Amendment To Employment Agreement - GENERAL DYNAMICS CORP - 3-21-1997 by GD-Agreements

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									Exhibit 10-18B, Annual Report on Form 10-K for the year ended December 31, 1996 Commission File Number 1-3671 AMENDMENT TO EMPLOYMENT AGREEMENT FOR JAMES R. MELLOR This Amendment to Employment Agreement dated as of this fifth day of November 1996 by and between General Dynamics Corporation, a Delaware corporation (the "Corporation") and Mr. James R. Mellor. WHEREAS, effective October 3, 1995, the Corporation and Mr. Mellor entered into an Employment Agreement (the "1995 Agreement") amending Mr. Mellor's March 17, 1993, Employment Agreement, pursuant to which Mr. Mellor agreed to extend his services as Chairman and Chief Executive Officer of the Corporation from December 31, 1995, until December 31, 1996; and WHEREAS, the Corporation and Mr. Mellor desire to extend his services as Chairman and Chief Executive Officer of the Corporation until May 31, 1997, and to provide for Mr. Mellor to provide services to the Corporation thereafter to an extent greater than contemplated in the 1995 Employment Agreement, and in connection therewith desire to amend and modify in certain respects the terms of his 1995 Employment Agreement. NOW THEREFORE, the Corporation and Mr. Mellor hereby agree as follows: 1. The Corporation hereby agrees to extend Mr. Mellor's employment as Chairman and Chief Executive Officer of the Corporation until May 31, 1997, and Mr. Mellor hereby agrees to serve in such capacity until such time upon the terms and conditions hereinafter set forth. 2. In consideration of extending his services to the Corporation as Chairman and Chief Executive Officer until May 31, 1997, the Corporation hereby agrees that (i) Mr. Mellor's bonus compensation for the year 1996, which will be paid to him in 1997 when bonuses are paid to other senior executive officers of the Corporation, shall be in the amount of $1,750,000; (ii) that Mr. Mellor's base compensation for the period January 1, 1997, through May 31, 1997, shall be at the same annual rate of base compensation as is currently being paid to Mr. Mellor; (iii) his bonus for the period January 1, 1997, through May 31, 1997, will be the pro rata amount of the bonus payable to him with respect to 1996 or $730,000, payable upon his resignation on May 31, 1997; and (iv) in lieu of Mr. Mellor's participation in the 1997 Long-Term Incentive Program, a cash payment of $840,000 (the equivalent present value of 5/12 of the 1997 Long-Term Award he would otherwise have received), payable upon his resignation on May 31, 1997.

3. For the 12-month period following his resignation as Chairman and Chief Executive Officer on May 31, 1997, Mr. Mellor will render services to the Corporation in such manner and upon such terms and conditions as the Corporation and Mr. Mellor shall agree to, provided that, upon the request of the Corporation, Mr. Mellor will devote not less than 5 days during each calendar month during such 12-month period to the rendition of such services. In consideration of the rendition of such services, the Corporation hereby agrees that upon Mr. Mellor's resignation as Chairman and Chief Executive Officer of the Corporation on May 31, 1997, it shall pay to Mr. Mellor the sum of $580,000. 4. Paragraph 1 of Section 1 of the 1995 Employment Agreement is hereby modified, in order to reflect the additional months of service which Mr. Mellor has agreed to render to the Corporation as hereinabove provided, so that the annual supplemental retirement benefit to which he is entitled pursuant to said Paragraph 1 is amended to be "$147,064." Mr. Mellor may receive that amount, upon his request, in a lump-sum payment upon his retirement, said lump-sum payment to represent the normal value accumulated in the General Dynamics Pension Plan for Salaried Employees using the formulas provided for therein. In addition, the amount to be paid to Mr. Mellor pursuant to Paragraph 2 of Section 1 of the 1995 Employment Agreement shall be $100,957 in order to reflect the additional months of service to the Corporation as provided

3. For the 12-month period following his resignation as Chairman and Chief Executive Officer on May 31, 1997, Mr. Mellor will render services to the Corporation in such manner and upon such terms and conditions as the Corporation and Mr. Mellor shall agree to, provided that, upon the request of the Corporation, Mr. Mellor will devote not less than 5 days during each calendar month during such 12-month period to the rendition of such services. In consideration of the rendition of such services, the Corporation hereby agrees that upon Mr. Mellor's resignation as Chairman and Chief Executive Officer of the Corporation on May 31, 1997, it shall pay to Mr. Mellor the sum of $580,000. 4. Paragraph 1 of Section 1 of the 1995 Employment Agreement is hereby modified, in order to reflect the additional months of service which Mr. Mellor has agreed to render to the Corporation as hereinabove provided, so that the annual supplemental retirement benefit to which he is entitled pursuant to said Paragraph 1 is amended to be "$147,064." Mr. Mellor may receive that amount, upon his request, in a lump-sum payment upon his retirement, said lump-sum payment to represent the normal value accumulated in the General Dynamics Pension Plan for Salaried Employees using the formulas provided for therein. In addition, the amount to be paid to Mr. Mellor pursuant to Paragraph 2 of Section 1 of the 1995 Employment Agreement shall be $100,957 in order to reflect the additional months of service to the Corporation as provided for in this Amendment to the Employment Agreement. 5. The amount to be paid to Mr. Mellor pursuant to Section 2 of the 1995 Employment Agreement shall be deferred until May 31, 1997, with interest thereon computed in accordance with the terms and provisions of Section 2 of said 1995 Employment Agreement. 6. The Addendum to the Retirement Benefit Agreement attached as an Addendum to the 1995 Employment Agreement is hereby amended so that the amount provided for in Section 3(a) therein is changed from "$58,272" to "$147,064." 7. Except as expressly provided herein, the terms and conditions of the 1995 Employment Agreement, including the Addendum thereto, shall remain in full force and effect. 8. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed as of the date first above written on its behalf by the Corporate Vice President, Human Resources and Administration, and its Corporate seal to be

hereunto affixed and attested to by its Secretary, each of whom has been "hereunto duly authorized, and Mr. Mellor has signed this Agreement. GENERAL DYNAMICS CORPORATION
By: /s/ William P. Wylie --------------------

ATTEST: /s/ Paul A. Hesse - -------------------------Secretary /s/ James R. Mellor ------------------James R. Mellor

hereunto affixed and attested to by its Secretary, each of whom has been "hereunto duly authorized, and Mr. Mellor has signed this Agreement. GENERAL DYNAMICS CORPORATION
By: /s/ William P. Wylie --------------------

ATTEST: /s/ Paul A. Hesse - -------------------------Secretary /s/ James R. Mellor ------------------James R. Mellor

Exhibit 10-29, Annual Report on Form 10-K for the year ended December 31, 1996 Commission File Number 1-3671 EMPLOYMENT AGREEMENT FOR NICHOLAS D. CHABRAJA This Employment Agreement dated as of November 12, 1996, by and between General Dynamics Corporation, a Delaware Corporation (the "Corporation") and Mr. Nicholas D. Chabraja; WHEREAS, since January 1, 1993, Mr. Chabraja has served as Senior Vice President and General Counsel of the Corporation, and since March 4, 1994, has served as Executive Vice President and a member of the Board of Directors of the Corporation; WHEREAS, the Corporation desires to employ Mr. Chabraja, effective January 1, 1997, as its Vice Chairman, and effective June 1, 1997, as its Chairman and Chief Executive Officer; and WHEREAS, Mr. Chabraja is willing to serve in such capacity with the Corporation and to devote his full business time and attention to the business and affairs of the Corporation and, in connection therewith, to withdraw as a partner of the law firm of Jenner & Block, Chicago, Illinois, effective January 1, 1997; NOW THEREFORE, it is hereby agreed by and between the Corporation and Mr. Chabraja as follows: 1. Effective January 1, 1997, the Corporation hereby agrees to employ Mr. Chabraja, and Mr. Chabraja hereby agrees to accept such employment, as the Vice Chairman of the Corporation and to discharge such duties and responsibilities as are provided for in the Bylaws of the Corporation and as may from time to time be assigned to him by the Chairman and Chief Executive Officer of the Corporation. Furthermore, the Corporation hereby agrees to employ Mr. Chabraja effective June 1, 1997, and Mr. Chabraja hereby agrees to accept such employment, as the Chairman and Chief Executive Officer of the Corporation with such duties and responsibilities as are provided for in the Bylaws of the Corporation and as may be assigned to him from time to time by the Board of Directors of the Corporation. 2. Effective January 1, 1997, Mr. Chabraja shall be paid base compensation at the rate of $600,000 per year and effective June 1, 1997, Mr. Chabraja shall be paid base compensation at the rate of $700,000 per year. Thereafter, Mr. Chabraja shall receive increases in his base compensation as may from time to time be determined by the Compensation Committee of the Board of Directors of the Corporation provided that in no event during the term of this Employment Agreement shall Mr. Chabraja be paid base compensation at a rate of less than $700,000 per year.

Exhibit 10-29, Annual Report on Form 10-K for the year ended December 31, 1996 Commission File Number 1-3671 EMPLOYMENT AGREEMENT FOR NICHOLAS D. CHABRAJA This Employment Agreement dated as of November 12, 1996, by and between General Dynamics Corporation, a Delaware Corporation (the "Corporation") and Mr. Nicholas D. Chabraja; WHEREAS, since January 1, 1993, Mr. Chabraja has served as Senior Vice President and General Counsel of the Corporation, and since March 4, 1994, has served as Executive Vice President and a member of the Board of Directors of the Corporation; WHEREAS, the Corporation desires to employ Mr. Chabraja, effective January 1, 1997, as its Vice Chairman, and effective June 1, 1997, as its Chairman and Chief Executive Officer; and WHEREAS, Mr. Chabraja is willing to serve in such capacity with the Corporation and to devote his full business time and attention to the business and affairs of the Corporation and, in connection therewith, to withdraw as a partner of the law firm of Jenner & Block, Chicago, Illinois, effective January 1, 1997; NOW THEREFORE, it is hereby agreed by and between the Corporation and Mr. Chabraja as follows: 1. Effective January 1, 1997, the Corporation hereby agrees to employ Mr. Chabraja, and Mr. Chabraja hereby agrees to accept such employment, as the Vice Chairman of the Corporation and to discharge such duties and responsibilities as are provided for in the Bylaws of the Corporation and as may from time to time be assigned to him by the Chairman and Chief Executive Officer of the Corporation. Furthermore, the Corporation hereby agrees to employ Mr. Chabraja effective June 1, 1997, and Mr. Chabraja hereby agrees to accept such employment, as the Chairman and Chief Executive Officer of the Corporation with such duties and responsibilities as are provided for in the Bylaws of the Corporation and as may be assigned to him from time to time by the Board of Directors of the Corporation. 2. Effective January 1, 1997, Mr. Chabraja shall be paid base compensation at the rate of $600,000 per year and effective June 1, 1997, Mr. Chabraja shall be paid base compensation at the rate of $700,000 per year. Thereafter, Mr. Chabraja shall receive increases in his base compensation as may from time to time be determined by the Compensation Committee of the Board of Directors of the Corporation provided that in no event during the term of this Employment Agreement shall Mr. Chabraja be paid base compensation at a rate of less than $700,000 per year.

In addition to base compensation, Mr. Chabraja shall be granted compensation incentives and annual incentive compensation awards commensurate with the Corporation's performance in comparison to strategic and operational plans and the performance pay levels of other chief executive officers both on a national basis and in the defense industry. In addition, Mr. Chabraja shall be eligible for all other benefits and perquisites offered to other salaried officers of the Corporation who are employed at the Corporate Headquarters, including retirement plan benefits, SSIP benefits, group insurance coverage and other benefits provided to such senior executive officers. In addition, Mr. Chabraja shall be entitled to the use of corporate aircraft, consistent in all cases with Board resolutions and the Corporation's policies regarding the use of such aircraft. 3. Effective January 1, 1997, Mr. Chabraja will withdraw as a partner of the law firm of Jenner & Block, but shall remain "of counsel" to such firm for the period from January 1, 1997, to May 31, 1997, in order to enable him to effectively transition his client practice to other individuals in the firm. On June 1, 1997, Mr. Chabraja shall terminate the "of counsel" relationship to such firm and after said date and during his employment by the Corporation shall have no employment relationship with Jenner & Block. 4. Effective January 1, 1997, Mr. Chabraja will move his residence to the Washington, D. C., metropolitan area. In that regard, the Corporation hereby agrees to pay to Mr. Chabraja a one-time housing allowance of up to $250,000, "grossed-up" for all federal, state and local taxes payable in connection with that payment, in order to defray the cost and expenses of such move, provided Mr. Chabraja shall provide to the Corporation written

In addition to base compensation, Mr. Chabraja shall be granted compensation incentives and annual incentive compensation awards commensurate with the Corporation's performance in comparison to strategic and operational plans and the performance pay levels of other chief executive officers both on a national basis and in the defense industry. In addition, Mr. Chabraja shall be eligible for all other benefits and perquisites offered to other salaried officers of the Corporation who are employed at the Corporate Headquarters, including retirement plan benefits, SSIP benefits, group insurance coverage and other benefits provided to such senior executive officers. In addition, Mr. Chabraja shall be entitled to the use of corporate aircraft, consistent in all cases with Board resolutions and the Corporation's policies regarding the use of such aircraft. 3. Effective January 1, 1997, Mr. Chabraja will withdraw as a partner of the law firm of Jenner & Block, but shall remain "of counsel" to such firm for the period from January 1, 1997, to May 31, 1997, in order to enable him to effectively transition his client practice to other individuals in the firm. On June 1, 1997, Mr. Chabraja shall terminate the "of counsel" relationship to such firm and after said date and during his employment by the Corporation shall have no employment relationship with Jenner & Block. 4. Effective January 1, 1997, Mr. Chabraja will move his residence to the Washington, D. C., metropolitan area. In that regard, the Corporation hereby agrees to pay to Mr. Chabraja a one-time housing allowance of up to $250,000, "grossed-up" for all federal, state and local taxes payable in connection with that payment, in order to defray the cost and expenses of such move, provided Mr. Chabraja shall provide to the Corporation written evidence or other satisfactory substantiation of the expenditure of such amounts. 5. In recognition of Mr. Chabraja's separation from Jenner & Block and employment as Vice Chairman and thereafter Chairman and Chief Executive Officer of the Corporation, the Corporation hereby agrees to provide to Mr. Chabraja with the Supplemental Retirement Benefit Agreement of even date herewith, attached as an Addendum to this Employment Agreement which will provide to him an annual retirement benefit of $280,000, if Mr. Chabraja voluntarily terminates his employment during the first three years of this Agreement, increasing by $6,296 per full month of service with the Corporation that Mr. Chabraja completes during the period from January 1, 2000, to December 31, 2002. In the event Mr. Chabraja's employment with the Corporation is terminated prior to December 31, 2002, by the Corporation other than "for cause," as defined in Paragraph 6 hereto, then for purposes of the Supplemental Retirement Benefit Agreement, Mr. Chabraja will be deemed to have completed his employment on December 31, 2002. Payment of retirement benefits to Mr. Chabraja may not commence prior to January 1, 2003. 6. This Employment Agreement shall be effective on the date hereof and shall terminate on December 31, 2002. In the event this Employment Agreement is terminated by the Corporation prior to December 31, 2002, other than "for cause," the Corporation shall pay to Mr. Chabraja at the time of such termination the amounts Mr. Chabraja would have been entitled to for the full term hereof, based on his base compensation on the date of such termination. If this Employment Agreement is terminated prior to December 31, 2002, by Mr. Chabraja, or is terminated by the Corporation "for cause," the Corporation shall pay Mr. Chabraja, at the time of such termination, all amounts due hereunder through the date of such termination. Termination of this Employment Agreement prior to December 31, 2002, shall in no event affect Mr. Chabraja's rights under Section 5 hereof. For purposes of this Section 6, termination "for cause" shall mean action by Mr. Chabraja: (i) an act or acts of personal dishonesty, (ii) conviction of a felony

related to the Corporation, (iii) material violation of General Dynamics' standards of business ethics and conduct, or (iv) individually filing or participating in a lawsuit against the Corporation. Upon any termination of Mr. Chabraja's employment by the Corporation, in addition to any and all other sums Mr. Chabraja may then be entitled, the Corporation hereby agrees that he shall also be entitled to a directed buyout of the residence being acquired by him contemporaneously with the execution of this Employment Agreement, which is located in McLean, Virginia, in an amount which is equal to the greater of (a) the then appraised value of said residence, (b) the original cost to Mr. Chabraja of such property, plus all improvements made by him thereto, as defined in the Corporation's Relocation Policy. 7. Mr. Chabraja is currently a party to a Severance Protection Agreement with the Corporation dated January

related to the Corporation, (iii) material violation of General Dynamics' standards of business ethics and conduct, or (iv) individually filing or participating in a lawsuit against the Corporation. Upon any termination of Mr. Chabraja's employment by the Corporation, in addition to any and all other sums Mr. Chabraja may then be entitled, the Corporation hereby agrees that he shall also be entitled to a directed buyout of the residence being acquired by him contemporaneously with the execution of this Employment Agreement, which is located in McLean, Virginia, in an amount which is equal to the greater of (a) the then appraised value of said residence, (b) the original cost to Mr. Chabraja of such property, plus all improvements made by him thereto, as defined in the Corporation's Relocation Policy. 7. Mr. Chabraja is currently a party to a Severance Protection Agreement with the Corporation dated January 18, 1996, which provides certain benefits to Mr. Chabraja in the event of a termination of Mr. Chabraja's employment with the Corporation. The parties agree that in the event of a termination of Mr. Chabraja's employment with the Corporation, such that he has rights under this Employment Agreement and the Severance Protection Agreement, or any extension or modification thereof, Mr. Chabraja shall be entitled to receive the benefits under the provisions of Sections 2.1(b)(i) and (ii) of the Severance Protection Agreement or the First Paragraph of Section 6 of his Employment Agreement, whichever is greater. In addition, as to those benefits provided for in both the Severance Protection Agreement, or any extension or modification thereof, and this Employment Agreement, Mr. Chabraja will be entitled to those benefits which are the more favorable to him. Except as provided for in this Section 7, the Severance Protection Agreement shall remain in full force and effect. 8. This Employment Agreement shall ensure to the benefit of and be binding upon the Corporation and successors and assigns and upon Mr. Chabraja and his heirs, executors, and assigns and shall be construed and enforced in accordance with the laws of the State of Delaware.

