to the Qualified SSIP by the Company or its Subsidiaries which are determined with reference to amounts of Qualified Salary Deferrals.

2.19 Qualified Plan Limitations shall mean limitations imposed (i) pursuant to Code Sections 401(a)(17), 402(g), 415 or any other section of the Code or (ii) by the Company in order to assure compliance with the actual deferral percentage or actual contribution percentage requirements of the Qualified SSIP.

2.20 Qualified Salary Deferrals shall mean pre-tax salary deferrals made by an Employee pursuant to the Qualified SSIP.

2.21 Qualified SSIP shall mean the General Dynamics Corporation Savings and Stock Investment Plan (Plan 3.0), the General Dynamics Corporation Savings and Stock Investment Plan (Plan 4.5) and the General Dynamics Corporation Savings and Stock Investment Plan (Plan 5.0).

2.22 Salary shall mean an Employee’s “Deferral Pay,” as that term is used in the Qualified SSIP, without taking into account the limitation on annual compensation under Code Section 401(a)(17) or any successor provision thereto, or any incentive plan payments, bonuses or commissions.

2.23 Salary Deferrals shall mean amounts credited to a Participant’s Account corresponding to Salary reductions elected pursuant to Section 3.2.

2.24 Section 409A shall mean Code Section 409A, including, without limitation, applicable transition guidance provided by the Internal Revenue Service.

2.25 Separation from Service shall mean a “separation from service” as that term is defined in Section 409A.

2.26 Subsidiary shall mean any corporation of which the Company owns, directly or indirectly, fifty percent (50%) or more of the outstanding voting stock.

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SECTION 3 SUPPLEMENTAL BENEFITS DUE TO LIMITATIONS UNDER THE QUALIFIED SSIP

3.1 Eligibility.

(a) Unless otherwise directed by the Chairman of the Board of Directors of the Company (the “Chairman”), eligibility for participation in any benefits provided under this Section 3 for a given Plan Year shall be extended to selected Employees (i) who are eligible to participate in the Qualified SSIP, (ii) whose Qualified Salary Deferrals to the Qualified SSIP are restricted due to any of the Qualified Plan Limitations, and (iii) whose Salary in effect on November 1 of the year immediately preceding the given Plan Year (or such other date prescribed by the Company from time to time) equals or exceeds the annual compensation limitation of Code Section 401(a)(17) for the Plan Year.

(b) The selection of eligible Employees who may participate in the Plan shall be in the sole discretion of the Company, and participation may be limited to such otherwise eligible Employees as the Company shall determine by the application of minimum compensation levels or otherwise. All determinations shall be made prior to the given Plan Year and may be made as of a given date at the sole discretion of the Company.

(c) Notwithstanding anything to the contrary, to the extent that an Employee meets the requirements of this Section 3.1 during a Plan Year, such Employee shall not become an Eligible Employee during that Plan Year except as directed by the Chairman.

3.2 Salary Deferral Elections. Salary Deferrals shall be credited to an Eligible Employee’s Post-2004 Account in accordance with such Eligible Employee’s election and subject to the following rules:

(a) An Eligible Employee may elect to defer up to the maximum amount described in Section 3.3.

(b) An Eligible Employee’s Salary Deferral election under this Plan shall be irrevocable for the 2005 Plan Year after March 15, 2005.

(c) For Plan Years commencing after 2005, an Eligible Employee may make an irrevocable Salary Deferral election at the time and in the form prescribed by the Company, but in no event later than December 31 of the year preceding a given Plan Year.

(d) For purposes of clarity, and without limitation, the Company may prescribe a “negative” election for Salary Deferrals, meaning that it may impose an automatic or default Salary Deferral election, provided the Eligible Employee has an opportunity during the election period to affirmatively change such election.

(e) Notwithstanding the preceding requirements, in the event an Employee becomes eligible to participate during the Plan Year in accordance with Section 3.1(c) above, such Eligible Employee may make an irrevocable Salary Deferral election within 30 days from the date of eligibility with respect to any Salary earned after such election. For purposes of clarity, and without limitation, the Company may prescribe a “negative” election for Salary Deferrals, meaning that it may impose an automatic Salary Deferral election, provided the Eligible Employee has an opportunity during the election period to affirmatively change such election.

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3.3 Maximum Amount of Salary Deferrals. The maximum amount of Salary Deferrals that an Eligible Employee may elect for a given Plan Year is equal to (X times Y) minus Z, where:

X is the Eligible Employee’s annual Salary in effect as of the November 1st of the year immediately preceding the Plan Year (or such other date prescribed by the Company from time to time).

Y is the Eligible Employee’s percentage deferral limit under the Qualified SSIP (using the limit applicable to the business unit at which the Eligible Employee is assigned as of the December 15th of the year immediately preceding the Plan Year, or such other date prescribed by the Company from time to time).

Z is the Code Section 402(g) limit for such Plan Year.

3.4 Matching Contributions. An Eligible Employee may be eligible for a Matching Contribution under this Plan, which shall be credited to an Eligible Employee’s Post-2004 Account, based on his or her Salary Deferrals under this Plan. Eligibility for, and the amount of any Matching Contribution under this Plan, shall be determined by the Qualified Matching Contribution provisions in the Qualified SSIP that are applicable to the business unit to which the Eligible Employee is assigned as of the end of the Salary Deferral election period prescribed by the Company for a given Plan Year.

3.5 Transfer. For purposes of clarity, should an Eligible Employee transfer business units during a Plan Year, such Eligible Employee’s Salary Deferrals and Matching Contributions, if any, shall not change during that Plan Year to account for different deferral or matching provisions under the Qualified SSIP applicable to the Eligible Employee’s new business unit.

SECTION 4 CREDITED EARNINGS

4.1 Initial Credited Earnings. Effective for the Plan Years commencing on and after January 1, 2006, Salary Deferrals and Matching Contributions credited to the Participant’s Post-2004 Account shall be deemed invested in the same investment funds that the Participant’s Qualified Salary Deferrals are invested in as of the December 15th of the preceding Plan Year (or such other date as determined from time to time by the Company) under the Qualified SSIP. For 2005, Credited Earnings shall be determined under the prior provisions of the Plan.

4.2 Account Adjustments. Each Account shall be adjusted to reflect investment gain or loss on any balance in the Account as of the close of the immediately preceding Accounting Date. The adjustment shall be the same as what would actually have been recognized if the Account had been invested in the Qualified SSIP under the investment options actually selected by the Participant thereunder (or, with respect to initial Salary Deferrals, as determined by Section 4.1).

4.3 Investment Fund Transfers. If a Participant makes an investment fund transfer pursuant to the provisions of the Qualified SSIP, the identical investment fund transfer shall be performed in this Plan, but no such transfer shall be permitted in this Plan unless made in the Qualified SSIP. Notwithstanding the foregoing, the Company may, in its discretion, approve transfers in this Plan where no transfer is possible in the Qualified SSIP due to loans and withdrawals.

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4.4 Coordination with Qualified SSIP. The Company may adopt such rules, in its sole discretion, to coordinate the crediting of earnings under the Plan with the investment of funds under the Qualified SSIP.

SECTION 5 PAYMENT, NONFORFEITABILITY OF BENEFITS AND MAINTENANCE OF ACCOUNTS

5.1 Pre-2005 Accounts: Payment and Nonforfeitability of Benefits and Maintenance of Accounts. This Section 5.1 shall be effective as of January 1, 2005, and shall only apply to Pre-2005 Accounts. Except as otherwise provided in this Plan, a Participant’s Pre-2005 Account, if any, shall be paid under the same conditions, rules and restrictions as would apply to the benefits as if they were provided under the Qualified SSIP. The following rules shall apply to such Pre-2005 Accounts, notwithstanding the conditions, rules and restrictions of the Qualified SSIP:

(a) Participants shall not be entitled to receive distributions or loans or to make withdrawals of any portion of their Pre-2005 Account balances while employed by the Company or any of its Subsidiaries.

(b) Upon termination of employment with the Company and its Subsidiaries, the entire balance of a Participant’s Pre-2005 Account (valued as of the Accounting Date coincident with or immediately preceding the date of payment) shall be paid to the Participant as soon as administratively practicable. However, any Participant may, by a written statement (including internet and telephone methods approved by the Company for this purpose) filed with the Company or its delegated agent on or before one year prior to the termination of employment, irrevocably elect to defer commencement of such payments until a specific date which may be as late as the Participant attaining age 70 ¹/2. If a deferral is elected, the Participant may choose to have his or her Pre-2005 Account balance subsequently paid in a lump sum or in such number of equal annual installments (not to exceed 15) as he or she may request (which will commence as soon as practicable, but no later than 60 days following the payment date(s) selected, after the conclusion of the deferral period and will be payable annually thereafter). To the extent consistent with the above requirements, deferrals and installment payments of distributions shall be governed by the applicable provisions of the Qualified SSIP.

(c) All Pre-2005 Account balances shall be paid in cash. No Participant shall have any right to receive payment in any other form.

(d) Upon the death of a Participant prior to the entire balance of the Participant’s Pre-2005 Account having been paid, the remaining unpaid balance shall be payable to the Beneficiary. Amounts shall be paid as soon as practicable, but no later than 60 days following the Participant’s death.

(e) In the event that a Subsidiary ceases to meet the definition of Subsidiary (e.g., on account of a sale of its stock to an unrelated third party), or an unincorporated business unit ceases to be owned by the Company or a Subsidiary, such cessation shall not, by itself, be treated as a termination of employment by the Participants employed by such Subsidiary or business unit

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unless the Company shall so determine. In those circumstances, the Company may also determine whether the Pre-2005 Accounts of the Participants employed by such Subsidiary or business unit will be vested or distributed.

(f) The Company shall promulgate such other additional rules and procedures governing the operation of this Plan in relation to such Pre-2005 Accounts as it may, from time to time and in its sole discretion, determine are necessary or desirable.

(g) Pursuant to transition guidance under Section 409A, Participants in the Plan (i) who are former Employees (as of November 30, 2005) and (ii) whose Pre-2005 Account is worth less than $100,000 (as of November 30, 2005), shall be terminated from participation in the Plan and such Participants shall be paid their respective Accounts in a single lump sum payment on or before December 31, 2005.

5.2 Post-2004 Accounts: Payment and Nonforfeitability of Benefits and Maintenance of Accounts. This Section 5.2 shall be effective as of January 1, 2005, and shall apply to Post-2004 Accounts.

(a) Six months following a Separation from Service from the Company and its Subsidiaries, the entire balance of a Participant’s Post-2004 Account (valued as of the Accounting Date coincident with or immediately preceding the date of payment) shall be paid to the Participant as soon as administratively practicable, but no later than 60 days following the six-month anniversary of the Participant’s Separation from Service. Nothwithstanding the foregoing, in the event that a Participant’s Post-2004 Account is less than the applicable dollar amount under Section 402(g) of the Code, the Company shall have the discretion to distribute such amount in a single lump sum payment.

(b) All Post-2004 Account balances shall be paid in cash. No Participant shall have any right to receive payment in any other form.

(c) In the event that a Subsidiary ceases to meet the definition of Subsidiary (e.g., on account of a sale of its stock to an unrelated third party), or an unincorporated business unit ceases to be owned by the Company or a Subsidiary, the Company, in its sole discretion, may fully vest the Post-2004 Account balances of Participants employed by such Subsidiary or business unit and the Post-2004 Account shall be paid in accordance with Section 5.2(a).

(d) The Company shall promulgate such other additional rules and procedures governing the operation of this Plan in relation to such Post-2004 Accounts as it may, from time to time and in its sole discretion, determine are necessary or desirable.

(e) Notwithstanding, Section 5.2(a) above, upon the death of a Participant prior to the entire balance of the Participant’s Post-2004 Account having been paid, the remaining unpaid balance shall be payable to the Beneficiary as soon as practicable but no later than 60 days following the Participant’s death.

(f) Notwithstanding anything to the contrary contained in this Section 5.2, payment to a Participant shall be delayed should the Company reasonably anticipate that the making of such payment would violate federal securities laws or other applicable law. In such an event, payment shall be made at the earliest date at which the Company reasonably anticipates that the making of the payment would not cause such violation.

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SECTION 6 SPECIAL SUPPLEMENTAL BENEFITS

6.1 Participation. Recognizing the need to make special retirement and other compensation or employee benefit provisions for certain Employees, the Company may, from time to time and in its best judgment, designate such other individual Employees or groups of select management or highly compensated Employees as being eligible to receive benefits under this Plan. Any such Employees or groups of Employees, and the benefits applicable to them, will be described in the Appendices attached to this Plan.

6.2 Benefits. Such supplemental benefits may be provided in such amounts as the Company determines are appropriate. Such benefits need not be uniform among such Employees.

SECTION 7 MISCELLANEOUS PROVISIONS

7.1 Construction. In the construction of the Plan, the masculine shall include the feminine and the singular the plural in all cases where such meanings would be appropriate. Except as may be governed by ERISA or other applicable federal law, this Plan shall be construed, governed, regulated and administered according to the laws of the Commonwealth of Virginia.

7.2 Employment. Participation in the Plan shall not give any Employee the right to be retained in the employ of the Company or its Subsidiaries, or upon dismissal or upon his or her voluntary termination of employment, to have any right, legal or equitable, under the Plan or any portion thereof, except as expressly granted by the Plan.

7.3 Nonalienability of Benefits. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, and no such benefit shall in any manner be liable for or subject to the debts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in the Plan.

7.4 Facility of Payment. If the Company judges any recipient of benefits, in its sole discretion, to be legally incapable of personally receiving and giving a valid receipt for any payment due him or her under the Plan, the Company may, unless and until claims shall have been made by a duly appointed guardian or committee of such person, make such payment or any part thereof to such person’s spouse, children or other legal entity deemed by the Company to have incurred expenses or assumed responsibility for the expenses of such person. Any payment so made shall be a complete discharge of any liability under the Plan for such payment.

