UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file number 1-3671

Registrant’s telephone number, including area codecode:

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

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

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 þ          No o

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.     Yes þ

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

The aggregate market value of the voting common stockequity held by non-affiliatesnonaffiliates of the registrant was $21,471,168,789$13,094,497,759 as of June 28, 2002.29, 2003 (based on the closing price of the shares on the New York Stock Exchange).

      217,537,097198,200,263 shares of the registrant’s common stock were outstanding at March 14, 2003.January 31, 2004.

DOCUMENTS INCORPORATED BY REFERENCE:

      Parts I and II incorporate information from certain portions of the registrant’s Annual Report to security holders for the fiscal year ended December 31, 2002 (the 2002 Annual Report).

Part III incorporates information from certain portions of the registrant’s definitive proxy statement for the 20032004 annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year.

      Certain sections of this

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K containcontains forward-looking statements whichthat are based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements, which include but are not limited to projections of revenues, earnings, segment performance, cash flows, contract awards, aircraft production, deliveries and backlog stability. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including, without limitation: the company’s successful execution of internal performance plans; general

PART I

ItemITEM 1. BusinessBUSINESS

Business Overview

BUSINESS OVERVIEW

General Dynamics is a market leader in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. Incorporated in Delaware, corporation formedthe company employs approximately 67,600 people and has a presence worldwide.
     Formed in 1952 as successor tothrough the combination of Electric Boat Company. In the mid 1990’s,Company, Consolidated Vultee and other entities, the company begangrew through internal development and acquisitions but was largely dismantled in the early 1990s through the sale of all of its divisions except Electric Boat and Land Systems. The company’s present composition is the result of a series of acquisitions begun in 1995. At that expandedtime, General Dynamics began an expansion of its two core defense businesses, broadening its product lines through the acquisition of other shipyards and combat vehicle-related entities. The company also added information technology products and services, particularly in the defense industry, broadened its expertise in systems integration and C4ISR (command and control,command-and-control, communications, computers,computing, intelligence, surveillance and reconnaissance) systems,reconnaissance (C4ISR) area, and added businessbusiness-jet aircraft and aviation support services to its offerings. Since 1995, General Dynamics has acquired more than 30 businesses, including seven during 2003.
     General Dynamics’ management focus is creating shareholder value while providing the best products and services possible to the company’s offerings. Since 1995,its customers, both military and commercial. The company emphasizes excellence in program management through continuous operational improvements and ethical business practices. This culture is evident in how the company has acquired 26 businesses, including three acquisitions during 2002. In the fourth quarter of 2002, the company entereddeals with shareholders, employees, customers, partners and communities.
     General Dynamics is organized into a definitive agreement to acquire General Motors Defense of London, Ontario (GM Defense), a business unit of General Motors Corporation. The transaction closed on March 1, 2003. The company’s businesses include mission-critical information technology and communications, land and amphibious combat systems, shipbuilding and marine systems, and business aviation. These are leading-edge technology businesses that provide the highest quality products and capabilities to the company’s customers.

      The company operates in four primary business groups —groups: Information Systems and Technology, Combat Systems, Marine Systems and Aerospace —Aerospace. These groups design, develop, manufacture and a smaller Resources group. Informationsupport leading-edge technology, products and services for use across the spectrum of military operations. From nuclear submarines to Stryker armored infantry carriers, ammunition to targeting systems, tactical Personal Digital Assistants to combat search-and-rescue radios, General Dynamics supports the combat warrior on revenues, operating profitland, at sea, in the air and identifiable assets attributableon the network. The company’s Gulfstream business-jet aircraft serve business travelers around the world, as well as government customers as special mission platforms for intelligence, surveillance, reconnaissance and transport.
     In addition to each of the company’s reportablefour principal business groups, is included in Note S to the Consolidated Financial Statements on page 54 of the 2002 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2002,a small Resources group provides construction aggregates and incorporated herein by reference.

      The company’s principal customers are the U.S. military, other government organizations, the armed forces of allied nations, and a diverse base of corporate and industrial buyers. The company’s government-source revenues are significantly linked to trends in the U.S. defense industry, and to a lesser extent, the defense industries of foreign countries. Its business aviation revenues are affected by global economic conditions in general and the market for capital goods in particular.