IN WITNESS WHEREOF, the Corporation and Mr. Chabraja have executed this Employment Agreement as of the day and year first above written. General Dynamics Corporation
By /s/William P. Wylie ---------------------

Attest:

/s/Paul A. Hesse - -------------------------Secretary /s/ Nicholas D. Chabraja -------------------------Nicholas D. Chabraja

ADDENDUM RETIREMENT BENEFIT AGREEMENT ADDENDUM TO AGREEMENT dated as of 12 November 1996 between General Dynamics Corporation, a Delaware corporation (the `'Corporation"), and Nicholas D. Chabraja (the "Employee"). WHEREAS, the Employee has accrued retirement benefits which will be payable to him from the General Dynamics Retirement Plan for Salaried Employees (the "Retirement Plan") and to the extent the accrued benefits under the Retirement Plan are limited by Section 415, 401 (a)(4) or 401 (a)(17) of the Internal Revenue Code (or similar provision), any benefit that would have been provided by the benefit formula of the Retirement Plan in

IN WITNESS WHEREOF, the Corporation and Mr. Chabraja have executed this Employment Agreement as of the day and year first above written. General Dynamics Corporation
By /s/William P. Wylie ---------------------

Attest:

/s/Paul A. Hesse - -------------------------Secretary /s/ Nicholas D. Chabraja -------------------------Nicholas D. Chabraja

ADDENDUM RETIREMENT BENEFIT AGREEMENT ADDENDUM TO AGREEMENT dated as of 12 November 1996 between General Dynamics Corporation, a Delaware corporation (the `'Corporation"), and Nicholas D. Chabraja (the "Employee"). WHEREAS, the Employee has accrued retirement benefits which will be payable to him from the General Dynamics Retirement Plan for Salaried Employees (the "Retirement Plan") and to the extent the accrued benefits under the Retirement Plan are limited by Section 415, 401 (a)(4) or 401 (a)(17) of the Internal Revenue Code (or similar provision), any benefit that would have been provided by the benefit formula of the Retirement Plan in excess of those limitations will be provided under a nonqualified plan (Supplemental Retirement Plan). The Retirement Plan and the Supplemental Retirement Plan are hereinafter collectively referred to as the Retirement Program." WHEREAS, this Agreement provides for retirement benefits to be paid on the Employee's retirement. NOW, THEREFORE, in consideration for the Employee's past employment by the Corporation and the Employee's future services, the Corporation and the Employee agree as follows: 1. MEMBERSHIP IN GENERAL DYNAMICS RETIREMENT PLAN. The Employee will continue to be a member of the General Dynamics Retirement Program, a copy of which has been furnished to him. 2. RETIREMENT BENEFIT. Upon the Employee's retirement from the Corporation, the Employee shall be entitled to such annual retirement benefits, if any, as of the date of the Employee's termination of employment with the Corporation, based upon the terms of the Retirement Program. Payment of these benefits shall commence at such time and in the form the Employee elects pursuant to the terms of the Retirement Plan. 3. SUPPLEMENTAL RETIREMENT BENEFIT. (a) Upon the termination of the Employee's employment with the Corporation, but no earlier than 1 January 2003, the Employee shall also be paid by the Corporation each year, as an additional annual retirement benefit for his life, an amount (the "Supplement"), if any, by which the Estimated Retirement Plan Benefit for his life (as described in Paragraph (c)) exceeds the annual retirement benefit for his life that he is entitled to be paid pursuant

ADDENDUM RETIREMENT BENEFIT AGREEMENT ADDENDUM TO AGREEMENT dated as of 12 November 1996 between General Dynamics Corporation, a Delaware corporation (the `'Corporation"), and Nicholas D. Chabraja (the "Employee"). WHEREAS, the Employee has accrued retirement benefits which will be payable to him from the General Dynamics Retirement Plan for Salaried Employees (the "Retirement Plan") and to the extent the accrued benefits under the Retirement Plan are limited by Section 415, 401 (a)(4) or 401 (a)(17) of the Internal Revenue Code (or similar provision), any benefit that would have been provided by the benefit formula of the Retirement Plan in excess of those limitations will be provided under a nonqualified plan (Supplemental Retirement Plan). The Retirement Plan and the Supplemental Retirement Plan are hereinafter collectively referred to as the Retirement Program." WHEREAS, this Agreement provides for retirement benefits to be paid on the Employee's retirement. NOW, THEREFORE, in consideration for the Employee's past employment by the Corporation and the Employee's future services, the Corporation and the Employee agree as follows: 1. MEMBERSHIP IN GENERAL DYNAMICS RETIREMENT PLAN. The Employee will continue to be a member of the General Dynamics Retirement Program, a copy of which has been furnished to him. 2. RETIREMENT BENEFIT. Upon the Employee's retirement from the Corporation, the Employee shall be entitled to such annual retirement benefits, if any, as of the date of the Employee's termination of employment with the Corporation, based upon the terms of the Retirement Program. Payment of these benefits shall commence at such time and in the form the Employee elects pursuant to the terms of the Retirement Plan. 3. SUPPLEMENTAL RETIREMENT BENEFIT. (a) Upon the termination of the Employee's employment with the Corporation, but no earlier than 1 January 2003, the Employee shall also be paid by the Corporation each year, as an additional annual retirement benefit for his life, an amount (the "Supplement"), if any, by which the Estimated Retirement Plan Benefit for his life (as described in Paragraph (c)) exceeds the annual retirement benefit for his life that he is entitled to be paid pursuant to the Retirement Program.

(b) The benefit provided by Paragraph (a) of this section will not be provided to the Employee if the Employee causes harm to the Corporation (financial, reputation, or product), through: (i) an act or acts of personal dishonesty, (ii) conviction of a felony related to the Corporation, (iii) material violation of General Dynamics' standards of business ethics and conduct, (iv) individually filing or participating in a lawsuit against the Corporation, or (v) subsequent employment with a competitor without Compensation Committee approval. (c) The Estimated Retirement Benefit shall equal an annual retirement benefit of $280,000 for the first three years of the Employment Agreement and shall increase $6,296 per full month of service with the Corporation that Mr. Chabraja completes during the period of 1 January 2000 to 31 December 2002. 4. ALTERNATE FORM OF BENEFIT. The Employee shall have the option, on written notice transmitted to the Corporation at least 30 days prior to the date on which payment of his benefit would otherwise commence hereunder, to elect to receive the retirement benefit described herein payable in an alternate form as provided by the Retirement Plan or, in the Corporation's discretion, in another form of actuarial equivalent value. The applicable single-life annual benefit shall then be converted to the alternate form elected by the application of the actuarial factors used for converting benefits under the Retirement Plan at the time the

(b) The benefit provided by Paragraph (a) of this section will not be provided to the Employee if the Employee causes harm to the Corporation (financial, reputation, or product), through: (i) an act or acts of personal dishonesty, (ii) conviction of a felony related to the Corporation, (iii) material violation of General Dynamics' standards of business ethics and conduct, (iv) individually filing or participating in a lawsuit against the Corporation, or (v) subsequent employment with a competitor without Compensation Committee approval. (c) The Estimated Retirement Benefit shall equal an annual retirement benefit of $280,000 for the first three years of the Employment Agreement and shall increase $6,296 per full month of service with the Corporation that Mr. Chabraja completes during the period of 1 January 2000 to 31 December 2002. 4. ALTERNATE FORM OF BENEFIT. The Employee shall have the option, on written notice transmitted to the Corporation at least 30 days prior to the date on which payment of his benefit would otherwise commence hereunder, to elect to receive the retirement benefit described herein payable in an alternate form as provided by the Retirement Plan or, in the Corporation's discretion, in another form of actuarial equivalent value. The applicable single-life annual benefit shall then be converted to the alternate form elected by the application of the actuarial factors used for converting benefits under the Retirement Plan at the time the retirement benefit is to commence. 5. SURVIVOR BENEFIT IN CASE OF DEATH PRIOR TO COMMENCEMENT OF BENEFITS. If the Employee dies prior to commencement of benefits, his spouse shall be entitled to receive payment of the Supplement (as calculated in Paragraph 3(a)) as a pre-retirement surviving spouse annuity as defined in the Retirement Plan (currently defined at a 50% Contingent Annuity) for her life, commencing on the Employee's death. The amount of the benefit shall be calculated by the application of the actuarial factors used by the Retirement Plan for calculating the surviving spouse annuity as of the date of the Employee's death. The Employee's Spouse shall also be entitled to payment of such retirement benefits (as defined in Paragraph 2), if any, as provided under the terms of the Retirement Program. 6. PAYMENT. All annual retirement benefits for the life of the Employee (or alternate form of benefit) or other amounts payable as provided in this Agreement shall be paid as provided in the Employee's benefit election under the Retirement Plan. Any retirement benefits to which the Employee is entitled under this Agreement shall be paid directly by the Corporation to the extent they are not paid under the Retirement Plan. The Corporation may, in its sole discretion, accelerate the payment of benefits under this Agreement in a form of actuarial equivalent value. .

7. NO ASSIGNMENT. No benefit under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so 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 Retirement Program or pursuant to a Qualified Domestic Relations Order as described in Code Section 414(p). 8. PAYMENT FROM GENERAL ASSETS. (a) Unless otherwise determined by the Corporation, the Supplement will be payable by the Corporation from its general assets. The Corporation shall not be obliged to acquire, designate or set aside any specific assets for payment of the Supplement. Further, the Employee shall have no claim whatsoever to any specific assets or group of assets of the Corporation. (b) The Corporation may, in its discretion, designate that the Supplement shall be satisfied from the assets of a trust, fund, or other segregated group of assets. But, should these assets prove to be insufficient to satisfy payment of the Supplement or postretirement benefits described above, the Corporation shall remain liable for their payment unless otherwise agreed to by the parties of this Agreement.

7. NO ASSIGNMENT. No benefit under this Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so 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 Retirement Program or pursuant to a Qualified Domestic Relations Order as described in Code Section 414(p). 8. PAYMENT FROM GENERAL ASSETS. (a) Unless otherwise determined by the Corporation, the Supplement will be payable by the Corporation from its general assets. The Corporation shall not be obliged to acquire, designate or set aside any specific assets for payment of the Supplement. Further, the Employee shall have no claim whatsoever to any specific assets or group of assets of the Corporation. (b) The Corporation may, in its discretion, designate that the Supplement shall be satisfied from the assets of a trust, fund, or other segregated group of assets. But, should these assets prove to be insufficient to satisfy payment of the Supplement or postretirement benefits described above, the Corporation shall remain liable for their payment unless otherwise agreed to by the parties of this Agreement.

IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on behalf of its Chairman and Chief Executive Officer by the Corporate Vice President -Human Resources and Administration and its corporate seal to be hereunto affixed and attested to by the Secretary of the Corporation, and the Employee has executed this Agreement as of the date first above written.
ATTEST: /s/ Paul A. Hesse - -----------------Secretary By GENERAL DYNAMICS CORPORATION /s/ William P. Wylie ------------------------------William P. Wylie Corporate Vice President - Human Resources and Administration

/s/ Margaret N. House - --------------------------Witness

/s/ Nicholas D. Chabraja ---------------------------Employee

Exhibit 10-30, Annual Report on Form 10-K for the year ended December 31, 1996 Commission File Number 1-3671 This plan was approved by the Board of Directors of the Corporation on February 5, 1997. The plan is subject to the approval at the 1997 Annual Meeting of Shareholders. GENERAL DYNAMICS CORPORATION 1997 INCENTIVE COMPENSATION PLAN 1. Purpose. This plan is an amendment and restatement of the 1988 Incentive Compensation Plan; it is renamed the 1997 Incentive Compensation Plan and is referred to hereinafter as the "Plan." The purpose of the Plan is to provide General Dynamics Corporation and its subsidiaries (the "Corporation") with an effective means of attracting, retaining, and motivating officers and other key employees and to provide them with incentives to enhance the growth and profitability of the Corporation. 2. Eligibility. Any officer or key employee of the Corporation in an executive, administrative, professional,

IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on behalf of its Chairman and Chief Executive Officer by the Corporate Vice President -Human Resources and Administration and its corporate seal to be hereunto affixed and attested to by the Secretary of the Corporation, and the Employee has executed this Agreement as of the date first above written.
ATTEST: /s/ Paul A. Hesse - -----------------Secretary By GENERAL DYNAMICS CORPORATION /s/ William P. Wylie ------------------------------William P. Wylie Corporate Vice President - Human Resources and Administration

/s/ Margaret N. House - --------------------------Witness

/s/ Nicholas D. Chabraja ---------------------------Employee

Exhibit 10-30, Annual Report on Form 10-K for the year ended December 31, 1996 Commission File Number 1-3671 This plan was approved by the Board of Directors of the Corporation on February 5, 1997. The plan is subject to the approval at the 1997 Annual Meeting of Shareholders. GENERAL DYNAMICS CORPORATION 1997 INCENTIVE COMPENSATION PLAN 1. Purpose. This plan is an amendment and restatement of the 1988 Incentive Compensation Plan; it is renamed the 1997 Incentive Compensation Plan and is referred to hereinafter as the "Plan." The purpose of the Plan is to provide General Dynamics Corporation and its subsidiaries (the "Corporation") with an effective means of attracting, retaining, and motivating officers and other key employees and to provide them with incentives to enhance the growth and profitability of the Corporation. 2. Eligibility. Any officer or key employee of the Corporation in an executive, administrative, professional, scientific, engineering, technical, or advisory capacity is eligible for an award under the Plan. 3. Committee. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Corporation comprised of two or more members of the Board of Directors, all of whom shall be "non-employee directors". Except as otherwise expressly provided in the Plan, the Committee shall have full power and authority to interpret and administer the Plan, to determine the officers and key employees to receive awards and the amounts and types of the awards, to adopt, amend, and rescind rules and regulations, and to establish terms and conditions, not inconsistent with the provisions of the Plan, for the administration and implementation of the Plan, provided, however, that the Committee may not, after the date of any award, make any changes that would adversely affect the rights of a recipient under any award without the consent of the recipient. The determination of the Committee on these matters shall be final and conclusive and binding on the Corporation and all participants. Code Section 162(m) Subcommittee. Notwithstanding the foregoing paragraph, the Plan shall be administered by a subcommittee of the Committee (the "Subcommittee") with respect to persons covered by the deduction limitation of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Subcommittee shall comprise two or more members of the Committee, all of whom shall be "outside directors" as that term is used in Code Section 162(m). With respect to such persons subject to Code Section 162(m), the Subcommittee shall have all of the powers, rights, and duties granted to the Committee under this Plan and each reference to the "Committee" herein shall be deemed to be a reference to the " Subcommittee. "

Exhibit 10-30, Annual Report on Form 10-K for the year ended December 31, 1996 Commission File Number 1-3671 This plan was approved by the Board of Directors of the Corporation on February 5, 1997. The plan is subject to the approval at the 1997 Annual Meeting of Shareholders. GENERAL DYNAMICS CORPORATION 1997 INCENTIVE COMPENSATION PLAN 1. Purpose. This plan is an amendment and restatement of the 1988 Incentive Compensation Plan; it is renamed the 1997 Incentive Compensation Plan and is referred to hereinafter as the "Plan." The purpose of the Plan is to provide General Dynamics Corporation and its subsidiaries (the "Corporation") with an effective means of attracting, retaining, and motivating officers and other key employees and to provide them with incentives to enhance the growth and profitability of the Corporation. 2. Eligibility. Any officer or key employee of the Corporation in an executive, administrative, professional, scientific, engineering, technical, or advisory capacity is eligible for an award under the Plan. 3. Committee. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Corporation comprised of two or more members of the Board of Directors, all of whom shall be "non-employee directors". Except as otherwise expressly provided in the Plan, the Committee shall have full power and authority to interpret and administer the Plan, to determine the officers and key employees to receive awards and the amounts and types of the awards, to adopt, amend, and rescind rules and regulations, and to establish terms and conditions, not inconsistent with the provisions of the Plan, for the administration and implementation of the Plan, provided, however, that the Committee may not, after the date of any award, make any changes that would adversely affect the rights of a recipient under any award without the consent of the recipient. The determination of the Committee on these matters shall be final and conclusive and binding on the Corporation and all participants. Code Section 162(m) Subcommittee. Notwithstanding the foregoing paragraph, the Plan shall be administered by a subcommittee of the Committee (the "Subcommittee") with respect to persons covered by the deduction limitation of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Subcommittee shall comprise two or more members of the Committee, all of whom shall be "outside directors" as that term is used in Code Section 162(m). With respect to such persons subject to Code Section 162(m), the Subcommittee shall have all of the powers, rights, and duties granted to the Committee under this Plan and each reference to the "Committee" herein shall be deemed to be a reference to the " Subcommittee. " 4. Awards. Awards may be made by the Committee in such amounts as it shall determine in cash, in common stock of the Corporation ("Common Stock"), in options to purchase Common Stock of the Corporation ("Stock Options"), or in shares of Common Stock subject to certain restrictions ("Restricted Stock"), or any combination thereof. Awards of Stock Options shall be limited to awards for such number of shares as shall be allocated for that purpose by the Board of Directors and approved by the shareholders. 5. Code Section 162(m) Awards. Awards to persons covered by the deduction limitation of Code Section 162 (m), as described by Code Section 162(m)(3), shall be subject to the following additional limitations:

a. Adjustments. The Subcommittee shall have no discretion to increase an award of Stock Options and/or Restricted Stock once granted; except that adjustments are permitted under Sections 11 and 12 of this Plan to the extent permissible under regulations interpreting Code Section 162(m). b. Maximum Awards. Awards of Stock Options and/or Restricted Stock under the Plan shall be limited as follows: (l) Awards of Stock Options shall be limited to 250,000 shares awarded to any one individual in any calendar

a. Adjustments. The Subcommittee shall have no discretion to increase an award of Stock Options and/or Restricted Stock once granted; except that adjustments are permitted under Sections 11 and 12 of this Plan to the extent permissible under regulations interpreting Code Section 162(m). b. Maximum Awards. Awards of Stock Options and/or Restricted Stock under the Plan shall be limited as follows: (l) Awards of Stock Options shall be limited to 250,000 shares awarded to any one individual in any calendar year and shall be issued at Fair Market Value. (2) Awards of Restricted Stock shall be limited to 50,000 shares awarded to any one individual in any calendar year. Notwithstanding the foregoing, Restricted Stock granted under the Restricted Stock Performance Formula, described below, shall be limited to an initial grant of 50,000 shares, but shall be adjusted upwards or downwards in accordance with that formula. c. Performance Goals. The Subcommittee, in its sole discretion, shall establish performance goals applicable to awards of Restricted Stock in such a manner as shall permit payments with respect thereto to qualify as "performance-based compensation" as described in Code Section 162(m)(4)(C). Such awards shall be based on attainment of, over a specified period of individual performance, specified targets or other parameters relating to one or more of the following business criteria: market price of Common Stock, earnings per share, net profits, total shareholder return, return of shareholders' equity, cash flow, and cumulative return on net assets employed. In addition, awards of Restricted Stock may be based on the Restricted Stock Performance Formula, described below. 6. Restricted Stock Performance Formula. Awards of Restricted Stock may be granted pursuant to the formula described in this section, referred to herein as the "Restricted Stock Performance Formula." The Committee shall make an initial grant of shares of Restricted Stock (the "Initial Grant"). At the end of a specified performance period (determined by the Committee), the number of shares in the Initial Grant shall be increased or decreased based on the increase or decrease in the value of the Common Stock over the performance period. The increase or decrease described in the preceding paragraph shall be determined in the following manner: At the end of each performance period, the Fair Market Value (as defined in Section 7 below) of the Common Stock is compared to the Fair Market Value per share on the grant date. That difference is multiplied by the number of shares of Restricted Stock to be earned at the end of each performance period and the resulting product is divided by the Fair Market Value at the end of the performance period. The number of shares of Common Stock so determined is added to (in the case of a higher Fair Market Value) or subtracted from (in the case of a lower Fair Market Value) the number of shares of Restricted Stock to be earned at that time. Once the number of shares of Restricted Stock has been adjusted, restrictions will continue to be imposed for a period of time. 7. Common Stock. In the case of awards in Common Stock, the number of shares shall be determined by dividing the amount of the award by the average between the highest and lowest quoted selling prices of the Corporation's Common Stock on the New York Stock Exchange on the date of the award. The average is referred to throughout this Plan as the "Fair Market Value."