7.5 Obligation to Pay Amounts Hereunder.

(a) No trust fund, escrow account or other segregation of assets need be established or made by the Company to guarantee, secure or assure the payment of any amount payable hereunder. The Company’s obligation to make payments pursuant to this Plan shall constitute only a general contractual liability of the Company to individuals entitled to benefits hereunder and other actual or possible payees hereunder in accordance with the terms hereof. Payments

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hereunder shall be made only from such funds of the Company as it shall determine, and no individual entitled to benefits hereunder shall have any interest in any particular asset of the Company by reason of the existence of this Plan. No provision of the Plan shall be interpreted so as to give any individual any right in any assets of the Company greater than the rights of a general unsecured creditor of the Company. It is expressly understood as a condition for receipt of any benefits under this Plan that the Company is not obligated to create a trust fund or escrow account or to segregate any asset of the Company in any fashion.

(b) The Company may, in its sole discretion, establish segregated funds, escrow accounts or trust funds whose primary purpose would be for the provision of benefits under this Plan. If such funds or accounts are established, however, individuals entitled to benefits hereunder shall not have any identifiable interest in any such funds or accounts nor shall such individuals be entitled to any preference or priority with respect to the assets of such funds or accounts. These funds and accounts would still be available to judgment creditors of the Company and to all creditors in the event of the Company’s insolvency or bankruptcy.

7.6 Administration. The Plan shall be administered by the Company. The Company shall have the discretionary authority to construe and interpret the provisions of the Plan and make factual determinations thereunder, including the power to determine the rights or eligibility of Employees or Participants and any other persons, and the amounts of their benefits under the Plan, and to remedy ambiguities, inconsistencies or omissions, and any such determinations shall be binding on all parties. Benefits will only be paid if the Company, in its sole discretion, determines that the Participant or Beneficiary is entitled to them.

The Company has the authority to delegate any of its powers under this Plan (including, without limitation, Section 7.7) to any other person, persons, or committee. This person, persons, or committee may further delegate its reserved powers to another person, persons, or committee as they see fit. Any delegation or subsequent delegation shall include the same full, final and discretionary authority that the Company has listed herein and any decisions, actions or interpretations made by any delegate shall have the same ultimate binding effect as if made by the Company.

7.7 Claims Appeal Procedure. Upon receipt of a claim for benefits under the Plan, the Company shall notify the Participant, Beneficiary or authorized representative of any action taken within 90 days of receiving the claim. If the claim is denied, the denial shall be set forth in writing and shall include the specific reasons for the denial, with reference to pertinent Plan provisions on which the denial is based, and shall describe the procedure for perfecting the claim, or for requesting a review of the denial. Within 60 days after receiving a notification of denial of a claim, a Participant, Beneficiary or authorized representative may request that the Company make a full and fair review of the denial. In connection with this request, the Participant may review pertinent documents and submit issues or comments in writing. The Company will make a final decision on the claim within 120 days of the request for review. Any decision made by the Company in good faith shall be final and binding on all parties.

7.8 Change of Control. Notwithstanding any provision herein to the contrary, immediately prior to the occurrence of a Change of Control, all allocations made to Accounts of Participants who are then active Employees shall become fully vested and nonforfeitable.

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7.9 Action by the Company. Any action or authorization by the Company hereunder shall be made by the Chairman or its Board of Directors, or any delegate of either.

SECTION 8 AMENDMENT AND TERMINATION OF THE PLAN

8.1 Amendment. The Company has the right to modify or amend this Plan in whole or in part, effective as of any specified date; provided, however, that the Company shall have no authority to modify or amend the Plan to:

(a) Reduce any benefit accrued hereunder based on service and compensation to the date of amendment unless such action is necessary to prevent this Plan from being subject to any provision of Title 1, Subtitle B, Parts 2, 3 or 4 of ERISA;

(b) Permit the accrual, holding or payment of actual shares of common stock of the Company under the Plan (such right to amend being reserved to the Board of Directors of the Company or its delegate); or

(c) Adversely affect any accrued benefits hereunder (and any benefits that will accrue upon a Change of Control) and any rights attaching thereto after or in anticipation of the occurrence of a Change of Control.

No benefit hereunder shall be deemed to be adversely affected or otherwise reduced to the extent that any amendment or action affects the tax treatment of Plan benefits or an interest in future investment returns.

8.2 Termination.

(a) The Company reserves the right to terminate this Plan, in whole or in part. This Plan shall be automatically terminated upon (i) a dissolution of the Company (but not upon a merger, consolidation, reorganization, recapitalization or acquisition of a controlling interest in the voting stock of the Company by another person or entity); (ii) the Company being legally adjudicated bankrupt; (iii) the appointment of a receiver or trustee in bankruptcy with respect to the Company’s assets and business if such appointment is not set aside within ninety (90) days thereafter; or (iv) the making by the Company of an assignment for the benefit of creditors.

(b) Upon a termination of this Plan, (i) no additional Employees shall become entitled to benefits hereunder; (ii) all benefits accrued through the date of termination will become immediately nonforfeitable as to each Participant; and (iii) no additional benefits (except that the Company, in its sole discretion, may provide for an allocation of “income” or “earnings” on the Participant’s contributions) shall be accrued hereunder for subsequent payment.

(c) Pre-2005 Accounts accrued to the date of termination of the Plan shall be paid to the Participants as soon as practicable.

(d) Post-2004 Accounts accrued to the date of termination of the Plan shall be paid to the Participants as soon as practicable to the extent permitted under Section 409A and otherwise shall remain payable in accordance with Section 5.2.

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SECTION 9 SECTION 409A COMPLIANCE

It is intended that the Plan (and any payments) will comply with or be exempt from Section 409A, if applicable, and the Plan (and any payments) shall be interpreted and construed on a basis consistent with such intent. The Plan (and any payments) may be amended (in accordance with Section 8.1 of the Plan) in any respect deemed necessary or desirable (including retroactively) by the Company with the intent to preserve compliance with or exemption from Section 409A. The preceding shall not be construed as a guarantee of any particular tax effect for Plan benefits. A Participant (or Beneficiary) is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on such person in connection with the Plan (including any taxes and penalties under Section 409A), and the Company shall have no obligation to indemnify or otherwise hold a Participant (or Beneficiary) harmless from any or all of such taxes or penalties.

Following a Change of Control or a “change in control” as defined under Section 409A, no action shall be taken under the Plan that will cause a Participant’s benefit that has previously been determined to be (or is determined to be) subject to Section 409A, to fail to comply in any respect with Section 409A without the written consent of such Participant.

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EX-10.18

Exhibit 10.18

SEVERANCE PROTECTION AGREEMENT

SEVERANCE PROTECTION AGREEMENT dated December     , 2008, 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 terms “Beneficially Owned” and “Beneficial Ownership” each have a correlative meaning.

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

“Bonus Amount” means the greater of (a) the annual bonus paid or payable to the Executive pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year ending immediately prior to the fiscal year in which the Termination Date occurs or (b) the average of the annual bonus paid or payable to the Executive pursuant to any annual bonus or incentive plan maintained by the Company in respect of each of the three fiscal years ending immediately prior to the fiscal year in which the Termination Date occurs (or, if higher, ending in respect of each of the three fiscal years ending immediately prior to the year in which the Change in Control occurs).

“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 who immediately after such acquisition 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, (iii) any Person that, pursuant to Rule 13d-1 promulgated under the Securities Exchange Act, is permitted to, and actually does, report its beneficial ownership of voting securities of the Company on Schedule

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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, (iv) any Person in connection with a Non-Control Transaction (as hereinafter defined) or (v) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities, will not constitute an acquisition which results in a Change in Control;

(b) Consummation of:

(i) a merger, consolidation or reorganization involving the Company, or any direct or indirect Subsidiary of 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”) 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;

(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 Corporation (or 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 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% or more of the then outstanding

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voting securities of the Company) is the Beneficial Owner of 40% 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”; or

(ii) the complete liquidation or dissolution of the company.

(iii) a sale or other disposition of all or substantially all of the assets of the Company to an entity (other than to an entity (A) of which at least 50% 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 if the board of directors of which is comprised of the individuals who were members of the Board immediately prior to the execution of the agreement providing for such sale or 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 or any of its Subsidiaries, 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% or more of the then outstanding voting securities of the Company) has Beneficial Ownership of 40% 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 date first written above whose election, or nomination for election by Company stockholders, was approved by a vote of two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, unless any such individual’s initial assumption of office occurs as a result of either an actual or threatened election contest (including, but not limited to, a consent solicitation).

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(d) 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 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.

(e) 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 or (ii) otherwise occurred in connection with, or in anticipation of, a Change in Control, 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.

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“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, (iii) removal of the Executive from or failure to reappoint or reelect the Executive to any of such offices or positions, or (iv) in the case of an Executive who is an executive officer of the Company a significant portion of whose responsibilities relate to the Company’s status as a public company, the failure of such Executive to continue to serve as an executive officer of a public company, in each 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 (i) at any place outside a 50-mile radius from the Executive’s principal place of employment immediately prior to the Change in Control or (ii) at any location other than the Company’s corporate headquarters or, if applicable, the headquarters of the business unit by which he was employed immediately prior to the Change in Control, except, in each case, 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 and without unreasonably establishing or modifying any performance or other criteria used to determine reward levels) 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 180 days preceding the date of the Change in Control or at any time thereafter;

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(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.

Notwithstanding anything to the contrary in this Agreement, no termination will be deemed to be for Good Reason hereunder if it results from an isolated, insubstantial and inadvertent action not taken by the Company in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive.

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

“Notice of Termination” means a written notice from the Company or the Executive 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.

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“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”), and if applicable, an individual retirement benefit agreement with the Company or any of its Subsidiaries. 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, five days after the date the Notice of Termination is received by the Company, 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).

Section 2. Term of Agreement. The term of this Agreement (the “Term”) will commence on the date hereof and will continue in effect until December 31, 2009; provided that on December 31, 2009 and each anniversary of such date thereafter, the Term shall automatically be extended for one additional year unless, not later than October 1 of such year, the Company or the Executive shall have given notice not to extend the Term; and further provided that in the event a Change in Control occurs during the Term, the Term will be extended to the date 24 months after the date of the occurrence of such Change in Control.

Section 3. Termination of Employment.

3.1 If, during the Term, 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.

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(b) If the Executive’s employment with the Company is terminated for any reason other than as specified in 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 [1.5 – 2.99] times the sum of (A) the Base Amount and (B) the Bonus Amount;

(iii) for a period of [18 – 36] 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 coverage 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;

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(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 an additional [18 – 36] months of age and service credit, (2) the Executive’s annual compensation during such period had been equal to the Executive’s Base Salary and the Bonus Amount, (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;

(v) the Company shall credit the Executive with [18 – 36] months of additional age and service credit for purposes of qualifying for any post-retirement health or welfare benefits provided by the Company as in effect immediately prior to the Termination Date or, if more favorable to the Executive, as in effect at the time of the Change in Control or at any time thereafter prior to the Termination Date;

(vi) the Company shall provide the Executive with outplacement services suitable to the Executive’s position for a period of 12 months or, if earlier, until the first acceptance by the Executive of an offer of employment; and

(vii) The Company shall reimburse the Executive for financial counseling and tax planning service costs incurred within [12 – 36] months following the Termination Date; provided that the aggregate cost of such financial counseling and tax planning services shall not exceed $10,000 in any calendar year.

(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. Notwithstanding anything to the contrary in this Agreement, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement

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during the six-month period immediately following the Executive’s termination of employment shall instead be paid on the first business day after the date that is six months following the Executive’s “separation from service” within the meaning of Section 409A of the Code. Any amount the payment of which is delayed in accordance with the preceding sentence shall be paid with interest at an annual rate equal to the prime rate (as determined by the Northern Trust Company of Chicago from time to time) from the date on which such amount would otherwise have been paid until the actual date of payment.

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

(e) Notwithstanding anything in this Agreement to the contrary, the Executive shall not be entitled to the payments or benefits provided in this Section 3.1 until the Executive has incurred a “separation from service” under Section 409A of the Code.

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 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’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.

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

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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, subject to Section 5.3 below, 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 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, 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 5.4.

5.3 Notwithstanding the foregoing provisions of this Section 5, if it shall be determined that any Payment would be subject to the Excise Tax, but the aggregate Payments do not exceed by at least $50,000 the greatest amount (the “Reduced Amount”) that could be paid to the Executive such that the receipt of the aggregate Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the aggregate Payments shall be reduced to the Reduced Amount. The Executive shall be entitled to determine which Payments shall be reduced.

5.4 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”), a Gross-Up Payment (or a portion thereof) which should be paid will not be paid (an “Underpayment”) or that a portion of the Reduced Amount will be subject to Excise Tax (an “Under Reduction”).

(a) An Underpayment will be deemed to have occurred (i) upon notice (formal or informal) to the Executive from any governmental taxing authority that the Executive’s tax liability (whether in respect of the

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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, (ii) upon a determination by a court, (iii) 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 (iv) 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.

(b) 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 other reduction in the Executive’s tax liability by reason of the Excess 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.

(c) An Under Reduction will be deemed to have occurred (i) 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 in respect of a Payment, (ii) upon a determination by a court that Excise Tax is due in respect of an Payment, or (iii) 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) that it must withhold Excise Tax in respect of a Payment. The Executive will promptly notify the Company of any assertion of an Under Reduction of which the Company does not have knowledge. If an Under Reduction is determined to have occurred, then, if a repayment by the Executive to the Company would result in (x) no portion of the remaining aggregate Payments being

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subject to the Excise Tax and (y) a dollar-for-dollar reduction in the Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, the Executive shall repay the Company upon demand an amount (the “Under Reduction Amount”) equal to the amount of the aggregate Payments made to the Executive in excess of the amount which is subsequently determined to be the greatest amount of aggregate Payments that could be paid to the Executive such that the receipt of the aggregate Payments would not give rise to any Excise Tax.