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      Since taking office in 2001, the Bush administration has increased the U.S. defense budget to levels not seen since the Reagan administration. For fiscal year 2003, Congress appropriated $366 billion to the Department of Defense, an increase of 12 percent from the fiscal year 2002 appropriation, to strengthen the U.S. military as it confronts current threats and transforms to meet future ones. Of this amount, $59 billion was allocated for research and development programs, and $72 billion for procurement — increases of 21 percent and 17 percent over the prior year’s funding levels, respectively. For fiscal year 2004, President Bush has requested that Congress appropriate $380 billion for the Department of Defense, including almost $62 billion for research and development and almost $73 billion for procurement. These two categories of spending drive over 60 percent of the company’s sales, and the fact that these increases have come in spite of increasing budget deficits reflects the Bush administration’s commitment to the military. While Congress will ultimately decide how much to appropriate for the military in 2004, the company expects continued support of its key programs.

      The company’s business aviation segment is subject to overall economic conditions in the United States and has been affected by the economic slowdown in the capital goods sector. However, as a result of aggressive management initiatives, the company is well-positioned to gain market share when the economy improves. The company also markets its aircraft to the U.S. government and international governments for special missions, expanding the reach of this business beyond the individual and corporate customer base.

operates coal mines.
     Following is a description of the company’s products and services by business group, competition and other related information.

Products and ServicesPRODUCTS AND SERVICES

INFORMATION SYSTEMS AND TECHNOLOGY

The Information Systems and Technology group is a leading integrator of secure communicationcommunications systems and networks, andnetworks; command, control and intelligence systems; special purpose computing; and surveillance and reconnaissance systems for the U.S. military, the U.S. intelligence community and allied nations. The group supplies products, infrastructure and integration services that are used to gather, process and disseminate information rapidly and accurately. The group provides a full spectrum of information and communications technologies, including:

customer base.
     Net sales for the Information Systems and Technology group were 2730 percent of the company’s consolidated net sales in 2003, 27 percent in 2002 and 22 percent in 2001 and 23 percent in 2000.2001. Net sales (in millions) by major products and services were as follows:

      The Information Systems and Technology group provides defense and commercial customers with infrastructure and systems integration capabilities required to process, communicate and manage information effectively. The group has leading market positions in the design and development, integration, deployment, and maintenance of wireline and wireless voice and data networks; C4ISR systems; encryption; ruggedized computing; advanced software and electronics systems development; and lifecycle management and support.

      The group’s expertise in technology, systems design and integration, and key platform subsystems helps the company’s other business groups improve their products. This expertise has also positioned the company as a lead systems integrator, delivering solutions that create decisive communication and information-management advantages for military, government and commercial customers around the world. In pursuit of this vision, the company realigned the group by common expertise and customer groups effective January 1, 2002. This resulted in the creation of five business units: Advanced Information Systems, C4 Systems, Decision Systems, Network Systems and General Dynamics United Kingdom Limited.

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COMBAT SYSTEMS

      The
As a leading provider of tracked and wheeled armored combat vehicles, armament systems and ammunition in North America, Europe and the South Pacific, and the only producer of America’s main battle tanks, the Combat Systems group provides systems integration, design,delivers key products and technologies to U.S. and allied military forces.
     The group is one of the preferred suppliers of land and expeditionary combat system development, production and support for armored vehicles, armaments, munitionsaround the world. Combat Systems conceives, engineers, manufactures and components. Itssupports product lines that include a full spectrum of armored vehicles, turretstrucks and turret drive systems; unmanned systems;light wheeled vehicles, bridges, suspensions, engines, transmissions, guns and transmissions; medium-caliber guns; ammunition handling systems; medium-and large-caliber ammunition;systems, turret and turret-drive systems, reactive armor;armor, chemical and ordnance.

      Net sales forbiohazard detection products, ammunition and ordnance, and composite manufacturing.
     During 2003, the Combat Systems group were 21 percent ofenhanced its product offerings and engineering and production capabilities through three acquisitions, expanding the company’s consolidated net sales in 2002, 19 percent in 2001group’s customer base and 12 percent in 2000. Net sales (in millions) by major products and services were as follows:

      The acquisition of GM Defense establishes

      The company is under contract tolatest technologies, and manufactures Pizarro Advanced Infantry Fighting Vehicles for the Spanish army.
     For the U.S. Marine Corps, forCombat Systems is completing the systems development and demonstration phasetesting of the new Expeditionary Fighting Vehicle (EFV), formerly the Advanced Amphibious Assault Vehicle (AAAV). Under this phase,Vehicle. The EFV is designed to provide the company expectsMarines with an expeditionary vehicle that enables quick deployment from the sea to completean inland objective with greater survivability and lethality. Initial production of over 1,000 vehicles is scheduled to begin in 2006 and continue to the design and developmentend of the AAAV, manufacture nine new prototypes, refurbish three early development prototypes and prepare fornext decade.
     In addition, the production phase of the program.