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

8. Dividend Equivalents and Interest. a. Dividends. If any award in Common Stock or Restricted Stock is to be paid on a deferred basis, the recipient may be entitled, on terms and conditions to be established, to receive a payment of, or credit equivalent to, any dividend payable with respect to the number of shares of Common Stock or Restricted Stock which, as of the record date for the dividend, has been awarded or made payable to the recipient but not delivered. b. Interest. If any award in cash is to be paid on a deferred basis, the recipient may be entitled, on terms and conditions to be established, to be paid interest on the unpaid amount. 9. Restricted Stock Awards. Restricted Stock represents awards made in Common Stock in which the shares granted may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated except upon passage of time, or upon satisfaction of other conditions, or both, in every case as provided by the Committee in its sole discretion. The recipient of an award of Restricted Stock shall be entitled to vote the shares awarded and to the payment of dividend equivalents on the shares from the date the award of shares is made; and, in addition, all Special Distributions (as defined in Section 11 hereof) thereon shall be credited to an account similar to the Account described in Section 11. The recipient of an award of Restricted Stock shall have a nonforfeitable interest in amounts credited to such account in proportion to the lapse of restrictions on the Restricted Stock to which such amounts relate. For example, when restrictions lapse on fifty percent (50%) of the Restricted Stock granted in an award, the holder of such Restricted Stock shall have a nonforfeitable interest in fifty percent (50%) of the amount credited to his account which is attributable to such Restricted Stock. The holder of Restricted Stock shall receive a payment in cash of any amount in his account as soon as practicable after the lapse of restrictions relating thereto. 10. Stock Option Awards a. Available Shares. Shares available for awards of Stock Options under the Plan at the Effective Date of the restatement of the Plan shall be available for awards of Stock Options under the Plan. Shares available for awards of Stock Options may be authorized but unissued shares or may be treasury shares. If any option awarded under the Plan or any predecessor plan shall expire, terminate, or be canceled for any reason without having been exercised in full, the corresponding number of unpurchased shares which were reserved for issuance upon exercise thereof shall again be available for the purposes of the Plan. b. Type of Options. Options shall be in the form of incentive stock options, non-statutory stock options, or both, as the Committee may determine. The term "incentive stock option" means any option, or portion thereof, awarded under the Plan which meets the applicable requirements of Section 422 of the Internal Revenue Code, as it may be amended from time to time. The term "non-statutory stock option" means any option, or portion thereof, awarded under the Plan which does not qualify as an incentive stock option. c. Incentive Stock Option Limitation. For incentive stock options granted under the Plan, the aggregate fair market value (determined as of the date the option is awarded) of the number of whole shares with

respect to which incentive stock options are exercisable for the first time by any employee during any calendar year under all plans of the Corporation shall not exceed $100,000. d. Purchase Price. The purchase price of the Common Stock under each option shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Common Stock on the date of the award of the option. e. Terms and Conditions. The Committee shall, in its discretion, establish (i) the term of each option, which in the case of incentive stock options shall not be more than ten years, (ii) the terms and conditions upon which and the times when each option shall be exercised, and (iii) the terms and conditions under which options may be exercised after termination of employment for any reason for periods not to exceed three years after termination of employment but not beyond the term established above. f. Purchase by Cash or Stock. The purchase price of shares purchased upon the exercise of any stock option

respect to which incentive stock options are exercisable for the first time by any employee during any calendar year under all plans of the Corporation shall not exceed $100,000. d. Purchase Price. The purchase price of the Common Stock under each option shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Common Stock on the date of the award of the option. e. Terms and Conditions. The Committee shall, in its discretion, establish (i) the term of each option, which in the case of incentive stock options shall not be more than ten years, (ii) the terms and conditions upon which and the times when each option shall be exercised, and (iii) the terms and conditions under which options may be exercised after termination of employment for any reason for periods not to exceed three years after termination of employment but not beyond the term established above. f. Purchase by Cash or Stock. The purchase price of shares purchased upon the exercise of any stock option shall be paid (i) in full in cash, or (ii) in whole or in part (in combination with cash) in full shares of Common Stock owned by the optionee and valued at its Fair Market Value on the date of exercise, all pursuant to procedures approved by the Committee. g. Transferability. Options shall not be transferable. During the lifetime of the person to whom an option has been awarded, it may be exercisable only by such person or one acting in his stead or in a representative capacity. Upon or after the death of the person to whom an option is awarded, an option may be exercised by the optionee's legatee or legatees under his last will, or by the option holder's personal representative or distributee's executive, administrator, or personal representative or designee in accordance with the terms of the option. h. Option Exchange. Subject to the restrictions of Section 5, the Committee, in its sole discretion, shall have the authority at any time, and from time to time, to enter into option exchanges with one or more or all holders of options awarded under the Plan, upon such terms and conditions as it deems appropriate and advisable. Such terms and conditions need not be uniform among all holders of outstanding options. 11. Adjustments for Special Distributions. The Committee shall have the authority to change all Stock Options granted under this Plan to adjust equitably the purchase price thereof to reflect a special distribution to shareholders or other extraordinary corporate action involving distributions or payments to shareholders (collectively referred to as "Special Distributions"). In the event of any Special Distribution, the Committee may, to the extent that it determines in its judgment that the adjustment of the purchase price of Stock Options does not fully reflect such Special Distribution, increase the number of shares of Common Stock covered by such Stock Options or cause to be created a Special Distribution account (the "Account") in the name of each individual to whom Stock Options have been granted hereunder (sometimes herein referred to as a "Grantee") to which shall be credited an amount determined by the Committee, or, in the case of noncash Special Distributions, make appropriate comparable adjustments for or payments to or for the benefit of the Grantee. Amounts credited to the Account in accordance with the preceding rules shall be credited with interest, accrued monthly, at an annual rate equal to the higher of Moody's Corporate Bond Yield Average or the

prime rate in effect from time to time, and such interest shall be credited in accordance with rules to be established by the Committee. Notwithstanding the foregoing, at no time shall the Committee permit the amount credited to the Grantee's Account to exceed ninety percent (90%) of the purchase price of the Grantee's outstanding Stock Options to which such amount relates. To the extent that any credit would cause the Account to exceed that limitation, such excess shall be distributed to the Grantee in cash. Amounts credited to the Grantee's Account shall be paid to the Grantee or, if the Grantee is deceased, his or her beneficiary at the time that the options to which it relates are exercised or expire, whichever occurs first. The Account shall for all purposes be deemed to be an unfunded promise to pay money in the future in certain specified circumstances. As to amounts credited to the Account, a Grantee shall have no rights greater than the rights of a general unsecured creditor of the Corporation, and amounts credited to the Grantee's Account shall not be assignable or transferrable other than by will or the laws of descent and distribution, and such amounts shall not be subject to the claims of the Grantee's creditors.

prime rate in effect from time to time, and such interest shall be credited in accordance with rules to be established by the Committee. Notwithstanding the foregoing, at no time shall the Committee permit the amount credited to the Grantee's Account to exceed ninety percent (90%) of the purchase price of the Grantee's outstanding Stock Options to which such amount relates. To the extent that any credit would cause the Account to exceed that limitation, such excess shall be distributed to the Grantee in cash. Amounts credited to the Grantee's Account shall be paid to the Grantee or, if the Grantee is deceased, his or her beneficiary at the time that the options to which it relates are exercised or expire, whichever occurs first. The Account shall for all purposes be deemed to be an unfunded promise to pay money in the future in certain specified circumstances. As to amounts credited to the Account, a Grantee shall have no rights greater than the rights of a general unsecured creditor of the Corporation, and amounts credited to the Grantee's Account shall not be assignable or transferrable other than by will or the laws of descent and distribution, and such amounts shall not be subject to the claims of the Grantee's creditors. 12. Adjustments and Reorganizations. The Committee may make such adjustments to awards granted under the Plan (including the terms, exercise price, and otherwise) as it deems appropriate in the event of changes that impact the Corporation, the Corporation's share price, or share status. In the event of any merger, reorganization, consolidation, change of control, recapitalization, separation, liquidation, stock dividend, stock split, extraordinary dividend, spin-off, split-up, rights offering, share combination, or other change in the corporate structure of the Corporation affecting the Common Stock, the number and kind of shares that may be delivered under the Plan shall be subject to such equitable adjustment as the Committee, in its sole discretion, may deem appropriate. The determination of the Committee on these matters shall be final and conclusive and binding on the Corporation and all participants. In the preceding paragraph, "change of control" means any of the following events: a. An acquisition (other than directly from the Corporation) of any voting securities of the Corporation by any person who previously was the beneficial owner of less than 10% of the combined voting power of the Corporation's outstanding voting securities and who immediately after such acquisition is the beneficial owner of 30% or more of the combined voting power of the Corporation's then outstanding voting securities; provided that, in determining whether a change of control has occurred, voting securities which are acquired by (i) an employee benefit plan (or a trust forming a part thereof) maintained by the Corporation or any subsidiary of the Corporation, (ii) the Corporation or any subsidiary of the Corporation, or (iii) any person in connection with a Non-Control Transaction (as hereinafter defined), will not constitute an acquisition which results in a change of control; b. Approval by stockholders of the Corporation of: (1) a merger, consolidation, or reorganization involving the Corporation, unless: (A) the stockholders of the Corporation immediately before such merger, consolidation, or reorganization will own, directly or indirectly, immediately following such merger, consolidation, or reorgaruzation, at least 51% of the combined voting power of the outstanding voting securities of the corporation resulting from such merger,

consolidation, or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities of the Corporation immediately before such merger, consolidation, or reorganization; and (B) the individuals who were members of the Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute a majority of the members of the Board of Directors of the Surviving Corporation; and (C) no person (other than the Corporation, any subsidiary of the Corporation, any employee benefit plan (or any trust forming a part thereof) maintained by the Corporation, the Surviving Corporation, any subsidiary of the

consolidation, or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities of the Corporation immediately before such merger, consolidation, or reorganization; and (B) the individuals who were members of the Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute a majority of the members of the Board of Directors of the Surviving Corporation; and (C) no person (other than the Corporation, any subsidiary of the Corporation, any employee benefit plan (or any trust forming a part thereof) maintained by the Corporation, the Surviving Corporation, any subsidiary of the Surviving Corporation, or any person who, immediately prior to such merger, consolidation, or reorganization, was the beneficial owner of 20% or more of the then outstanding voting securities of the Corporation) is the beneficial owner of 20% or more of the combined voting power of the Surviving Corporation's then outstanding voting securities; (D) a transaction described in clauses (A) through (C) above is referred to herein as a "Non-Control Transaction;" (2) the complete liquidation or dissolution of the Corporation; or (3) an agreement for sale or other disposition of all or substantially all of the assets of the Corporation to any person (other than a transfer to a subsidiary of the Corporation). c. Notwithstanding the foregoing, a change of control will not be deemed to occur solely because any person (a "Subject Person") acquires beneficial ownership of more than the permitted amount of the outstanding voting securities of the Corporation as a result of the acquisition of voting securities by the Corporation which, by reducing the number of voting securities outstanding, increases the proportional number of shares beneficially owned by the Subject Person, provided that if a change of control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the beneficial owner of any additional voting securities which increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person, then a change of control will be deemed to have occurred. 13. Tax Withholding. The Corporation shall have the right to (i) make deductions from any settlement of an award under the Plan, including the delivery or vesting of shares, or require shares or cash or both be withheld from any award, in each case in an amount sufficient to satisfy withholding of any federal, state, or local taxes required by law, or (ii) take such other action as may be necessary or appropriate to satisfy any such withholding obligations. The Committee may determine the manner in which such tax withholding may be satisfied, and may permit shares of Common Stock (rounded up to the next whole number) to be used to satisfy required tax withholding based on the Fair Market Value of any such shares of Common Stock, as of the appropriate time of each award. 14. Expenses. The expenses of administering the Plan shall be borne by the Corporation.

15. Amendments. The Board of Directors of the Corporation shall have complete power and authority to amend the Plan, provided that the Board of Directors shall not, without shareholder approval, adopt any amendment which would (a) increase the number of shares for which options may be awarded under the Plan, (b) modify the class of employees eligible to receive awards, (c) extend the period during which incentive stock options may be awarded, or (d) materially increase the benefits of employees receiving awards under the Plan. No amendment to the Plan may, without the consent of the individual to whom the award shall theretofore have been awarded, adversely affect the rights of an individual under the award. 16. Effective Date of the Plan. The Plan shall become effective on its adoption by the Board of Directors of the Corporation on February 5, 1997, subject to approval at the 1997 Annual Meeting of Shareholders. 17. Termination. The Board of Directors of the Corporation may terminate the Plan or any part thereof at any

15. Amendments. The Board of Directors of the Corporation shall have complete power and authority to amend the Plan, provided that the Board of Directors shall not, without shareholder approval, adopt any amendment which would (a) increase the number of shares for which options may be awarded under the Plan, (b) modify the class of employees eligible to receive awards, (c) extend the period during which incentive stock options may be awarded, or (d) materially increase the benefits of employees receiving awards under the Plan. No amendment to the Plan may, without the consent of the individual to whom the award shall theretofore have been awarded, adversely affect the rights of an individual under the award. 16. Effective Date of the Plan. The Plan shall become effective on its adoption by the Board of Directors of the Corporation on February 5, 1997, subject to approval at the 1997 Annual Meeting of Shareholders. 17. Termination. The Board of Directors of the Corporation may terminate the Plan or any part thereof at any time, provided that no termination may, without the consent of the individual to whom any award shall theretofore have been made, adversely affect the rights of an individual under the award. 18. Other Actions. Nothing contained in the Plan shall be deemed to preclude other compensation plans which may be in effect from time to time or be construed to limit the authority of the Corporation to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Corporation (a) to award options for proper corporate purposes otherwise than under the Plan to an employee or other person, firm, corporation, or association, or (b) to award options to, or assume the option of, any person in connection with the acquisition, by purchase, lease, merger, consolidation, or otherwise, of the business and assets (in whole or in part) of any person, firm, corporation, or association.

EXHIBIT 11, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-3671 GENERAL DYNAMICS CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1996 ------------NET EARNINGS: Continuing Operations Discontinued Operations: Earnings from operations Gain on disposal $ 270 Year Ended December 31 1995 1 -----------------$ 247 $

------------$ 270 ============= 63,171,625

55 19 -------------$ 321 ============== 62,992,558

-----$ ====== 63,

Weighted average common shares outstanding NET EARNINGS PER SHARE - PRIMARY: Continuing Operations Discontinued Operations: Earnings from operations Gain on disposal $

4.26

$

3.91

$

------------$ 4.26 ============= 63,171,625 258,542 ------------63,430,167 =============

.87 .30 -------------$ 5.08 ============== 62,992,558 226,734 -------------63,219,292 ==============

-----$ ====== 63, -----63, ======

Common shares from above Assumed exercise of options (treasury stock method)

NET EARNINGS PER SHARE - FULLY DILUTED:

EXHIBIT 11, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-3671 GENERAL DYNAMICS CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1996 ------------NET EARNINGS: Continuing Operations Discontinued Operations: Earnings from operations Gain on disposal $ 270 Year Ended December 31 1995 1 -----------------$ 247 $

------------$ 270 ============= 63,171,625

55 19 -------------$ 321 ============== 62,992,558

-----$ ====== 63,

Weighted average common shares outstanding NET EARNINGS PER SHARE - PRIMARY: Continuing Operations Discontinued Operations: Earnings from operations Gain on disposal $

4.26

$

3.91

$

------------$ 4.26 ============= 63,171,625 258,542 ------------63,430,167 =============

.87 .30 -------------$ 5.08 ============== 62,992,558 226,734 -------------63,219,292 ==============

-----$ ====== 63, -----63, ======

Common shares from above Assumed exercise of options (treasury stock method)

NET EARNINGS PER SHARE - FULLY DILUTED: Continuing Operations Discontinued Operations: Earnings from operations Gain on disposal $ 4.25 $ 3.90 $

------------$ 4.25 ============= 63,171,625 363,462 ------------63,535,087 =============

.87 .30 -------------$ 5.07 ============== 62,992,558 371,590 -------------63,364,148 ==============

-----$ ====== 63, -----63, ======

Common shares from above Assumed exercise of options (treasury stock method)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Dollars in millions, except per share amounts) FORWARD-LOOKING STATEMENTS Management's Discussion and Analysis of the Results of Operations and Financial Condition and other sections of this Annual Report contain forward-looking statements that are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements that

MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Dollars in millions, except per share amounts) FORWARD-LOOKING STATEMENTS Management's Discussion and Analysis of the Results of Operations and Financial Condition and other sections of this Annual Report contain forward-looking statements that are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements that include, but are not limited to, projections of revenues, earnings, segment performance, cash flows and contract awards. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 the company's successful execution of internal performance plans; performance issues with key suppliers and subcontractors; labor negotiations; changing priorities or reductions in the U.S. government defense budget; and termination of government contracts due to unilateral government action. BUSINESS OVERVIEW The company's primary business is supplying weapons systems and services to the U.S. government and its international allies. Over the last decade, U.S. defense budgets have declined sharply in response to the end of the Cold War. Consequently, there has been a necessary contraction and consolidation by participants in the defense industry. As part of the industry consolidation in the early 1990s, management focused on strengthening certain businesses by both internal and external means, while divesting other businesses. Further, management has been focusing on developing and providing its customers with advanced technological solutions to meet operational requirements, while continually improving cost structure. These efforts have created highly efficient businesses that are positioned to capture new programs and contracts. Through early 1997, the company's businesses have been awarded new programs with the potential for significant production, as well as several important contracts on existing programs. Since September 1995, the company has acquired for approximately $800 the net assets of four businesses that have strengthened the company's franchises. These acquisitions have been and are expected to be immediately accretive to earnings. As a result of these internal and external actions, the company doubled total backlog between September 1995 and January 1997. The company intends to continue to strengthen its current businesses by pursuing acquisitions that bring real value to its shareholders, affordability to its customers and that address the following strategic criteria: - offer the opportunity to achieve savings through consolidation; - leverage on the company's operating strength and core competencies; - broaden product lines; - provide technology that improves the company's competitive position; - result in marketplace leadership. The company may not be able to achieve each of these goals in each acquisition. Management believes there may be additional opportunities to acquire new franchises outside of its current market area on favorable financial terms. With increasing cash flows and earnings, virtually no debt, and approximately $700 in funds on hand after the most recent acquisition, the company has the financial capacity to take advantage of these potential opportunities. EARNINGS FROM CONTINUING OPERATING CASH FLOWS OPERATIONS

1994 1995 1996

$223 $247 $270

1994 1995 1996

$248 $349 $415

BUSINESS SEGMENTS The company comprises two major business segments: Marine and Combat Systems Groups, as well as miscellaneous businesses classified as Other. The Marine Group includes Electric Boat, which designs and builds nuclear submarines for the U.S. Navy; Bath Iron Works (BIW), which designs and builds surface combatants for the U.S. Navy; and American Overseas Marine, which provides ship management services for the U.S. government on prepositioning and ready reserve ships.

The Combat Systems Group, formerly the Armored Vehicles segment, includes Land Systems which designs and manufactures the M1 Series Abrams Main Battle Tank for the U.S. Army and international customers, along with other armored vehicle products. On March 29, 1996, Land Systems purchased the assets of Teledyne Vehicle Systems (Muskegon Operations), an operating unit of Teledyne Inc. Muskegon Operations specializes in combat vehicles as well as mobility systems, suspension technology and diesel engines for armored vehicle markets world-wide. On January 1, 1997, the company purchased the assets of Defense Systems and Armament Systems, operating units of Lockheed Martin Corporation. Defense Systems builds light vehicles, turrets and transmissions for 18

combat vehicles, as well as missile guidance and naval fire control systems. Armament Systems designs, develops and produces advanced gun, ammunition handling and air defense systems, and is a leader in the production of ammunition and ordnance products. The acquisition expands the company's participation in armored vehicles from heavy tanks to light vehicles, and from full platforms to major subsystems. The acquisition also creates a presence in fire control systems and components. A third business segment (Other) includes coal mining and aggregates operations located in Illinois, and leasing operations for liquefied natural gas tankers. A discussion of each business segment's backlog position, anticipated programs, operating results and outlook follows. As noted earlier, the anticipated programs of the Marine and Combat Systems Groups are subject to, among other events, changing priorities or reductions in the U.S. government defense budget. For a summary of business segment information, see Note Q to the Consolidated Financial Statements which is incorporated herein by reference. MARINE GROUP Backlog 1995 $5,686 1996 $7,566 In 1996, Electric Boat obtained a $1.1 billion contract for the construction of the third and final Seawolf class attack submarine. The president's fiscal year 1998 (FY98) budget, as submitted to Congress, includes $150 million to complete the funding of the third Seawolf. Also in 1996, Electric Boat obtained a $1.3 billion contract for the design of the New Attack Submarine (NSSN). Current Department of Defense plans call for 30 ships in the NSSN program. The president's FY98 budget includes approximately $3 billion in funding for the NSSN program, consisting of $400 million for continued design, $2.3 billion for construction of the first ship, and $300 million for long-lead materials for the second and third ships. Congress previously approved approximately $1.3 billion in funding for the continued design and long-lead materials for construction of the first two ships of the NSSN program.