(d) If an Excess Payment or Under Reduction is determined to have been made, the Executive will pay to the Company on demand (but not less than 10 days after the determination of such Excess Payment or Under Reduction and written notice has been delivered to the Executive) the amount of the Excess Payment or Under Reduction Amount plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code (the “Interest”) from the date such payment was made 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 the Executive’s Excess Payment, Underpayment or Under Reduction Amount.

5.5 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.

5.6 Notwithstanding anything in this Agreement to the contrary, in no event shall payments under this Section 5 be made later than the end of the Executive’s taxable year following the taxable year in which the Executive remits the related Excise Tax.

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

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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. Such payments shall be made no later than the last day of the Executive’s taxable year following the taxable year in which the fee or expense was incurred.

Section 8. Retirement Benefit Agreement. Upon the occurrence of a Change in Control, any benefits under an individual retirement benefit agreement between the Company and the Executive to which the Executive would be entitled to upon an involuntary termination of the Executive’s employment by the Company other than for cause shall become fully vested and shall, notwithstanding anything in such agreement to the contrary, be nonforfeitable under any circumstances.

Section 9. 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 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 10. 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 11. 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 12. 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

15

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 13. 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 14. 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 15. 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 in Control.

Section 16. Section 409A. The intent of the parties is that payments and benefits under this Agreement comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, the Executive shall not be considered to have terminated employment with the Company for purposes of this Agreement until the Executive would be considered to have incurred a “separation from service” from the Company within the meaning of Section 409A of the Code. To the extent required to avoid an accelerated or additional tax under Section 409A of the Code, amounts reimbursable to Executive under this Agreement shall be paid to the Executive on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits provided to the Executive) during any one year may not effect amounts reimbursable or provided in any subsequent year.

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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

Name:

Title:

[Executive’s Name]

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EX-10.19

Exhibit 10.19

GENERAL DYNAMICS CORPORATION

SUPPLEMENTAL RETIREMENT PLAN

Effective January 1, 1983

and restated effective January 1, 2009

TABLE OF CONTENTS

		Page
SECTION 1 INTRODUCTION AND PLAN HISTORY		1
1.01	Introduction	1
1.02	Effective Date	1
1.03	Plan Appendices and Exhibits	1
SECTION 2 DEFINITIONS		1
2.01	Actuarial Equivalent Value	2
2.02	Actuary	2
2.03	Code	2
2.04	Corporation	2
2.05	Defined Benefit Plan	2
2.06	Defined Contribution Plan	2
2.07	Determination Date	2
2.08	Employee	2
2.09	Employing Unit	2
2.10	ERISA	3
2.11	Grandfathered Amounts	3
2.12	Participant	3
2.13	Plan	3
2.14	Retirement Plan	3
2.15	Separation from Service	3
2.16	Subsidiary	3
SECTION 3 SUPPLEMENTAL BENEFITS DUE TO LIMITATIONS UNDER DEFINED BENEFIT PLANS		3
3.01	Participation	3
3.02	Transition Rules	4
3.03	Supplemental Benefit Due to Limitations Under Defined Benefit Plans	4
3.04	Forms of Distribution for Grandfathered Amounts	5
3.05	Forms of Distribution for Benefits Without Lump-Sum Option	5
3.06	Forms of Distribution for Benefits With Lump-Sum Option	5
3.07	Election of Alternative Annuity Forms	5
3.08	Distribution Date of non-Grandfathered Amounts	5
3.09	Small-Sum Cashout	6
3.10	Reemployment	6
3.11	Distribution of Benefit to Commence Within 90 Days	6
SECTION 4 SPECIAL SUPPLEMENTAL BENEFITS		7

i

4.01	Participation	7
4.02	Benefits	7
SECTION 5 MISCELLANEOUS PROVISIONS		7
5.01	Construction	7
5.02	Employment	7
5.03	Non-alienability of Benefits	7
5.04	Facility of Payment	7
5.05	Discretionary Payment of Benefits	8
5.06	Obligation to Pay Amounts Hereunder.	8
5.07	Administration	8
SECTION 6 AMENDMENT AND TERMINATION OF PLAN		11
6.01	Amendment	11
6.02	Termination	11
6.03	Delegation	11
6.04	Section 409A	11
Appendix A		A-1
Appendix B		B-1
Appendix C		C-1
Appendix D		D-1
Appendix E		E-1

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SECTION 1

INTRODUCTION AND PLAN HISTORY

1.01 Introduction.

(a) This Plan is maintained so as to strengthen the ability of the Corporation to attract and retain persons of outstanding competence upon which, in large measure, continued growth and profitability depend.

(b) The Plan is intended to supplement any benefits that may be provided under any plans of the Corporation and its Subsidiaries, as they may be in effect from time to time, that are qualified under Code Section 401. The Corporation shall not be required to fund, in any way, any of the benefits provided under this Plan prior to the time payments become due to persons hereunder.

(c) The Plan is intended to be an excess benefit plan within the meanings of Sections 3(36) and 201(7) of ERISA and an unfunded deferred compensation plan for a select group of management or highly compensated employees within the meanings of Sections 201(2), 301(a)(3) and 401(a)(4) of ERISA and Labor Regulation Section 2520.104-23, and shall be construed and interpreted accordingly.

1.02 Effective Date. The Plan was established January 1, 1983, was amended and restated as of January 1, 1989, and as of January 1, 2002, and was subsequently amended from time to time. The Effective Date of the amendment and restatement of the Plan as set forth herein is January 1, 2009, except as otherwise provided in the Plan or an Appendix.

1.03 Plan Appendices and Exhibits. From time to time, the Corporation may adopt Exhibits to the Plan for the purpose of setting forth specific provisions of this Plan. In addition, the Corporation may from time to time adopt Appendices to this Plan for the purpose of providing documentation necessary to determine benefits under the Plan for certain employee groups. Each such Exhibit or Appendix shall be attached to and form a part of the Plan. Each such Exhibit or Appendix shall specify the Employing Unit to which it applies and shall supersede the provisions of the Plan document to the extent necessary to eliminate any inconsistencies between the Plan document and such Exhibit or Appendix.

SECTION 2

DEFINITIONS

Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless the context clearly indicates to the contrary. Some of the words and phrases used in the Plan are not defined in this Section 2, but, for convenience, are defined as provided in an Appendix or Exhibit or as they are introduced into the text.

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2.01 Actuarial Equivalent Value. “Actuarial Equivalent Value” shall mean an amount determined by an Actuary that is of the equivalent value to the aggregate amounts expected to be received under different forms of payment under the Plan and based on actuarial assumptions adopted under the Defined Benefit Plan in which the Plan Participant benefits. For purposes of determining a lump sum value where no lump sum payment option, other than the small benefit cashouts described in Section S5.5 of the Master Retirement Plan Supplement (or any successor provision thereto), is available under the Defined Benefit Plan, the lump sum value shall be based on the actuarial assumptions that would be used for determining a small benefit cashout.

2.02 Actuary. “Actuary” shall mean one or more actuaries chosen by the Corporation, who shall be independent of the Corporation, and qualified through Fellowship in the Society of Actuaries or a firm with such actuaries on its staff.

2.03 Code. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the applicable regulations and other guidance issued thereunder.

2.04 Corporation. “Corporation” shall mean General Dynamics Corporation, a Delaware corporation, and any successor thereof.

2.05 Defined Benefit Plan. “Defined Benefit Plan” shall mean any Retirement Plan maintained by the Corporation or its Subsidiaries other than a Defined Contribution Plan as its specific benefit structure is defined with respect to a group of covered employees. Defined Benefit Plans covered by this Plan are listed in Appendix A.

2.06 Defined Contribution Plan. “Defined Contribution Plan” shall mean a Retirement Plan which provides for an individual account for each covered Employee and for benefits based solely upon the amount contributed to the Employee’s account, and any income, expenses, gains and losses, and any other amounts which may be allocated to such account.

2.07 Determination Date. “Determination Date” shall mean the first day of the month following the later of the Participant’s attainment of age 55 or the Participant’s Separation from Service, including Separation from Service on account of death.

2.08 Employee. “Employee” shall mean any person regularly employed as a full-time salaried or hourly employee by the Corporation or its Subsidiaries in any capacity including officers (and also including directors who regularly render services to the Corporation or its Subsidiaries as regular full-time employees), and who is not covered by a collective bargaining agreement unless coverage under this Plan has been extended by negotiated agreement to Employees covered by the terms of such agreements. Individuals not initially treated and classified by the Corporation as common-law employees, including, but not limited to, leased employees, independent contractors or any other contract employees, shall be excluded from participation irrespective of whether a court, administrative agency or other entity determines that such individuals are common-law employees.

2.09 Employing Unit. “Employing Unit” shall mean any Subsidiary or affiliate of the Corporation or any economic or organizational or locational division or unit thereof which is set forth in the Appendices to the Plan.

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2.10 ERISA. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

2.11 Grandfathered Amounts. “Grandfathered Amounts” shall mean any amounts under this Plan which were deferred and vested before January 1, 2005 (as determined in accordance with Code Section 409A).

2.12 Participant. “Participant” shall mean an Employee who satisfied the eligibility criteria described in Section 3.01, 4.01 or an Appendix.

2.13 Plan. “Plan” shall mean the Supplemental Retirement Plan effective January 1, 1983, and restated as set forth herein effective January 1, 2009, as it shall be amended from time to time and its Appendices and Exhibits.

2.14 Retirement Plan. “Retirement Plan” shall mean any plan, fund, or program which was heretofore or is hereafter established or maintained by the Corporation and/or its Subsidiaries and which is qualified under Code Section 401 to the extent that by its express terms or as a result of surrounding circumstances such plan, fund or program:

(a) provides retirement income to Employees; or

(b) results in a deferral of income by Employees for periods extending to the termination of covered employment or beyond,

regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.

2.15 Separation from Service. “Separation from Service” shall have the meaning set forth in Code Section 409A.

2.16 Subsidiary. “Subsidiary” shall mean any subsidiary of the Corporation authorized by the Corporation to participate in this Plan with respect to its Employees and of which the Corporation owns, directly or indirectly, fifty percent (50%) or more of the outstanding voting stock.

SECTION 3

SUPPLEMENTAL BENEFITS DUE TO LIMITATIONS

UNDER DEFINED BENEFIT PLANS

3.01 Participation. Eligibility for participation for any benefits provided under Section 3.03 shall be extended to Employees covered under a benefit structure identified in Appendix A either who are members of a select group of management or highly compensated employees with benefits payable under such benefit structure restricted due to the limitations of Code Section 401(a)(17) or whose benefits payable thereunder are restricted due to Code Section 415 limitations.

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Notwithstanding the preceding paragraph, an Employee shall not be eligible for a benefit under Section 3.03 if such Employee is eligible for benefits under an Appendix (other than Appendix A) or an agreement with the Corporation or its Subsidiaries where such Appendix or agreement provides benefits in lieu of benefits described in Section 3.03 unless such Appendix or agreement provides otherwise.

3.02 Transition Rules.

(a) Except as otherwise specifically provided herein with respect to Grandfathered Amounts, any benefit pursuant to this Plan distribution of which commenced prior to January 1, 2009, shall continue to be paid in the same amount and in the same time and form of payment as elected by the Participant prior to the Effective Date.

(b) A Participant with a Plan benefit that is solely a Grandfathered Amount the distribution of which has not commenced prior to January 1, 2009, shall be eligible for a Plan benefit in accordance with the terms of the Plan as in effect as of the date of such Participant’s termination of employment, without regard to any forms of benefit that are no longer available under the Defined Benefit Plan of which the Participant is a member as of the date distribution of such Participant’s benefit commences.

3.03 Supplemental Benefit Due to Limitations Under Defined Benefit Plans.

The benefit payable to or on behalf of a Participant eligible under Section 3.01 with a Determination Date on or after January 1, 2009, other than a Participant described in Section 3.02 above, shall be an amount equal to the excess, if any, of (X) over (Y) as follows:

(X) The total benefit that would have been provided to the Participant under the various Defined Benefit Plans of which the Participant is a member without regard to the limitations of Code Sections 415 or 401(a)(17), where such benefit is calculated in the form of a single life annuity payable as of the Determination Date.

(Y) The benefit that would have been payable to the Participant under the various Defined Benefit Plans of which the Participant is a member, after giving effect to the limitations of Code Section 415 and 401(a)(17) where such benefit is calculated in the form of a single life annuity payable as of the Determination Date.

However, calculation of the benefit pursuant to this Section shall reflect any restrictions and/or modifications described in Appendix A that may be applicable to the Participant. In the event that the Determination Date of a Participant is earlier than when the Participant would first be eligible for early commencement of benefits from the underlying Defined Benefit Plan, the monthly amount payable upon such earlier commencement shall be reduced in accordance with the actuarial equivalent early commencement basis that would be applicable under the General Dynamics Salaried Retirement Plan for a Participant terminating prior to the attainment of age 55 but with ten years of service.

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3.04 Forms of Distribution for Grandfathered Amounts. Any Grandfathered Amounts shall be subject to the distribution forms and elections under this Plan as in effect on December 31, 2004 to the extent that such forms continue to be available under the Defined Benefit Plan of which the Participant is a member as of the date distribution of such Participant’s benefit commences.

3.05 Forms of Distribution for Benefits Without Lump-Sum Option. Payment of benefits under the Plan (other than with respect to Grandfathered Amounts), with respect to Defined Benefit Plans that as of January 1, 2005, did not provide for a lump sum payment option, shall be as follows:

(a) The normal form of distribution of benefits subject to this Section 3.05 if the Participant is legally married at the Determination Date shall be in the form of a 100% Contingent Annuitant Option, which is a reduced retirement benefit payable to the Participant during his or her lifetime, with 100% of such retirement benefit continuing to and for the lifetime of the participant’s spouse, if such spouse survives the Participant.