      The company expectsCombat Systems group is a major rolekey participant in the development of manned ground vehicles and emerging robotic technologies for the Army’s Future Combat Systems (FCS) basedprogram. In 2003, it successfully demonstrated the initial capability of a new guided rocket for tactical aircraft applications, and it leads the development program for technology that will make the future land soldier more lethal and survivable.
     Each of these programs represents an important role for the Combat Systems group in the future armed forces of the United States and its allies. In many cases, the company is on the recent signing of a teaming agreement with The Boeing Company and United Defense, L.P. The FCS will be the coreleading edge of the Army’stechnology, engineering, manufacturing or production capabilities that meet those customers’ requirements.
     Net sales for the Combat Systems group were 25 percent of the company’s consolidated net sales in 2003, 21 percent in 2002 and 19 percent in 2001. Net sales by major products and services were as follows:

MARINE SYSTEMS
The Marine Systems group has three shipyards with a long, proud history of providing the Navy with ships and submarines used to project the United States’ presence around the globe. Electric Boat manufactured the Navy’s first submarine more than 100 years ago. The company’s two other shipyards have demonstrated decades of innovation in developing destroyers and auxiliary ships for the Navy. Today, the group is on the cutting edge of shipbuilding as it participates in the design, development, manufacture and integration of the complex platforms that are central to Seapower 21, the Navy’s transformation intovision.
     With its next-generation fighting force. The agreement forms an integrated design team forexperience and expertise in the development of surface, sub-surface and support platforms, Marine Systems is a key partner with the Navy. Marine Systems is leading the development of the manned ground vehicle elementsnew Virginia-class submarines, for which it received the largest submarine order in U.S. history. Construction work on the Virginia-class submarine is shared equally with the company’s teaming partner. The Virginia Class will provide the Navy a key platform with stealth, firepower and endurance, networked for communication with strategic and surface forces, in its pursuit of undersea superiority. Complementing this platform will be the Trident SSGN submarines, which the group is developing through the conversion of four Trident ballistic-missile submarines. The Trident SSGNs will be multi-mission submarines optimized for tactical strike and special operations support, key capabilities for future engagements around the world.
     The group is the lead designer and producer of Arleigh Burke-class guided-missile destroyers, one of the FCS.

      In Spain,most advanced surface combatants in the company has a contract to provide to the Spanish army 235 Leopard main battle tanks, built under license from a German company. The companyworld. It is also scheduled to produce 181 Pizarro tracked infantry fighting vehicles, including 176 vehiclesone of three competitors developing preliminary designs for the Navy’s Littoral Combat Ship (LCS). The LCS platform is intended for defense against terrorist swarm boats, mines and submarine threats in Phase IIcoastal areas.

      The Marine Systems group provides the U.S. Navy with combat vessels, including nuclear submarines, surface combatants and auxiliary ships.lower cost. The group also provides commercial ships, designing and manufacturing two roll-on/roll-off trailerships for cargo shipping and four double-hull oil tankers.
     In addition, the group provides ship managementrepair and other services forto the U.S. governmentNavy and builds large-hulled vessels for commercial customers.

     The shipbuilding industry is central to the Navy’s Seapower 21 efforts to transform into a more lethal, flexible, network-centric sea force of the future. The company believes Marine Systems’ leadership in the design, engineering, development and construction of naval platforms positions it for continued partnership with the Navy for years to come.
     Net sales for the Marine Systems group were 26 percent of the company’s consolidated net sales in 2003 and 2002, and 30 percent in 2001 and 33 percent in 2000.2001. Net sales (in millions) by major products and services were as follows:

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

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

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

      The company has been awarded contracts to date for the construction of 27 Arleigh Burke-class destroyers (DDG-51) and plays a lead role in providing design, engineering and ongoing lifecycle support services for these ships. The company was also a member of a three-contractor team led by Northrop Grumman Ship Systems (NGSS) that was awarded a contract to design and build the Navy’s new San Antonio-class of amphibious assault ships (LPD). In 2002, the company, the Navy and NGSS agreed to transfer construction of four LPDs from the company to NGSS in exchange for construction of up to four DDGs. As a result of this swap arrangement and a multiyear agreement awarded shortly thereafter, the company received contracts to construct a total of seven DDGs with a total value of $3.7 billion.