The Combat Systems Group, formerly the Armored Vehicles segment, includes Land Systems which designs and manufactures the M1 Series Abrams Main Battle Tank for the U.S. Army and international customers, along with other armored vehicle products. On March 29, 1996, Land Systems purchased the assets of Teledyne Vehicle Systems (Muskegon Operations), an operating unit of Teledyne Inc. Muskegon Operations specializes in combat vehicles as well as mobility systems, suspension technology and diesel engines for armored vehicle markets world-wide. On January 1, 1997, the company purchased the assets of Defense Systems and Armament Systems, operating units of Lockheed Martin Corporation. Defense Systems builds light vehicles, turrets and transmissions for 18

combat vehicles, as well as missile guidance and naval fire control systems. Armament Systems designs, develops and produces advanced gun, ammunition handling and air defense systems, and is a leader in the production of ammunition and ordnance products. The acquisition expands the company's participation in armored vehicles from heavy tanks to light vehicles, and from full platforms to major subsystems. The acquisition also creates a presence in fire control systems and components. A third business segment (Other) includes coal mining and aggregates operations located in Illinois, and leasing operations for liquefied natural gas tankers. A discussion of each business segment's backlog position, anticipated programs, operating results and outlook follows. As noted earlier, the anticipated programs of the Marine and Combat Systems Groups are subject to, among other events, changing priorities or reductions in the U.S. government defense budget. For a summary of business segment information, see Note Q to the Consolidated Financial Statements which is incorporated herein by reference. MARINE GROUP Backlog 1995 $5,686 1996 $7,566 In 1996, Electric Boat obtained a $1.1 billion contract for the construction of the third and final Seawolf class attack submarine. The president's fiscal year 1998 (FY98) budget, as submitted to Congress, includes $150 million to complete the funding of the third Seawolf. Also in 1996, Electric Boat obtained a $1.3 billion contract for the design of the New Attack Submarine (NSSN). Current Department of Defense plans call for 30 ships in the NSSN program. The president's FY98 budget includes approximately $3 billion in funding for the NSSN program, consisting of $400 million for continued design, $2.3 billion for construction of the first ship, and $300 million for long-lead materials for the second and third ships. Congress previously approved approximately $1.3 billion in funding for the continued design and long-lead materials for construction of the first two ships of the NSSN program. The company has entered into a Team Agreement with Newport News Shipbuilding and Drydock Company (Newport News) for the NSSN program. The Team Agreement provides that Electric Boat will be the prime contractor on construction contracts for the NSSNs, though construction and assembly work will be equally shared with Newport News through a subcontracting arrangement. Electric Boat will retain the lead design role. The Team Agreement requires the approval of the U.S. Navy, Department of Defense and a change in existing law which currently requires competition between Electric Boat and Newport News for construction of NSSNs after each has produced two ships. Based on estimates developed by the team, the company believes the Team Agreement will provide significant cost savings to the Navy, therefore enhancing government support for full funding of the first four ships and obtaining the required administrative and legislative approvals. In 1996, BIW obtained $1.1 billion in contracts for the construction of three Arleigh Burke class destroyers (DDG 51). The procurement of these DDG 51s was fully funded by Congress for FY97. BIW now has firm contracts for construction of 11 DDG 51s to be delivered through 2002. Congress has authorized the Secretary of the Navy to initiate multiyear contracts for the procurement of an additional 12 DDG 51s between FY98 and

combat vehicles, as well as missile guidance and naval fire control systems. Armament Systems designs, develops and produces advanced gun, ammunition handling and air defense systems, and is a leader in the production of ammunition and ordnance products. The acquisition expands the company's participation in armored vehicles from heavy tanks to light vehicles, and from full platforms to major subsystems. The acquisition also creates a presence in fire control systems and components. A third business segment (Other) includes coal mining and aggregates operations located in Illinois, and leasing operations for liquefied natural gas tankers. A discussion of each business segment's backlog position, anticipated programs, operating results and outlook follows. As noted earlier, the anticipated programs of the Marine and Combat Systems Groups are subject to, among other events, changing priorities or reductions in the U.S. government defense budget. For a summary of business segment information, see Note Q to the Consolidated Financial Statements which is incorporated herein by reference. MARINE GROUP Backlog 1995 $5,686 1996 $7,566 In 1996, Electric Boat obtained a $1.1 billion contract for the construction of the third and final Seawolf class attack submarine. The president's fiscal year 1998 (FY98) budget, as submitted to Congress, includes $150 million to complete the funding of the third Seawolf. Also in 1996, Electric Boat obtained a $1.3 billion contract for the design of the New Attack Submarine (NSSN). Current Department of Defense plans call for 30 ships in the NSSN program. The president's FY98 budget includes approximately $3 billion in funding for the NSSN program, consisting of $400 million for continued design, $2.3 billion for construction of the first ship, and $300 million for long-lead materials for the second and third ships. Congress previously approved approximately $1.3 billion in funding for the continued design and long-lead materials for construction of the first two ships of the NSSN program. The company has entered into a Team Agreement with Newport News Shipbuilding and Drydock Company (Newport News) for the NSSN program. The Team Agreement provides that Electric Boat will be the prime contractor on construction contracts for the NSSNs, though construction and assembly work will be equally shared with Newport News through a subcontracting arrangement. Electric Boat will retain the lead design role. The Team Agreement requires the approval of the U.S. Navy, Department of Defense and a change in existing law which currently requires competition between Electric Boat and Newport News for construction of NSSNs after each has produced two ships. Based on estimates developed by the team, the company believes the Team Agreement will provide significant cost savings to the Navy, therefore enhancing government support for full funding of the first four ships and obtaining the required administrative and legislative approvals. In 1996, BIW obtained $1.1 billion in contracts for the construction of three Arleigh Burke class destroyers (DDG 51). The procurement of these DDG 51s was fully funded by Congress for FY97. BIW now has firm contracts for construction of 11 DDG 51s to be delivered through 2002. Congress has authorized the Secretary of the Navy to initiate multiyear contracts for the procurement of an additional 12 DDG 51s between FY98 and FY01. The president's FY98 budget request provides for approximately $2.8 billion in funding for the first three ships in the multiyear procurement. The Navy currently intends to allocate the 12 destroyers between BIW and its competitor. BIW is also a member of a three-contractor team that was recently selected to design and build the Navy's new class of amphibious transport ships (LPD 17). Congressional funding was previously approved for the design and construction of the lead LPD 17. The Navy anticipates this to be a 12-ship program. If the Navy receives congressional funding for all 12 ships, BIW has agreed with its partners that it will construct four ships. The LPD 17 award is being protested by a competing contractor team led by Litton Industries. The company believes the basis for the Navy's selection will be upheld in the appeal process. BIW was awarded a contract in early 1997 for the Phase II design of the Navy's arsenal ship. BIW is the leader

of one of three remaining contractor teams competing for the Phase III design and construction contract which is expected to be awarded in 1998. Congress approved funding this program for FY97, and the president's FY98 budget request includes an additional $150 million in funding. Results of Operations and Outlook
----------------------------------1996 1995 1994 ----------------------------------Net Sales $2,332 $1,884 $1,733 Operating Earnings $ 216 $ 194 $ 196 - --------------------------------------------------------------------------------

Net sales and operating earnings increased $448 and $22, respectively, in 1996 due primarily to the acquisition of BIW. For a discussion of the accounting for this transaction and related information, see Note B to the Consolidated Financial Statements. The operating results of BIW have been included with those of the company from the closing date, September 13, 1995. Excluding the results of BIW, net sales decreased approximately 5 percent during 1996 due to lower construction activity on the Trident and Los Angeles class submarine programs. The impact of lower submarine construction activity on operating earnings was offset by an increase in the earnings rate on the Trident program. As the Trident program nears completion, performance risks have diminished and the benefits of cost reduction efforts are being realized. Accordingly, the 19

company assessed the estimated earnings at completion on this program in the third quarter of 1996 and concluded an increase was appropriate. Previously, the earnings rate was increased in the second quarter of 1995. Net sales increased $151 during 1995 due primarily to the acquisition of BIW. Operating earnings were basically unchanged during 1995 as the effect of the acquisition was offset by decreased submarine construction volume. Looking forward, the final Trident is scheduled for delivery in 1997, while the first two Seawolf submarines are scheduled for delivery in 1997 and 1998. Accordingly, submarine construction revenues are expected to decline, but not materially, as these ships are delivered. BIW is realizing the benefits of reengineering efforts that are reducing costs on the DDG 51 program. At Electric Boat, as the Seawolf program matures with construction of the first ship approximately 98 percent complete and as performance improves, operating risks are expected to diminish. In addition, the NSSN program is stabilizing the business base at Electric Boat which in turn is expected to benefit all submarines under construction. As a result, return on sales of the Marine Group is expected to improve in 1997. COMBAT SYSTEMS GROUP
Backlog 1995 1996 $1,103 $2,057

In 1996, Land Systems obtained a $1.3 billion multiyear contract for the upgrade of 600 M1 Abrams tanks over five years. This contract is a part of a U.S. Army program to upgrade over 1,000 of its M1 tanks to the M1A2 configuration by the year 2003. The president's FY98 budget request includes $600 million to fund the second year of production and long-lead procurement for the third year of the contract. Congress had previously approved funding for the first year. Based on the stated objectives of the U.S. Army, the company anticipates that this multiyear contract will be followed by an Army requirement for additional upgrades. Also during 1996, Land Systems obtained a contract for the development of the Advanced Amphibious Assault

company assessed the estimated earnings at completion on this program in the third quarter of 1996 and concluded an increase was appropriate. Previously, the earnings rate was increased in the second quarter of 1995. Net sales increased $151 during 1995 due primarily to the acquisition of BIW. Operating earnings were basically unchanged during 1995 as the effect of the acquisition was offset by decreased submarine construction volume. Looking forward, the final Trident is scheduled for delivery in 1997, while the first two Seawolf submarines are scheduled for delivery in 1997 and 1998. Accordingly, submarine construction revenues are expected to decline, but not materially, as these ships are delivered. BIW is realizing the benefits of reengineering efforts that are reducing costs on the DDG 51 program. At Electric Boat, as the Seawolf program matures with construction of the first ship approximately 98 percent complete and as performance improves, operating risks are expected to diminish. In addition, the NSSN program is stabilizing the business base at Electric Boat which in turn is expected to benefit all submarines under construction. As a result, return on sales of the Marine Group is expected to improve in 1997. COMBAT SYSTEMS GROUP
Backlog 1995 1996 $1,103 $2,057

In 1996, Land Systems obtained a $1.3 billion multiyear contract for the upgrade of 600 M1 Abrams tanks over five years. This contract is a part of a U.S. Army program to upgrade over 1,000 of its M1 tanks to the M1A2 configuration by the year 2003. The president's FY98 budget request includes $600 million to fund the second year of production and long-lead procurement for the third year of the contract. Congress had previously approved funding for the first year. Based on the stated objectives of the U.S. Army, the company anticipates that this multiyear contract will be followed by an Army requirement for additional upgrades. Also during 1996, Land Systems obtained a contract for the development of the Advanced Amphibious Assault Vehicle (AAAV), including design and construction of at least three prototypes. Additional funds were requested in the president's FY98 budget for the AAAV development program. The Marine Corps plans to build more than 1,000 vehicles in the next decade, a production program worth as much as $4 billion. In addition to domestic sales, Land Systems is under contract to the U.S. Army to manufacture M1A1 kits-including hulls, turrets and other major components--to be shipped to Egypt for final assembly as part of a coproduction program. Through 1996, Land Systems delivered 482 of the 530 M1A1 kits it is under contract to manufacture. Land Systems is pursuing an order for an additional 100 kits which, if obtained, will extend the coproduction program beyond its scheduled December 1997 completion date. Land Systems continues to pursue international sales aggressively. The acquisition of Defense Systems and Armament Systems will enhance the company's international presence. Land Systems is one of two producers of the Single Channel Ground and Airborne Radio System (SINCGARS) for the U.S. Army. The president's FY98 budget requests $290 million in funding for SINCGARS. Land Systems was recently awarded 40 percent of the latest production contract. The Army is soliciting bids from Land Systems and its competitor and will select one contractor for the remaining two years of the production program. Further, the president's FY98 budget requests funding for three additional armored vehicle programs in which Land Systems is participating. The first is a four-year program to upgrade Fox Nuclear, Biological and Chemical Reconnaissance System vehicles. The second is the Heavy Assault Bridge program which is under development and is expected to enter production late this decade. The third is the Crusader Self-Propelled Howitzer development program in which the company's share is approximately 25 percent. The U.S. Army plans to build over 800 Crusader systems, a program that could be worth as much as $13 billion. The president's FY98 budget requests approximately $325 million for the Crusader, which remains the Army's largest single research and development program.

development program. Finally, the president's FY98 budget request supports product lines of the new Defense Systems and Armament Systems subsidiaries. This includes funding for several derivatives of the Bradley combat vehicle, Hydra Rocket production, and 60mm and 120mm mortar ordnance. Results of Operations and Outlook
----------------------------------1996 1995 1994 ----------------------------------Net Sales $1,026 $1,050 $1,184 Operating Earnings $ 140 $ 140 $ 140 - --------------------------------------------------------------------------------

Net sales decreased $24 during 1996 due primarily to decreased M1 production resulting from the delivery of the last of 218 M1A2 tanks to Kuwait in the first quarter of 1996. This decrease was partially offset by increased activity on the domestic upgrade program and the impact of the Muskegon Operations acquisition. Operating earnings were unchanged in 1996 due to slightly higher volume on the SINCGARS program and the impact of the Muskegon Operations acquisition, which offset the aforementioned decrease in M1 production. Net sales decreased $134 in 1995 due primarily to decreased M1 production, resulting from the delivery of the last of 315 M1A2 tanks to Saudi Arabia in late 1994. Operating earnings were unchanged in 1995 due to the increase in the earnings rate on the M1 and SINCGARS programs in the third quarter of 1994, which offset the aforementioned volume decrease. 20

Looking forward, M1 revenues are expected to remain relatively even in 1997, as the multiyear upgrade contract provides for consistent production of 120 tanks in each of the next four years. Also, the outcome of the SINCGARS sole source award will not affect the company's 1997 results. However, the acquisition of Defense Systems and Armament Systems will increase overall Combat Systems Group sales in 1997. Defense Systems and Armament Systems earn lower margins compared to those historically reported by the company's domestic and foreign tank programs. Accordingly, operating earnings of the Combat Systems Group are expected to increase in 1997, but not proportionately to the increase in sales. The company continues to seek improvements in operating margins in the Combat Systems Group by the consolidation and rationalization of facilities such as the closure of Warren Logistics Center and the consolidation of electronics manufacturing at the Tallahassee facility in 1996. Other
----------------------------1996 1995 1994 ----------------------------Net Sales $ 223 $ 133 $ 141 Operating Losses $ (3) $ (19) $ (15) - --------------------------------------------------------------------------------

Net sales increased $90 and operating losses decreased $16 during 1996 due primarily to the reclassification of the aggregates business to continuing operations in the second quarter of 1996 (for further discussion see Note C to the Consolidated Financial Statements). Operating losses also decreased during 1996 due to the extension of the ship leases. ADDITIONAL FINANCIAL INFORMATION

Looking forward, M1 revenues are expected to remain relatively even in 1997, as the multiyear upgrade contract provides for consistent production of 120 tanks in each of the next four years. Also, the outcome of the SINCGARS sole source award will not affect the company's 1997 results. However, the acquisition of Defense Systems and Armament Systems will increase overall Combat Systems Group sales in 1997. Defense Systems and Armament Systems earn lower margins compared to those historically reported by the company's domestic and foreign tank programs. Accordingly, operating earnings of the Combat Systems Group are expected to increase in 1997, but not proportionately to the increase in sales. The company continues to seek improvements in operating margins in the Combat Systems Group by the consolidation and rationalization of facilities such as the closure of Warren Logistics Center and the consolidation of electronics manufacturing at the Tallahassee facility in 1996. Other
----------------------------1996 1995 1994 ----------------------------Net Sales $ 223 $ 133 $ 141 Operating Losses $ (3) $ (19) $ (15) - --------------------------------------------------------------------------------

Net sales increased $90 and operating losses decreased $16 during 1996 due primarily to the reclassification of the aggregates business to continuing operations in the second quarter of 1996 (for further discussion see Note C to the Consolidated Financial Statements). Operating losses also decreased during 1996 due to the extension of the ship leases. ADDITIONAL FINANCIAL INFORMATION GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased during 1996 due primarily to the acquisition of BIW. However, general and administrative expenses as a percentage of net sales have remained basically even with 1995 and 1994. INTEREST, NET. Interest income was $59 in 1996 and 1995, up from $27 in 1994. Interest remained the same in 1996 as in 1995 due to a similar average cash balance and average interest rate. Interest income increased in 1995 over 1994 due to an increase in the average cash balance resulting from cash from operations and asset sales, as well as higher interest rates. Interest income is expected to decrease significantly in 1997 due to a decline in the average balance resulting from the acquisition of Defense Systems and Armament Systems in early 1997. OTHER INCOME, NET. Other income varies from period to period based on the timing of transactions such as the sales of investments and miscellaneous assets. PROVISION FOR INCOME TAXES. The company is litigating the disallowance of a research and experimentation tax credit claim relating to certain prior years' tax returns. The outcome of this litigation could have a materially favorable impact on the company's results of operations and financial condition. For further discussion of this and other tax litigation, as well as a discussion of the net deferred tax asset, see Note D to the Consolidated Financial Statements. DISCONTINUED OPERATIONS. The company has operated certain businesses that were accounted for as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. Earnings from discontinued operations decreased in 1996, as the commercial aircraft subcontracting business ceased operations after the delivery of its final shipset, and the aggregates business was reclassified to continuing operations. Both events occurred in early 1996. For additional discussion, refer to Note C to the Consolidated Financial Statements. Earnings from operations increased in 1995 due primarily to the MD-11 program at the commercial aircraft subcontracting business. Previously, the company had ceased earnings recognition on the MD-11 program due to

uncertainties surrounding its completion. As a result of resolving these and other matters related to the shutdown of the operations, the company began recognizing earnings on the program once again in 1995. For a discussion of the financial impact from the disposal of discontinued operations, see Note C to the Consolidated Financial Statements. There are no businesses classified as discontinued operations as of December 31, 1996. ENVIRONMENTAL MATTERS. For a discussion of environmental matters and other contingencies, see Note M to the Consolidated Financial Statements. The company believes that the amount it has recorded with respect to these matters is adequate, and any amount by which the liability exceeds the recorded amount would not be deemed material to the company's financial condition or results of operations. NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," in March 1995 and No. 123, "Accounting for Stock-Based Compensation," in October 1995. SFAS 121 requires a company to adjust the carrying value of long-lived assets and certain identifiable intangibles if their value is determined to be impaired as defined by the standard. The company adopted the provisions of SFAS 121 as of January 1, 1996, which had no material impact on the company's results of operations or financial condition. SFAS 123 encourages companies to adopt a fair value approach to valuing stock options which would require compensation cost to be recognized based on the fair value of stock options granted. The company has elected, as permitted by the standard, to follow its intrinsic value based method of accounting for stock options consistent with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic method, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the company's stock at the measurement date over the exercise price. The Accounting Standards Executive Committee issued Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities," in October 1996. SOP 96-1 provides benchmarks to aid in the determination of when environmental liabilities should be recognized, as well as requirements for what the accrual of environmental liabilities should include. The company is required to adopt the provisions of the statement in 1997 and expects the statement will not have a material impact on the results of operations or financial condition. FINANCIAL CONDITION The company's liquidity and financial condition remained strong during 1996 as the balance of cash and equivalents and marketable securities increased from $1,095 at December 31, 1995, to $1,155 at December 31, 1996. A discussion of the company's financial condition in terms of its operating, investing and financing activities as defined in the Consolidated Statement of Cash Flows follows. 21

OPERATING ACTIVITIES--CONTINUING. The net cash provided by continuing operations as reported on the Consolidated Statement of Cash Flows is summarized by type as follows:
Year Ended December 31 ------------------------------1996 1995 1994 ------------------------------[S] [C] [C] [C] Operations $ 520 $ 405 $ 343 Allocated federal income tax payments (127) (89) (89) Other 22 33 (6) - -------------------------------------------------------------------------------Operating cash flows 415 349 248 Decrease (increase) in marketable securities, net 742 (203) (136) - -------------------------------------------------------------------------------Net cash provided by continuing operations $ 1,157 $ 146 $ 112 - --------------------------------------------------------------------------------

OPERATING ACTIVITIES--CONTINUING. The net cash provided by continuing operations as reported on the Consolidated Statement of Cash Flows is summarized by type as follows:
Year Ended December 31 ------------------------------1996 1995 1994 ------------------------------[S] [C] [C] [C] Operations $ 520 $ 405 $ 343 Allocated federal income tax payments (127) (89) (89) Other 22 33 (6) - -------------------------------------------------------------------------------Operating cash flows 415 349 248 Decrease (increase) in marketable securities, net 742 (203) (136) - -------------------------------------------------------------------------------Net cash provided by continuing operations $ 1,157 $ 146 $ 112 - --------------------------------------------------------------------------------

The four types of cash flows are described as follows: - Operations represent the pretax cash flows generated by the three business segments. Cash flows from operations historically approximate operating earnings plus depreciation. In 1996 and 1995, cash flows exceeded this level due to a reduction in operating working capital. The company believes that cash flows will again exceed operating earnings plus depreciation in 1997, due to the expected favorable impact that scheduled product deliveries will have on working capital. - For purposes of preparing the Consolidated Statement of Cash Flows, federal income tax payments are allocated between continuing and discontinued operations based on the portion of taxable income attributed to each. - Other cash flows include items that are not directly attributable to a business segment, such as interest received from investments in excess of interest paid on debt. Other cash flows were negative in 1994 due primarily to the payment of previously deferred compensation. - The company classifies its marketable securities as either trading or available-for-sale in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, the purchases, sales and maturities of trading securities are reflected as cash flows from operating activities, and the purchases, sales and maturities of available-for-sale securities are reflected as cash flows from investing activities. For additional discussion of the company's marketable securities, see Note L to the Consolidated Financial Statements. In 1996, approximately $500 of the $742 decrease in marketable securities, net, was due to the amount the company invested in available-for-sale securities as opposed to trading securities in order to favorably affect the performance of its investment portfolio. OPERATING ACTIVITIES--DISCONTINUED. Cash flows from discontinued operations decreased during 1996 due primarily to the commercial aircraft subcontracting business ceasing operations and the resulting higher federal income tax payments associated with the delivery of its final shipset. Cash flows from discontinued operations increased during 1995 due to lower allocated federal income tax payments, improved operating cash flows and a decrease in payments for disposition related liabilities. Cash flows from discontinued operations are expected to improve in 1997 due to lower allocated federal income tax payments. For discussion of the A-12 program litigation, see Note N to the Consolidated Financial Statements. [PHOTO] Michael J. Mancuso/Sr. Vice President and Chief Financial Officer INVESTING ACTIVITIES. As previously discussed, the company has purchased available-for-sale securities, which pursuant to SFAS 115, are classified as cash flows from investing activities. Those securities, with maturities longer than one year, are classified as noncurrent assets. Although the maturities extend beyond one year, the securities are still currently available to fund internal and external investment opportunities.