(b) The normal form of distribution of benefits subject to this Section 3.05 if the Participant is not legally married at the Determination Date shall be in the form of a single life annuitant option, which is a retirement benefit payable to the Participant for the remainder of his or her lifetime.

3.06 Forms of Distribution for Benefits With Lump-Sum Option. Payment of benefits under the Plan (other than with respect to Grandfathered Amounts), with respect to Defined Benefit Plans that as of January 1, 2005, provided for a lump sum distribution option, shall be as follows:

(a) The normal form of distribution of benefits subject to this Section 3.06 with respect to benefits for which a lump sum option under the underlying Defined Benefit Plan was available as of January 1, 2005, shall be in a lump sum payment.

(b) The normal form of distribution of benefits subject to this Section 3.06 but not subject to Section 3.06(a) shall be (1) if the Participant was legally married at the Determination Date, in the form of a 100% Contingent Annuitant Option (as described in Section 3.05) and (2) if the Participant is not legally married at the Determination Date, in the form of a single life annuitant option (as described in Section 3.05).

3.07 Election of Alternative Annuity Forms. With respect to non-Grandfathered Amounts that are payable under Sections 3.05 or 3.06(b), a Participant may elect, at any time prior to the Determination Date, to change from the normal form of distribution to another optional form of distribution with an Actuarial Equivalent Value that is provided for in the underlying Defined Benefit Plan.

3.08 Distribution Date of non-Grandfathered Amounts.

(a) Later of Age 55 or 6 Months Following Separation From Service. Except as provided in paragraph (b), below, distribution of a Participant’s benefits under the Plan (other than with respect to Grandfathered Amounts) shall commence on the

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Participant’s Determination Date; provided however that distribution of such benefits shall commence no earlier than the first day of the first month that is more than 6 months following the Participant’s Separation from Service. Payments that are delayed pursuant to the proviso in the preceding sentence shall be accumulated with interest during such deferral period based on the third segment rate in effect in November of the year prior to the year in which the Determination Date occurs and with application of the §417(e)(3)(D) adjustment for plan years beginning prior to 2012.

(b) Disability. If the Participant incurs a “disability” (as defined in Code Section 409A), distribution of the Participant’s benefits under the Plan (other than with respect to Grandfathered Amounts) shall commence upon the Participant’s attainment of age 65.

3.09 Small-Sum Cashout. In the event that the single lump sum Actuarial Equivalent Value of any benefit subject to Section 3.05 or Section 3.06(b), determined as of the Determination Date (or the date specified in Section 3.08(b), if applicable) is less than $100,000, such benefit shall be distributed in a single lump sum payment. In addition, in the event that the single lump sum Actuarial Equivalent Value of any benefit subject to Section 3.05 or Section 3.06(b), aggregated with benefits (other than Grandfathered Amounts) under other plans of the Corporation that are of a “single type” with this Plan pursuant to Treas. Reg. § 1.409A-1(c)(2), is less than the applicable dollar amount under § 402(g)(1)(B) of the Code, the Corporation shall have the discretion to distribute such amount in a single lump sum payment.

3.10 Reemployment. Except as otherwise provided in this Section 3.10, there will be no suspension of benefits under this Plan in the event of reemployment of the Participant by the Corporation or any Subsidiary following the Participant’s Determination Date. Re-employment of a Participant following such Participant’s Determination Date shall not affect the Participant’s rights to continued receipt of benefits previously earned by such Employee. Notwithstanding the foregoing, if a Participant who is receiving Grandfathered Amounts is reemployed with the Corporation or an affiliate of the Corporation and, in connection with such reemployment, his Defined Benefit Plan benefit payment is suspended, payment of his Grandfathered Amounts will be suspended for the same period. Payment of such Grandfathered Amounts will recommence at the same time as his or her benefit under the Defined Benefit Plan and recommencement of the Grandfathered Amounts will be adjusted in accordance with the provisions of the Plan to reflect the period of suspension and benefits previously paid. However, any additional benefits earned attributable to service associated with the Grandfathered Amounts shall be treated as non-Grandfathered Amounts.

3.11 Distribution of Benefit to Commence Within 90 Days. In accordance with the provisions of Section 409A, distributions of a Participant’s benefits (other than Grandfathered Amounts) shall be paid or commence no later than the fifteenth (15^th) day of the third (3^rd) month following the date on which payment of benefits is scheduled to commence pursuant to Section 3.08.

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SECTION 4

SPECIAL SUPPLEMENTAL BENEFITS

4.01 Participation. Recognizing the need to make special retirement and other compensation or employee benefit provisions for certain Employees of Employing Units, the Corporation may, from time to time and in its best judgment, designate groups of select management or highly compensated employees as being eligible to receive additional benefits, substitute benefits, or more restrictive benefits than are found in Section 3.03 of the Plan. Any such Employees or groups of Employees shall be described in Appendices attached to this Plan or in other agreements with the Corporation or its Subsidiaries.

Such Employees shall not be eligible for a benefit under Section 3.03 to the extent such appendices or agreements provide for benefits in lieu of benefits described in Section 3.03 unless such Appendix or agreement provides otherwise. For those Employees with individual agreements, unless expressly provided in the agreement, the provisions of this Plan shall not apply to the benefit attributable to such agreement.

4.02 Benefits. Such benefits may be provided only to select management or highly compensated employees in such amounts as the Corporation determines are appropriate.

SECTION 5

MISCELLANEOUS PROVISIONS

5.01 Construction. In the construction of the Plan the masculine shall include the feminine and the singular shall include the plural in all cases where such meanings would be appropriate. This Plan shall be construed, governed, regulated, and administered according to the laws of the State of Virginia.

5.02 Employment. The Plan is not an employment contract. Participation in the Plan shall not give any Employee the right to be retained in the employ of the Corporation or its Subsidiaries, or upon dismissal or upon his voluntary termination of employment, to have any right, legal or equitable, under the Plan or any portion thereof, except as expressly granted by the Plan.

5.03 Non-alienability of Benefits. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for or subject to the debts, liabilities, engagements, or torts of the person entitled to such benefit, except as specifically provided in the Plan.

5.04 Facility of Payment. If any recipient of benefits is, in the judgment of the Corporation, legally incapable of personally receiving and giving a valid receipt for any payment due him under the Plan, the Corporation may, unless and until claims shall have been made by a duly appointed guardian or committee of such person, make such payment or any part thereof to such person’s spouse, children, or other legal entity deemed by the Corporation to have incurred expenses or assumed responsibility for the expenses of such person. Any payment so made shall be a complete discharge of any liability under the Plan for such payment.

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5.05 Discretionary Payment of Benefits. In any instance in which the Corporation in its sole and uncontrolled discretion believes such action to be in the best interest of the party entitled to receive any payment provided by this Plan, or to be in the best interests of the Corporation, Grandfathered Amounts payable in installments pursuant to the provisions of this Plan may be paid in a single lump sum, the amount of which shall be of Actuarial Equivalent Value to the benefits for which the lump sum is to be substituted. It is intended by this Section 5.05 to vest the Corporation with full discretion to administer this Plan with respect to Grandfathered Amounts and to determine when and under what circumstances deviations which accelerate payments of Grandfathered Amounts are necessary, desirable, or appropriate; and the Corporation shall have full power to authorize such deviations as regards each payee separately.

5.06 Obligation to Pay Amounts Hereunder.

(a) No trust fund, escrow account, or other segregation of assets need be established or made by the Corporation to guarantee, secure, or assure the payment of any amount payable hereunder. The Corporation’s obligation to make payments pursuant to this Plan shall constitute only a general contractual liability of the Corporation to individuals entitled to benefits hereunder and other actual or possible payees hereunder in accordance with the terms hereof. Payments hereunder shall be made only from such funds of the Corporation as it shall determine, and no individual entitled to benefits hereunder shall have any interest in any particular asset of the Corporation by reason of the existence of this Plan. It is expressly understood as a condition for receipt of any benefits under this Plan that the Corporation is not obligated to create a trust fund or escrow account, or to segregate any asset of the Corporation in any fashion.

(b) The Corporation may, in its sole discretion, establish segregated funds, escrow accounts, or trust funds whose primary purpose would be for the provision of benefits under this Plan. If such funds or accounts are established, however, individuals entitled to benefits hereunder shall not have any identifiable interest in any such funds or accounts nor shall such individuals be entitled to any preference or priority with respect to the assets of such funds or accounts. These funds and accounts would still be available to judgment creditors of the Corporation and to all creditors in the event of the Corporation’s insolvency or bankruptcy.

(c) A former Employee is not entitled to a benefit under this Plan to the extent that the liability for such benefit has been transferred to or assumed by a successor to all or any portion of the business of the Corporation.

5.07 Administration.

(a) Administrative Provisions of Defined Benefit Plans. To the extent consistent with the purposes and provisions of this Plan and as may be deemed necessary or advisable in the best judgment of the Corporation, the Plan shall be operated under the Administrative and General Provisions of the Defined Benefit Plans.

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(b) Claims Procedures. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted in writing to the person or persons (the “Claims Administrator”) selected by the Corporation or, at the election of the Corporation, by the Corporation’s Employee Benefit Appeals Committee (the Company or such Employee Benefit Appeals Committee being hereinafter referred to as the “Committee”), as follows:

(i) In the event that any application for benefits is denied in whole or in part, the Claims Administrator must notify the applicant, in written or electronic format, of the denial of the application, and of the applicant’s right to review the denial. The notice of denial will be set forth in a manner designed to be understood by the applicant, and will include specific reasons for the denial, specific references to the Plan provision upon which the denial is based, a description of any information or material that the Claims Administrator needs to complete the review, and an explanation of the Plan’s review procedure.

(ii) This notice will be given to the applicant within ninety (90) days after the Claims Administrator receives the application, unless special circumstances require an extension of time, in which case, the Claims Administrator has up to an additional ninety (90) days for processing the application. If an extension of time for processing is required, written or electronic notice of the extension will be furnished to the applicant before the end of the initial ninety (90)-day period.

(iii) This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Claims Administrator is to render his or her decision on the application. The applicant will then be permitted to appeal the denial in accordance with the Review Procedure described below.

(iv) Any person (or that person’s authorized representative) for whom an application for benefits is denied, in whole or in part, may appeal the denial by submitting a request for a review to the Claims Administrator within 60 days after the application is denied. The Claims Administrator will give the applicant (or his or her representative) a reasonable opportunity for a full and fair review of a claim and adverse benefit determination, including: (A) the opportunity to submit written comments, documents, records and other information relating to the claim for benefits; (B) the provision, upon request and free of charge, of reasonable access to and copies of, all documents, records and other information relevant to the claimant’s claim for benefits, and (C) a review that takes into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. A request for a review shall be in writing and shall be addressed to:

General Dynamics Corporation

2941 Fairview Park Drive

Falls Church, Virginia 22042

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(v) A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The Claims Administrator may require the applicant to submit additional facts, documents or other material as he or she may find necessary or appropriate in making his or her review.

(vi) The Claims Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written or electronic notice of the extension will be furnished to the applicant within the initial sixty (60)-day period. The Claims Administrator will give prompt, written or electronic notice of his or her decision to the applicant. In the event that the Claims Administrator confirms the denial of the application for benefits in whole or in part, the notice will outline, in a manner calculated to be understood by the applicant: (A) the specific reason or reasons for the adverse determination, (B) the specific Plan provisions upon which the decision is based, (C) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, (D) a description of the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.

(vii) The Claims Administrator may establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out his or her responsibilities in reviewing benefit claims. The Claims Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial of benefits to do so at the applicant’s own expense.

(viii) No legal action for benefits under the Plan may be brought until the applicant (A) has submitted a written application for benefits in accordance with the procedures described by paragraph (i) above, (B) has been notified by the Claims Administrator that the application is denied, (C) has filed a written request for a review of the application in accordance with the appeal procedure described in paragraph (iv) above and (D) has been notified in writing or electronically that the Claims Administrator has denied the appeal.

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(c) Committee. Unless otherwise provided by the Corporation, the Committee shall rule in place of the Corporation and the Committee’s ruling shall be the final decision of the Corporation. Benefits shall be paid under the Plan only if the Corporation or the Committee in its sole discretion, determines that a Participant is entitled to them. There shall be no duplication of benefits between this Plan and its Appendices and any other plan or agreement with the Corporation or its Subsidiaries for the same period of service unless otherwise specifically stated in the Plan, Appendices or such other plan or agreement.

SECTION 6

AMENDMENT AND TERMINATION OF PLAN

6.01 Amendment. The Chairman of the Board of Directors of the Corporation reserves the right to modify or amend this Plan in whole or in part, effective as of any specified date; provided, however, that the Chairman shall have no authority to modify or amend the Plan with respect to the benefit provided by Section 3.03 to:

(a) reduce any benefit accrued hereunder based on service and compensation to the date of amendment unless such action is necessary to prevent this Plan from being subject to any provision of Title I, Subtitle B, Parts 2, 3 or 4 of ERISA;

(b) permit the accrual, holding or payment of actual shares of General Dynamics Corporation common stock under the Plan.

6.02 Termination.

(a) The Chairman of the Board of Directors of the Corporation reserves the right to terminate this Plan, in whole or in part. This Plan shall be automatically terminated upon a dissolution of the Corporation (but not upon a merger, consolidation, reorganization, recapitalization, or acquisition of a controlling interest in the voting stock of the Corporation by another); upon the Corporation being legally adjudicated as bankrupt; upon the appointment of a receiver or trustee in bankruptcy with respect to the Corporation’s assets and business if such appointment is not set aside within ninety (90) days thereafter; or upon the making by the Corporation of an assignment for the benefit of creditors.

(b) Upon termination of this Plan, no additional Employees shall become entitled to receive all benefits hereunder; and all benefits accrued through the date of termination (calculated as if the date of such termination were the date on which the Employee’s employment ceased) will become non-forfeitable.