      The company was one of six contractors that received a contract from the Navy to explore advanced concepts for a Littoral Combat Ship (LCS). The LCS is an integrated surface combatant capable of operating in coastal areas against terrorist threats, high-speed swarm boats, mines and diesel submarines. The LCS program envisions ship construction beginning in 2005.

      DD(X) is the Navy’s next generation family of surface combatants. The company is a major subcontractor on the design phase of the DD(X) program.

      The company designs and builds ships for the Navy and commercial customers. The company currently has contracts for the design and construction of three dry-cargo combat logistics ships, with options for up to nine additional ships, and has recently completed the last of eight strategic sealift ships for the Navy. Contracts with

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      The company provides ship repair and other services to the Navy and commercial customers. The company also manages 23 ready-reserve, fast sealift and prepositioning ships for the U.S. government.

AEROSPACE

      The Aerospace group is composed of Gulfstream Aerospace Corporation and General Dynamics Aviation Services.
The Aerospace group designs, develops, manufactures, markets and supports a fleet of world-renowned business-jet aircraft, and provides maintenance and supportaviation services for technologically advanced business jets.business-jet aircraft. The group was created in 1999 when the company acquired Gulfstream Aerospace Corporation. In 2001, the group added mid-size aircraft to its product offerings with the acquisition of Galaxy Aerospace Company, and formed a separate aviation services unit. Gulfstream has produced more than 1,400 aircraft for customers around the world since 1958.
     In 2003, the group broadened its offering of business-jet aircraft by introducing a new aircraft and completing regulatory requirements for production of other airframes. In addition, the group expanded its aviation services operations to include the first Gulfstream-owned service center outside the United States through an acquisition at the London Luton Airport in the United Kingdom.
     The new large-cabin, long-range Gulfstream G450, introduced in 2003, is an entire aircraft upgrade of the best-selling business jet in its class — the Gulfstream GIV/GIV-SP/G400. The G450 incorporates the most advanced avionics, cockpit displays, aircraft systems, aerodynamic enhancements and flight safety features, and retains the aesthetic design and signature windows that set Gulfstream aircraft apart from competing models. The new G450, which is expected to receive certification later this year, was designed for safety, performance, reliability, and passenger comfort and productivity.
     The group received Federal Aviation Administration (FAA) type and production certification for the Gulfstream G550 model on August 14, 2003. The large-cabin, ultra-long-range G550 can fly as high as 51,000 feet and can travel at speeds up to Mach .885 and distances up to 6,750 nautical miles — the longest range available in a business jet. In February 2004, the National Aeronautic Association awarded its Collier Trophy to the G550, naming it “the greatest achievement in aeronautics in the United States with respect to improving performance, efficiency or safety of air or space vehicles” in 2003.
     The Aerospace group also sellsreceived type certification for its state-of-the-art PlaneView^® cockpit, as well as the first production certification for the Gulfstream Enhanced Vision System (EVS). The Gulfstream EVS significantly improves pilot situational awareness during conditions of reduced visibility, both in flight and on the ground.
     Additionally, in February 2004, the company further expanded its product line by introducing the Gulfstream G350 model. Very similar in design to the G450, the new aircraft delivers the same spacious cabin, advanced avionics and cockpit systems, exceptional performance and reliability, but with a slightly reduced range and a lower price.
     Looking beyond the commercial market, the group continued efforts to offer its aircraft as platforms for ISR and other special mission applications by U.S. and allied governments. It sold four G550 aircraft to governmentsthe Israeli Ministry of Defense for use as Compact Airborne Early Warning (CAEW) platforms, which will take full advantage of the G550’s capabilities, endurance, reliability and low operating cost. Additionally, the G450 was designated the platform of choice by one of the two competitors in a pending U.S. military procurement for special mission ISR applications.
     The company formed General Dynamics Aviation Services in February 2001 to better meet the maintenance needs of a variety of the most popular business-jet aircraft available around the world. Gulfstream has delivered nearly 1,400 aircraftIt serves a broad range of business-aircraft owners through maintenance centers in Minneapolis, Minnesota; Westfield, Massachusetts; West Palm Beach, Florida; Dallas, Texas; and Las Vegas, Nevada.
     With an expanded product line, the company believes the Aerospace group is well positioned to customers since 1958, the year operations began.take advantage of an encouraging market.