The company received proceeds in 1995 and 1994 from the sale of discontinued operations (for a discussion of individual transactions, see Note C to the Consolidated Financial Statements). As part of the sale of discontinued operations, certain properties located in southern California were retained. These properties have been segregated on the Consolidated Balance Sheet as real estate held for development. The company has retained outside experts to support the development of plans that will maximize the value the company receives from these properties. Development work began on certain of these properties during 1994 and is included in capital expenditures. Cash flows from investing activities are expected to be negative in 1997, due to the effect of business acquisitions. FINANCING ACTIVITIES. In the first quarter of 1996, the board of directors increased the regular quarterly dividend to $.41 per share, reflecting the board's confidence in the sustainability of the cash flows generated by the company's operations. The company had previously increased the dividend to $.375 and $.35 per share in March 1995 and March 1994, respectively. In 1994, the board of directors reconfirmed management's authority to repurchase, at its discretion, up to 3 million shares of the company's common stock. During 1996, the company repurchased approximately 390,000 shares of its stock on the open market for a total of $23. During 1994, the company repurchased approximately 530,000 shares of its stock on the open market for a total of $22. The Title XI Bonds issued by the ship financing business were retired in 1996. This retirement was financed by the private placement of new bonds that are callable under certain conditions and that are also nonrecourse to the company. The refinancing had no material impact on the company's results of operations or financial condition. The company expects to generate sufficient funds from operations to meet both its short- and long-term liquidity needs. In addition, the company has the capacity for long-term borrowings and currently has a committed, shortterm $600 line of credit. The line of credit expires in May 1997, at which time the company anticipates renewing or replacing it if deemed appropriate. 22

CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in millions, except per share amounts)
Year Ended December 31 -----------------------1996 1995 1994 -----------------------NET SALES $3,581 $3,067 $3,058 OPERATING COSTS AND EXPENSES 3,228 2,752 2,737 - ---------------------------------------------------------------------------------OPERATING EARNINGS 353 315 321 Interest, net 55 55 22 Other income, net 1 5 -- ---------------------------------------------------------------------------------EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 409 375 343 Provision for income taxes 139 128 120 - ---------------------------------------------------------------------------------EARNINGS FROM CONTINUING OPERATIONS 270 247 223 DISCONTINUED OPERATIONS, NET OF INCOME TAXES: Earnings from operations -55 -Gain on disposal -19 15 - ----------------------------------------------------------------------------------74 15 - ---------------------------------------------------------------------------------NET EARNINGS $ 270 $ 321 $ 238 - ---------------------------------------------------------------------------------NET EARNINGS PER SHARE: Continuing operations $ 4.27 $ 3.92 $ 3.53 Discontinued operations: Earnings from operations -.88 -Gain on disposal -.30 .24 - ----------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in millions, except per share amounts)
Year Ended December 31 -----------------------1996 1995 1994 -----------------------NET SALES $3,581 $3,067 $3,058 OPERATING COSTS AND EXPENSES 3,228 2,752 2,737 - ---------------------------------------------------------------------------------OPERATING EARNINGS 353 315 321 Interest, net 55 55 22 Other income, net 1 5 -- ---------------------------------------------------------------------------------EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 409 375 343 Provision for income taxes 139 128 120 - ---------------------------------------------------------------------------------EARNINGS FROM CONTINUING OPERATIONS 270 247 223 DISCONTINUED OPERATIONS, NET OF INCOME TAXES: Earnings from operations -55 -Gain on disposal -19 15 - ----------------------------------------------------------------------------------74 15 - ---------------------------------------------------------------------------------NET EARNINGS $ 270 $ 321 $ 238 - ---------------------------------------------------------------------------------NET EARNINGS PER SHARE: Continuing operations $ 4.27 $ 3.92 $ 3.53 Discontinued operations: Earnings from operations -.88 -Gain on disposal -.30 .24 - ---------------------------------------------------------------------------------$ 4.27 $ 5.10 $ 3.77 - ----------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 23

CONSOLIDATED BALANCE SHEET
December 31 -----------------------(Dollars in millions) 1996 1995 -----------------------ASSETS CURRENT ASSETS: Cash and equivalents $ 516 $ 215 Marketable securities 378 880 - --------------------------------------------------------------------------------------894 1,095 Accounts receivable 97 105 Contracts in process 558 567 Other current assets 309 246 - --------------------------------------------------------------------------------------Total Current Assets 1,858 2,013 - --------------------------------------------------------------------------------------NONCURRENT ASSETS: Marketable securities 261 -Leases receivable--finance operations 204 213 Real estate held for development 147 136 Property, plant and equipment, net 441 398 Other assets 388 404 - --------------------------------------------------------------------------------------Total Noncurrent Assets 1,441 1,151 - --------------------------------------------------------------------------------------$ 3,299 $ 3,164

CONSOLIDATED BALANCE SHEET
December 31 -----------------------(Dollars in millions) 1996 1995 -----------------------ASSETS CURRENT ASSETS: Cash and equivalents $ 516 $ 215 Marketable securities 378 880 - --------------------------------------------------------------------------------------894 1,095 Accounts receivable 97 105 Contracts in process 558 567 Other current assets 309 246 - --------------------------------------------------------------------------------------Total Current Assets 1,858 2,013 - --------------------------------------------------------------------------------------NONCURRENT ASSETS: Marketable securities 261 -Leases receivable--finance operations 204 213 Real estate held for development 147 136 Property, plant and equipment, net 441 398 Other assets 388 404 - --------------------------------------------------------------------------------------Total Noncurrent Assets 1,441 1,151 - --------------------------------------------------------------------------------------$ 3,299 $ 3,164 - --------------------------------------------------------------------------------------LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES: Accounts payable $ 182 $ 130 Other current liabilities 651 729 - --------------------------------------------------------------------------------------Total Current Liabilities 833 859 - --------------------------------------------------------------------------------------NONCURRENT LIABILITIES: Long-term debt 38 38 Long-term debt--finance operations 118 132 Other liabilities 596 568 Commitments and contingencies (See Note M) - --------------------------------------------------------------------------------------Total Noncurrent Liabilities 752 738 - --------------------------------------------------------------------------------------SHAREHOLDERS' EQUITY: Common stock, including surplus (shares issued 84,387,336) 109 98 Retained earnings 2,254 2,087 Treasury stock (shares held 1996, 21,285,157; 1995, 21,141,961) (650) (625) Unrealized gain on available-for-sale securities 1 7 - --------------------------------------------------------------------------------------Total Shareholders' Equity 1,714 1,567 - --------------------------------------------------------------------------------------$ 3,299 $ 3,164 - ---------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 24

CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31

CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 -----------------------------1996 1995 1994 -----------------------------$ 270 $ 321 $ 238

(Dollars in millions) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings Adjustments to reconcile net earnings to net cash provided by continuing operations Discontinued operations Depreciation, depletion and amortization Decrease (Increase) in -

-67

(74) 38

(15) 39

Marketable securities 742 (203) (136) Accounts receivable 25 21 (42) Contracts in process 41 6 91 Leases receivable--finance operations 8 14 15 Other current assets -21 6 Increase (Decrease) in Accounts payable and other current liabilities 2 (22) (105) Current income taxes 76 3 27 Deferred income taxes (61) 36 4 Other, net (13) (15) (10) - -----------------------------------------------------------------------------------Net cash provided by continuing operations 1,157 146 112 Net cash provided (used) by discontinued operations (121) 84 31 - -----------------------------------------------------------------------------------Net Cash Provided by Operating Activities 1,036 230 143 - -----------------------------------------------------------------------------------CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale securities (986) --Sales/maturities of available-for-sale securities 484 7 -Business acquisitions (59) (292) -Capital expenditures (75) (32) (23) Proceeds from sale of assets 41 6 17 Proceeds from sale of discontinued operations -24 259 Other (10) (5) -- -----------------------------------------------------------------------------------Net Cash Provided (Used) by Investing Activities (605) (292) 253 - -----------------------------------------------------------------------------------CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt--finance operations 150 --Repayment of debt--finance operations (158) (15) (14) Dividends paid (101) (92) (84) Purchase of common stock (23) -(22) Proceeds from option exercises 8 4 14 Other (6) (2) (2) - -----------------------------------------------------------------------------------Net Cash Used by Financing Activities (130) (105) (108) - -----------------------------------------------------------------------------------NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 301 (167) 288 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 215 382 94 - -----------------------------------------------------------------------------------CASH AND EQUIVALENTS AT END OF YEAR $ 516 $ 215 $ 382 - ------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 25

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Dollars in millions, except per share amounts)
Common Stock ----------------------------------Shares Par Surplus Retained Earnings Treasury Stock ------------------Shares Amount o

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Dollars in millions, except per share amounts)
Common Stock Treasury Stock ----------------------------------Retained ------------------o Shares Par Surplus Earnings Shares Amount - ------------------------------------------------------------------------------------------------------BALANCE, DECEMBER 31, 1993 84,387,336 $ 84 $ 8 $ 1,709 21,823,824 $ 624 - ------------------------------------------------------------------------------------------------------Net earnings 238 Cash dividends declared ($1.40 per share) (87) Shares purchased 529,600 22 Shares issued under Incentive Compensation Plan (5) (961,877) (15) - ------------------------------------------------------------------------------------------------------BALANCE, DECEMBER 31, 1994 84,387,336 84 3 1,860 21,391,547 631 - ------------------------------------------------------------------------------------------------------Net earnings 321 Cash dividends declared ($1.50 per share) (94) Shares issued under Incentive Compensation Plan 11 (249,586) (6) Unrealized gain on available-for-sale securities - ------------------------------------------------------------------------------------------------------BALANCE, DECEMBER 31, 1995 84,387,336 84 14 2,087 21,141,961 625 - ------------------------------------------------------------------------------------------------------Net earnings 270 Cash dividends declared ($1.64 per share) (103) Shares purchased 391,900 23 Shares issued under Incentive Compensation Plan 11 (248,704) 2 Change in unrealized gain on available-for-sale securities - ------------------------------------------------------------------------------------------------------BALANCE, DECEMBER 31, 1996 84,387,336 $ 84 $ 25 $ 2,254 21,285,157 $ 650 - -------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions, except per share amounts) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include the accounts of the company and all majority-owned subsidiaries. ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. SALES AND EARNINGS UNDER LONG-TERM CONTRACTS AND PROGRAMS. Major defense

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions, except per share amounts) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include the accounts of the company and all majority-owned subsidiaries. ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. SALES AND EARNINGS UNDER LONG-TERM CONTRACTS AND PROGRAMS. Major defense programs are accounted for using the percentage-of-completion method of accounting. The combination of estimated profit rates on similar, economically interdependent contracts is used to develop program earnings rates. These rates are applied to contract costs, including general and administrative expenses, for the determination of sales and operating earnings. Program earnings rates are reviewed quarterly to assess revisions in contract values and estimated costs at completion. Based on these assessments, any changes in earnings rates are made prospectively. Any anticipated losses on contracts or programs are charged to earnings when identified. Such losses encompass all costs, including general and administrative expenses, allocable to the contracts. Revenue arising from the claims process is not recognized either as income or as an offset against a potential loss until it can be reliably estimated and its realization is probable. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses amounted to $275, $234 and $234 in 1996, 1995 and 1994, respectively, and are included in operating costs and expenses on the Consolidated Statement of Earnings. INTEREST, NET. Interest income was $59, $59 and $27 in 1996, 1995 and 1994, respectively. Interest expense incurred by the company's finance operations totaled $10, $13 and $13 in 1996, 1995 and 1994, respectively, and is classified as operating costs and expenses. Interest payments for the total company were $14, $18 and $16 in 1996, 1995 and 1994, respectively. NET EARNINGS PER SHARE. As there is no material dilution, net earnings per share is based upon the weighted average number of common shares outstanding during each period. The weighted average shares were 63.2, 63.0 and 63.1 million in 1996, 1995 and 1994, respectively. CASH AND EQUIVALENTS AND MARKETABLE SECURITIES. The company considers securities with a remaining maturity of three months or less when purchased to be cash equivalents. Marketable securities consist primarily of corporate and municipal debt securities. Marketable securities with maturities greater than one year from the balance sheet date are classified as noncurrent. ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS. Accounts receivable represent only amounts billed and currently due from customers. Recoverable costs and accrued profit related to long-term contracts and programs on which revenue has been recognized, but billings have not been presented to the customer (unbilled receivable), are included in contracts in process. REAL ESTATE HELD FOR DEVELOPMENT. As a result of the sale of businesses, certain properties were retained by the company. These properties are carried at the lower of cost or net realizable value. Assets are depreciated when placed into service. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is carried at cost net of accumulated depreciation. The company primarily uses accelerated methods of depreciation for depreciable assets. Depletion of mineral reserves is computed using the units-of-production method.

IMPAIRMENT OF LONG-LIVED ASSETS. Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the company estimates the future cash flows expected to result from the use or sale of the asset. The adoption of the standard did not have a material impact on the company's financial condition or results of operations. INTANGIBLE ASSETS. Intangible assets, net of accumulated amortization, were $149 and $138 at December 31, 1996 and 1995, respectively. These assets are related to contracts and programs acquired, and are amortized over the estimated benefit period of 25 years. Costs in excess of net assets acquired (goodwill) is amortized ratably over appropriate periods, primarily 40 years. Goodwill, net of accumulated amortization, was $16 and $11 at December 31, 1996 and 1995, respectively. The carrying values of intangible assets are reviewed if the facts and circumstances indicate potential impairment. Any impairment would be recorded in the current period. ENVIRONMENTAL LIABILITIES. The company accrues environmental costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. Cleanup and other environmental exit costs related to sold businesses were recorded at the time of disposal. Recorded liabilities have not been discounted. To the extent that the U.S. government has specifically agreed to pay the ongoing maintenance and monitoring costs at sites currently used in the conduct of the company's government contracting business, these costs are treated as contract costs and recognized as paid. STOCK-BASED COMPENSATION. The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" in October 1995. SFAS 123 encourages companies to adopt a fair value approach to valuing stock options that would require compensation cost to be recognized based on the fair value of stock options granted. The company has elected, as permitted by the standard, to continue to follow its intrinsic value based method of accounting for stock options consistent with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic method, compensation cost for stock 27

options is measured as the excess, if any, of the quoted market price of the company's stock at the measurement date over the exercise price. CLASSIFICATION. Consistent with industry practice, assets and liabilities relating to long-term contracts and programs are classified as current although a portion of these amounts is not expected to be realized within one year. In addition, certain prior year amounts have been reclassified to conform to the current year presentation. B. ACQUISITIONS Effective September 13, 1995, the company purchased the stock of Bath Iron Works Corporation (BIW) for approximately $300 in cash. This transaction has been accounted for under the purchase method of accounting. The excess of the purchase price over the estimated fair value of the net tangible assets acquired has been primarily recorded as an intangible asset related to the destroyer program. Operating results of BIW have been included with those of the company from the closing date. The following pro forma combined financial information presents the historical results of operations of the company and BIW for the years ended December 31, 1995 and 1994, with pro forma adjustments as if BIW had been acquired as of the beginning of the periods presented. The pro forma information is not necessarily indicative of what the results of operations actually would have been if the transaction had occurred on the date indicated, or of future results of operations.
Year Ended December 31 -------------------1995 1994

(Unaudited)

options is measured as the excess, if any, of the quoted market price of the company's stock at the measurement date over the exercise price. CLASSIFICATION. Consistent with industry practice, assets and liabilities relating to long-term contracts and programs are classified as current although a portion of these amounts is not expected to be realized within one year. In addition, certain prior year amounts have been reclassified to conform to the current year presentation. B. ACQUISITIONS Effective September 13, 1995, the company purchased the stock of Bath Iron Works Corporation (BIW) for approximately $300 in cash. This transaction has been accounted for under the purchase method of accounting. The excess of the purchase price over the estimated fair value of the net tangible assets acquired has been primarily recorded as an intangible asset related to the destroyer program. Operating results of BIW have been included with those of the company from the closing date. The following pro forma combined financial information presents the historical results of operations of the company and BIW for the years ended December 31, 1995 and 1994, with pro forma adjustments as if BIW had been acquired as of the beginning of the periods presented. The pro forma information is not necessarily indicative of what the results of operations actually would have been if the transaction had occurred on the date indicated, or of future results of operations.
Year Ended December 31 -------------------(Unaudited) 1995 1994 -------------------Net Sales $3,705 $3,951 - -------------------------------------------------------------------------------Earnings From Continuing Operations $ 260 $ 242 - -------------------------------------------------------------------------------Per Share $ 4.13 $ 3.84 - --------------------------------------------------------------------------------

Effective March 29, 1996, the company purchased the assets of Teledyne Vehicle Systems (Muskegon Operations), an operating unit of Teledyne Inc., for approximately $55 in cash. Muskegon Operations specializes in combat vehicles as well as mobility systems, suspension technology and diesel engines for armored vehicle markets worldwide. This transaction has been accounted for under the purchase method of accounting. The excess of the purchase price over the estimated fair value of the net tangible assets acquired has been recorded as intangible assets related to the Muskegon Operations' product lines and goodwill. The results of the Muskegon Operations are included with those of the company from the closing date. Pro forma results are not presented because the effects of the acquisition are not material to the company's results of operations or financial condition. Effective January 1, 1997, the company purchased the assets of Defense Systems and Armament Systems, operating units of Lockheed Martin Corporation, for approximately $450 in cash. Defense Systems builds light vehicles, turrets and transmissions for combat vehicles, as well as missile guidance and naval fire control systems. Armament Systems designs, develops and produces advanced gun, ammunition handling and air defense systems, and is a leader in the production of ammunition and ordnance products. The transaction will be accounted for under the purchase method of accounting. The results of Defense Systems and Armament Systems will be included with those of the company in 1997. C. DISCONTINUED OPERATIONS SPACE LAUNCH SYSTEMS. On May 1, 1994, the company closed the sale of its Space Launch Systems business to Martin Marietta Corporation for $209 in cash. The company recognized a gain on disposal of $15, or $.24 per share, net of income taxes of $8. COMMERCIAL AIRCRAFT SUBCONTRACTING. On July 1, 1994, the company and McDonnell Douglas Corporation (McDonnell Douglas) announced an agreement to terminate their contract for the company's production of fuselage sections for the MD-11 jetliner. Under the agreement, the responsibility for production of

fuselages was transferred from the company's commercial aircraft subcontracting business to McDonnell Douglas, with the delivery of the 166th shipset in early 1996. The company's commercial aircraft subcontracting business ceased operations after the completion of its obligations under this agreement. OTHER. In early 1996, the aggregates operations of the company's Material Service business were reclassified to continuing operations. During 1995 and 1994 the company sold the lime, brick, concrete pipe and ready-mix operations. As the results of operations and financial condition of Material Service are not material to the company, prior periods have not been restated to reflect this reclassification. In addition, during 1995, the company recognized a portion of its deferred gain from a prior disposal as a result of the favorable resolution of a contingency. There are no businesses classified as discontinued operations as of December 31, 1996. EARNINGS FROM OPERATIONS. The operating results of discontinued operations are:
Year Ended December 31 -----------------------------1996 1995 1994 -----------------------------Net sales $ 28 $ 467 $ 644 - -------------------------------------------------------------------------------Earnings before income taxes $ -$ 84 $ -Provision for income taxes -29 -- -------------------------------------------------------------------------------Net earnings $ -$ 55 $ -- -------------------------------------------------------------------------------Net earnings per share $ -$ .88 $ -- --------------------------------------------------------------------------------

D. INCOME TAXES The provision for federal income taxes for continuing operations is summarized as follows:
Year Ended December 31 -------------------------------1996 1995 1994 -------------------------------Current $ 200 $ 92 $ 116 Deferred (61) 36 4 - -------------------------------------------------------------------------------$ 139 $ 128 $ 120 - --------------------------------------------------------------------------------

28

The reconciliation from the statutory federal income tax rate to the company's effective income tax rate is as follows:
Year Ended December 31 -------------------------------1996 1995 1994 -------------------------------Statutory income tax rate 35.0% 35.0% 35.0% Other (1.0) (.9) -- -------------------------------------------------------------------------------Effective income tax rate 34.0% 34.1% 35.0% - --------------------------------------------------------------------------------

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

The reconciliation from the statutory federal income tax rate to the company's effective income tax rate is as follows:
Year Ended December 31 -------------------------------1996 1995 1994 -------------------------------Statutory income tax rate 35.0% 35.0% 35.0% Other (1.0) (.9) -- -------------------------------------------------------------------------------Effective income tax rate 34.0% 34.1% 35.0% - --------------------------------------------------------------------------------

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities consist of the following:
December 31 -----------------------1996 1995 -----------------------Long-term contract costing methods $117 $ 63 A-12 termination 91 96 Accrued costs on disposed businesses 90 96 Coal mining liabilities 27 24 Other 125 130 - -------------------------------------------------------------------------------Deferred Assets $450 $ 409 - -------------------------------------------------------------------------------Lease income $ 74 $ 77 Commercial pension asset 43 40 Intangible asset 33 23 Other 30 60 - -------------------------------------------------------------------------------Deferred Liabilities $180 $ 200 - -------------------------------------------------------------------------------Net Deferred Asset $270 $ 209 - --------------------------------------------------------------------------------

No material valuation allowance was required for the company's deferred tax assets at December 31, 1996 and 1995. The current portion of the net deferred tax asset is $231 and $120 at December 31, 1996 and 1995, respectively, and is included in other current assets on the Consolidated Balance Sheet. The company made federal income tax payments of $199, $83 and $107 in 1996, 1995 and 1994, respectively. The Internal Revenue Service (IRS) has completed its examination of the company's consolidated tax returns through the year 1989. Certain issues related to the years 1977 through 1986 are in litigation (for further discussion see Note M). Other issues related to the years 1987 through 1989 have been protested to the IRS Appeals Division. In addition, the IRS is currently examining the company's consolidated tax returns for the years 1990 through 1993. As the company has recorded liabilities for tax contingencies, resolution of these matters is not expected to have a materially unfavorable impact on the company's financial condition or results of operations. Further, the company has filed refund claims for approximately $275 (plus interest) in additional research and experimentation tax credits for the years 1981 through 1990. A portion of the claims relates to the years 1981 through 1986 and is part of the litigation discussed above, while the remaining claims are being contested at the IRS administrative level. As the ultimate allowance of these claims is expected to be dependent upon the outcome of the litigation, no benefits will be recognized until the completion of the litigation. The provision for state and local income taxes, which is allocable to U.S. government contracts, is included in operating costs and expenses.

