General Dynamics Corporation and Subsidiaries - Page 29

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          accounting reports.  During the performance of Multiyear I, the             
          “Indicated Profit” for each program year, as reflected on the               
          CCPS reports, varied.                                                       
               Under CCM, GENDYN treated Contract 2034 as a single, long-             
          term contract.  GENDYN reported all of its taxable income for               
          Contract 2034 in its return for 1987, the year in which the last            
          of the 480 F-16's was delivered.                                            
               Contract 2038 was negotiated and entered into on April 15,             
          1982, separate and apart from Contract 2034.  Contracts 2038 and            
          2034 were not related as to the pricing in each contract.                   
          Contract 2038 was a firm fixed-price incentive contract under               
          which petitioner was to provide engineering services in                     
          connection with the F-16 aircraft.  Contract 2038 services were             
          set forth in eight CLIN’s and each CLIN was further separated               
          into numerous individually priced "sub-CLIN" items to, in part,             
          enable petitioner to receive interim progress payments upon                 
          completion of sub-CLIN’s.  There were business purposes for                 
          treating Contract 2038 separately from Contract 2034 and they               
          were separately funded.  The subject of Contract 2038 was                   
          research, design, and development of new systems for the F-16               
          aircraft.  The new technology was first developed and perfected             
          under Contract 2038 and then integrated into the Contract 2034              
          aircraft production.  Petitioner claimed the income and                     
          deductions in connection with Contract 2038 under CCM.                      





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