      During 2002, the company increased its product offering from four aircraft models to seven, priced from $12 million to $46 million. In addition to the G100 and G200 products, added in 2001, the AerospaceRESOURCES
The Resources group introduced the G150, G300, G400, G500 and G550 in 2002. The Gulfstream GIV-SP, GV and GV-SP brand names will no longer be used for future models. The company increased its product offering to compete vigorously in market segments in which it did not previously participate.

      The Gulfstream G550 and the Gulfstream G500 serve the large-cabin ultra-long-range market. The company believes the G550 and G500 offer the best combination of large cabin size, fast cruising speed and advanced avionics of any large business jet in the ultra-long-range market segment. The Gulfstream G550 received a Provisional Type Certificate from the Federal Aviation Administration in 2002. Initial entry into service for the G550 is scheduled for the third quarter of 2003 and for the G500, the first quarter of 2004. The G400 large-cabin business jet serves the long-range market. The company believes the G400’s large cabin, advanced technology and five-year service and training package make it the leader in its market segment. The G400 is scheduled to enter service in 2003. The company believes the G300 serves an emerging market segment: business travelers seeking an affordable large-cabin business jet with international flight capability. The G300 is also scheduled for entry into service in 2003. The G150, a wide-cabin high-speed aircraft, will replace the G100 when it enters into service in 2005. The company believes the G150 will offer the best range and speed of any aircraft in its market segment.

      This expanded product offering reduced the company’s product pricing separation from a $10 million average to a $5 million average between each aircraft model. This created a new buying opportunity for customers by offering greater value compared with competitors’ products.

      Gulfstream Product Support provides an integrated worldwide network of company-owned service centers, parts depots, and field and technical representatives able to meet customer needs at any time. Gulfstream Airborne Product Support is an industry-exclusive customer service provided to support warranty aircraft. Additional Gulfstream authorized third party service centers provide customers extended product support coverage. General Dynamics Aviation Services provides aircraft maintenance services, spares and technical support for Challengers, Falcons, Gulfstreams, Hawkers and other business jet aircraft. In an effort to grow the service business, five strategically located facilities service and support both Gulfstream aircraft and competitors’ aircraft.

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

RESOURCES

      The company’s Resources businesses consist ofincludes two businesses: a coal mining operation and an aggregates operation that mines sand, stone and a leasing operationgravel for liquefied natural gas tankers.use in highway and building construction. Net sales for these businesses represented approximately 21 percent of the company’s consolidated net sales in 2003 and 2 percent in 2002 and 2001 and 3 percent of consolidated sales in 2000.2001. Net sales (in millions) were $256 in 2003, $286 in 2002 and $276 in 2001 and $253 in 2000.

Competition2001.

     Virtually all of the products produced and sold by the company are highly engineered and require sophisticated manufacturing and system integration techniques and capabilities. Additionally, the product and program needsFor additional discussion of the company’s governmentbusiness groups, including significant program wins in 2003, see Management’s Discussion and commercial customers regularly changeAnalysis of Financial Condition and evolve. 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 the company’s business groups, see Note R to the Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K.

COMPETITION

The company’s ability to compete successfully compete is highly dependentdepends on the technical excellence and reliability of its products and services, its reputation for integrating complex systems, the ability of its leadership team to successfully manageteam’s successful management of the company’s businesses and respond to the changing needs of its customers,customer relationships, and the cost competitiveness of its products and services. The company competes in two separate markets: defense and business-jet aircraft.

DEFENSE CONTRACTS

MARKET
The company’s defense businesses are subject to substantial competition frommarket is served by numerous domestic and foreign entities ranging from large defense contractors to smaller companies. A varietycompanies that offer a range of products and services and compete with the company for many of its contracts. On occasion, the company is involved in subcontracting relationships with some of these competitors. The key competitive factors determine the results of different competitions including, price,in this market are technological capabilities, pastinnovation, low-cost production, performance and customer confidence.market knowledge.
     The company also is frequently a partner with, or subcontractor to, a defense supplier on one project, with which it is competing for another award. These strategic partnerships and relationships improve the company’s ability to obtain new business, but also make it crucial for the company to distinguish itself from its competitors.

      With respect to the market in which the Information Systems and Technology group participates, the company competes with a broad range of entities, ranging in size from large defense industry participantscompanies to smaller niche competitors that havewith specialized technologies. In the market it serves, theThe Combat Systems group facescompetes in a varietymarket composed primarily of majorlarge domestic and foreign competitorsentities. The company partners with some of these entities from time to time, and currently is in each of its operating units. Additionally, the company is partnereda teaming arrangement with two largeanother U.S. defense contractorscontractor on the manned vehicle portion of the Future Combat SystemsFCS program. The Marine Systems group hasoperates in a market with only one other primary competitor, with whichNorthrop Grumman Corporation; the company is also teamed with that competitor on several programs, including the Virginia-class submarine construction contract. The Navy’s LCS program has increased competition to now include other large aerospace companies seeking opportunities as shipbuilding prime contractors.