E. CONTRACTS IN PROCESS Contracts in process consist of the following:
December 31 ----------------------1996 1995 ----------------------Contract costs and estimated profits $ 6,076 $5,916 Other costs 352 398 - -------------------------------------------------------------------------------6,428 6,314 Less advances and progress payments 5,870 5,747 - -------------------------------------------------------------------------------$ 558 $ 567 - --------------------------------------------------------------------------------

Contract costs include production costs and related overhead, including general and administrative expenses. Other costs primarily represent amounts required to be recorded under GAAP that are not currently allocable to contracts, such as a portion of the company's estimated workers' compensation, retiree medical and environmental expenses. These costs have been deferred because their recovery under contracts is considered probable based on existing backlog. If the level of backlog in the future does not support the continued deferral of these costs, their recognition could affect the profitability of the company's remaining contracts. Under the contractual arrangements by which progress payments are received, the U.S. government asserts that it has a security interest in the contracts in process identified with the related contracts. F. PROPERTY, PLANT AND EQUIPMENT, NET The major classes of property, plant and equipment are as follows:
December 31 ---------------------1996 1995 ---------------------Land and improvements $ 78 $ 80 Mineral reserves 93 52 Buildings and improvements 250 212 Machinery and equipment 974 864 - -------------------------------------------------------------------------------1,395 1,208 Less accumulated depreciation, depletion and amortization 954 810 - -------------------------------------------------------------------------------$ 441 $ 398 - --------------------------------------------------------------------------------

Certain of the company's plant facilities are provided by the U.S. government. 29

G. OTHER CURRENT LIABILITIES Other current liabilities consist of the following:
December 31 ----------------------1996 1995 ----------------------$ 239 $ 233 179 199 68 74

Workers' compensation Retirement benefits Salaries and wages

G. OTHER CURRENT LIABILITIES Other current liabilities consist of the following:
December 31 ----------------------1996 1995 ----------------------Workers' compensation $ 239 $ 233 Retirement benefits 179 199 Salaries and wages 68 74 A-12 termination liability and legal fees 21 38 Other 144 185 - -------------------------------------------------------------------------------$ 651 $ 729 - --------------------------------------------------------------------------------

H. LONG-TERM DEBT Long-term debt consists of 9.95 percent Debentures to be retired by annual sinking fund payments between 2011 and 2018. Among the restrictions under the Indenture covering the unsecured Debentures are provisions limiting the company's ability to secure additional debt through mortgages on existing properties and sale and leaseback transactions of principal properties as defined. The company may borrow up to $600 under a committed, short-term line of credit. Under the line of credit, the company pays a fee on the commitment and would pay interest at varying rates based on market conditions. There were no borrowings under the line of credit during 1996 or 1995. I. OTHER LIABILITIES Other liabilities consist of the following:
December 31 -----------------------1996 1995 -----------------------Accrued costs on disposed businesses $ 256 $ 274 Retirement benefits 111 65 Coal mining related liabilities 77 69 Other 152 160 - -------------------------------------------------------------------------------$ 596 $ 568 - --------------------------------------------------------------------------------

The company has recorded liabilities for contingencies related to disposed businesses. These liabilities include retiree medical, environmental, legal and other costs. The company has certain liabilities that are specific to the coal mining industry, including workers' compensation and reclamation. The company is subject to the Federal Coal Mine Health & Safety Act of 1969, as amended, and the related workers' compensation laws in the states in which it has operated. These laws require the company to pay benefits for occupational disability resulting from coal workers' pneumoconiosis (black lung). The liability for known claims and an actuarially determined estimate of future claims that will be awarded to current and former employees is discounted based on a rate of 7.25 percent at December 31, 1996 and 1995, respectively. Liabilities to reclaim land disturbed by the mining process and to perform other closing functions are recorded over the estimated production lives of the mines. J. SHAREHOLDERS' EQUITY STOCK SPLIT. On March 4, 1994, the company's board of directors authorized a two-for-one stock split effected in the form of a 100 percent stock dividend distributed on April 11, 1994, to shareholders of record on

March 21, 1994. AUTHORIZED STOCK. The authorized capital stock of the company consists of 200 million shares of $1 par value common stock and 50 million shares of $1 par value preferred stock issuable in series, with the rights, preferences and limitations of each series to be determined by the board of directors. K. FINANCE OPERATIONS The company owns three liquefied natural gas (LNG) tankers that have been leased to a nonrelated company. The U.S. government guaranteed Title XI Bonds, which financed the leases, were retired in 1996. This retirement was financed by the private placement of new bonds that are also secured by the LNG tankers. The new bonds are callable under certain conditions and are also nonrecourse to the company. Accordingly, in the event the lessee defaults on the lease payments, the company is not obligated to repay the debt. The refinancing did not have a material impact on the company's results of operations or financial condition. The following is a summary of the comparative financial statements for the finance operations: BALANCE SHEET DATA
December 31 ------------------------1996 1995 ------------------------ASSETS Leases receivable $ 214 $ 222 Due from parent 64 72 - -------------------------------------------------------------------------------$ 278 $ 294 - -------------------------------------------------------------------------------LIABILITIES AND SHAREHOLDER'S EQUITY Debt $ 135 $ 146 Income taxes 74 77 Shareholder's equity 69 71 - -------------------------------------------------------------------------------$ 278 $ 294 - --------------------------------------------------------------------------------

EARNINGS DATA
Year Ended December 31 ---------------------------------1996 1995 1994 ---------------------------------Interest income $ 23 $ 17 $ 16 Interest expense and income taxes 17 14 14 - -------------------------------------------------------------------------------Net earnings $ 6 $ 3 $ 2 - --------------------------------------------------------------------------------

30

On October 1, 1995, the leases were extended from 2004 through the year 2009. These leases are classified as direct financing leases. The lease extension increased aggregate future minimum lease payments and unearned interest income, but did not alter the company's net investment in leases receivable. The components of the company's net investment in the leases receivable are as follows:
December 31 ----------------------1996 1995 ----------------------Aggregate future minimum lease payments $ 349 $ 380

On October 1, 1995, the leases were extended from 2004 through the year 2009. These leases are classified as direct financing leases. The lease extension increased aggregate future minimum lease payments and unearned interest income, but did not alter the company's net investment in leases receivable. The components of the company's net investment in the leases receivable are as follows:
December 31 ----------------------1996 1995 ----------------------Aggregate future minimum lease payments $ 349 $ 380 Unguaranteed residual value 38 38 Less unearned interest income 173 196 - -------------------------------------------------------------------------------$ 214 $ 222 - --------------------------------------------------------------------------------

The company is scheduled to receive minimum lease payments of $31 annually in each of the next five years. Semiannual sinking fund payments, sufficient to retire 100 percent of the aggregate principal amount of the debt, have commenced and will continue through maturity in 2004. The weighted average interest rate on the debt is 6.2 percent. The schedule of principal payments for the next five years is $17 in 1997, $18 in 1998, $19 in 1999, $19 in 2000, and $21 in 2001. L. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the company's financial instruments are as follows:
December 31 -------------------------------------------------1996 1995 -------------------------------------------------Carrying Fair Carrying Fair Amount Value Amount Value - -------------------------------------------------------------------------------Cash and equivalents $516 $516 $215 $215 Current marketable securities: Trading 138 138 880 880 Available-for-sale 240 240 --Noncurrent marketable securities: Available-for-sale 261 261 --Other investments: Available-for-sale 51 51 50 50 Long-term debt 38 41 38 43 Long-term debt--finance operations 135 137 146 168 - --------------------------------------------------------------------------------

Fair value is based on quoted market prices, except for long-term debt--finance operations where fair value is based on a risk-adjusted discount rate. The company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994. Through December 31, 1995, the company determined that all of its investments classified as cash equivalents and marketable securities were trading securities as defined by SFAS 115. During 1996, the company purchased securities with longer maturities, which pursuant to SFAS 115, are classified as available-for-sale. Trading securities are recorded at fair value with unrealized gains and losses (the adjustments to fair value) recognized in earnings. Available-for-sale securities are recorded at fair value with unrealized gains and losses charged to a separate component of shareholders' equity. As required by SFAS 115, purchases, sales and maturities of available-for-sale securities are classified as cash flows from investing activities. Purchases, sales and maturities of trading securities are classified as cash flows from operating activities. Marketable securities classified as available-for-sale at December 31, 1996, include corporate debt securities of

$443 and municipal debt securities of $58. Other investments classified as available-for-sale include U.S. government debt obligations and corporate equity securities. U.S. government debt obligations are $50 and $40 at December 31, 1996 and 1995, respectively, and are restricted for payment of workers' compensation benefits under an agreement with the State of Maine. The amortized cost of U.S. government obligations is $50 and $39 at December 31, 1996 and 1995, respectively. The company's investment in equity securities is $1 and $10 at December 31, 1996 and 1995, respectively. The sale of these equity investments is restricted for a period of less than one year. The unrealized gain net of taxes for these securities was not material at December 31, 1996 and 1995, and is classified as a separate component of shareholders' equity. The proceeds from the sale of available-for-sale securities were $228 and $7 in 1996 and 1995. The realized gain on the sale of available-for-sale securities was not significant in each of the last three years. For debt securities classified as available-for-sale, $250 mature within one year, $283 between one and five years, and $18 between five and ten years. Unrealized gains and losses recognized in earnings each of the last three years on trading securities were not significant. The company was contingently liable for debt and lease guarantees and other arrangements aggregating up to a maximum of approximately $70 at December 31, 1996. The company knows of no event of default that would require it to satisfy these guarantees, and therefore, the fair value of these contingent liabilities is considered immaterial. M. COMMITMENTS AND CONTINGENCIES LITIGATION. On January 7, 1991, the U.S. Navy terminated for default a contract with the company and McDonnell Douglas for the full-scale development of the U.S. Navy's A-12 aircraft. The U.S. Navy has demanded repayment of unliquidated progress payments, plus interest. The company and McDonnell Douglas have a claim pending against the U.S. government in the Court of Federal Claims (see Note N). Certain issues related to the IRS audit of the company's consolidated federal income tax returns for the years 1977 through 1986 were not resolved at the administrative level. Accordingly, in July 1994, the company received a Statutory Notice of Deficiency from the IRS that the company is contesting in the U.S. Tax 31

Court. The company has accrued an amount that is expected to be adequate to cover any liability arising from this matter. Also, as part of the Tax Court litigation, the company is contesting the disallowance by the IRS of its refund claim for additional research and experimentation tax credits for the years 1981 through 1986. The company's position is that it is entitled to a tax credit for certain research performed pursuant to fixed-price government contracts. The company believes that its position has been strengthened by the recent decision in Fairchild Industries v. United States, which held for the taxpayer on this issue. The resolution of the Tax Court litigation is expected to take several years. General Dynamics Corporation was served with a complaint filed in the Circuit Court of St. Louis County, Missouri, titled Hunt, et al. v. General Dynamics and Lloyd Thompson, seeking a declaratory judgment and rescission of certain excess loss insurance contracts covering the company's self-insured workers' compensation program at its Electric Boat division for the period July 1, 1988, to June 30, 1992. The insurance contracts cover losses of up to $30 in excess of a $40 attachment point in each of the four policy years. The named plaintiff, Paul Hunt, is an individual suing on behalf of himself and other individuals who are members of the Lloyd's of London syndicates and other British insurers who have underwritten the risk. The company does not expect that the matter will have a material impact on the company's results of operations or financial condition. On July 26, 1996, a jury in Los Angeles County rendered a verdict in favor of the plaintiffs in the trial of Dolores Blanton and William B. Forti v. General Dynamics. The plaintiffs, former employees of the company's E-Metrics subsidiary, claimed they were promised an equity interest in E-Metrics, and were not compensated when the assets and liabilities were transferred to Hughes Aircraft Company as part of the sale of the Missile Systems business in 1992. The company asserted that the decision on equity interests was left to the E-Metrics board of directors, which never considered the issue. The jury found for the plaintiffs in the amount of $7.4 for breach of

Court. The company has accrued an amount that is expected to be adequate to cover any liability arising from this matter. Also, as part of the Tax Court litigation, the company is contesting the disallowance by the IRS of its refund claim for additional research and experimentation tax credits for the years 1981 through 1986. The company's position is that it is entitled to a tax credit for certain research performed pursuant to fixed-price government contracts. The company believes that its position has been strengthened by the recent decision in Fairchild Industries v. United States, which held for the taxpayer on this issue. The resolution of the Tax Court litigation is expected to take several years. General Dynamics Corporation was served with a complaint filed in the Circuit Court of St. Louis County, Missouri, titled Hunt, et al. v. General Dynamics and Lloyd Thompson, seeking a declaratory judgment and rescission of certain excess loss insurance contracts covering the company's self-insured workers' compensation program at its Electric Boat division for the period July 1, 1988, to June 30, 1992. The insurance contracts cover losses of up to $30 in excess of a $40 attachment point in each of the four policy years. The named plaintiff, Paul Hunt, is an individual suing on behalf of himself and other individuals who are members of the Lloyd's of London syndicates and other British insurers who have underwritten the risk. The company does not expect that the matter will have a material impact on the company's results of operations or financial condition. On July 26, 1996, a jury in Los Angeles County rendered a verdict in favor of the plaintiffs in the trial of Dolores Blanton and William B. Forti v. General Dynamics. The plaintiffs, former employees of the company's E-Metrics subsidiary, claimed they were promised an equity interest in E-Metrics, and were not compensated when the assets and liabilities were transferred to Hughes Aircraft Company as part of the sale of the Missile Systems business in 1992. The company asserted that the decision on equity interests was left to the E-Metrics board of directors, which never considered the issue. The jury found for the plaintiffs in the amount of $7.4 for breach of contract, plus punitive damages of $100. On motion by the company, the trial judge reduced the punitive damage award to $30 for a total judgment of $37.4. The company does not expect that this matter will have a material impact on the company's results of operations or financial condition. Hughes Missile Systems Company (HMSC) has filed an amended complaint against the company alleging breaches of certain representations and warranties contained in the Asset Purchase Agreement dated May 8, 1992, for the sale of the company's missile business. The amended complaint which was filed in the Superior Court of the State of California, seeks $54 in damages. The company does not expect that the lawsuit will have a material impact on the company's results of operations or financial condition. In March 1996, the company received a judgment for $26 against the government in General Dynamics v. U.S., a case tried in U.S. District Court for the Central District of California. The company sued the government under the Federal Tort Claims Act, alleging that the Defense Contract Audit Agency negligently audited the Division Air Defense contract, which led to the company's indictment in 1985. The indictment was later dropped. The government has appealed the 1996 judgment. HMSC will receive 30 percent of the net recovery as a result of its purchase of the company's missile business in 1992. The company has not recognized any claim revenue from this matter. The company has been sued as the "alter ego" of Asbestos Corporation Ltd., a Canadian company, in which General Dynamics owned shares between 1969 and 1982. The company, along with more than 50 other defendants, has been sued in several thousand cases filed in Texas by plaintiffs alleging exposure to asbestos. Although the gross claims attributable to the plaintiffs cannot be estimated, including the share of the company or any other defendant, any losses arising from these matters are largely covered by insurance. Therefore, the company does not believe that these matters will have a material impact on the company's results of operations or financial condition. The company is a defendant in tort cases pending in state and federal court in Arizona, as well as a Comprehensive Environmental Response, Compensation and Liability Act case. The litigation arises out of groundwater and soil contamination at the Tucson airport. The company's predecessor in interest, Consolidated Aircraft Company, operated a modification center at the site during World War II. The company has defenses to the claims, as well as a claim against the government for indemnification. The company is unable to estimate its share of any liability arising from these claims. However, the company believes it is entitled to indemnity from the U.S. for any liability. Therefore, the company does not believe the litigation will have a material adverse impact on the company's results of operations or financial condition.

The company is also a defendant in other lawsuits and claims and in other investigations of varying nature. The company believes its liabilities in these proceedings, in the aggregate, are not material to the company's results of operations or financial condition. ENVIRONMENTAL. The company is directly or indirectly involved in fourteen Superfund sites in which the company, along with other major U.S. corporations, has been designated a potentially responsible party (PRP) by the U.S. Environmental Protection Agency or a state environmental agency with respect to past shipments of hazardous waste to sites now requiring environmental cleanup. Based on a site by site analysis of the estimated quantity of waste contributed by the company relative to the estimated total quantity of waste, the company believes it is a small contributor and its liability at any individual site is not material. The company is also involved in the cleanup and remediation of various conditions at sites it currently or formerly owned or operated. The company measures its environmental exposure based on currently available facts, existing technologies, and presently enacted laws and regulations. Where a reasonable basis for apportionment exists with other PRPs, the company has considered only its share of the liability. The company considers the solvency of other PRPs, whether responsibility is being disputed, and its experience in similar matters in determining its share. Based on a site by site analysis, the company has recorded an amount that it believes will be adequate to cover any liability arising from the sites. 32

OTHER. In the ordinary course of business, the company has entered into letter of credit agreements and other arrangements with financial institutions aggregating approximately $240 at December 31, 1996. For discussion of other financial guarantees, see Note L. The company's rental commitments under existing leases at December 31, 1996, are not significant. N. TERMINATION OF A-12 PROGRAM As stated in Note M, the U.S. Navy terminated the company's A-12 aircraft contract for default. The A-12 contract was a fixed-price incentive contract for the full-scale development and initial production of the U.S. Navy's new carrier-based Advanced Tactical Aircraft. Both the company and McDonnell Douglas (the contractors) were parties to the contract with the U.S. Navy, each had full responsibility to the U.S. 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 U.S. Navy demanded that the contractors repay $1,352 in unliquidated progress payments, but agreed to defer collection of the amount pending a decision by the U.S. Court of Federal Claims on the contractors' appeal of the termination for default, or a negotiated settlement. The contractors filed a complaint on June 7, 1991, in the U.S. Court of Federal Claims contesting the default termination. The suit, in effect, seeks to convert the termination for default to a termination for convenience of the U.S. government and seeks other legal and equitable relief. A trial on Count XVII of the complaint, which relates to the propriety of the termination for default, was concluded in October 1993. In December 1994, the court issued an order vacating the termination for default. On December 19, 1995, following a trial on the merits, the court issued an order converting the termination for default to a termination of convenience. Based on the court's ruling on quantum issues, the parties have agreed to a stipulation on damages totaling $1,071. The court has also ruled that plaintiffs are entitled to interest on the judgment from June 26, 1991, until paid. Through December 31, 1996, the interest on the stipulated amount was $399. Final resolution of the A-12 litigation will depend on the entry of final judgment, the outcome of expected appeals, and further litigation or negotiation with the government. The company has not recognized any claim revenue from the U.S. Navy. The company has fully reserved the contracts in process balance associated with the A-12 program and has accrued the company's estimated termination liabilities, and the liability associated with pursuing the litigation through trial. In the unlikely event that the court's decision converting the termination to a termination for convenience is reversed on appeal, and the contractors are ultimately found to be in default of the A-12 contract and are required to repay all unliquidated progress payments, additional losses of approximately $675, plus interest, may be recognized by the company. This result is considered remote.