6.03 Delegation. The Chairman of the Board of Directors of the Corporation may delegate his powers under this Section 6 by written delegation.

6.04 Section 409A. It is intended that any income or payments provided pursuant to the Plan will not be subject to the additional tax and interest under Code Section 409A, and all regulations

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issued thereunder and applicable guidance thereto (“Section 409A”), and the Plan shall be interpreted and construed on a basis consistent with such intent. The preceding shall not be construed as a guarantee of any particular tax treatment of any amounts paid or payable hereunder.

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Appendix A

(Defined Benefit Plans Subject to the Provisions of Section 3.03)

The following Defined Benefit Plans are subject to the provisions of Section 3.03. Where noted, the benefits related to the inclusion of these Defined Benefit Plans under this Plan provide supplemental benefits related to corporate acquisitions or, as applicable, supersede the applicability of the provisions of the indicated prior plan providing similar coverage and as such represent an amendment and restatement of such plan. Likewise, where noted, the provisions of Section 3.03 are modified to the extent specified in this Appendix.

Defined Benefit Plan	Modifications and Effective Date
General Dynamics Salaried Retirement Plan—Corporate Legacy Provisions (known prior to January 1, 2007 as General Dynamics Corporation Retirement Plan for Salaried Employees)	Effective Date: January 1, 1983.
Retirement Plan for the Resources Group Salaried Employees	Effective Date: January 1, 1983.
General Dynamics Salaried Retirement Plan—ATS Legacy Provisions (known prior to January 1, 2007 as Retirement Plan for Management/Technical Employees of General Dynamics Advanced Technology Systems, Inc., the Plan hereby supersedes the Lucent Technologies Inc. Non-Qualified Pension Plan)	Effective Date: October 1, 1997.
General Dynamics Salaried Retirement Plan—Armament Systems and Defense Systems Legacy Provisions (known prior to January 1, 2007 as Retirement Plan for Salaried Employees, AS/DS Legacy Provisions, which superseded the Retirement Plan for Non-Represented Employees of General Dynamics Armament/Defense Systems, the Plan hereby supersedes the Martin Marietta Corporation Supplemental Excess Retirement Plan)	Effective Date: January 1, 1997.
General Dynamics Salaried Retirement Plan—BIW Legacy Provisions (known prior to January 1, 2007 as Bath Iron Works Corporation Pension Plan for Salaried Employees)	The benefit under Section 3.03 is determined taking into account post December 31, 1996 benefit service only. Effective Date: January 1, 1997.

A-1

Defined Benefit Plan	Modifications and Effective Date
General Dynamics Salaried Retirement Plan—Decision Systems Traditional Legacy Provisions (known prior to January 1, 2007 as Retirement Plan for General Dynamics Decision Systems, Inc. Traditional Legacy Provisions, which superseded a part of the Retirement Plan for General Dynamics Decision Systems, Inc., the Plan hereby supersedes the Motorola Supplemental Pension Plan)	For Employees that participated and were vested in a benefit under the Motorola Elected Officers Supplementary Retirement Plan as of September 27, 2001 the benefit under Section 3.03 is determined taking into account post September 27, 2001 benefit service only. Effective Date: September 28, 2001.
General Dynamics Salaried Retirement Plan—Decision Systems Portable Legacy Provisions (known prior to January 1, 2007 as General Dynamics Salaried Retirement Plan for Legacy Decision Systems Portable Plan Employees, which superseded a part of the Retirement Plan for General Dynamics Decision Systems, Inc., the Plan hereby supersedes the Motorola Supplemental Pension Plan)	For Employees that participated and were vested in a benefit under the Motorola Elected Officers Supplementary Retirement Plan as of September 27, 2001 the benefit under Section 3.03 is determined taking into account post September 27, 2001 benefit service only. Effective Date: September 28, 2001.
General Dynamics Salaried Retirement Plan—GDIS Legacy Provisions (known prior to January 1, 2007 as Retirement Plan for General Dynamics Information Systems, Inc., the Plan hereby supersedes the Ceridian Corporation Benefit Equalization Plan)	The benefit under Section 3.03 is determined taking into account compensation described in Section 3.03 and, in addition, any amount that would have otherwise been paid as base salary or bonus but for the Participant’s election pursuant to the Ceridian Corporation Deferred Compensation Plan. Effective Date: January 1, 1998.
General Dynamics Salaried Retirement Plan—GSC Legacy Provisions (known prior to January 1, 2007 as Retirement Plan for Salaried Employees, GSC Legacy Provisions, which superseded the Retirement Plan for General Dynamics Government Systems Corporation, the Plan hereby supersedes the GTE Excess Pension Plan)	The benefit under Section 3.03 is determined based on the normal form of payment. The benefit under Section 3.03 is determined taking into account compensation described in Section 3.03 and, in addition, certain forms of compensation not covered under the Defined Benefit Plan prior to 1995. Optional forms of payment for Grandfathered Amounts are calculated independently of the Defined Benefit Plan but using the same adjustments as provided under that plan, but otherwise based on Section 3 of the Plan. Effective Date: September 1, 1999.
General Dynamics Salaried Retirement Plan—Muskegon Legacy Provisions (known prior to January 1, 2007 as Retirement Plan for Salaried Employees of GDLS Muskegon Operations)	The benefit under Section 3.03 is determined taking into account post March 31, 1996 benefit service only. Effective Date: April 1, 1996.

A-2

Defined Benefit Plan	Modifications and Effective Date
General Dynamics Salaried Retirement Plan—NASSCO Legacy Provisions (known prior to January 1, 2007 as NASSCO Retirement Plan, the Plan hereby supersedes the NASSCO Supplemental Retirement Plan)	Only Employees designated by National Steel and Shipbuilding Corporation shall be eligible for the benefit under Section 3.03. Effective Date: November 10, 1998.
General Dynamics Salaried Retirement Plan—Saco Legacy Provisions (known prior to January 1, 2007 as Retirement Plan for Salaried Employees of General Dynamics Armament Systems—Saco Operations)	The benefit under Section 3.03 is determined taking into account post December 31, 2000 benefit service only. Effective Date: January 1, 2001.
General Dynamics Salaried Retirement Plan—OTS Garland Legacy Provisions (known prior to January 1, 2007 as Retirement Plan for Salaried Employees of General Dynamics Ordnance and Tactical Systems, Inc. (Garland))	The benefit under Section 3.03 is determined taking into account post September 3, 2003 benefit service only. Effective Date: September 4, 2003.
General Dynamics Salaried Retirement Plan	Effective Date: January 1, 2007.

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Appendix B

(Bath Iron Works Corporation)

B-1. Purpose, Superseding Provision. The purpose of this Appendix B is to describe certain benefits that were previously described in the Bath Iron Works Corporation Supplemental Executive Retirement Program (Principal Officers, Tier I, and Tier II Employees) (the “Bath SERP”) as of December 31, 1996, that are being provided for those Employees of Bath Iron Works Corporation (“Bath”) who continue in employment with the Corporation on or after January 1, 2005. The provisions applicable to employees who have terminated or retired prior to January 1, 2005, continue to be described by the provisions of the plan as it existed prior to January 1, 2005.

This Appendix forms a part of the Plan to which it is attached and its terms shall supersede other provisions of the Plan to the extent such other provisions are inconsistent with this Appendix.

B-2. Definitions. Capitalized terms in this Appendix not defined elsewhere in the Plan shall have the meaning assigned to them below.

(1) Annuity Value of the Non-Program Benefits. The “Annuity Value” of any Non-Program Benefit is twelve times the initial monthly amount expressed as a straight life annuity commencing at the time that Bath SERP benefits under this Appendix B commence.

(2) Annuity Value of the Social Security Benefit. The Annuity Value of the Social Security Benefit is twelve times the initial monthly amount shown on the Notice of Award from the Social Security Administration commencing at the time such Social Security Benefit becomes Receivable. The Tier II Employee shall provide the Corporation with a copy of such Notice of Award prior to the time such Social Security Benefit becomes Receivable.

(3) Average Earnings. “Average Earnings” for purposes of determining the Bath SERP benefit for a Tier II Employee means the average of the highest thirty-six (36) consecutive months of Earnings within the sixty-month (60) period immediately preceding retirement, death, or disability, multiplied by twelve (12).

(4) Earnings. “Earnings” for each month includes base salary for such month plus one-twelfth (1/12) of the amount earned under the General Dynamics Corporation Second Amended and Restated 1997 Incentive Compensation Plan for the calendar year in which such month occurs.

(5) Base Plans. “Base Plans” are the General Dynamics Salaried Retirement Plan, the General Dynamics Salaried Retirement Plan—BIW Legacy Provisions (known prior to January 1, 2007, as the Bath Iron Works Corporation Pension Plan for Salaried Employees), and the Bath Iron Works Corporation Pension Plan for Hourly Employees.

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(6) Company. “Company” means Bath Iron Works Corporation and its predecessor, Congoleum Corporation and CC Liquidating Corp.

(7) Credited Service. “Credited Service” means the period of an employee’s continuous service from his most recent date of employment, in any capacity, with the Corporation. Credited service will include any period prior to the earliest of the Tier II Employee’s attaining age sixty-five (65), voluntary retirement, or voluntary termination of employment.

(8) Early Retirement Date. “Early Retirement Date” means any date prior to Normal Retirement Date on which the Tier II Employee’s employment with the Corporation terminates after having attained age fifty-five (55) and completed ten (10) years of Credited Service.

(9) Executive Service. “Executive Service” means that period of an executive’s Credited Service accrued as a Tier II Employee. For any computation under this Appendix, “Years of Executive Service” and “Years of Projected Executive Service” shall be expressed as a whole number representing the number of full years of Executive Service or Projected Executive Service, as the case may be, and a fraction representing any partial years treating each calendar month during which the Tier II Employee is employed as a Tier II Employee for at least one-half (1/2) of the month as a full month.

(10) Non-Program Benefit. “Non-Program Benefit” means any of the following:

a. Except to the extent attributable to voluntary contributions by the Tier II Employee, a retirement benefit from any Base Plans, defined benefit or defined contribution retirement plan maintained by the Corporation or any of its operating units;

b. A benefit from any individual contract between the Tier II Employee and the Corporation or any of its operating units or any predecessor of any of them providing for periodic payments from commencement thereof until death (with or without survivor benefits of optional modes of settlement) in the event of retirement or other termination of employment, other than a contract which offsets benefits under Section B-5 against the benefits provided under the contract.

(11) Normal Retirement Date. “Normal Retirement Date” means the first day of the month following the day a Tier II Employee attains age sixty-five (65).

(12) Projected Executive Service. “Projected Executive Service” means that period of Executive Service which a Tier II Employee would accrue if he should remain a Tier II Employee covered by this Appendix B until his Normal Retirement Date.

(13) Receivable. A Social Security Benefit is considered “Receivable” from and after the later of (i) commencement of benefits under this Appendix B, or (ii) the earliest date on which such Social Security Benefit is, or upon application, would have been payable to the Tier II Employee.

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(14) Retirement. “Retirement” means any termination of employment with the Corporation on an Early Retirement Date or on or after Normal Retirement Date. Retirement or other termination of employment shall be “Voluntary” if initiated by the Tier II Employee, or “Involuntary” if initiated by the Corporation notwithstanding that the Tier II Employee shall have consented thereto or shall have resigned in response to a Corporate initiative.

(15) Social Security Benefit. “Social Security Benefit” means the Tier II Employee’s Primary Insurance Amount, reduced for commencement prior to Social Security Normal Retirement Age, under the Social Security Act as in effect on the date such benefit becomes Receivable.

(16) Tier II Employee. “Tier II Employee” means any Company executive whom the Company had designated as a Tier II Employee and remained in such designation as of September 13, 1995, the date General Dynamics Corporation acquired Bath Iron Works Corporation.

B-3. Covered Employees. A Covered Employee is any Employee who has been designated as a Tier II Employee.

B-4. Amount of Benefit. The amount of benefits payable to a Tier II Employee shall equal the excess, if any, of (a) the Tier II Benefit payable to such Employee under the provisions described in Section B-5, or in the case of death, the benefit payable on behalf of such Employee under the provisions described in Section B-7, over (b) the benefit determined in accordance with the provisions of Section 3.03 and Appendix A.

Benefits payable under this Section B-4 shall be in addition to any benefit payable under the provisions of Section 3.03 and Appendix A.

B-5. Tier II Benefit. The amount of a Covered Employee’s Tier II Benefit shall be determined as follows:

(1) Normal Retirement Benefit. A Tier II Employee retiring under this Appendix B on or after Normal Retirement Date shall receive a monthly Normal Retirement Benefit equal to one-twelfth (1/12) of the amount determined by:

a. Taking the amount which is fifty percent (50%) of Average Earnings at Normal Retirement Date and reducing such amount by the Annuity Value of the Non-Program Benefits and by the Annuity Value of the Social Security Benefit; and

b. Multiplying the amount determined by application of the preceding clause (a) by a fraction, the numerator of which is Years of Executive Service at Normal Retirement Date to a maximum of fifteen (15), and the denominator of which is fifteen (15).

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(2) Early Retirement Benefit. A Tier II Employee retiring under this Appendix B on an Early Retirement Date shall receive a monthly Early Retirement Benefit equal to one-twelfth (1/12) of the amount determined by:

a. Taking the amount which is fifty percent (50%) of Average Earnings at Early Retirement Date and subtracting from such amount the product of (i) such amount times (ii) 0.004 times (iii) the number of full months by which the commencement of benefits under this B-5 precedes age sixty-two (62);

b. Reducing the amount in the preceding clause (a) by the Annuity Value of the Non-Program Benefits, and further reducing the amount by the Annuity Value of the Social Security Benefit commencing at the time such Social Security Benefit becomes Receivable; and

c. Multiplying the amount determined by application of the preceding clauses (a) and (b) by the product of (i) a fraction, the numerator of which is Years of Executive Service at Early Retirement Date to a maximum of twenty-five (25), and the denominator of which is Years for Projected Executive Service to a maximum of twenty-five (25), times (ii) a fraction, the numerator of which is Years of Projected Executive Service to a maximum of twenty (20), and the denominator of which is twenty (20).

