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

* Sales increase 12.6 percent
* EPS from Continuing Operations grows 24.1 percent
* Full-year EPS guidance increased

FALLS CHURCH, Va. – General Dynamics (NYSE: GD) today reported 2007 third-quarter earnings from continuing operations of $544 million, or $1.34 per share on a fully diluted basis, compared to 2006 third-quarter earnings from continuing operations of $440 million, or $1.08 per share fully diluted. Revenues rose to $6.8 billion in the quarter, a 12.6 percent increase over third-quarter 2006 revenues of $6.1 billion.

Cash

Net cash provided by operating activities from continuing operations was $954 million for the third quarter, while free cash flow from operations, defined as net cash provided by operating activities from continuing operations less capital expenditures, was $826 million. For the first nine months of 2007, net cash provided by operating activities from continuing operations was $1.9 billion and free cash flow from operations was $1.6 billion.

Backlog

Funded backlog at the end of the third quarter 2007 was $36.9 billion, and total backlog was $46.5 billion, compared to $35.4 billion and $44.6 billion, respectively, at the end of the second quarter 2007.

Margins

Company-wide operating margins for the third quarter of 2007 were 11.7 percent, a 50-basis point improvement compared to the third quarter of 2006.

Net Earnings

Net earnings, including the results of discontinued operations, were $546 million for third-quarter 2007, or $1.34 per share on a fully diluted basis. Third-quarter 2006 net earnings including discontinued operations were $438 million, or $1.08 per share fully diluted.

Operational Highlights

General Dynamics’ Aerospace and Combat Systems business groups demonstrated robust growth of sales and operating earnings in the quarter, highlighting the demand for long-range, large-cabin business-jet aircraft and combat vehicles worldwide. Substantial new orders in the Information Systems and Technology and Marine Systems groups, in addition to continued strong orders in Aerospace and Combat Systems, increased funded backlog by $1.5 billion and total backlog by nearly $2 billion over the second quarter.

“General Dynamics’ performance in the third quarter of 2007 was very strong,” said company Chairman and Chief Executive Officer Nicholas D. Chabraja. “Revenue and earnings grew substantially over the year-ago period and significant orders in all four business groups contributed to the strength of the backlog. The Information Systems and Technology group continues to maintain its double-digit margin rate, and Marine Systems once again has demonstrated margin improvement year-over-year. Free cash flow from operations in the quarter of $826 million, or 152 percent of earnings from continuing operations, represents a very efficient conversion of earnings into cash.

“These results demonstrate that our focus on performance, free cash generation and disciplined capital deployment continues to create value for our shareholders, as it has over the past 10 years,” Chabraja said. “On the basis of this quarter’s results and a refined understanding of how the company’s business sectors will perform for the remainder of the year, we now expect full-year 2007 earnings from continuing operations to be in the range of $5.00 to $5.05 per share, fully diluted,” Chabraja said.