OTHER. In the ordinary course of business, the company has entered into letter of credit agreements and other arrangements with financial institutions aggregating approximately $240 at December 31, 1996. For discussion of other financial guarantees, see Note L. The company's rental commitments under existing leases at December 31, 1996, are not significant. N. TERMINATION OF A-12 PROGRAM As stated in Note M, the U.S. Navy terminated the company's A-12 aircraft contract for default. The A-12 contract was a fixed-price incentive contract for the full-scale development and initial production of the U.S. Navy's new carrier-based Advanced Tactical Aircraft. Both the company and McDonnell Douglas (the contractors) were parties to the contract with the U.S. Navy, each had full responsibility to the U.S. 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 U.S. Navy demanded that the contractors repay $1,352 in unliquidated progress payments, but agreed to defer collection of the amount pending a decision by the U.S. Court of Federal Claims on the contractors' appeal of the termination for default, or a negotiated settlement. The contractors filed a complaint on June 7, 1991, in the U.S. Court of Federal Claims contesting the default termination. The suit, in effect, seeks to convert the termination for default to a termination for convenience of the U.S. government and seeks other legal and equitable relief. A trial on Count XVII of the complaint, which relates to the propriety of the termination for default, was concluded in October 1993. In December 1994, the court issued an order vacating the termination for default. On December 19, 1995, following a trial on the merits, the court issued an order converting the termination for default to a termination of convenience. Based on the court's ruling on quantum issues, the parties have agreed to a stipulation on damages totaling $1,071. The court has also ruled that plaintiffs are entitled to interest on the judgment from June 26, 1991, until paid. Through December 31, 1996, the interest on the stipulated amount was $399. Final resolution of the A-12 litigation will depend on the entry of final judgment, the outcome of expected appeals, and further litigation or negotiation with the government. The company has not recognized any claim revenue from the U.S. Navy. The company has fully reserved the contracts in process balance associated with the A-12 program and has accrued the company's estimated termination liabilities, and the liability associated with pursuing the litigation through trial. In the unlikely event that the court's decision converting the termination to a termination for convenience is reversed on appeal, and the contractors are ultimately found to be in default of the A-12 contract and are required to repay all unliquidated progress payments, additional losses of approximately $675, plus interest, may be recognized by the company. This result is considered remote. O. INCENTIVE COMPENSATION PLAN Under the 1988 Incentive Compensation Plan, as amended, the company may grant awards in combination of cash, common stock, stock options and restricted stock. Prior to October 1993, stock options granted under the plan were awarded for a maximum term of 10 years and were exercisable in their entirety beginning 18 months after the date of award. In October 1993, the company introduced a long-term incentive program that granted stock options and restricted stock. The stock options are generally exercisable at the fair market value of the common stock on the date of grant with 50 percent of the stock options vesting on the one year anniversary of the grant and the remaining 50 percent vesting on the two year anniversary of the grant. The stock options have a maximum term of five years. The restricted stock has a feature that will increase or decrease the number of shares initially granted based on movement in the company's stock price from the date of grant to the end of the two year performance period. Once the number granted has been adjusted, restrictions will continue to be imposed for an additional two years, at which time all restrictions will lapse. There were 45,773, 199,395 and 15,590 shares of restricted stock awarded in 1996, 1995 and 1994, respectively. There are 442,870 shares of restricted stock outstanding at December 31, 1996. Information with respect to stock options is as follows:

Year Ended December 31 --------------------------------------1996 1995 1994 --------------------------------------NUMBER OF SHARES UNDER STOCK OPTIONS: Outstanding at beginning of year 2,302,723 1,820,887 3,610,428 Granted 68,800 719,650 135,810 Exercised (495,005) (171,264) (1,705,172) Canceled (49,666) (66,550) (220,179) - -------------------------------------------------------------------------------Outstanding at end of year 1,826,852 2,302,723 1,820,887 - -------------------------------------------------------------------------------EXERCISABLE AT END OF YEAR 1,429,372 979,311 509,866 ================================================================================ WEIGHTED AVERAGE EXERCISE PRICE: Granted $60.80 $60.23 $45.56 Exercised 25.19 22.42 14.44 Canceled 58.03 46.89 46.84 Outstanding at end of year 51.48 45.69 37.80 Exercisable at end of year 48.99 34.32 14.56 ================================================================================

33

Information with respect to stock options outstanding and stock options exercisable at December 31, 1996, is as follows:
---------------------------------------------------Options Outstanding ---------------------------------------------------Number Weighted Weighted Range of Outstanding Average Remaining Average Exercise Prices at 12/31/96 Contractual Life Exercise Price - -------------------------------------------------------------------------------$ 7.21-22.75 49,420 3.5 years $ 15.65 39.81-47.00 1,038,370 1.9 46.81 58.13-64.63 739,062 4.0 60.44 - -------------------------------------------------------------------------------1,826,852 ================================================================================

---------------------------------------------------Options Exercisable ---------------------------------------------------Range of Number Exercisable Weighted Average Exercise Prices at 12/31/96 Exercise Price - -------------------------------------------------------------------------------$ 7.21-22.75 49,420 $ 15.65 39.81-47.00 1,038,370 46.81 58.13-64.63 341,582 60.44 - -------------------------------------------------------------------------------1,429,372 ================================================================================

At December 31, 1996, 1,327,483 treasury shares have been reserved for options that may be granted in the future, in addition to the shares reserved for issuance on the exercise of options outstanding. The company applies APB 25 and related interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized for stock options. The compensation cost for restricted stock has been appropriately recognized at fair market value of the company's stock in 1996 and 1995, respectively. Had compensation costs for stock options been determined based on the fair value at the grant dates for awards under this plan consistent with the method of SFAS 123, the company's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated as follows:

Information with respect to stock options outstanding and stock options exercisable at December 31, 1996, is as follows:
---------------------------------------------------Options Outstanding ---------------------------------------------------Number Weighted Weighted Range of Outstanding Average Remaining Average Exercise Prices at 12/31/96 Contractual Life Exercise Price - -------------------------------------------------------------------------------$ 7.21-22.75 49,420 3.5 years $ 15.65 39.81-47.00 1,038,370 1.9 46.81 58.13-64.63 739,062 4.0 60.44 - -------------------------------------------------------------------------------1,826,852 ================================================================================

---------------------------------------------------Options Exercisable ---------------------------------------------------Range of Number Exercisable Weighted Average Exercise Prices at 12/31/96 Exercise Price - -------------------------------------------------------------------------------$ 7.21-22.75 49,420 $ 15.65 39.81-47.00 1,038,370 46.81 58.13-64.63 341,582 60.44 - -------------------------------------------------------------------------------1,429,372 ================================================================================

At December 31, 1996, 1,327,483 treasury shares have been reserved for options that may be granted in the future, in addition to the shares reserved for issuance on the exercise of options outstanding. The company applies APB 25 and related interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized for stock options. The compensation cost for restricted stock has been appropriately recognized at fair market value of the company's stock in 1996 and 1995, respectively. Had compensation costs for stock options been determined based on the fair value at the grant dates for awards under this plan consistent with the method of SFAS 123, the company's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated as follows:
----------------------1996 1995 ----------------------$ 270 $ 321 268 321

Net Earnings:

As Reported Pro Forma

As Reported $4.27 $5.10 Pro Forma 4.24 5.10 - --------------------------------------------------------------------------------

Net Earnings Per Share:

In accordance with SFAS 123, the fair value approach to valuing stock options used for pro forma presentation has not been applied to stock options granted prior to January 1, 1995. The compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options. The weighted average fair value of options granted was $7.54 and $7.38 during 1996 and 1995, respectively. The fair value is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 2.3 and 2.5 percent; expected volatility of 20 percent for both years; risk-free interest rates of 5.7 and 5.6 percent; and expected lives of four months after the vesting period. P. RETIREMENT PLANS

PENSION. The company has nine trusteed noncontributory defined benefit pension plans covering substantially all employees. Under certain of the plans, benefits are primarily a function of both the employee's years of service and level of compensation, while under other plans, benefits are a function primarily of years of service. It is the company's policy to fund the plans to the maximum extent deductible under existing federal income tax regulations. Such contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. Net periodic pension cost for the total company included the following:
Year Ended December 31 ---------------------------------1996 1995 1994 ---------------------------------Service cost-benefits earned during period $ 50 $ 47 $ 65 Interest cost on projected benefit obligation 182 158 146 Actual loss (gain) on plan assets (12) (933) 152 Net amortization and deferral (212) 737 (334) - -------------------------------------------------------------------------------$ 8 $ 9 $ 29 - --------------------------------------------------------------------------------

The following table sets forth the plans' funded status:
December 31 ----------------------1996 1995 ----------------------Actuarial present value of benefit obligations: Vested benefit obligation $ (2,405) $(2,453) ================================================================================ Accumulated benefit obligation $ (2,450) $(2,487) ================================================================================ Projected benefit obligation $ (2,597) $(2,657) Plans' assets at fair value 3,356 3,441 - -------------------------------------------------------------------------------Plans' assets in excess of projected benefit obligation 759 784 Unrecognized net gain (550) (607) Unrecognized prior service cost 240 257 Unrecognized net asset at January 1, 1986 (39) (47) - -------------------------------------------------------------------------------Prepaid pension cost $ 410 $ 387 - --------------------------------------------------------------------------------

Assumptions used in accounting for the plans are as follows:
December 31 ---------------------------------1996 1995 1994 ---------------------------------7.5% 7% 8%

Discount rate Varying rates of increase in compensation levels based on age 4.5-10% 4.5-10% 4.5-10% Expected long-term rate of return on assets 8% 8% 8% ================================================================================

34

Under SFAS No. 87, "Employers' Accounting for Pensions," the company is required to assume a discount rate at which the obligation could be currently settled. Reflecting the movement in interest rates, the company

Under SFAS No. 87, "Employers' Accounting for Pensions," the company is required to assume a discount rate at which the obligation could be currently settled. Reflecting the movement in interest rates, the company increased its discount rate assumption from 7 percent to 7.5 percent at December 31, 1996, which decreased the projected benefit obligation approximately $165. Changes in prior service cost resulting from plan amendments are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan. Since 1992, the company has deferred certain gains realized by the commercial plan for the purpose of offsetting any costs associated with its final disposition, either through reversion or other actions. These deferred gains have been classified against the prepaid pension cost resulting in a net asset of $124 and $115 at December 31, 1996 and 1995, respectively, which is included in other noncurrent assets on the Consolidated Balance Sheet. The company's contractual arrangements with the U.S. government provide for the recovery of contributions to the company's government plans. Historically, the amount contributed to these plans, charged to contracts and included in net sales has exceeded the net periodic pension cost included in operating costs and expenses as determined under SFAS 87. Therefore, the company has deferred recognition of earnings resulting from the difference between contributions and net periodic pension cost to provide better matching of revenues and expenses. Similarly, pension settlements and curtailments under the government plans have also been deferred. As the U.S. government will receive an equitable interest in the excess assets of a government pension plan in the event of plan termination, the aforementioned deferrals have been classified against the prepaid pension cost related to the government plans resulting in the recognition of no net asset on the Consolidated Balance Sheet. At December 31, 1996, approximately 53 percent of the plans' assets are invested in securities of the U.S. government or its agencies, 20 percent in diversified U.S. common stocks, 17 percent in mortgage-backed securities and 10 percent in diversified U.S. corporate debt securities. In addition to the defined benefit plans, the company provides eligible employees the opportunity to participate in savings plans that permit contributions on both a pretax and after-tax basis. Generally, salaried employees and certain hourly employees with at least one year of continuous service are eligible to participate. Under most plans, the employee may contribute to various investment alternatives, including investment in the company's common stock. In certain of the plans, the company matches a portion of the employees' contributions with contributions to a fund that invests in the company's common stock. The company's contributions amounted to $22, $25 and $30 in 1996, 1995 and 1994, respectively. Approximately 6 million shares of the company's common stock were held by the plans at both December 31, 1996 and 1995, respectively. The company also sponsors several unfunded non-qualified supplemental executive plans that provide participants with additional benefits, including any excess of such benefits over limits imposed on qualified plans by federal law. The recorded liability and expense related to these plans are not material to the company's results of operations and financial condition. OTHER POSTRETIREMENT BENEFITS. The company maintains plans providing retiree medical coverage for many of its current and former employees. Postretirement life insurance benefits are also provided to certain retirees. These benefits vary by employment status and age, service and salary level at retirement. The coverage provided and the extent to which the retirees share in the cost of the program vary throughout the company. Both medical and life insurance benefits are provided only to those employees who retire directly from the service of the company and not to those who terminate service/seniority prior to eligibility for retirement. The company established and began funding a Voluntary Employee's Beneficiary Association (VEBA) trust in 1992 for certain plans in the amount of their related annual net periodic postretirement benefit cost under SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The remaining plans are primarily funded as claims are received. The net periodic postretirement benefit cost for the total company included the following:
Year Ended December 31 ---------------------------------1996 1995 1994 ----------------------------------

Service cost--benefits earned during period $ 7 $ 8 $ 12 Interest cost on projected benefit obligation 46 51 51 Actual loss (gain) on plan assets (17) (32) 1 Amortization of unrecognized transition obligation 29 35 44 Net amortization and deferral 4 20 (7) - -------------------------------------------------------------------------------$ 69 $ 82 $101 - --------------------------------------------------------------------------------

The following table sets forth the plans' funded status:
December 31 ----------------------1996 1995 ----------------------Accumulated postretirement benefit obligation: Retirees $ 459 $ 483 Other fully eligible participants 32 43 Other active participants 137 162 - -------------------------------------------------------------------------------628 688 Less plans' assets at fair value 203 179 - -------------------------------------------------------------------------------Obligation in excess of plans' assets 425 509 Unrecognized transition obligation (217) (272) Unrecognized net (loss) gain 56 (6) Unrecognized prior service cost (3) (4) - -------------------------------------------------------------------------------Accrued postretirement benefit obligation $ 261 $ 227

35

Assumptions used in accounting for the plans are as follows:
December 31 ---------------------------------1996 1995 1994 ---------------------------------7.5% 7% 8% 8% 8% 8%

Discount rate Expected long-term rate of return on assets Assumed health care cost trend rate for next year: Post-65 claim groups 6% 7% 8% Pre-65 claim groups 8.5% 9.5-13% 10.5-14% - --------------------------------------------------------------------------------

As stated above, the company increased its discount rate assumption from 7 percent to 7.5 percent at December 31, 1996, which decreased the accumulated postretirement benefit obligation approximately $32. In addition, the obligation decreased approximately $30 in 1996 due to a decrease in assumed health care cost trend rates. The health care cost trend rates are assumed to gradually decline to 4.5 percent and 5 percent for post-65 and pre-65 claim groups, respectively, in the year 2004 and thereafter over the projected payout period of the benefits. The effect of a 1 percent increase each year in the health care cost trend rate used would result in an increase of $47 in the accumulated postretirement benefit obligation at December 31, 1996, and an increase of $6 in the aggregate of the service and interest cost components of the 1996 net periodic cost. At December 31, 1996, approximately 51 percent of the trusts' assets were invested in diversified U.S. common stocks, 26 percent in mortgage-backed securities, 19 percent in securities of the U.S. government and its agencies and 4 percent in cash and equivalents.

Assumptions used in accounting for the plans are as follows:
December 31 ---------------------------------1996 1995 1994 ---------------------------------7.5% 7% 8% 8% 8% 8%

Discount rate Expected long-term rate of return on assets Assumed health care cost trend rate for next year: Post-65 claim groups 6% 7% 8% Pre-65 claim groups 8.5% 9.5-13% 10.5-14% - --------------------------------------------------------------------------------

As stated above, the company increased its discount rate assumption from 7 percent to 7.5 percent at December 31, 1996, which decreased the accumulated postretirement benefit obligation approximately $32. In addition, the obligation decreased approximately $30 in 1996 due to a decrease in assumed health care cost trend rates. The health care cost trend rates are assumed to gradually decline to 4.5 percent and 5 percent for post-65 and pre-65 claim groups, respectively, in the year 2004 and thereafter over the projected payout period of the benefits. The effect of a 1 percent increase each year in the health care cost trend rate used would result in an increase of $47 in the accumulated postretirement benefit obligation at December 31, 1996, and an increase of $6 in the aggregate of the service and interest cost components of the 1996 net periodic cost. At December 31, 1996, approximately 51 percent of the trusts' assets were invested in diversified U.S. common stocks, 26 percent in mortgage-backed securities, 19 percent in securities of the U.S. government and its agencies and 4 percent in cash and equivalents. The company's contractual arrangements with the U.S. government provide for the recovery of contributions to a VEBA, and for non-funded plans, for costs based on claims paid. The net periodic postretirement benefit cost calculated pursuant to SFAS 106 exceeds the company's cost currently allocable to contracts. To the extent the company has contracts in backlog sufficient to recover the excess SFAS 106 cost, the company is deferring the charge in contracts in process until such time that the cost is allocable to contracts. The company has certain employees covered by multiemployer plans, including the fund established by the Coal Industry Retiree Health Benefit Act of 1992 (the Act). The company estimates its discounted obligation under the Act to former employees to be $13 at December 31, 1996. The Act also provides for the allocation of beneficiaries who cannot be assigned to an employer. The company's obligation related to such beneficiaries cannot be determined at this time. The company accounts for its contributions related to these plans on the cash basis in accordance with GAAP. Q. BUSINESS SEGMENT INFORMATION The company's primary business is supplying weapons systems and services to the U.S. government and its international allies. For a description of the company's three business segments, see Management's Discussion and Analysis of the Results of Operations and Financial Condition. Summary financial information for each of the company's three segments follows:
Net Sales Operating Earnings Sales to U.S. Gove ---------------------------------------------------------------------------------1996 1995 1994 1996 1995 1994 1996 1995 ---------------------------------------------------------------------------------Marine Group $ 2,332 $ 1,884 $ 1,733 $ 216 $ 194 $ 196 $ 2,316 $ 1,869 Combat Systems Group 1,026 1,050 1,184 140 140 140 996 1,029 Other 223 133 141 (3) (19) (15) --- ------------------------------------------------------------------------------------------------------$ 3,581 $ 3,067 $ 3,058 $ 353 $ 315 $ 321 $ 3,312 $ 2,898 - -------------------------------------------------------------------------------------------------------

Depreciation, Depletion Identifiable Assets Capital Expenditures and Amortization ---------------------------------------------------------------------------------1996 1995 1994 1996 1995 1994 1996 1995 ---------------------------------------------------------------------------------Marine Group $ 806 $ 935 $ 381 $ 18 $ 8 $ 6 $ 40 $ 23 Combat Systems Group 336 237 239 14 8 5 12 9 Other 388 317 344 12 3 6 12 5 Corporate* 1,769 1,675 1,709 31 13 6 3 1 - ------------------------------------------------------------------------------------------------------$3,299 $3,164 $2,673 $ 75 $ 32 $ 23 $ 67 $ 38 - -------------------------------------------------------------------------------------------------------

* Corporate identifiable assets include cash and equivalents and marketable securities, deferred taxes, real estate held for development, net assets of discontinued operations and prepaid pension cost. 36