BUSINESSBUSINESS-JET AIRCRAFT

      The business MARKET
Competition in the business-jet aircraft market generally is divided into segments based on the cabin size, range and rangeprice of the aircraft. The Aerospace group offers a total of sevennine products in the following market segments: mid-cabin high speed; wide-cabin high-speed; large-cabin mid-range; large-cabin long-range; and large-cabin ultra-long-range.

      The G100 mid-cabin high-speed business jet and the G150 wide-cabin high-speed business jet compete in the $12 million to $14 million pricing segment. The G150 will offer many of the same performance and range features as the G100, but will have a wider and longer cabin. It is scheduled

      The G300 large-cabin mid-range business jet, another new entry in the Gulfstream fleet, competes in the $21 million to $27 million pricing segment. The G300 is expected2004.
(c) Scheduled to enter service in 2003 and will compete with Bombardier’s Challenger 604 and Dassault’s Falcon 2000EX. The G400 large-cabin long-range business jet, scheduled2005.
(d) Scheduled to enter service in 2003, competes in the $29 million to $33 million pricing segment against Dassault’s Falcon 900C and Falcon 900EX. The G500 large-cabin ultra-long-range business jet competes in the $35 million

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     The company believeshas at least one competitor in each market segment in which it competes favorablycompetes. The number of competitors increases in its markets on the basis ofsegments that offer shorter ranges. The key competitive factors in the business-jet market are the performance characteristics of itsthe aircraft, the quality and timeliness of the service it provides, its advancedprovided, the advances in technology offered, and its innovative marketing programs.programs, including price. The company believes it competes favorably on these criteria.

CustomersCUSTOMERS

      Historically,The company’s primary customer is the majority of the company’s sales have been to U.S. government, agencies.particularly the Department of Defense. In 2002, 642003, 66 percent of the company’s net sales were to the U.S. government, either as a prime contractor or as a subcontractor; 23government; 18 percent were to U.S. commercial customers; 6 percent were to international commercial customers; and the remaining 711 percent were directly to international defense customers; and the remaining 5 percent were to international commercial customers.

U.S. GOVERNMENT

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

managers.
     The company’s U.S. government business is performed under both cost-reimbursement (sometimes referred to as “cost-type”) and fixed-price contracts. ContractsThe company’s contracts for research, engineering, prototypes, repair and maintenance are often cost-reimbursement arrangements, under which the customer reimburses the company for allowable costs and pays a predetermined fee. A large percentage of theThe company’s production contracts are largely fixed-price, arrangements, pursuant toin which the company agrees to perform a specific scope of work for a fixed amount. For the year ended December 31, 2002, cost-typeIn 2003, cost-reimbursement and fixed-price contracts accounted for approximately 4647 percent and 5453 percent, respectively, of the company’s defensegovernment business.

     Cost-reimbursement and fixed-price contracts each present their own advantages and disadvantages for the company. Cost-type arrangementsCost-reimbursement contracts generally involve lower risk for the company and sometimes involve fee schedules that allowaward the company to obtain increased payments for satisfying certain performance criteria. However, not all of the company’s costs are recoverable under these types of contracts, and the government

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U.S. COMMERCIAL

      Commercial
The company’s commercial sales (in millions) to domestic customers were $3,009 in 2003, $3,235 in 2002 and $3,555 in 2001 and $3,158 in 2000.2001. These sales represented approximately 2318 percent of the company’s consolidated net sales in 2003, 23 percent in 2002 and 29 percent in 2001, and 31 percent in 2000.2001. The majority of the company’s commercialthese sales were for Gulfstream aircraft, primarily to national and multinational corporations. These sales are to many of the Fortune 500 public^® companies and large, privately held companies and wealthy individuals.companies. The aircraft are operated by customers in a wide spectrumrange of industries, including pharmaceuticals, consumer goods, high technology, energy, industrial manufacturing, finance, insurance, real estate, mining, transportation, communications, public utilities and retail.industries.