(3) Vested Benefit. After completion of five (5) years of Credited Service, a Tier II Employee’s rights to benefits under this Appendix B will, subject to the provisions of this Plan, become fully vested. The benefit payable under this Appendix B to a Tier II Employee who terminates employment prior to his Early Retirement Date will be the same as the Early Retirement Benefit otherwise payable, based on Years of Executive Service and Average Earnings computed as of the date of termination, except that the multiplicand in clause B-5(2)(a)(iii) shall be the number of full months by which the commencement of benefits under this B-5 precedes age sixty-five (65).

B-6. Form and Timing of Benefit.

(1) The commencement of B-4 benefits payable to a Tier II Employee retiring under this Appendix B shall be determined in accordance with Section 3 of the Plan.

(2) A Tier II Employee will receive B-4 benefits in the forms provided for under Sections 3.04, 3.05, and 3.07 of the Plan, as applicable.

B-7. Death Benefit. If an active Tier II Employee dies before Retirement and while still employed by the Corporation, his Tier II Benefit used to determine the benefit payable to his surviving spouse will be a monthly benefit equal to seventy-five percent (75%) of the amount of the Normal Retirement Benefit determined in accordance with B-5 based on the Executive Service and Average Earnings as of the date of death, and

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(1) Assuming that the Tier II Employee is living and that such benefit is payable to him in a straight life annuity commencing on the first day of the month following the date of death;

(2) In determining any reduction for the Annuity Value of the Non-Program Benefits and for the Annuity Value of the Social Security Benefit, considering only the Tier II Employee’s Social Security Benefit and those Non-Program Benefits to which the Tier II Employee would then or thereafter become entitled had he been living and terminated his employment on the date of death;

(3) Assuming that the Social Security Benefit becomes Receivable from and after the date of death, irrespective of whether or not such benefit has actually commenced; and,

(4) Calculating the Annuity Value of the Non-Program Benefits as if the Tier II Employee were living and had terminated his employment on the date of death, basing such calculation upon the Tier II Employee’s employment and earnings history and other circumstances existing at the date of death, but assuming that the Tier II Employee’s age is the later of his age at the date of death, the earliest age at which such Non-Program Benefit would upon application be payable, or age sixty-two (62).

The benefit payable to a surviving spouse shall be paid monthly commencing on the first day of the month following the month in which the Tier II Employee dies. The last payment to a surviving spouse shall be on the first day of the month in which the surviving spouse dies or remarries, whichever occurs first.

Upon the Tier II Employee’s death if the Tier II Employee’s spouse predeceases him, or upon the earlier of the death or remarriage of such spouse if the Tier II Employee’s spouse survives him, if one or more children of the Tier II Employee shall then be living and under twenty-one (21) years of age, an equal share of the Death Benefit shall be apportioned to each such child who is then living and under age twenty-one (21). The share so apportioned to each child shall be paid to him as a monthly benefit commencing on the first day of the month following the month in which the Tier II Employee dies or, if his spouse survives him, following the earlier of the month in which such spouse dies or the month in which such spouse remarries. The last payment of a child’s monthly benefit under this Appendix shall be on the first day of the month in which he dies or attains age twenty-one (21), whichever occurs first.

B-8. Competition. Notwithstanding anything elsewhere herein contained, if, while employed by the Corporation, a Tier II Employee engages in competitive activities without prior authorization of the Corporation, such Tier II Employee, his surviving spouse, his children, and any contingent annuitant designated by him shall be entitled to no further benefits hereunder. For such purpose, to “engage in competitive activities” shall mean, directly or indirectly, to own, manage, operate, control, or participate in the ownership, management, operation, or control of, or be connected as an officer, employee, partner, director, or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business which competes with, or which contemplates competition with, any business conducted by the Corporation, or be any group,

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division or subsidiary of the Corporation, in any area where such business is being conducted by the Corporation at the time of such termination. For the purposes of the foregoing provisions, ownership of not more than two percent (2%) of the voting stock of any publicly held corporation shall not be considered engaging in competitive activities.

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Appendix C

(General Dynamics Information Systems, Inc.)

C-1. Purpose, Superseding Provision. The purpose of this Appendix C is to provide for certain provisions for those Employees of General Dynamics Information Systems, Inc. (“GDIS”) described below. This Appendix forms a part of the Plan to which it is attached and its terms shall supersede other provisions of the Plan to the extent such other provisions are inconsistent with this Appendix.

Notwithstanding anything contained herein to the contrary, pursuant to the Personnel Agreement dated December 31, 1997, between Ceridian Corporation and General Dynamics Corporation (the “Personnel Agreement”), and the March 17, 1998 letter agreement between Ceridian Corporation and General Dynamics Corporation, participants in the Ceridian Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”) listed on Schedule 4.2(c) of the Personnel Agreement who went to work for General Dynamics Corporation shall have their benefits under the Deferred Compensation Plan paid in accordance with the provisions of the Deferred Compensation Plan as it existed as of December 31, 1997. The benefits for Employees covered by these provisions are in addition to any benefits that may be provided under Section 3.03 of the Plan.

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Appendix D

(General Dynamics Government Systems Corporation)

D-1. Purpose, Superseding Provision. Effective September 1, 1999, the purpose of this Appendix D is to provide for certain provisions for those Employees of General Dynamics Government Systems Corporation (“GSC”) described below (the “Appendix D Employees”). This Appendix forms a part of the Plan to which it is attached and its terms shall supersede other provisions of the Plan to the extent such other provisions are inconsistent with this Appendix. This Appendix consists of two parts: (i) an ISEP Executive Minimum and (ii) an Executive Retired Life Insurance Plan (each a “Part” and collectively “Parts”). Both such Parts provide benefits for Employees covered by these provisions, benefits that are in addition to any benefits that may be provided under Section 3.03 of the Plan. An Appendix D Employee will participate under a Part or Parts based on the eligibility provisions of that Part.

D-2. Definitions. Capitalized terms in this Appendix not defined elsewhere in the Plan shall have the meaning assigned to them below.

(1) “Administrator” shall mean the Corporation, or the person (including but not limited to GSC) to whom administrative duties are delegated to by the Corporation.

(2) “Base Salary” shall mean the Appendix D Employee’s annual basic remuneration (exclusive of overtime, differentials, premiums and other similar types of payment, but inclusive of commissions and bonuses on account of sales when received by an Appendix D Employee pursuant to a written commitment of his or her employer).

(3) “GSC Legacy Plan” means the General Dynamics Salaried Retirement Plan—GSC Legacy Provisions (known from January 1, 2005 to January 1, 2007 as the Retirement Plan for Salaried Employees, GSC Legacy Provisions and prior to January 1, 2005 as the Retirement Plan for General Dynamics Government Systems Corporation).

(4) “GSC Qualified Plan” means the Retirement Plan for General Dynamics Government Systems Corporation effective September 1, 1999.

(5) “GTE Executive Life Insurance Plan” means the GTE Executive Life Insurance Plan effective January 1, 1979.

(6) “Predecessor Company” shall mean, for periods prior to September 1, 1999, the GTE Government Systems Corporation and any Affiliate as defined by the GTE Government Systems Corporation Pension Plan for Salaried Employees at August 31, 1999.

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ISEP Executive Minimum

D-3. Covered Employees. For purposes of this part, an Appendix D Employee is an Employee who is a member of a select group of management or highly compensated employees of GSC and who Separates as a Special Separatee under Section 9 of the GSC Qualified Plan prior to December 31, 2002, regardless of whether he is eligible to receive a Retirement Benefit under the GSC Qualified Plan.

D-4. Benefit. The benefit payable to an eligible Appendix D Employee under this Part shall be a single life annuity equal to the Actuarial Equivalent Value (as described in (3)(a) below) of the excess, if any, of (1) over (2) as follows:

(1) The product of (a) times (b) as follows:

(a) The Appendix D Employee’s annual rate of compensation as of the day immediately preceding the Appendix D Employee’s Separation Date, as defined in the GSC Qualified Plan, whereby the annual rate of compensation shall be determined by including only the types of remuneration included in determining Modified Average Annual Compensation under the GSC Qualified Plan, but for periods prior to September 1, 1999, without regard to awards from the Predecessor Company under the Management Incentive Plan, the International Team Incentive Program, and the GTE Investment Management Corporation Incentive Plan, times

(b) The Payment Ratio (as described in (3)(b) below) for the Appendix D Employee; over

(2) The ISEP Lump Sum as defined by Section 9 of the GSC Qualified Plan (plus the portion of such ISEP Lump Sum attributable to Appendix A), determined without regard to any reduction in the ISEP Lump Sum attributable to a failure to execute a Separation Agreement and General Release there under.

(3) For purposes of this D-4, the following shall apply:

(a) The Actuarial Equivalent Value shall be determined in the same manner as it is determined for purposes of calculating the ISEP Annuity under Section 9 of the GSC Qualified Plan.

(b) The Payment Ratio shall be determined as follows based on the Appendix D Employee’s career band and Base Salary at termination:

Career Band	Base Salary Breakpoints	Payment Ratio
Tan	$80,000 or higher	50	%
Orange	Less than $100,000	50	%
Orange	$100,000 or higher	75	%
Yellow	Less than $155,000	75	%
Yellow	$155,000 or higher	100	%

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(4) The amounts determined under D-4 shall be reduced to 50% of the amounts determined unless the Appendix D Employee (or, if applicable, the Appendix D Employee’s personal representative) executes a Separation Agreement and General Release pursuant to the requirements of Section 9 of the GSC Qualified Plan.

D-5. Timing of Benefit. An Appendix D Employee, surviving spouse or designated beneficiary who is entitled to an ISEP Executive Minimum benefit under this Part shall be paid such ISEP Executive Minimum benefit under this Part when benefits become due and payable to such person under the GSC Qualified Plan.

D-6. Form of Benefit. Any benefits payable pursuant to this Part shall be paid under the same conditions and restrictions as would apply to the benefits if they were provided by the GSC Qualified Plan at the time of retirement, subject to the following:

(1) An Appendix D Employee shall have the right to elect to receive benefits under this Part in any one of the forms provided under the GSC Qualified Plan provided that an annuity option shall be available under this Part only if the Appendix D Employee elects the annuity payment option prior to such Appendix D Employee’s termination of employment.

(2) Notwithstanding D-6 (1), if the Appendix D Employee is also entitled to a benefit pursuant to the provisions of Appendix A, then both the benefit attributable to Appendix A and the benefit attributable to this Part of Appendix D must be paid at the same time and under the same optional form.

(3) If an Appendix D Employee elects to receive benefits under this Part in a form other than a single life annuity, the benefits shall be computed so as to be the Actuarial Equivalent of such benefits in the form of a single life annuity using the actuarial tables and interest rates then in effect under the GSC Qualified Plan.

Executive Retired Life Insurance Plan

D-7. Covered Employees. For purposes of this Part, an Appendix D Employee is an Employee of GSC who as of June 21, 1999, participated in the GTE Executive Retired Life Insurance Plan (the “ERLIP”) and whose combined age and years of service as of June 21, 1999, was at least 66 or who was otherwise within five years of eligibility for the ERLIP as of that date.

In order to be eligible to obtain benefits under this Part, an Appendix D Employee must retire pursuant to the terms of the GSC Legacy Plan, provided however that retirement with a deferred vested benefit shall not be deemed to satisfy this provision except in the case of a participant who terminates employment with GSC having attained age 60 with at least 10 years of service.

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D-8. Benefit. A participant eligible to receive benefits under this Part shall receive non-contributory life insurance benefits under the following schedule:

Grandfathered Salary Grade at Termination	Insurance
15	1.0 x base salary
16	1.5 x base salary
17	2.0 x base salary
18	2.5 x base salary
19 and above	3.0 x base salary

The Administrator, in its sole discretion, may amend the above schedule.

Any Appendix D Employee who is demoted, downgraded, transferred or assigned to a position, whether or not such position is eligible to participate in this Part, may under extraordinary circumstances as determined by the Administrator, remain eligible to receive benefits based upon his highest salary grade and Base Salary while participating in this Part.

D-9. Timing of Benefit. An Appendix D Employee who satisfies the criteria in D-7 of this Part shall receive benefits only upon retirement pursuant to the terms of the GSC Legacy Plan. The benefits under this Part shall be in lieu of any other life insurance coverage provided for retired employees by GSC.

D-10. Form of Benefit. The benefit provided by this Part is in the form of non-contributory life insurance. However, an Appendix D Employee eligible to receive benefits under this Part may elect with respect to Grandfathered Amounts to convert all or part of this life insurance benefit to a supplementary retirement benefit as follows:

(1) An Appendix D Employee may with respect to Grandfathered Amounts elect to receive a supplementary retirement benefit in any form provided under the GSC Legacy Plan as of December 31, 2004, or in two to thirty annual installments, or as otherwise may be approved by the Administrator. The supplementary retirement benefit shall be based upon the present value of the life insurance benefit defined in this Part, using the actuarial tables and interest rates then in effect for the GSC Legacy Plan.

(2) In the event that an Appendix D Employee elects to receive a supplementary retirement benefit with respect to Grandfathered Amounts other than in the single life annuity form and/or other than at age 65, the amount of such benefits shall be actuarially adjusted using the actuarial table and interest rates then in effect for the GSC Legacy Plan.

(3) If an Appendix D Employee elects to receive with respect to Grandfathered Amounts a supplementary retirement benefit in an installment form and dies prior

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to the payment of all installments, any unpaid installments shall be paid to the Appendix D Employee’s beneficiary or, in the absence of a designated beneficiary, to the Appendix D Employee’s estate. The designated beneficiary shall have the option, in accordance with Section 3.03 of the Plan, to continue to receive annual payments for the period elected by the Appendix D Employee or to receive the unpaid installments in a lump sum. In the event that a lump sum is elected, the lump sum will be adjusted using the actuarial tables and interest rates then in effect for the GSC Legacy Plan.