R. QUARTERLY DATA (UNAUDITED)
Common Stock ----------------------------Market Price Range Net Operating Net Net Earnings ------------------ Dividends Sales Earnings Earnings Per Share(b) High Low Declared - ------------------------------------------------------------------------------------------------------1996 4th Quarter $ 896 $92 $ 70 $ 1.11 $75 1/2 $66 3/4 $ .4 3rd Quarter 862 89 68 1.08 69 5/8 57 1/2 .4 2nd Quarter 930 89 67 1.06 65 1/4 57 .4 1st Quarter 893 83 65 1.03 62 7/8 57 5/8 .4 - ------------------------------------------------------------------------------------------------------1995 4th Quarter $ 893 $83 $ 88 $ 1.40 $63 $51 3/8 $ .37 3rd Quarter 718 77 91 1.45 56 1/8 44 1/8 .37 2nd Quarter(a) 703 76 82 1.30 48 1/4 42 1/2 .37 1st Quarter(a) 753 79 60 .95 47 1/2 42 3/8 .37 - -------------------------------------------------------------------------------------------------------

Note: Quarterly data is based on a 13 week period. (a) Does not include results from BIW, which was acquired on September 13, 1995. See Note B. (b) The sum of the earnings per share for the four quarters in 1996 differs from the annual earnings per share due to the required method of computing the weighted average number of shares in interim periods. 37

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 generally accepted accounting principles applied on a consistent basis. The company maintains a system of internal accounting controls designed and intended to provide reasonable

R. QUARTERLY DATA (UNAUDITED)
Common Stock ----------------------------Market Price Range Net Operating Net Net Earnings ------------------ Dividends Sales Earnings Earnings Per Share(b) High Low Declared - ------------------------------------------------------------------------------------------------------1996 4th Quarter $ 896 $92 $ 70 $ 1.11 $75 1/2 $66 3/4 $ .4 3rd Quarter 862 89 68 1.08 69 5/8 57 1/2 .4 2nd Quarter 930 89 67 1.06 65 1/4 57 .4 1st Quarter 893 83 65 1.03 62 7/8 57 5/8 .4 - ------------------------------------------------------------------------------------------------------1995 4th Quarter $ 893 $83 $ 88 $ 1.40 $63 $51 3/8 $ .37 3rd Quarter 718 77 91 1.45 56 1/8 44 1/8 .37 2nd Quarter(a) 703 76 82 1.30 48 1/4 42 1/2 .37 1st Quarter(a) 753 79 60 .95 47 1/2 42 3/8 .37 - -------------------------------------------------------------------------------------------------------

Note: Quarterly data is based on a 13 week period. (a) Does not include results from BIW, which was acquired on September 13, 1995. See Note B. (b) The sum of the earnings per share for the four quarters in 1996 differs from the annual earnings per share due to the required method of computing the weighted average number of shares in interim periods. 37

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 generally accepted accounting principles applied on a consistent basis. The company maintains a system of internal accounting controls designed and intended to provide reasonable assurance that assets are safeguarded, that transactions are executed and recorded in accordance with management's authorization and that accountability for assets is maintained. An environment that establishes an appropriate level of control consciousness is maintained and monitored by management. An important element of the monitoring process is an internal audit program that independently assesses the effectiveness of the control environment. The Audit and Corporate Responsibility Committee of the board of directors, which is composed of five outside directors, meets periodically and, when appropriate, separately with the independent auditors, management and internal audit to review the activities of each. The financial statements have been audited by Arthur Andersen LLP, independent public accountants, whose report follows.
/s/ MICHAEL J. MANCUSO - ------------------------Michael J. Mancuso Senior Vice President and Chief Financial Officer /s/ JOHN W. SCHWARTZ ----------------------John W. Schwartz Controller

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 generally accepted accounting principles applied on a consistent basis. The company maintains a system of internal accounting controls designed and intended to provide reasonable assurance that assets are safeguarded, that transactions are executed and recorded in accordance with management's authorization and that accountability for assets is maintained. An environment that establishes an appropriate level of control consciousness is maintained and monitored by management. An important element of the monitoring process is an internal audit program that independently assesses the effectiveness of the control environment. The Audit and Corporate Responsibility Committee of the board of directors, which is composed of five outside directors, meets periodically and, when appropriate, separately with the independent auditors, management and internal audit to review the activities of each. The financial statements have been audited by Arthur Andersen LLP, independent public accountants, whose report follows.
/s/ MICHAEL J. MANCUSO - ------------------------Michael J. Mancuso Senior Vice President and Chief Financial Officer /s/ JOHN W. SCHWARTZ ----------------------John W. Schwartz Controller

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To General Dynamics Corporation: We have audited the accompanying Consolidated Balance Sheet of General Dynamics Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related Consolidated Statements of Earnings, Shareholders' Equity and Cash Flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of General Dynamics Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP -----------------------ARTHUR ANDERSEN LLP Washington, D.C., January 21, 1997

38

SELECTED FINANCIAL DATA (UNAUDITED)
--------------------------------------------------------1996 1995 1994 1993 --------------------------------------------------------(Dollars in millions, except per share and per employee amounts) SUMMARY OF OPERATIONS Net sales $ 3,581 $ 3,067 $ 3,058 $ 3,187 $ Operating costs and expenses 3,228 2,752 2,737 2,878 Interest, net 55 55 22 36 Provision for income taxes 139 128 120 143 Earnings from continuing operations 270 247 223 270 Earnings per share from continuing operations (d) 4.27 3.92 3.53 4.34 Cash dividends on common stock 1.64 1.50 1.40 1.00 Sales per employee 155,500 138,200(c) 143,900(b) 138,100(b) 12 ========================================================================================================= FINANCIAL POSITION AT DECEMBER 31 Cash and equivalents and marketable securities $ 1,155 $ 1,095 $ 1,059 $ 585 $ Property, plant and equipment, net 441 398 264 302 Total assets 3,299 3,164 2,673 2,635 Long-term debt (including current portion) 38 38 40 38 Long-term debt--finance operations (including current portion) 135 146 161 175 Shareholders' equity 1,714 1,567 1,316 1,177 Per share 27.16 24.78 20.89 18.81 ========================================================================================================= OTHER INFORMATION Funded backlog $ 6,161 $ 5,227 $ 4,562 $ 5,487 $ Total backlog 10,350 7,386 6,006 7,015 Shares outstanding at December 31 (in millions) 63.1 63.2 63.0 62.6 Weighted average shares outstanding (in millions)(d) 63.2 63.0 63.1 62.2 Common shareholders of record at December 31 22,129 22,930 23,935 24,496 2 Active employees at December 31: Total company 23,100 27,700 24,200 30,500 5 Excluding discontinued operations 23,100 26,800 21,300 23,100 2 =========================================================================================================

(a) Includes a $95 gain ($1.26 per share) from the recognition of research and experimentation and investment tax credits. (b) Excludes BIW, which was acquired on September 13, 1995. See Note B. (c) Includes pro forma results of BIW as if owned by the company for the entire year. (d) Simple earnings per share is presented for 1993-1996, fully diluted earnings per share is presented for 1992. 39

EXHIBIT 21, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-3671 GENERAL DYNAMICS CORPORATION SUBSIDIARIES
Subsidiaries of General Dynamics Corporation (Parent and Registrant) - ----------------------------------Place of Incorporation ------------Percen Voting P ------

SELECTED FINANCIAL DATA (UNAUDITED)
--------------------------------------------------------1996 1995 1994 1993 --------------------------------------------------------(Dollars in millions, except per share and per employee amounts) SUMMARY OF OPERATIONS Net sales $ 3,581 $ 3,067 $ 3,058 $ 3,187 $ Operating costs and expenses 3,228 2,752 2,737 2,878 Interest, net 55 55 22 36 Provision for income taxes 139 128 120 143 Earnings from continuing operations 270 247 223 270 Earnings per share from continuing operations (d) 4.27 3.92 3.53 4.34 Cash dividends on common stock 1.64 1.50 1.40 1.00 Sales per employee 155,500 138,200(c) 143,900(b) 138,100(b) 12 ========================================================================================================= FINANCIAL POSITION AT DECEMBER 31 Cash and equivalents and marketable securities $ 1,155 $ 1,095 $ 1,059 $ 585 $ Property, plant and equipment, net 441 398 264 302 Total assets 3,299 3,164 2,673 2,635 Long-term debt (including current portion) 38 38 40 38 Long-term debt--finance operations (including current portion) 135 146 161 175 Shareholders' equity 1,714 1,567 1,316 1,177 Per share 27.16 24.78 20.89 18.81 ========================================================================================================= OTHER INFORMATION Funded backlog $ 6,161 $ 5,227 $ 4,562 $ 5,487 $ Total backlog 10,350 7,386 6,006 7,015 Shares outstanding at December 31 (in millions) 63.1 63.2 63.0 62.6 Weighted average shares outstanding (in millions)(d) 63.2 63.0 63.1 62.2 Common shareholders of record at December 31 22,129 22,930 23,935 24,496 2 Active employees at December 31: Total company 23,100 27,700 24,200 30,500 5 Excluding discontinued operations 23,100 26,800 21,300 23,100 2 =========================================================================================================

(a) Includes a $95 gain ($1.26 per share) from the recognition of research and experimentation and investment tax credits. (b) Excludes BIW, which was acquired on September 13, 1995. See Note B. (c) Includes pro forma results of BIW as if owned by the company for the entire year. (d) Simple earnings per share is presented for 1993-1996, fully diluted earnings per share is presented for 1992. 39

EXHIBIT 21, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-3671 GENERAL DYNAMICS CORPORATION SUBSIDIARIES
Subsidiaries of General Dynamics Place of Percen Corporation (Parent and Registrant) Incorporation Voting P - ---------------------------------------------------American Overseas Marine Corporation ..................................Delaware........................10 Quincy Maritime Corporation I.....................................Delaware........................10 Quincy Maritime Corporation II....................................Delaware........................10 Water Transportation Alternatives, Inc............................Delaware........................10 Bath Iron Works Corporation ...........................................Maine...........................10

EXHIBIT 21, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-3671 GENERAL DYNAMICS CORPORATION SUBSIDIARIES
Subsidiaries of General Dynamics Place of Percen Corporation (Parent and Registrant) Incorporation Voting P - ---------------------------------------------------American Overseas Marine Corporation ..................................Delaware........................10 Quincy Maritime Corporation I.....................................Delaware........................10 Quincy Maritime Corporation II....................................Delaware........................10 Water Transportation Alternatives, Inc............................Delaware........................10 Bath Iron Works Corporation ...........................................Maine...........................10 BIW Acquisition Corporation ...........................................Maine...........................10 Concord I Maritime Corporation ........................................Delaware........................10 Braintree I Maritime Corp. .......................................Delaware........................10 Concord II Maritime Corporation .......................................Delaware........................10 Braintree II Maritime Corp. ......................................Delaware........................10 Concord III Maritime Corporation ......................................Delaware........................10 Braintree III Maritime Corp. .....................................Delaware........................10 Concord IV Maritime Corporation .......................................Delaware........................10 Braintree IV Maritime Corp. ......................................Delaware........................10 Concord V Maritime Corporation ........................................Delaware........................10 Braintree V Maritime Corp. .......................................Delaware........................10 Convair Aircraft Corporation ..........................................Delaware........................10 Convair Corporation ...................................................Delaware........................10 Elco Company, The......................................................New Jersey......................10 Electric Boat Corporation..............................................Delaware........................10 Electric Boat Groton Engineering, Inc.............................Delaware........................10 Electric Boat Groton Operations, Inc..............................Delaware........................10 Electric Boat Newport Engineering, Inc............................Delaware........................10 Electric Boat Quonset Point Operations, Inc.......................Delaware........................10 Electrocom, Inc. ......................................................Delaware........................10 General Dynamics Armament Systems, Inc.................................Delaware........................10 General Dynamics Ordnance Systems, Inc............................Delaware........................10 General Dynamics (C.I.) Limited........................................Cayman Islands..................10 General Dynamics Commercial Launch Services, Inc. .....................Delaware........................10 General Dynamics Defense Systems, Inc..................................Delaware........................10 AV Technology, LLC ...............................................Maryland........................ 8 General Dynamics Foreign Sales Corporation ............................Virgin Islands..................10 General Dynamics International Corporation ............................Delaware........................10 General Dynamics Land Systems Inc. ....................................Delaware........................10 General Dynamics Amphibious Systems, Inc..........................Delaware........................10 General Dynamics Land Systems Tallahassee Operations, Inc. .......Delaware........................10 General Dynamics Land Systems International, Inc. ................Delaware........................10 G.T. Devices, Inc.................................................Maryland........................10 General Dynamics Land Systems Product Support and Services Company.........................................................Texas...........................10 General Dynamics Support Services Company ....................Delaware........................10 Global Support Services Company...............................Virgin Islands..................10 General Dynamics Limited ..............................................United Kingdom..................10 General Dynamics Manufacturing Limited ................................Canada..........................10 General Dynamics Marine Services, Inc..................................Delaware........................10 General Dynamics Properties, Inc.......................................Delaware........................10

Subsidiaries of General Dynamics Place of Percen Corporation (Parent and Registrant) Incorporation Voting P - ---------------------------------------------------General Dynamics Space Services Company ...............................Delaware........................10 Material Service Resources Company.....................................Delaware........................10 Century Mineral Resources, Inc....................................Illinois........................10 Material Service Corporation......................................Delaware........................10 EPSP, Inc.....................................................Texas...........................10 Hulcher Quarry, Inc...........................................Illinois........................10 Material Service Foundation...................................Illinois........................10 MLRB, Inc.....................................................Illinois........................10 Mineral and Land Resources Corporation........................Delaware........................10 MLRT, Inc................................................Texas...........................10 Thornton Quarries Corporation.................................Illinois........................10 Freeman Energy Corporation........................................Delaware........................10 Freeman Coal Sales, Inc.......................................Illinois........................10

Subsidiaries of General Dynamics Place of Percen Corporation (Parent and Registrant) Incorporation Voting P - ---------------------------------------------------General Dynamics Space Services Company ...............................Delaware........................10 Material Service Resources Company.....................................Delaware........................10 Century Mineral Resources, Inc....................................Illinois........................10 Material Service Corporation......................................Delaware........................10 EPSP, Inc.....................................................Texas...........................10 Hulcher Quarry, Inc...........................................Illinois........................10 Material Service Foundation...................................Illinois........................10 MLRB, Inc.....................................................Illinois........................10 Mineral and Land Resources Corporation........................Delaware........................10 MLRT, Inc................................................Texas...........................10 Thornton Quarries Corporation.................................Illinois........................10 Freeman Energy Corporation........................................Delaware........................10 Freeman Coal Sales, Inc.......................................Illinois........................10 Freeman Resources, Inc........................................Illinois........................10 Freeman United Coal Mining Company............................Delaware........................10 Patriot I Shipping Corporation ........................................Delaware........................10 Patriot II Shipping Corporation .......................................Delaware........................10 Patriot IV Shipping Corporation .......................................Delaware........................10 S-C 1969 Credit Corporation............................................New York........................10

EXHIBIT 23, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-3671 GENERAL DYNAMICS CORPORATION CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference into this Form 10-K for the year ended December 31, 1996, into the company's previously filed registration statements on Form S-8 file numbers 33-23448, 2-23904, 2-23032, 2-28952, 2-50980, 2-24270 and 33-42799.
/s/ ARTHUR ANDERSEN LLP ----------------------ARTHUR ANDERSEN LLP Washington, D.C., March 21, 1997

EXHIBIT 24 GENERAL DYNAMICS CORPORATION POWER OF ATTORNEY COMMISSION FILE NUMBER 13671 REPORTS ON FORM IRS NO. 13-1673581 10-K AND 10-Q POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and/or officers of GENERAL DYNAMICS CORPORATION, a Delaware corporation, hereby constitutes and appoints each of NICHOLAS D. CHABRAJA, MICHAEL J. MANCUSO, PAUL A. HESSE, and his true and lawful attorney and agent, in the name and on behalf of the under-signed, to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable to enable General Dynamics Corporation to comply with the Securities Act of 1933, and the Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission (The Commission) in respect thereof, in connection with annual reports to the commission on form 10-K, quarterly reports on form 10-Q, and other reports as required by General Dynamics Corporation,

EXHIBIT 23, ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-3671 GENERAL DYNAMICS CORPORATION CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference into this Form 10-K for the year ended December 31, 1996, into the company's previously filed registration statements on Form S-8 file numbers 33-23448, 2-23904, 2-23032, 2-28952, 2-50980, 2-24270 and 33-42799.
/s/ ARTHUR ANDERSEN LLP ----------------------ARTHUR ANDERSEN LLP Washington, D.C., March 21, 1997

EXHIBIT 24 GENERAL DYNAMICS CORPORATION POWER OF ATTORNEY COMMISSION FILE NUMBER 13671 REPORTS ON FORM IRS NO. 13-1673581 10-K AND 10-Q POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and/or officers of GENERAL DYNAMICS CORPORATION, a Delaware corporation, hereby constitutes and appoints each of NICHOLAS D. CHABRAJA, MICHAEL J. MANCUSO, PAUL A. HESSE, and his true and lawful attorney and agent, in the name and on behalf of the under-signed, to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable to enable General Dynamics Corporation to comply with the Securities Act of 1933, and the Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission (The Commission) in respect thereof, in connection with annual reports to the commission on form 10-K, quarterly reports on form 10-Q, and other reports as required by General Dynamics Corporation, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the names of the undersigned in his capacity as Director and/or Officer of General Dynamics Corporation to reports filed with the Securities and Exchange Commission with respect thereto, to any and all amendments, including hereby ratifying and confirming all that the attorneys and agents, or any of them, has done, shall do or shall cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 5 day of February, 1997.
/s/ Frank C. Carlucci - ------------------------------Frank C. Carlucci /s/ Nicholas D. Chabraja - ------------------------------Nicholas D. Chabraja /s/ James S. Crown - ------------------------------James S. Crown /s/ Lester Crown - ------------------------------/s/ Charles H. Goodman ------------------------------Charles H. Goodman /s/ James R. Mellor ------------------------------James R. Mellor /s/ Gordon R. Sullivan ------------------------------Gordon R. Sullivan /s/ Carlisle A. H. Trost -------------------------------

EXHIBIT 24 GENERAL DYNAMICS CORPORATION POWER OF ATTORNEY COMMISSION FILE NUMBER 13671 REPORTS ON FORM IRS NO. 13-1673581 10-K AND 10-Q POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and/or officers of GENERAL DYNAMICS CORPORATION, a Delaware corporation, hereby constitutes and appoints each of NICHOLAS D. CHABRAJA, MICHAEL J. MANCUSO, PAUL A. HESSE, and his true and lawful attorney and agent, in the name and on behalf of the under-signed, to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable to enable General Dynamics Corporation to comply with the Securities Act of 1933, and the Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission (The Commission) in respect thereof, in connection with annual reports to the commission on form 10-K, quarterly reports on form 10-Q, and other reports as required by General Dynamics Corporation, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the names of the undersigned in his capacity as Director and/or Officer of General Dynamics Corporation to reports filed with the Securities and Exchange Commission with respect thereto, to any and all amendments, including hereby ratifying and confirming all that the attorneys and agents, or any of them, has done, shall do or shall cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 5 day of February, 1997.
/s/ Frank C. Carlucci - ------------------------------Frank C. Carlucci /s/ Nicholas D. Chabraja - ------------------------------Nicholas D. Chabraja /s/ James S. Crown - ------------------------------James S. Crown /s/ Lester Crown - ------------------------------/s/ Charles H. Goodman ------------------------------Charles H. Goodman /s/ James R. Mellor ------------------------------James R. Mellor /s/ Gordon R. Sullivan ------------------------------Gordon R. Sullivan /s/ Carlisle A. H. Trost -------------------------------

Lester Crown

Carlisle A. H. Trost

ARTICLE 5 This schedule contains summary financial information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of December 31, 1996, and the related Consolidated Statement of Earnings for the year ended December 31, 1996 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000

PERIOD TYPE FISCAL YEAR END PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS

YEAR DEC 31 1996 DEC 31 1996 516 378 97 0 558 1858 1395 954 3299

ARTICLE 5 This schedule contains summary financial information extracted from the General Dynamics Corporation Consolidated Balance Sheet as of December 31, 1996, and the related Consolidated Statement of Earnings for the year ended December 31, 1996 and is qualified in its entirety to such financial statements. MULTIPLIER: 1,000,000

PERIOD TYPE FISCAL YEAR END PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED

YEAR DEC 31 1996 DEC 31 1996 516 378 97 0 558 1858 1395 954 3299 833 38 0 0 109 1605 3299 3581 3581 3228 3228 0 0 4 409 139 270 0 0 0 270 4.26 4.25


								
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