INTERNATIONAL
The company has an agreement with an unaffiliated customer, NetJets Inc. (NetJets), a unit of Berkshire Hathaway and the leader in the fractional market, for the sale of aircraft for use in its fractional ownership program. Salescompany’s direct (non-Foreign Military Sales) sales to NetJets were approximately 6 percent of the Aerospace group’s sales in 2002 and approximately 9 percent of the group’s sales in both 2001 and 2000.

INTERNATIONAL

      Direct international sales (in millions) to both defense and commercial customers outside the United States were $2,581 in 2003, $1,788 in 2002 and $1,180 in 2001 and $967 in 2000.2001. These sales represented approximately 1316 percent of the company’s consolidated net sales in 2003, 13 percent in 2002 and 10 percent in 2001, and 9 percent in 2000.2001. International defense sales were derived primarily from the company’s subsidiaries located abroad. Internationalabroad; international commercial sales were related primarily to the exportexports of businessbusiness-jet aircraft.
     The company ownshas operations located in Australia, Austria, Canada, Germany, Spain, Switzerland and the U.K., Spain and Germany. For the year ended December 31, 2002, sales and operating earningsUnited Kingdom. Sales from these international operations were 7 percent$2,175 in 2003, $970 in 2002 and 6 percent of consolidated sales and operating earnings, respectively. Identifiable$421 in 2001. The long-lived assets of operations domiciledlocated outside the U.S.United States were 816 percent of the company’s total identifiable assetsas of December 31, 2003, 6 percent as of December 31, 2002, 7and 5 percent as of December 31, 2001, and 4 percent as of December 31, 2000. At December 31, 2002, these assets consisted primarily of cash and intangible assets, including goodwill.

2001.
     For information regarding sales by geographic region, see Note SR to the Consolidated Financial Statements on page 54contained in Part II, Item 8 of the 2002 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for10-K.

SUPPLIERS

In some cases, the year ended December 31, 2002, and incorporated herein by reference.

Suppliers

      The company is dependent upon suppliers and subcontractors for raw materials and a large number of components used in the production of its products. In some instances, the company is dependentrelies on only one or a few two

Research and DevelopmentRESEARCH AND DEVELOPMENT

The company’s defense and business aviation operations conductcompany conducts independent research and development activities, which include bid and proposal work.(R&D) activities. The company’s defense businessescompany also conduct research and developmentconducts R&D activities under U.S. government contracts. These research efforts have been and continuecontracts to be concerned with developingdevelop products for large systems development programssystems-development and performing work under research and development technology contracts.

      Research and development activities of the company’s defense businesses represented theprograms.
     The majority of company-sponsored R&D expenditures in each of the past three years. Ayears was in the company’s defense business. The company recovers a significant portion of these expenditures is recovered through overhead charges pursuant to U.S. government contracts. Research and developmentThe R&D activities

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

BacklogBACKLOG

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

      For further discussion of backlog, see Management’s Discussion and Analysis of the Results of Operations and Financial Condition on pages 21 through 35 of the 2002 Annual Report, filed as Exhibit 13 to this Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.

DEFENSE BUSINESSES

The company’s total backlog represents the estimated remaining sales value of work to be performed under firm contracts. Thecontracts and includes funded and unfunded portions. For further 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 governmenteach business group follows:

DEFENSE BUSINESS
For defense programs, the funded backlog represents those items that have been authorized and appropriated by Congress and funded by the procuring agency.customer. The unfunded backlog represents firm orders for which funding has not been appropriated. To the extent the backlog has not been funded, there is no assurance that congressional appropriations or agency allotmentsfunding will be forthcoming.forthcoming; however, management believes it is highly likely.

AEROSPACE

The Aerospace funded backlog represents orders for which the company has entered into definitive purchase contracts and has received deposits from the customers.a customer. The unfunded Aerospace unfunded backlog includesconsists of options to purchase new aircraft and agreements to provide future aircraft maintenance and support services. Forty-three percent of the Aerospace funded backlog is with commercial customers other than NetJets. The backlog with NetJets represents 53 percent of the Aerospace funded backlog. The remaining 4 percent of the Aerospace funded backlog is with government customers. NetJets represents substantially all of Aerospace option backlog. Deliveries of aircraft to NetJets are scheduled from 2003 through 2010 and represent approximately 7 percent to 15 percent of projected annual new aircraft sales during that period.