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Appendix E

(General Dynamics Armament Systems and General Dynamics Defense Systems)

E-1. Purpose, Superseding Provision. The purpose of this Appendix E is to describe certain benefits that were previously described in the Martin Marietta Supplementary Pension Plan for Employees of Transferred GE Operations as of December 31, 1996, that are being provided to certain employees who continue in employment with the Corporation on or after January 1, 2005. The provisions applicable to employees who have terminated or retired prior to January 1, 2005, continue to be described by the provisions of the plan as it existed prior to January 1, 2005.

This Appendix forms a part of the Plan to which it is attached and its terms shall supersede other provisions of the Plan to the extent such other provisions are inconsistent with this Appendix.

E-2. Definitions. Capitalized terms in this Appendix not defined elsewhere in the Plan shall have the meaning assigned to them below.

(1) Annual Estimated Social Security Benefit. “Annual Estimated Social Security Benefit” shall mean the annual equivalent of the maximum possible Primary Insurance Amount payable, after reduction for early retirement, as an old-age benefit to an employee who retired at age sixty-two (62) on January 1^st of the calendar year in which occurred the Employee’s actual date of retirement or death, whichever is earlier. Such Annual Estimated Social Security Benefit shall be determined by the Corporation in accordance with the Federal Social Security Act in effect at the end of the calendar year immediately preceding such January 1^st.

If an Employee has less than thirty-five (35) years of Credited Service, the Annual Estimated Social Security Benefit shall be the amount determined under the first paragraph hereof multiplied by a fraction, the numerator of which shall be the number of years of the Employee’s Credited Service to his date of retirement or death, whichever is earlier, and the denominator of which shall be thirty-five (35).

The Annual Estimated Social Security Benefit as so determined shall be adjusted to include any social security, severance or similar benefit provided under foreign law or regulation as the Corporation may prescribe by rules and regulations issued with respect to this Plan.

(2) Annual Retirement Income. “Annual Retirement Income” shall mean the amount determined by multiplying 1.75% of the Employee’s Average Annual Compensation by the number of years of Credited Service completed by the Employee at the date of his retirement or death, whichever is earlier.

(3) Average Annual Compensation. “Average Annual Compensation” means one-third of the Employee’s Compensation for the highest thirty-six (36) consecutive months during the last one-hundred twenty (120) months before his date of retirement or death, whichever is earlier. In computing the Average Annual

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Compensation, normal straight-time earnings shall be substituted for actual Compensation for any month in which such normal straight-time earnings are greater.

(4) Benefit Eligibility Service. “Benefit Eligibility Service” shall have the same meaning herein as Benefit Eligibility Service in the Legacy Plan.

(5) Compensation. “Compensation” for the purposes of the Supplementary Pension defined in this Appendix E shall mean salary, including any deferred salary approved by the Corporation as compensation for purposes of the Supplementary Pension benefit, plus

a. For Employees then eligible for Incentive Compensation, the total amount of any Incentive Compensation earned except to the extent such Incentive Compensation is excluded by the Corporation;

b. For Employees who would then have been eligible for Incentive Compensation if they had not been participants in a Sales Commission Plan or other variable compensation plan, the total amount of sales commissions (or other variable compensation) earned;

c. For all other Employees, the sales commissions and other variable compensation earned by them but only to the extent such earnings were then included under the Martin Marietta Corporation Retirement Income Plan II, plus any amounts (other than salary and those mentioned in clauses (a) and (b) above) which were then included as compensation under the Martin Marietta Corporation Retirement Income Plan II except any amounts which the Corporation may exclude from the computation of “Compensation” and subject to the powers of the Corporation.

(6) Credited Service. “Credited Service” shall have the same meaning herein as in the Legacy Plan. Credited Service shall include periods of Plan Membership as defined under the Legacy Plan.

(7) Legacy Plan. “Legacy Plan” shall mean the General Dynamics Salaried Retirement Plan—Armament Systems and Defense Systems Legacy Provisions (known from January 1, 2005 to January 1, 2007 as the Retirement Plan for Salaried Employees, AS/DS Legacy Provisions and prior to January 1, 2005, as the Retirement Plan for Non-Represented Employees of General Dynamics Armament/Defense Systems).

(8) Salaried Plan. “Salaried Plan” shall mean the General Dynamics Salaried Retirement Plan effective January 1, 2007.

(9) Vesting Service. “Vesting Service” shall have the same meaning herein as Continuous Service in the Legacy Plan.

E-3. Covered Employees. An Appendix E Employee is an Employee who was covered by the Martin Marietta Supplementary Pension Plan for Employees of Transferred GE Operations prior

E-2

to January 1, 1997, and who is a Transferred Lockheed Martin Employee as defined in the Retirement Plan for Non-Represented Employees of General Dynamics Armament/Defense Systems, as amended and restated effective January 1, 2001.

E-4. Amount of Benefit. Subject to the limitation described in (5) below, the amount of the Supplementary Pension shall be as follows.

(1) Normal Retirement Benefit. The annual Supplementary Pension payable to an Appendix E Employee retiring on or after his Normal Retirement Date as defined under the Legacy Plan shall be equal to the excess, if any, of the Employee’s Annual Retirement Income over the sum of:

a. The annual pension payable under the Legacy Plan (as a single life annuity);

b. The annual pension payable under the Salaried Plan (as a single life annuity);

c. One-half (1/2) of the Employee’s Annual Estimated Social Security Benefit;

d. The Employee’s Personal Pension Account annuity as defined in the Legacy Plan (as a single life annuity); and

e. The Employee’s annual benefit, if any, determined in accordance with the provisions of Section 3.03 and Appendix A (as a single life annuity).

(2) Early Retirement Benefit After Age Sixty (60). The annual Supplementary Pension payable to an Appendix E Employee who, following the attainment of age sixty (60), retires on an optional retirement date under the Legacy Plan, shall be computed in the manner provided by (1) above (for an Employee retiring on or after his Normal Retirement Date) but taking into account only Credited Service and Average Annual Compensation to the actual date of optional retirement and, for purposes of the Legacy Plan offset in (1)(a), excluding the early retirement supplement described in sections 2.3(a)(ii) and 2.3(b)(ii) of the Legacy Plan.

(3) Early Retirement Benefit Before Age Sixty (60). The annual Supplementary Pension payable to an Appendix E Employee who retires following the attainment of age fifty-five (55), but before attainment of age sixty (60), shall be equal to the excess, if any, of the Employee’s Annual Retirement Income multiplied by an early retirement reduction factor described in (a), over the sum of (b) through (f), where (a) through (f) are as follows:

a. The earlier retirement reduction factor shall equal the product of (i) one-twelfth (1/12) of the number of complete months by which commencement of the Supplementary Benefit precedes the attainment of age sixty (60) and (ii) seven percent (7%) minus the smaller of three and one-half percent (3.5%) or fourteen hundredths percent (0.14%) times complete years of Benefit Eligibility Service in excess of five (5).

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b. The annual pension payable under the Legacy Plan (as a single life annuity and excluding the early retirement supplement described in sections 2.3(a)(ii) and 2.3(b)(ii) of the Legacy Plan);

c. The annual pension payable under the Salaried Plan (as a single life annuity);

d. One-half (1/2) of the Employee’s Annual Estimated Social Security Benefit;

e. The Employee’s Personal Pension Account annuity as defined in the Legacy Plan (as a single life annuity); and

f. The Employee’s annual benefit, if any, determined in accordance with the provisions of Section 3.03 and Appendix A (as a single life annuity).

Except as provided by the Special Retirement provisions in (4) below, an Appendix E Employee who retires before the first day of the month following attainment of age fifty-five (55) or who terminates employment before attainment of age fifty-five (55) shall not be eligible for the Supplementary Pension under this Appendix E.

(4) Special Retirement. An Appendix E Employee who is laid off due to a reduction in force, a plant closing or lack of work after reaching age fifty (50) and having completed at least twenty-five (25) years of Vesting Service is eligible for a Supplementary Pension commencing as early as age fifty-five (55). The Supplementary Pension shall be determined by (3) above except taking into account the following:

a. The Average Annual Compensation shall be based on the last one hundred twenty (120) completed months before his termination date;

b. The Annual Estimated Social Security Benefit shall be determined as though the Employee’s retirement date was the date of termination; and

c. The early retirement reduction factor shall be based on the age at which the Supplementary Pension benefit actually commences.

(5) Limitation on Benefit. Notwithstanding any provision of this Plan to the contrary, if the sum of (a) through (g) defined as follows exceeds sixty percent (60%) of the Employee’s Average Annual Compensation, then the Employee’s Supplementary Pension shall be reduced by the amount of such excess, but not less than zero (0). In cases of retirement before age sixty (60), then for purposes of this limitation the sixty-percent (60%) of Average Annual Compensation shall be reduced by the same early retirement reduction factor described in (3)(a).

E-4

a. The Supplementary Pension (calculated after application of any reduction factor for early retirement) otherwise payable hereunder;

b. The annual pension payable under the Legacy Plan (as a single life annuity and excluding the early retirement supplement described in sections 2.3(a)(ii) and 2.3(b)(ii) of the Legacy Plan)

c. The annual pension payable under the Salaried Plan (as a single life annuity);

d. The Employee’s Annual Estimated Social Security Benefit, but before any adjustment for less than 35 years of service;

e. The Employee’s Personal Pension Account annuity as defined in the Legacy Plan (as a single life annuity);

f. The Employee’s annual benefit, if any, determined in accordance with the provisions of Section 3.03 and Appendix A (as a single life annuity); and

g. The Employee’s annual benefit (as a single life annuity), if any, payable under any other annual pension (or the annual pension equivalent of other forms of payment) payable under any other pension plan, policy, contract, or government program sponsored by the Corporation.

E-5. Form and Timing of Benefit.

(1) An Appendix E Employee may elect to receive the Supplementary Pension benefit with respect to Grandfathered Amounts as a life annuity (the normal form) or in any one of the optional forms permitted under the provisions of Section 5.4 of the Legacy Plan (optional forms for the TOPS Benefit). Non-Grandfathered Amounts shall be distributed in a form determined in accordance with Sections 3.04, 3.05, and 3.07 of the Plan.

(2) The timing of the Supplementary Pension benefit payable to an Appendix E Employee shall be determined in accordance with the provisions of Section 3 of the Plan.

E-6. Death Benefit.

(1) If an Appendix E Employee dies prior to commencing his Supplementary Pension benefit and leaves a surviving spouse, a lifetime benefit shall be payable to his surviving spouse. Such benefit shall commence on the first of the month following the later of the date the Employee would have attained age fifty-five (55) or his date of death, and shall be equal to the excess, if any, of the Employee’s Annual Retirement Income multiplied by an early retirement reduction factor described in (a), over the sum of (b) through (f), where (a) through (f) are as follows:

a. The earlier retirement reduction factor shall equal the product of (i) one-twelfth (1/12) of the number of complete months by which commencement of the death benefit precedes the attainment of age sixty (60) and (ii) seven percent (7%) minus the smaller of three and one-half percent (3.5%) or fourteen hundredths percent (0.14%) times complete years of Benefit Eligibility Service in excess of five (5). If commencement of the death benefit is on or after the date the Employee attained or would have attained age sixty (60), then this early retirement reduction factor shall not apply.

E-5

b. The annual pre-retirement surviving spouse benefit payable under the Legacy Plan (as a single life annuity and excluding the early retirement supplement described in sections 2.3(a)(ii) and 2.3(b)(ii) of the Legacy Plan);

c. The annual pre-retirement surviving spouse benefit payable under the Legacy Plan (as a single life annuity);

d. Twenty-five percent (25%) of the Employee’s Annual Estimated Social Security Benefit;

e. The Employee’s Personal Pension Account joint and survivor benefit as defined in the Legacy Plan (as a single life annuity); and

f. The annual pre-retirement surviving spouse benefit, if any, determined in accordance with the provisions of Section 3.03 and Appendix A (as a single life annuity).

(2) If an Appendix E Employee dies while employed by the Corporation and without leaving a surviving spouse, the death benefit payable to his Beneficiary shall be a single sum equal to five (5) times his annual Supplementary Pension benefit that would have otherwise been payable had he survived until the first of the month following the later of his age fifty-five (55) or his date of death and then commenced his Supplementary Pension. Such single sum shall be paid on the first of the month following the later of the date the Employee would have attained age fifty-five (55) or his date of death. For purposes of this paragraph, an Appendix E Employee may only designate his estate, former spouse, or member of his immediate family as his Beneficiary.

