General Dynamics Reports Strong Earnings, Sales Growth in Second Quarter 2007

* Revenues grow 11 percent
* EPS from continuing operations increase 23 percent
* Full-year EPS guidance increased

FALLS CHURCH, Va. – General Dynamics (NYSE: GD) today reported second-quarter 2007 earnings from continuing operations of $518 million, or $1.27 per share on a fully diluted basis, compared to 2006 second-quarter earnings from continuing operations of $420 million, or $1.03 per share fully diluted. Revenues increased to $6.6 billion in the quarter, rising 11.1 percent over second-quarter 2006 revenues of $5.9 billion.

Cash
Net cash provided by operating activities from continuing operations was $405 million in the second quarter, and free cash flow from operations (defined as net cash provided by operating activities from continuing operations less capital expenditures) was $292 million. For the first half of the year, net cash provided by operating activities from continuing operations was $927 million and free cash flow from operations was $761 million.

Backlog
Funded backlog at the end of the second quarter 2007 was $35.4 billion, and total backlog was $44.6 billion, compared to $34.5 billion and $43.6 billion, respectively, at the end of the first quarter of 2007.

Margins
Company-wide operating margins for the second quarter of 2007 increased 60 basis points over the second quarter of 2006, to 11.5 percent.

Net Earnings
The company reported net earnings of $513 million for second-quarter 2007, or $1.26 per share on a fully diluted basis, including the results of discontinued operations. In comparison, net earnings for the second quarter of 2006 were $636 million, or $1.56 per share fully diluted; however, those results included a one-time gain of approximately $220 million (or $0.54 per share) on the sale of the company’s aggregates business.

Taxes
The company’s second-quarter financial performance also includes an $18 million benefit from the favorable resolution of prior-year tax audits; this factor increased earnings from continuing operations and net earnings by approximately 5 cents per share in the quarter.

Operational Highlights
General Dynamics’ second-quarter 2007 operating results were driven largely by sales growth in the Aerospace, Combat Systems, and Information Systems and Technology business groups, and double-digit operating-earnings growth in all four company segments. Aerospace and Combat Systems generated strong orders as well, and the Aerospace backlog in particular grew significantly in the quarter.

“General Dynamics once again has delivered strong results,” said Nicholas D. Chabraja, General Dynamics chairman and chief executive officer. “Sales and operating earnings increased in all four business segments compared to the year-ago period, year-to-date cash generation continues to meet our expectations and total backlog grew by almost $1 billion quarter-over-quarter.

“Marine Systems generated a particularly strong performance this quarter, with margins growing 150 basis points, to 8.8 percent, over the year-ago period,” Chabraja said. “This result reflects the continued focus on improving execution across the sector and an increase in the booking rate on the T-AKE program, reflecting an agreement in principle with the U.S. Navy on restructuring the contract for ships 1 through 9 and the terms of ships 10 through 14.

“On the basis of these results and a refined sense of what the remainder of 2007 has in store, we now expect full-year 2007 earnings from continuing operations to be in the range of $4.85 to $4.90 per share, fully diluted,” Chabraja said.