10REGULATORY MATTERS

Regulatory Matters

U.S. GOVERNMENT DEFENSE CONTRACTS

      In 2002, over 60 percent of the company’s net sales were to the
Generally, U.S. government, either as a prime contractor or as a subcontractor. Generally, government contracts are subject to oversight auditsseveral procurement laws and regulations. In particular, contracts are governed by the Federal Acquisition Regulation (FAR), which lays out uniform policies and procedures for the acquisition of goods and services by the U.S. government, representatives and contain provisions permitting termination,agency-specific acquisition regulations that implement or supplement the FAR. For example, the Department of Defense implements the FAR through the Defense Federal Acquisition Regulation (DFAR). The FAR regulates all phases of the acquisition of products and services, including:

terminated, in whole or in part, at the government’s convenience or for default. If a contract is terminated at thefor convenience of the U.S. government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. Contracts that areIf a contract is terminated for default, generally provide that the government onlygenerally pays for only the work it has accepted and may require the contractor to pay for the incremental cost of reprocurement and may hold the contractor liable for damages.

      The company’s government businesses areaccepted. These regulations also subject the company to a numberfinancial audits and other reviews by the government of procurement lawsits costs, performance, accounting and regulations. Failuregeneral business practices relating to its contracts, which may result in adjustment of the company’s contract-related costs and fees.
     In addition, failure by the company to comply with theseprocurement laws or regulations and requirements can result in civil, criminal or administrative proceedings involving fines, penalties, suspension of payments andor suspension or debarmentdisbarment from government contracting or subcontracting for a period of time.

BUSINESSINTERNATIONAL
The company’s international sales are subject to U.S. and foreign government regulations and procurement policies and practices, including regulations relating to import-export control, investments, exchange controls and repatriation of earnings. International sales are also subject to varying currency, political and economic risks.

BUSINESS-JET AIRCRAFT

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

ENVIRONMENTAL

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

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

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      Under
     A Potentially Responsible Party (PRP) has joint and several liability under existing U.S. environmental laws, “Potentially Responsible Parties” (PRP) are jointly and severally liable, and therefore,laws. Where the company has been designated a PRP by the Environmental Protection Agency or a state environmental agency, it is potentially liable to the government or third parties for the full cost of remediating contamination at the company’s facilities or former facilities or at third-party sites where the company has been designated a PRP by the Environmental Protection Agency or a state environmental agency.sites. In the unlikely event that the company is required to fully fund the remediation of a site, the statutory framework would allow the company to pursue rights to contribution from other PRPs. AdditionalFor additional information relating to the impact of environmental controls, is includedsee Note O to the Consolidated Financial Statements contained in Part II, Item 3, “Legal Proceedings — Environmental” on page 208 of this Annual Report on Form 10-K for the year ended December 31, 2002.10-K.

Intellectual PropertyINTELLECTUAL PROPERTY

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

EmployeesAVAILABLE INFORMATION

      As of December 31, 2002, the company had approximately 54,000 employees, of whom 32 percent were covered by collective bargaining agreements with various unions, the most significant of which are the International Association of Machinists and Aerospace Workers, the Marine Draftsmen’s Association, the Metal Trades Council of New London, Connecticut, and the United Auto Workers Union. Agreements covering less than 1 percent of total employees are due to expire during 2003.

Available Information

The company files with the Securities and Exchange Commission (SEC) and makes available freeseveral types of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,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 as soon as reasonably practicable after the filing has been made with the SEC. Reports may be obtained throughon the company’s website at GeneralDynamics.com(http://www.generaldynamics.com) or by calling investor relations at (703) 876-3000.

     These reports may also be obtained at the SEC’s Public Reference Room at 450 Fifth Street, NW,N.W., Washington, D.C. 20599.DC 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (SEC.gov)(http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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Executive Officers of The Registrant

      All executive officers of the company are elected annually. No executive officer of the company was selected pursuant to any arrangement or understanding between the officer and any other person. The name, age, offices and positions held for the last five years of the company’s executive officers as of March 14, 2003 were as follows:

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Item 2.     Properties

Principal Business Groups.The company believes its main facilities are adequate for its present needs and, as supplemented by planned improvements and construction, expects them to remain adequate for the foreseeable future. A summary of floor space (square feet in millions) at the main facilities of the Information Systems and Technology, Combat Systems, Marine Systems and Aerospace business groups as of December 31, 2002, follows:

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(a)

The Resources group operates two underground coal mines and one surface coal mine in Illinois and several stone quarries, as well as sand and gravel pits and yards for its aggregates business in Chicago, Illinois, and Indiana. Coal preparation facilities and rail loading facilities are located at each mine sufficient for its output. The company owns approximately 170 acres of property in Rancho Cucamonga, California, of which approximately five acres are undeveloped.