E-6

EX-21

Exhibit 21

GENERAL DYNAMICS CORPORATION

SUBSIDIARIES

AS OF JANUARY 31, 2009

Subsidiaries of General Dynamics Corporation (Parent and Registrant)	Place of Incorporation	Percent of Voting Power
American Overseas Marine Corporation	Delaware	100
Anghel Laboratories, Inc.	Delaware	100
Anteon Ltd.	England & Wales	100
AV Technology, LLC	Maryland	100
AxleTech do Brasil-Systmas Automotivos, Ltd.	Brazil	100
AxleTech International Brazil LLC	Delaware	100
AxleTech International Holdings, Inc.	Delaware	100
AxleTech International IP Holdings, LLC	Michigan	100
AxleTech International Korea Lts.	Korea	100
AxleTech International SAS	France	100
AxleTech International, Inc.	Delaware	100
AxleTech LLC	Michigan	100
AxleTech NA Aftermarket Inc.	Michigan	100
AXT Acquisition Holdings, Inc.	Delaware	100
AXT French Holdings, Inc.	Delaware	100
AXT Holdings SAS	France	100
AXT US LLC	Delaware	100
Bath Iron Works Australia Corporation	Delaware	100
Bath Iron Works Corporation	Maine	100
Blue Shadow Cruising Ltd.	Gibraltar	100
Braintree I Maritime Corp.	Delaware	100
Braintree II Maritime Corp.	Delaware	100
Braintree III Maritime Corp.	Delaware	100
Braintree IV Maritime Corp.	Delaware	100
Braintree V Maritime Corp.	Delaware	100
Capital Fuels Sales Corporation	Delaware	100
Capital Resources Development Company	Delaware	100
Central Illinois Recovery, Inc.	Delaware	100
Century Mineral Resources, Inc.	Illinois	100
Concord I Maritime Corporation	Delaware	100
Concord II Maritime Corporation	Delaware	100
Concord III Maritime Corporation	Delaware	100
Concord IV Maritime Corporation	Delaware	100

Subsidiaries of General Dynamics Corporation (Parent and Registrant)	Place of Incorporation	Percent of Voting Power
Concord V Maritime Corporation	Delaware	100
Convair Aircraft Corporation	Delaware	100
Convair Corporation	Delaware	100
Creative Technology Incorporated	Virginia	100
Eagle Enterprise, Inc.	Delaware	100
EB Groton Engineering, Inc.	Delaware	100
Electric Boat – Australia, LLC	Delaware	100
Electric Boat – UK, LLC	Delaware	100
Electric Boat Corporation	Delaware	100
Electrocom, Inc.	Delaware	100
Expro Finance Inc.	Canada	100
Freeman United Coal Mining Company, LLC	Delaware	100
G.T. Devices, Inc.	Maryland	100
GD Middle East Corporation	Canada	100
GDAS – Lincoln, Inc.	Delaware	100
GDATP Services Corporation	Delaware	100
General Dynamics Advanced Information Systems, Inc.	Delaware	100
General Dynamics AIS Australia Pty Ltd	Australia	100
General Dynamics Armament and Technical Products, Inc.	Delaware	100
General Dynamics Aviation Services Corporation	Delaware	100
General Dynamics C4 Systems, Inc.	Delaware	100
General Dynamics Canada Ltd.	Canada	100
General Dynamics European Holdings B.V.	The Netherlands	100
General Dynamics European Land Systems – Germany GmbH	Germany	100
General Dynamics European Land Systems GmbH	Austria	100
General Dynamics Government Systems Corporation	Delaware	100
General Dynamics Government Systems Overseas Corporation	Delaware	100
General Dynamics Information Technology, Inc.	Virginia	100
General Dynamics Installation Services, LLC	Delaware	100
General Dynamics International Corporation	Delaware	100
General Dynamics Itronix Canada Ltd.	Nova Scotia	100
General Dynamics Itronix Corporation	Delaware	100
General Dynamics Itronix Europe Ltd.	United Kingdom	100
General Dynamics Land Systems – Australia Pty. Ltd.	Australia	100

Subsidiaries of General Dynamics Corporation (Parent and Registrant)	Place of Incorporation	Percent of Voting Power
General Dynamics Land Systems – Canada International Services Inc.	New Brunswick	100
General Dynamics Land Systems – Canada Corporation	New Brunswick	100
General Dynamics Land Systems – Canada Services, Inc.	New Brunswick	100
General Dynamics Land Systems Customer Service & Support Company	Texas	100
General Dynamics Land Systems Inc.	Delaware	100
General Dynamics Land Systems International, Inc.	Delaware	100
General Dynamics Limited	United Kingdom	100
General Dynamics Marine Systems, Inc.	Delaware	100
General Dynamics Ordnance and Tactical Systems – Canada Inc.	Canada	100
General Dynamics Ordnance and Tactical Systems— Canada Valleyfield Inc.	Canada	100
General Dynamics Ordnance and Tactical Systems – Simunition Operations, Inc.	Delaware	100
General Dynamics Ordnance and Tactical Systems, Inc.	Virginia	100
General Dynamics OTS (Aerospace), Inc.	Washington	100
General Dynamics OTS (California), Inc.	California	100
General Dynamics OTS (DRI), Inc.	Alabama	100
General Dynamics OTS (Niceville), Inc.	Florida	100
General Dynamics OTS (Orlando), Inc.	Florida	100
General Dynamics OTS (Pennsylvania), Inc.	Pennsylvania	100
General Dynamics OTS GmbH	Switzerland	100
General Dynamics Overseas Systems and Services Corporation	Delaware	100
General Dynamics Properties, Inc.	Delaware	100
General Dynamics Robotic Systems, Inc.	Delaware	100
General Dynamics SATCOM Technologies, Inc.	Delaware	100
General Dynamics Satellite Communication Services, Inc.	Delaware	100
General Dynamics Shared Resources, Inc.	Delaware	100
General Dynamics Support Services Company	Delaware	100
General Dynamics Systems Australia Pty Ltd	Australia	100
General Dynamics United Kingdom Limited	United Kingdom	100
General Dynamics Worldwide Holdings, Inc.	Delaware	100
Gulfstream 100 Holdings LLC	Delaware	100
Gulfstream 200 Holdings LLC	Delaware	100

Subsidiaries of General Dynamics Corporation (Parent and Registrant)	Place of Incorporation	Percent of Voting Power
Gulfstream Aerospace (Middle East) Limited	Cyprus	100
Gulfstream Aerospace Corporation	Delaware	100
Gulfstream Aerospace Corporation	California	100
Gulfstream Aerospace Corporation	Georgia	100
Gulfstream Aerospace Corporation	Oklahoma	100
Gulfstream Aerospace Corporation of Texas	Texas	100
Gulfstream Aerospace LP	Texas	100
Gulfstream Aerospace Services Corporation	Delaware	100
Gulfstream Aerospace, Ltd.	United Kingdom	100
Gulfstream Delaware Corporation	Delaware	100
Gulfstream International Corporation	Delaware	100
Gulfstream Leasing LLC	Georgia	100
Gulfstream Tennessee Corporation	Delaware	100
Interiores Aereos S.A. de C.V.	Mexico	100
International Manufacturing Technologies, Inc.	California	100
Itronix Manufacturing LLC	Delaware	100
Jet Aviation (Asia Pacific) Pte. Ltd.	Singapore	100
Jet Aviation (Hong Kong) Ltd.	Hong Kong	100
Jet Aviation (Malaysia), Sdn., Bhd	Malaysia	100
Jet Aviation (UK) Ltd.	United Kingdom	100
Jet Aviation AG	Switzerland	100
Jet Aviation Associates, Ltd.	Florida	100
Jet Aviation Business Jets (Hong Kong) Ltd.	Hong Kong	100
Jet Aviation Business Jets AG	Switzerland	100
Jet Aviation Business Jets Charter, LLC	Delaware	100
Jet Aviation Business Jets Deutschland GmbH	Germany	100
Jet Aviation Business Jets Fzco	UAE	100
Jet Aviation Business Jets, Inc.	Maryland	100
Jet Aviation do Brasil Servicosde Suporte e Manutencao a Aeronaves Ltda.	Brazil	100
Jet Aviation Dubai LLC	UAE	100
Jet Aviation Engineering Management, Inc.	Texas	100
Jet Aviation Engineering Services, L.P.	Texas	100
Jet Aviation Flugzeugwartung GmbH	Germany	100
Jet Aviation Holding AG	Switzerland	100
Jet Aviation Holdings USA, Inc.	Delaware	100

Subsidiaries of General Dynamics Corporation (Parent and Registrant)	Place of Incorporation	Percent of Voting Power
Jet Aviation International, Inc.	Florida	100
Jet Aviation Lebanon S.A.L.	Lebanon	100
Jet Aviation M.E. S.A.L.	Lebanon	100
Jet Aviation Management AG	Switzerland	100
Jet Aviation of America, Inc.	Maryland	100
Jet Aviation Palm Beach, Inc.	Florida	100
Jet Aviation Private Fleet, LLC	Delaware	100
Jet Aviation Saudi Arabia Co. Ltd.	Saudi Arabia	100
Jet Aviation Savannah Holding, Inc.	New York	100
Jet Aviation Teterboro, LP	New Jersey	100
Jet Aviation Texas, Inc.	Texas	100
Jet Dimensions, LLC	Delaware	100
Jet Domain, LLC	Delaware	100
Jet Professionals (Switzerland) AG	Switzerland	100
Jet Professionals, LLC	Delaware	100
Material Service Resources Company, LLC	Delaware	100
Mediaware International Pty Ltd	Australia	100
Midcoast Aviation, Inc.	Missouri	100
Midwest Properties Sales, LLC	Delaware	100
MOWAG GmbH	Switzerland	100
NASSCO Holdings Incorporated	Delaware	100
National Steel And Shipbuilding Company	Nevada	100
OO Jet Aviation	Russia	100
Page Europa Srl	Italy	100
Pagetel Sistem Muhendisligi Sanayi ve Ticaret Limited Sirketi	Turkey	100
Patriot I Shipping Corp.	Delaware	100
Patriot II Shipping Corp.	Delaware	100
Patriot IV Shipping Corp.	Delaware	100
Plane 79, LLC	Delaware	100
Plane 877G, LLC	Delaware	100
Prairie Energy Sales Corporation	Delaware	100
Prodelin India Private Limited	India	100
Quincy Maritime Corporation Iii	Delaware	100
Santa Barbara Sistemas S.A.	Spain	100
Savannah Air Center, LLC	Georgia	100

Subsidiaries of General Dynamics Corporation (Parent and Registrant)	Place of Incorporation	Percent of Voting Power
Signal Solutions, LLC	Virginia	100
Southern Illinois Recovery, Inc.	Delaware	100
St. Marks Powder, Inc.	Delaware	100
Steyr Daimler Puch Specialfahrzeug GmbH	Austria	100
Steyr Spezialfahrzeug AG de Venez., C.A.	Venezuela	100
Steyr-Daimler-Puch Spezialfahrzeug Schweiz GmbH	Switzerland	100
Steyr-Daimler-Puch SSF de Venezuela, C.A.	Venezuela	100
Tadpole Computer Limited	United Kingdom	100
Tecnologias Internacionales de Manufactura S.A. de C.V.	Mexico	100
The Elco Company	New Jersey	100
Tripoint Global (Asia) Private Limited	India	100
Vertex Antennentechnik GmbH	Germany	100
Vertex International Limited	United Kingdom	100
VertexRSI Pte, Ltd.	Singapore	100
ViPS Biomedical Services, Inc.	Pennsylvania	100
ViPS, Inc.	Maryland	100
Weco, LLC	Delaware	100
XCore, Inc.	Delaware	100
Subsidiaries Owned by Multiple Other Subsidiaries	Place of Incorporation	Percent of Voting Power
ASCOD A.I.E.	Spain	100
ELCS-CZ s.r.o.	Czech Republic	100
Defendia CZ s.r.o.	Czech Republic	100
General Dynamics Global Force, LLC	Delaware	100
General Dynamics One Source, LLC	Delaware	100
General Dynamics Telecom Holding, LLC	Russia	100
General Dynamics Sakhalin, LLC	Russia	100
GM GDLS Defense Group, LLC	Delaware	100

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

To the Board of Directors of General Dynamics Corporation:

We consent to the incorporation by reference in the registration statements (Nos. 2-23904, 2-24270, 33-23448, 33-42799, 333-26571, 333-74574, 333-10664, 333-87126, 333-101634, 333-103607, 333-107901, 333-116071, and 333-139518) on Forms S-8 and registration statement No. 333-155980 on Form S-3 of General Dynamics Corporation of our reports dated February 19, 2009, with respect to:

• the consolidated balance sheets of General Dynamics Corporation as of December 31, 2008 and 2007, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008, and the related financial statement schedule,

• the effectiveness of internal control over financial reporting as of December 31, 2008,

which reports appear in the December 31, 2008 annual report on Form 10-K of General Dynamics Corporation.

/s/ KPMG LLP

KPMG LLP

McLean, Virginia

February 19, 2009

EX-24

Exhibit 24

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, L. HUGH REDD 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 2008 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 as 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 4th day of February 2009.

/s/ Nicholas D. Chabraja Nicholas D. Chabraja	/s/ John M. Keane John M. Keane
/s/ James S. Crown James S. Crown	/s/ Deborah J. Lucas Deborah J. Lucas
/s/ William P. Fricks William P. Fricks	/s/ Lester L. Lyles Lester L. Lyles
/s/ Charles H. Goodman Charles H. Goodman	/s/ Carl E. Mundy, Jr. Carl E. Mundy, Jr.
/s/ Jay L. Johnson Jay L. Johnson	/s/ J. Christopher Reyes J. Christopher Reyes
/s/ George A. Joulwan George A. Joulwan	/s/ Robert Walmsley Robert Walmsley
/s/ Paul G. Kaminski Paul G. Kaminski

EX-31.1

Exhibit 31.1

CERTIFICATION BY CEO PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Nicholas D. Chabraja, certify that:

1) I have reviewed this annual report on Form 10-K of General Dynamics Corporation;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Nicholas D. Chabraja

Nicholas D. Chabraja

Chairman and Chief Executive Officer

February 20, 2009

EX-31.2

Exhibit 31.2

CERTIFICATION BY CFO PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, L. Hugh Redd certify that:

1) I have reviewed this annual report on Form 10-K of General Dynamics Corporation;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

1

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ L. Hugh Redd

L. Hugh Redd

Senior Vice President and Chief Financial Officer

February 20, 2009

2

EX-32.1

Exhibit 32.1

CERTIFICATION BY CEO PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of General Dynamics Corporation (the Company) on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Nicholas D. Chabraja, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Nicholas D. Chabraja

Nicholas D. Chabraja

Chairman and Chief Executive Officer

February 20, 2009

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION BY CFO PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of General Dynamics Corporation (the Company) on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, L. Hugh Redd, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ L. Hugh Redd

L. Hugh Redd

Senior Vice President and Chief Financial Officer

February 20, 2009

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.